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Due Dilligence Part 2 – Picking the Consultant

24 Jul 2013

You’re not exactly what we’re looking for but….

In my prior post, I discussed the need for proper due diligence.  Today, I will explain how to pick the “environmental professional” who will conduct most of that work.

The federal All Appropriate Inquiry (AAI) Rule describes an “environmental professional” appropriate to conduct the inquiry as “someone who possesses sufficient specific education, training, and experience necessary to exercise professional judgment to develop opinions and conclusions regarding conditions indicative of releases or threatened releases of hazardous substances on, at, in, or to a property, sufficient to meet the objectives and performance factors of the rule.”

Once you’re sure that your environmental professional (for brevity’s sake, I’m going to use the term “consultant”) meets the minimums (listed below), you need to be sure that they will apply your risk tolerance – and understand your goals.  The importance of this step should not be underestimated.  As with any service professional, you need to be comfortable that the consultant will give you the service you expect.

Typically the consultant should be retained by your attorney for at least two reasons: (1) to try and shield the results as privileged; and (2) to ensure that you are properly protected in case the consultant errs.  This last point bears repeating – do not sign anything authorizing the consultant to proceed without consulting an attorney. 

Many consultants’ form contract limit the consultant’s liability in ways which render you effectively at your own risk.  If you sign without the assistance of counsel, you’ve given up all leverage to get favorable terms from the consultant.  These contracts are negotiable and, depending on market forces and your urgency, you may not get the best deal possible, but your lawyer should help prevent you from being at the mercy of a form drafted entirely in the consultant’s favor.

As I often say to consultants, “if you went to a surgeon and they asked you to agree before surgery that you could not sue them no matter how negligent they are, would you go through with it?”  Your attorney should also check to see that the consultant is properly insured.

The Minimums – be sure to ask if your consultant meets these standards. If they don’t – look elsewhere.  The AAI Rule states that the consultant must have:

• A state or tribal issued certification or license (typically a Professional Engineer’s (P.E.) or Professional Geologist’s (P.G.) License) and 3 years of relevant full-time work experience; or

• A Baccalaureate degree or higher in science or engineering and 5 years of relevant full-time work experience; or

• 10 years of relevant full-time work experience.

State- or tribal-licensed or certified individuals also must have the equivalent of 3 years full-time relevant experience to qualify.  Individuals who do not hold a license or certificate may still qualify through educational and experience requirements.


Vapor intrusion in the spotlight

10 Jul 2013

How clean is “clean enough” is a significant question faced as part of most brownfield redevelopment and cleanup projects. For many years, the answer to that question was driven by whether water at the site was clean enough to be consumed safely. In the last few years, the issue of vapor intrusion (as well as surface water bodies impacted by venting groundwater and their more sensitive wildlife) has begun to drive the “how clean is clean” question.

Vapor intrusion is explained in this link but, basically, it is the threat that some contaminants may migrate upward from soils and groundwater into buildings at unsafe levels.

The MDEQ has issued both generic baseline standards and guidance on the subject.  The MDEQ’s guidance applies when some previously adopted generic standards are exceeded and when there are pathways which might be outside the MDEQ generic baseline assumptions – such as when impacted groundwater may be shallow and near foundations and basements.  The guidance includes the following steps:

1. Evaluating existing information to determine if the vapor pathway is of concern;
2. If it is, and there are buildings nearby assess the risk and whether response actions are needed;
3. In some cases, conduct a building-specific investigation to evaluate the risks posed by the contaminants;
4. Conduct response actions, if necessary, which may include remedial actions or other mitigation measures.

In some cases, the MDEQ guidance has levels far more stringent than were previously the case.

The EPA has also issued draft guidance which is more complex and requires more than MDEQ’s guidance – including more vapor intrusion assessment; building mitigation and subsurface remediation; preemptive mitigation (“Early Action”); and community outreach and involvement.

While there are some creative and inexpensive measures to deal with vapor intrusion, this is a relatively new concern – particularly for residential developments.  This is a new layer of complexity which may make closures and brownfield redevelopments much harder to pursue.

Earth Day at 43 – 43 shades of grey

22 Apr 2013

Earth Day 43 seems to have been lost given the recent events in Boston, Texas and elsewhere.  The environmental news continues to be a mixed bag – with reports of fewer Americans “caring” about the environment but perhaps more “acting” in a “green” way.

We have certainly come a long way from the challenges and problems that led to the first Earth Day –  a 1969 oil spill in Santa Barbara, California; the dead zone in Lake Erie; smog in Los Angeles and elsewhere and burning rivers in the Midwest.

The first Earth Day led to the creation of the US Environmental Protection Agency and the passage of the Clean Air, Clean Water, and Endangered Species Acts.  As the EPA and its state counterparts have continued to regulate, there has been a backlash of business and media outcry which certainly must weigh on the public’s views.

The challenges we face today are far more complicated and, to many, more daunting.  We still have oil spills, but now they are from larger ships and deeper wells.  Lake Erie and many other bodies of water are still challenged by more diffuse and “below the radar” sources of contamination.  While reducing the impacts of asbestos, lead and NOx from our daily lives, and healing the ozone hole, we now face questions regarding greenhouse gasses, impacts from and in China and the developing world, and the challenges and benefits posed by fracking.

As is often the case, once the “low hanging fruit” of black and white are picked, what we are left with is grey and grey isn’t as shocking or engaging as black and white.  The issues are just as important, and in many ways, very high profile, but it’s unlikely that our polarized country would agree on what changes would be best, if any.

Is this a carbon tax? A windfall profits tax? Or just a DOA tax?

18 Mar 2013

On Friday, President Obama announced in a speech his plans for an Energy Security Trust  to fund $2 Billion in research into energy technologies to help the United States, among other things: (1) get off oil altogether (particularly foreign oil); (2) develop clean coal technologies; and (3) improve efficiencies in the production of natural gas (thereby reducing greenhouse effects).

This hits at two interesting sweet spots –  1. It finally relates energy to national security; and 2. It focuses on something everyone agrees government should be supporting – basic research (vs that nasty old picking winners and losers). As a concept I really like this and think it’s the sort of future-thinking investment our government should be pursuing (like investing in education, clean water, good roads, etc.).

What I find interesting is the concept that this Trust will be funded by “Revenue from Profitable Oil and Gas Companies” and thereby won’t increase anyone else’s taxes.  Per the President’s speech, he wants to fund the Trust from oil and gas royalties on federal lands.

The government already collects around  $9.5 billion in oil and gas royalties.  Over half of the revenue goes to the U.S. Treasury. About a billion goes to the Land and Water Conservation Fund which is distributed to states and federal agencies to acquire and develop public lands. Finally, distributions are made to states or monies generated on federal lands within those states.

The concept has been used before. Back in a somewhat less contentious era, the federal Superfund was created to clean up “orphaned” waste sites.

It was funded in part by excise taxes on crude oil and refined oil products, on hazardous chemicals, on imported substances that used hazardous chemicals and by an environmental income tax of 0.12% on a corporation’s modified alternative minimum taxable income over $2 million.  Those taxes expired in 1995 and since then the EPA has funded Superfund based on Congressional appropriations of around $1.2 billion annually and whatever EPA recovers from companies liable for sites that EPA had cleaned up.

The President’s speech left out exactly where the $2 Billion would come from – will it be from: (1) an increase in royalties; (2) eliminating royalty waivers; (3) a reduction in payments for public lands; or (4) a reduction in payments made to states?  Based on the commitment not to raise taxes, it appears that the Treasury will continue to get its cut. I suppose another option would be to increase by some 20% the number of wells being drilled.  This appears to be the direction that the group that developed this concept wants to go.

We can see where this fight is going.  The House of Representatives and many in the Senate have taken the “no new taxes” pledge.  Liberals in Congress will fight more arctic and off-shore drilling.  Will the President dangling more drilling rights encourage the politicians to go for this and spur some of the world’s largest companies to agree to help subsidize their own potential extinction?  The odds of this proposal getting enacted seem very long, even if the goals are quite worthwhile.

Sequestration and the EPA

4 Feb 2013

Paul Ryan and many other members of Congress are beginning to talk about calling the President’s bluff and allowing the budget sequestration to occur.  If budget sequestration takes effect on March 1, 2013, according to a September 14, 2012 report from the White House Office of Management and Budget (“OMB”), the EPA will face a $716 million budget cut.

The OMB projected that the  following programs would face cuts of 8.2%:

  • Superfund (approximately $121 Million)
  • State and tribal assistance grants (approximately $293 Million)
  • EPA’s program and management account (approximately $220 Million)

Other programs facing similar percentage cuts, but in lesser amounts include: EPA’s science and technology fund; office of the inspector general; leaking underground storage tank trust fund and inland oil spill programs account .

The OMB report stated that these cuts would degrade the EPA’s “ability to protect the water we drink and the air we breathe” and urged Congress to prevent these cuts.  Reportedly, the EPA is developing its 2014 fiscal year budget due out shortly without taking these cuts into account.  February is going to be a very interesting month.

CERCLA Affords BFPP Protections To Certain Tenants

11 Jan 2013

New CERCLA guidance from the EPA confirms that some tenants who lease contaminated or formerly contaminated properties may find safety from liability under CERCLA’s self-implementing bona fide prospective purchaser (“BFPP”) liability protections and conversely, some may not.

CERCLA’s BFPP defense allows a qualified purchaser to conduct the all appropriate inquiry (“AAI”) and to purchaser property with knowledge of hazardous substance contamination without incurring liability as an owner or operator.  CERCLA defines a BFPP as “a person (or tenant of a person) that acquires ownership of a facility after [January 11, 2002]” who establishes a number of factors including that disposal of hazardous substances at the facility occurred prior to acquisition and the person conducted AAI into the previous ownership and uses of the facility.

Per the EPA, a tenant may derive BFPP status from its landlord who satisfies the BFPP criteria.  The tenant remains a BFPP and retains its protection from CERCLA liability as long as the landlord maintains its BFPP status, all disposal of hazardous substances at the facility occurred before acquisition, and the tenant does not impede a response action or natural resource restoration. 

According to the guidance, if the owner loses its BFPP status, the tenant generally would no longer have derivative BFPP status.  However, if a tenant has derivative BFPP status through the owner and the owner loses its status, through no fault of the tenant, the EPA notes that it may exercise its enforcement discretion to treat the tenant as a BFPP if the tenant itself meets the BFPP provisions with the exception of the AAI provision which would have already been conducted by the owner.  This last point is important as it means that some tenants may not need to do their own environmental due diligence, although doing so is the safer route (and may be required for protection in Michigan).

Where the owner is not and was not a FBPP, the EPA intends to exercise its enforcement discretion on a site-specific basis to treat a tenant as a FBPP when the tenant itself meets all of the BFPP requirements and the tenant’s lease agreement was executed after January 11, 2002.   

It is important to note that EPA may decline to exercise its enforcement discretion under various circumstances (e.g., the lease is designed to allow the landlord or tenant to avoid its CERCLA liability).  In addition, tenants relying on derivative BFPP status need to be careful and may want to independently determine whether the owner is meeting the BFPP requirements.  Otherwise, they may find themselves without protection.  Michigan has its own Baseline Environmental Assessment program, but MDEQ often looks to EPA guidance in determining how to proceed.