All Appropriate Inquiry The New Rules

1. All Appropriate InquiryThe New Rules SARA BETH WATSON Steptoe & Johnson LLP Washington, D.C. American Bar Association Teleconference Wednesday, November 16, 2005 12:00 pm -1:30 pm EST swatson@steptoe.com (202) 429-6460

2. Brownfield Amendments • The Small Business Liability Relief and the Brownfields Revitalization Act of 2002 (Brownfield Amendments) • Potential for federal CERCLA liability relief • Hurdles to qualify for the relief before the acquisition of the property • Long-term commitments to maintain the relief • State law liability issues must be considered separately

3. How Does One Meet the Qualifying Criteria? • Evaluation of compliance preformed on a “careful, fact-specific analysis” • Statutory Criteria for compliance: • “All Appropriate Inquiry” Criteria • Full Cooperation • Compliance with Land Use Restrictions and Institutional Controls • Did Not Cause, Contribute or Consent to a Release/Disposal Occurred Prior to Acquisition • Compliance with All Requests for Information • All Legally Required Notices • No Affiliation with a Potential Liable Party • Reasonable Steps 42 U.S.C. § 9601(35)(B)(iii)

4. To whom is AAI applicable? All Appropriate Inquiry is applicable to 3 categories of property owners: • Innocent purchasers • Contiguous property owners • Bona fide prospective purchasers • * provided that the property owner meets the statutory criteria, which will be analyzed on a fact-specific basis • Certain Brownfield grant recipients

5. To whom is AAI applicable? • All Appropriate Inquiry is applicable to relief from CERCLA liability for the 3 categories of property owners i.e. limited to CERCLA hazardous substances definition • Need to consider other liability schemes for non-CERCLA substances such as petroleum • Grant recipients have a broader range of substances under AAI

6. Statutory Criteria For Compliance – All Appropriate Inquiry Statute requires EPA to promulgate regulations and consider several factors in developing the regulations • Results of the inquiry of an environmental professional • Interview with past and present owners, operators and occupant regarding the potential for contamination • Review of historical sources • Searches for recorded environmental clean-up liens • Reviews of federal, state and local records • Visual inspections for the facility and adjoining properties • Relationship of the purchase price to the value of the property if not contaminated • Commonly known or reasonably ascertainable information about the property • The degree of obviousness of the presence or likely presence of contamination and the ability to detect contamination by appropriate investigation

7. All Appropriate Inquiry Regulations • EPA instituted a negotiated rulemaking to develop All Appropriate Inquiry regulations. • The Federal Advisory Committee represented a variety of interests • The negotiating committee included representatives from commercial real estate, mortgage bankers, engineers and geologists, Tribes, state and local government, environmental groups, conservation groups and environmental justice groups • SEER served as a resource • Insurance interests served as a resource • Consensus draft in November 2003 • Proposed Regulations published August 26, 2004 69 Fed. Reg. 52,542 • Final Rule published November 1, 2005 70 Fed. Reg. 66,070 • Effective date of regulations is November 1, 2006.

8. All Appropriate Inquiry Regulations • The inquiry is time sensitive • AAI must be conducted prior to the acquisition of the property (date on which person acquires title to the subject property) • AAI must be conducted within one year before the acquisition (earlier information can be used in the report) • Certain elements must be current within 180 days prior to acquisition • Time components may impact other aspects of the deal • Performance based; not a checklist

9. All Appropriate Inquiry Regulations Results of the inquiry of an environmental professional (EP) • What is an environmental professional? • EP must identify data gaps, identify sources used to address gaps and comment on significance of the data gaps on the ability to identify conditions • Results must be documented in a written report which must include an opinion as to whether conditions are indicative of a release and signed by EP

10. All Appropriate Inquiry Regulations The inquiry of the EP must include • Interviews with past and present owners, operators, and occupants regarding the potential for contamination • Must interview current owner and occupant, if multiple occupants must include major occupants and those likely to use, store or handle hazardous material • To extent necessary to achieve objectives include current and past managers, past owners, and current and former employees • Special rules for “abandoned properties”

11. All Appropriate Inquiry Regulations • Review of historical sources • As far back in history as the subject property had structures or was first used for residential, agricultural, commercial, industrial or government purposes • EP can use judgment as to how far back in time EP needs to go to meet objectives

12. All Appropriate Inquiry Regulations • Reviews of federal, state and local records • Specific search distances provided in regulations. • EP may modify if written justification in the report • Includes tribal records in some circumstances

13. All Appropriate Inquiry Regulations • Visual inspections for the facility and adjoining properties • Physical limitations on the inspection such as weather must be documented • Must have on-site inspection of subject property except in unusual circumstances • Visual inspection of adjoining property from subject property line or other vantage point • The degree of obviousness of the presence or likely presence of contamination and the ability to detect contamination by appropriate investigation

14. All Appropriate Inquiry Regulations • Information that can developed by others • Specialized knowledge or experience on the part of the defendant • Relationship of the Purchase Price to the value of the property if not contaminated (need not share with EP) • Searched for recorded environmental clean up liens • Commonly known or reasonably ascertainable information about the property • Documentation of information developed by others is critical to liability relief defense

15. Important Points to Remember Regarding All Appropriate Inquiry • Is AAI relevant to my site? • Specified time frames • i.e. the All Appropriate Inquiry must be completed before ownership is acquired • Inquiries have a shelf life • Ongoing obligations after acquisition required by the amendments swatson@steptoe.com (202) 429-6460

16. Important Points to Remember Regarding All Appropriate Inquiry • State law programs may be relevant and have different criteria • Site specific issues • Constraints of the deal swatson@steptoe.com (202) 429-6460