Environmental Site Assessments and Continuing “Due Care” Obligations — Recent Changes and
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Environmental Site Assessments and Continuing “Due Care” Obligations — Recent Changes and What they Mean in the Real World. by Charles M. Denton for. Michigan Association of Environmental Professionals (MAEP) Cleary University, Howell, Michigan February 6, 2014.

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Environmental Site Assessments and Continuing “Due Care” Obligations — Recent Changes and What they Mean in the Real World


Charles M. Denton


Michigan Association of Environmental Professionals (MAEP)

Cleary University, Howell, Michigan

February 6, 2014

Environmental Site Assessments and Continuing

“Due Care” Obligations — Recent Changes and

What they Mean in the Real World

Charlie Denton

(616) 742-3974

[email protected]

Tim Haley

(317) 231-6493

[email protected]


Environmental Due Diligence – What Is It?

  • In any transaction, the parties must identify and quantify liabilities and risks (“due diligence”).

  • Environmental due diligence is a way to identify potential environmental liabilities.

  • Provides a prospective Buyer/Tenant with information concerning the historical uses and current environmental conditions of the property.

  • Financial responsibility for those potential environmental liabilities can then be divided up via contractual provisions and possibly insurance in the deal.

Reasons Due Diligence is Needed for Buyers/Tenants

  • Statutory Defenses to CERCLA Strict (No Fault) Liability

    • Environmental liability protections require “all appropriate inquiries” (“AAI”)

  • Financing

    • Lenders almost always require environmental investigations – new SBA procedures

    • Brownfield revitalization grants for site characterization and assessment

  • Business Purposes

    • Like all other due diligence: Understanding the risks and costs associated with the transaction, and determining whether you should go forward with the transaction and under what conditions

    • Allocating liabilities, indemnification, warranty survival periods in transaction documents

  • Manage Risks

    • Insurance /clean up programs

    • Purchase price adjustments

CERCLA Strict Liability

  • Under the Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), persons may be held strictly liable for cleaning up hazardous substances at properties that they either currently own or operate or owned or operated at the time of disposal.

  • Strict liability in the context of CERCLA means that a potentially responsible party may be liable for environmental contamination based solely on property ownership and without regard to fault or negligence.

  • Michigan Natural Resources & Environmental Protection Act (NREPA) Part 201 is different than CERCLA by imposing liability only if the owner/operator is responsible for an activity causing a hazardous substance release – unless they purchase the property without a BEA!

Brownfield Amendments to CERCLA

  • Provided three landowner liability exemptions:

    • Innocent Landowner

    • Contiguous Property Owner

    • Bona Fide Prospective Purchaser (“BFPP”)

    • There is no protection under CERCLA for a current property owner where hazardous substances are released

BFPP Exemption Requirements

Generally, can acquire property with knowledge of contamination, so long as:

  • Performed “all appropriate inquiries” prior to purchase;

  • Not affiliated with a PRP; and

  • Complies with “Continuing Obligations”

What is a Phase I – Environmental Site Assessment (“ESA”)?

  • A Phase I Environmental Site Assessment (ESA) is an investigation of the property for pre-existing environmental conditions or related problems related to the use or disposal of hazardous substances (and petroleum)

  • “All Appropriate Inquiries” EPA Rule first became effective November 1, 2006

  • ASTM 1527-05 is equivalent to AAI (40 CFR § 312.11(b))

    Note: ASTM 1527-13 is new Phase I ESA/AAI Standard (discussed below)

Phase I ESAs and AAI


  • Conducted within one year prior to purchase date, but several important components must be updated within 180 days prior to purchase

  • In essence, an ESA older than 180 days will likely be “stale”

  • What are the implications if ESA is determined to be “stale”? (E.g., client will likely target consultant and legal counsel)

Important Environmental Issues NOT Addressed by a Phase I ESA

  • mold

  • radon

  • indoor air contamination/OSHA

  • lead-based paint

  • wetlands

  • regulatory/permit compliance

  • other considerations such as water use rights, lead in water lines, or pesticide usage (site-specific)

  • land use/development restraints

Performing a Phase II Environmental Assessment

  • A Phase II ESA is recommended when the Phase I ESA finds material RECs and further investigation is warranted

  • Usually involves collecting soil and/or groundwater samples

  • A Phase II is not required to comply with AAI, but may be desirable for:

    • Financing

    • More fully understanding risks (if necessary)

    • Beginning remediation process

    • Examining feasibility of insurance claims

    • Developing “continuing obligations” for BFPP defense

  • Tailor any Phase II to the property and future uses

Revisions to Environmental Due Diligence Standards

  • ASTM International promulgates standards for Phase I and Phase II Environmental Site Assessments

  • Revisions to Phase I ESA finalized in 2013

  • Some key changes:

    • HREC, CREC, REC definition revisions

    • Vapor migration

    • Clarifying “User” responsibilities (Questionnaire)

    • Agency file reviews

  • EPA Adopted “AAI” Rule Update (January 2014 Alert)

Vapor Intrusion Issues

  • Vapor intrusion (VI) generally occurs when there is a migration of volatile chemicals from contaminant sources into an overlying building.

    • Volatile chemicals can emit vapors that may migrate through subsurface soils and into indoor air spaces of overlying buildings in ways similar to that of radon gas seeping into homes.

    • Volatile chemicals may include volatile organic compounds, select semi-volatile organic compounds, and some inorganic analytes, such as elemental mercury, radon, and hydrogen sulfide.

Vapor Intrusion

VI Implications in the Real World

  • EPA issuing its Final VI Guidance soon

  • More sites will “screen in” and require a VI assessment

  • Critical to properly assess VI pathway and consider site-specific evaluation

  • EPA push for pre-emptive mitigation if (when) you “screen in”

  • IL EPA new rule on VI (July 2013): http://www.epa.state.il.us/land/taco/indoor-inhalation-amendments.html

  • New 2013 ASTM Phase I Standard includes vapor migration; some argue that VI was always part of AAI

“Continuing Obligations” under CERCLA (Counter-Part to “Due Care” under Michigan Part 201)

  • No “disposal” after property ownership

  • Cooperate with those conducting response actions, including site access

  • Comply with land use restrictions established or relied on in connection with the response action

  • Not impede the effectiveness or integrity of any institutional control

  • Provide all legally required notices

  • Take reasonable steps to:

    (a) stop any continuing release

    (b) prevent any future threatened release; and

    (c) prevent or limit any human, environmental, or natural resource exposure to any previously released hazardous substance

Implementation of Continuing Obligations

Who is BFPP? Ashley II (4th Cir. 2013)

  • In April 2013, the Fourth Circuit became the first Federal Court of Appeals to address the scope of “continuing obligations” that bona fide prospective purchasers (BFPPs) must satisfy to avoid liability for cleanup costs under CERCLA: PCS Nitrogen Inc. v. Ashley II of Charleston Inc., 714 F.3d 161(4th Cir. 2013).

  • In this CERCLA cost-recovery case, Ashley II of Charleston Inc. (Ashley) sought BFPP protections for property that was formerly used to manufacture fertilizer since 1884, and was contaminated with arsenic, lead and other hazardous substances. At trial, it was established that the contamination was caused by the practice of using pyrite slag byproduct to stabilize on-site roads in the 1930s, dust generated from manufacturing practices in the 1970s, and various demolition and construction activities that occurred throughout the operation of the facility, among other possible sources.

Ashley II (cont.)

  • At trial, Ashley’s BFPP defense to strict owner liability was defeated on several grounds, and Ashley appealed. On appeal, the 4th Circuit focused on Ashley’s failure to comply with one of a BFPP’s “continuing obligations,” which is sometimes referred to as the “reasonable steps” or “appropriate care” requirement. This obligation requires that the would-be BFPP:

    • Exercise[] appropriate care with respect to hazardous substances found at the facility by taking reasonable steps to (i) stop any continuing release; (ii) prevent any threatened future release; and (iii) prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substance. 42 U.S.C. § 9601(40)(D).

  • The 4th Circuit Court of Appeals agreed that Ashley violated this BFPP requirement for failing to maintain the limestone cover on the property; failing to address the exposed sumps from the demolished building; and failing to address the debris pile that accumulated at the site.

Implementation Considering State Laws, Guidance and Programs

  • Many States have “mini-CERCLA” statutes that provide similar liability structures as a matter of State law

  • These statutes can vary slightly from the federal statute

    • Example:

      • Include Petroleum within “hazardous substance” releases

      • Include specific BFPP protections for tenants

      • Require ESA filing or other notification to State agency

      • Opportunity for Due Care Plan approval by Michigan DEQ as “response activity” plan

Implementation Considering State Laws, Guidance and Programs

  • Procedures for preserving State law protections vary:

    • Example: California Land Reuse and Revitalization Act (CLRRA) Health and Safety Code §25395.92

      • Must enter agreement with DTSC

      • Application and AAI

      • Agreement on “activities” to be performed

      • Oversight costs reimbursement

    • See, e.g., 3000 E. Imperial v. Robertshaw Controls Co., 2010 U.S. Dist. LEXIS 138661 (C.D. Cal. Dec. 29, 2010): plaintiff met “appropriate care” standard even though some residual TCE remained in underground storage tanks after plaintiff had cleaned them out

Implementation Considering State Laws, Guidance and Programs

  • Compare with NREPA Part 201 in Michigan:

  • Like CLRRA, Part 201 is statute and regulation based, but virtually entirely self-directed

  • Analogous, but some additional State law requirements

    • Notice of Migration requirements for adjacent/down-gradient property owners and easement holders

BFPP Continuing Obligations --Saline River Properties v. Johnson Controls (E.D. Mich. 2011)

  • Saline, Michigan industrial property purchased by Plaintiff Saline River Properties (“Saline”) from foreclosing lender in 2006, with Baseline Environmental Assessment (BEA), to redevelop for residential use; JCI (as successor to Hoover Universal) had entered into RCRA Corrective Action Consent Order in 2003 to remediate property.

  • Plaintiff purchaser tried to enforce EPA Consent Order requiring former owner JCI to remediate groundwater contamination, but Plaintiff was not a “contract” third-party beneficiary of EPA Consent Order and JCI complied with Consent Order obligation to submit Corrective Measures Proposal.

Saline River Properties v. Johnson Controls (E.D. Mich. 2011) (cont.)

  • CERCLA and Michigan NREPA Part 201 Counterclaims by JCI against Saline

    • Exacerbation: Saline caused a release or disposal by taking the affirmative action of breaking up concrete slab, which caused hazardous substances to migrate into additional soils and groundwater

    • Innocent Landowner: Saline did not meet its burden of presenting evidence on each of the required elements of §107(b)(3) (including “exercised due care”); breaking up concrete slab negates innocent landowner status

    • Michigan NREPA Part 201 liability: No BEA defense because of finding exacerbation by breaking up slab

Saline River Properties v. Johnson Controls (E.D. Mich. 2011) (cont.)

  • “Due Care” Section 20107a liability – evidence submitted by JCI that allowed NREPA Part 201 Counterclaim to survive summary judgment:

    • There was a large concrete slab on the property

    • Saline knew there was contamination beneath the slab

    • A concrete slab can serve as an engineered barrier to contamination beneath the slab

    • Saline knew about its “due care” requirements, which included not exacerbating existing contamination

    • Saline’s environmental expert advised it not to break up the slab

    • Saline hired a contractor who broke up the slab

    • Saline did not undertake any measures to prevent rainwater infiltration

    • By breaking up the slab, Saline did not follow its Due Care Plan

    • Rainwater infiltration caused contamination to migrate, resulting in additional monitoring costs to JCI

Saline River Properties v. Johnson Controls (E.D. Mich. 2011) (cont.)

  • After 8-days bench trial (June 2012), Saline was found liable to JCI for (only) $1,200 in past response costs! Those were the only costs tied to additional groundwater monitoring required by slab demolition (correlated with detected increase in VOCs); other costs were related to concrete rubble, which was not caused by Saline’s release of contaminants.

  • Saline found not liable for future response costs incurred by JCI, since future costs were speculative – JCI failed to prove that it will incur future costs.

Implementation Considering State Laws, Guidance and Programs

  • Voluntary Cleanup Agreements limited to “innocent parties”

    • e.g., Idaho (VCP), California (CLRRA), South Carolina (Non-Responsible Party Voluntary Cleanup Contract), Mississippi (Brownfield Agreements)

    • Note: some states have voluntary cleanup programs for responsible parties as well

  • Comfort letters or similar programs

    • e.g., EPA, Indiana, Utah

  • PPA Agreements

    • e.g., Arizona, Oregon

Implementation Considering State Laws, Guidance and Programs

  • Required for Federal law protection?

    • Not a Federal statutory element, but . . .

    • Compare Robertshaw (C.D.Cal) with Johnson Controls (E.D. Mich)

  • Some important/material differences exist in Federal and State laws

  • Consider timing – pre-purchase obligations vs. post-purchase obligations under State programs


Charlie Denton

(616) 742-3974

[email protected]

Tim Haley

(317) 231-6493

[email protected]

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