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CHAPTER 18. Environmental Law. INTRODUCTION.

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chapter 18

CHAPTER 18

Environmental Law

introduction
INTRODUCTION

This chapter introduces four federal environmental laws that illustrate the importance of environmental regulation for an expanding scope of business activities: The Clean Air Act, the Clean Water Act, and the Resource Conservation and Recovery Act. CERCLA is discussed as an example of a remedial statute with broad application to all kinds of businesses and individuals. The chapter also addresses the potential liability under the environmental laws of shareholders, directors, officers, and managers, as well as affiliated companies and lenders. It outlines the key elements of effective compliance programs and audits, and it concludes with a discussion of international considerations.

environmental laws
ENVIRONMENTAL LAWS
  • Theory of Common Law Nuisance – largely replaced with federal and state environmental regulations.
  • Three Categories of Environmental Laws:
    • Regulation of pollutants in the air, water, or ground.
    • Regulation on the manufacture, sale, distribution, and use of chemical substances as commercial products.
    • Laws that require government decision makers to take into account the effect of their decisions on the quality of the environment.
  • Natural Resource Laws
  • Industry Participation
administration of environmental laws
ADMINISTRATION OF ENVIRONMENTAL LAWS
  • The Environmental protection Agency (EPA) – operates under the president.
  • State Programs – some are more stringent and comprehensive than federal laws. The EPA can approve a state program in lieu of the federal program in that state.
the clean air act
THE CLEAN AIR ACT

As amended by the Clean Air Act of 1990.

  • CAA sets four kinds of air quality goals:
    • EPA to establish national ambient air quality standards.
    • Air quality in areas already meeting standards not be allowed to deteriorate.
    • Preservation of natural visibility within national parks and wilderness.
    • EPA is required to establish emissions standards that protect public health.
  • National Ambient Air Quality Standards
    • Best Available Control Technology
    • Lowest Achievable Emission Rate
the clean water act
THE CLEAN WATER ACT

It was first adopted in 1972, substantially amended in 1977, and again mended in 1987 by the Water Quality Act. The principal goal is to eliminate the discharge of pollutants in “navigable” U.S. waters.

  • National Pollutant Discharge Elimination System.
    • National Effluent Limitations
    • Publicly Owned Sewage Treatment Works
  • Individual Liability of Corporate Officers under CWA.
    • Depends if officer had control over activity that caused discharged.
    • Criminal liability if officer knowingly violated CWA.
the resource conservation and recovery act
THE RESOURCE CONSERVATION AND RECOVERY ACT
  • As amended by the Resource Conservation and Recovery Act (RCRA) of 1976 and the Hazardous and Solid Waste Amendments of 1984, governs the management of hazardous wastes.
  • Cradle-to-Grave Responsibility – each hazardous waste generator has this responsibility. Each generator is numbered so the waste can be tracked to disposal.
    • RCRA bans disposal of hazardous waste into land without treatment.
    • Owners and operators of hazardous waste facilities must obtain permits and stringent standards.
the resource conservation and recovery act8
THE RESOURCE CONSERVATION AND RECOVERY ACT
  • Economic Perspective: Corporate Environmentalism
    • U.S. Chemical manufacturers Association – Responsible care.
    • Superfund Amendments and Reauthorization Act.
    • Focus now on what materials companies’ use in production.
    • Corporate Strategy:
      • Differentiate products based on “environmentally friendly” raising prices.
      • Manage competitors by helping impose private or public regulations.
      • Cut costs by implementing environmental practices
      • Manage legal risks
      • Make systematic changes that re-define markets.
  • Criminal Liability – for any person who “knowingly transports any hazardous waste identified under this [Act]…”, as well as strict civil liability.
the federal superfund law cercla
THE FEDERAL SUPERFUND LAW (CERCLA)

Comprehensive Environmental Response, Compensation, and Liability Act (CERLA) of 1980, as amended in 1986.

  • Strict Liability – broadly imposed by CERLA.
  • Responsible Persons
    • Lessee as Owner
    • Owner at Time of Disposal
  • Affiliated Companies and Piercing the Corporate Veil
  • Successor Liability
  • Lender Liability
  • Retroactive Application
  • Defenses – only three: Act of God, Act of War, or the Third party defense.
    • Recyclers are exempted under the 1999 Superfund Recycling Equity Act.
lessee as owner
LESSEE AS OWNER

Case 18.1 Synopsis. Commander Oil v. Barlo Equipment (2d Cir. 2000).

Commander owned 2 lots in Nassau County, New York, which contained office and warehouse space and housed twelve petroleum storage tanks. Commander leased one lot to Barlo Equipment Corporation, which was in the business of buying, manufacturing, and distributing equipment for handling petroleum and the other lot to Pasley Solvent & Chemicals, Incorporated, which used the property to reclaim, revitalize, and repackage solvents. Subsequently, Commander consoli-dated the leases and rented both lots to Barlo, which subleased one of the lots to Pasley. Approximately ten years later, contamination was discovered on the property subleased to Pasley, which then agreed to remove the solvents and vacate the premises. CONTINUED

lessee as owner11
LESSEE AS OWNER

Case 18.1 Synopsis. (Cont’d).

Six years later, the EPA ordered Commander to determine the extent of contamination and propose a remediation plan. The EPA also sought reimbursement from Commander for costs incurred in remediating the site. Commander agreed to reimburse the EPA and subsequently filed an action demanding contribution or indemnification from Barlo and Pasley. The district court found that Barlo was an “owner” under CERCLA due its “authority and control” over the lot it leased from Commander Oil. At trial, the court held that Commander Oil could recover 25 percent of its costs from Barlo. Barlo appealed. ISSUE: When are lessees/sublessors liable as “owners” under CERCLA? HELD: REVERSED. Barlo lacked most of the bundle of rights that come with ownership of property, so it could not be held liable as an owner under CERCLA. Commander Oil had retained many of the rights and obligations of ownership, including the right to enter the lot, the right to use storage tanks located on the property, an option to use office space on the property, and responsibility for making structural repairs.

owner at time of disposal
OWNER AT TIME OF DISPOSAL

Case 18.2 Synopsis. US v. 150 Acres (6th Cir. 2000).

Three generations of the Bohaty family had owned approximately 150 acres of real estate in three parcels in Medina County, Ohio, where they operated a farm-equipment repair business. The Ohio Environmental Protection Agency found approximately 3,000 drums containing non-toxic laboratory chemicals, paint waste and red sludge, but it did not instruct the Bohaty family to remove the material. After the agency inspected the property again seventeen months later, it concluded that the drum placement had occurred from the mid-1950s through the early 1970s. The present generation of Bohaty’s presented unrebutted evidence that they did not know of the presence of the drums on the property, which were hidden by heavy vegetation. CONTINUED

owner at time of disposal13
OWNER AT TIME OF DISPOSAL

Case 18.2 Synopsis. (Cont’d)

The EPA removed the drums and sued the Bohaty family to recover the removal costs. The family asserted a number of defenses, including a claim that no “disposal” of hazardous substance had occurred while they owned the property, as the drums had been deposited on the property before they inherited it. ISSUE: Does “disposal” of hazardous substances under CERCLA include passive movement of substances involving no human activity? HELD: For BOHATY’s. On the basis of this analysis, the court found that since the Bohatys had not moved the hazardous substances during the time they owned the property, they had not disposed of it on the property.

affiliated companies and piercing the corporate veil
AFFILIATED COMPANIES AND PIERCING THE CORPORATE VEIL

Case 18.3 Synopsis. Browning-Ferris v. Ter Maat ( (US. 2000).

In 1971, the owners of a landfill leased it to a predecessor of Browning-Ferris Industries, which operated it until 1975. Between 1975 and 1988, M.I.G. Investments, Inc. and AAA Disposal Systems, Inc. operated the landfill. Richard Ter Matt was the president and principal shareholder of these two corporations. In 1988, Ter Matt sold AAA and moved to Florida and M.I.G. abandoned the site without properly covering it. The EPA placed the property on the National Priorities List. Browning-Ferris and several other companies, which shared responsibility for the pollution at the site, agreed to clean it up. Subsequently, these companies brought a suit under CERCLA against Ter Maat, AAA, and M.I.G. for contribution for the cost of remediation.

CONTINUED

affiliated companies and piercing the corporate veil15
AFFILIATED COMPANIES AND PIERCING THE CORPORATE VEIL

Case 18.3 Synopsis. (Cont’d)

The district court held that Ter Maat was not a potentially liable person because he had done nothing that would subject him to liability on a “piercing the corporate veil” theory for the actions of the two corporations. Brown-Ferring and the other companies appealed. ISSUE:  When is a corporate officer and major shareholder individually liable as an operator of a hazardous waste facility under CERCLA? HELD: REVERSED and remanded for a determination of whether Ter Maat individually operated the landfill personally rather than merely directed the business of the corporations. The appeals court also held that there was no basis for piercing the corporate veil.

retroactive application
RETROACTIVE APPLICATION

Case 18.4 Synopsis. U.S. v. Olin Corp. (11th Cir. 1997).

Olin Corp. operated a chemical-manufacturing facility in McIntosh, Alabama. During its first thirty years, the plant produced mercury and chlorine-based commercial chemicals that contaminated significant segments of the company’s property. As a result, groundwater and soil pollution on one part of the property made it unfit for future residential use. The United States sued Olin under CERCLA, seeking a cleanup order against it and reimbursement for response costs. After negotiations with the government, Olin agreed to a consent decree calling for it to pay all costs associated with remediation of the site. The decree also resolved Olin’s liability for contamination caused by disposal activities before and after CERCLA’s effective date of December 11, 1980. CON TINUED

retroactive application17
RETROACTIVE APPLICATION

Case 18.4 Synopsis. (Cont’d).

Olin contended that CERCLA was not intended to impose liability for conduct predating the statute’s enactment. Agreeing with Olin, the district court rejected the consent decree and dismissed the government’s complaint against Olin. The government appealed. ISSUE: Does CERCLA liability apply retroactively to disposals occurring prior to its enactment? HELD: For the Government. The district court’s dismissal of the government’s complaint is reversed and the case was remanded for further proceedings. Olin was liable for waste disposed of before CERCLA became law.

enforcement of environmental laws
ENFORCEMENT OF ENVIRONMENTAL LAWS
  • Agency Inspections
  • Self-reporting and Audits – penalties vary; both civil and criminal sanctions are available.
  • Environmental Justice – in choosing to locate incinerators and dumps, poor and minority communities should not be discriminated against.
management of environmental compliance
MANAGEMENT OF ENVIRONMENTAL COMPLIANCE
  • Corporate Policy – a strong, top-down policy that is enforced is needed.
  • Well-Defined Organization and Crisis-Management Plan – clear reporting responsibilities.
  • Periodic Environmental Audits – verify the effectiveness of the system.
  • Long-Term Strategies – reduce costs and liabilities.
  • Record-keeping and Accounting – statutory requirements.
management of environmental compliance20
MANAGEMENT OF ENVIRONMENTAL COMPLIANCE
  • Reporting Policies and Procedures – employee to management, management to government agencies.
  • Agency Inspection Policies – little or no notice required.
  • Education and Training – most essential component of environmental management.
  • Community and Public Relations – awareness of events.
international aspects
INTERNATIONAL ASPECTS
  • National Environmental policy Act of 1970.
  • Sustainable Development – future prosperity depends on conserving “natural capital.”
  • Kyoto Protocol and Global Warming
  • Role of Business
the responsible manager
THE RESPONSIBLE MANAGER

Managing Risks of Environmental Liability

The most important element in managing the risks of environmental liability is due diligence. It is a systematic and on going process for determining whether property contains or emits hazardous substances and whether the company is in compliance with environmental laws.

review
REVIEW

1. Why is industry participation critical to the success of environmental laws?

2. Why is the third-party defense important?

3. How has CERCLA changed other legal areas in addition to environmental law?

4. Should the U.S. participate in the Kyoto accord?