Becker's Iowa Environmental Law Update : Iowa Environmental Lawyer & Attorney : Charles Becker : Belin McCormick P.C. Law Firm : IA Regulatory Compliance, Site Cleanups

When it rains, it pours, and right now there’s a veritable typhoon of Superfund liability cases.

On September 30, 2009, the federal district court in Georgia ruled on several summary judgment motions in Scarlett & Associates, Inc. v. Briarcliff Center Partners, L.L.C. The primary question was whether a property management service could be liable for remedial costs under CERCLA and/or RCRA. The Court said yes to both.

The property in question was a strip mall that housed a leaking dry cleaning facility. The contamination was identified in the early to mid-1990s and a release notification was issued on June 27, 1994. Since that time, the plume has continually migrated and expanded. When the owner of the center failed to make its payments, AmSouth Bank of Florida took over operation of the center.

In September of 1995, AmSouth retained Faison and Associates to undertake certain property management services, which they did until September of 1997.

What Faison could not do:

1) Manage any tenant operations;

2) Assert control over which tenants were permitted to lease space;

3) Evict tenants; or

4) Assert control over any hazardous substances handled by a tenant.

What Faison could do:

1) Attempt to rent and renew rentals space to tenants approved by AmSouth;

2) Collect rent and maintain common areas;

3) Make repairs;

4) Pay utilities and taxes for AmSouth;

5) Ensure that the operators of the dry cleaning business complied with EPA’s reporting requirements on dry cleaning facilities covering PCE emissions, equipment monitoring and repair, and accounting of PCE consumption.

AmSouth successfully argued that its indicia of ownership was for the sole purpose of protecting its security interest, so it had no liability pursuant to the Secured Creditor Exemption under Superfund. Faison, its agent, wasn’t as lucky.

With respect to the CERCLA claim, the court found that, to be liable, Faison needed to be actually involved in the operations involving leakage or disposal of a hazardous waste. The Court found that there was evidence that Faison “played at least a minimal role in managing the dry cleaner’s operations specifically related to pollution.”  That role was that Faison had sent the dry cleaner a letter advising it of some reporting requirements (not release related) to EPA. Based on this act and Faison's general management actions, the court found that there existed a question of whether Faison had operator liability under CERCLA.

The Court then considered RCRA liability. While CERCLA is designed to address past releases, the intent of RCRA is to regulate the ongoing use of hazardous materials and to require cleanup from those operations.   That is, the party, at the time that suit is filed, must be involved in an ongoing violation of a RCRA requirement, i.e., there must be a current violation.  But, in this case, Faison had been off of the site for years prior to commencment of the suit.  So why was Faison liable under RCRA?

The Court held that the existing plume was continuously expanding and was, therefore, a “current violation.” Although the Court specifically found that Faison did not contribute to the past or present handling, storage, treatment, transportation or disposal of PCE, its management role on behalf of AmSouth was sufficient to support a finding that it was operating a hazardous waste treatment, storage and disposal facility.

Looking at the activities of the management company, the short time period of oversight, and the length of time since the company worked on the property, I believe that most would say that this is a very disturbing holding. Obviously, the “polluter pays” principle is nonexistent but, more importantly, what message is being sent? One message is that if a property manager is aware of any contamination at a site being managed, there are only two options: 1) Don’t manage the property, or 2) Have an iron-clad indemnification from your customer (and if it’s anyone other than a bank or Microsoft, good luck with that).

But what if the property manager doesn’t know about the releases?  Short answer – it doesn’t matter. In this case, the court found that there were active releases from the dry cleaner between 1995 and 1997, but there was no evidence that Faison was aware of those releases.  However, nothing in the opinion or the law requires knowledge for operator liability. All that is required is that there be a release of a hazardous substance during the manager’s watch which is still migrating (I have yet to see a plume that hasn’t migrated) and is not remediated at the time of the action (which can be years after the manager has ceased managing).

Regardless of the final outcome, I would suggest that this is bad policy.  We need property managers to be able to do their job without fear of being drawn into Superfund liability.  We are in an era where it is permissable for banks and land purchasers to be sheilded from environmental liability.  Surely we can afford similar protection to property managers.

RELATED POSTS: City Superfund Liability Goes Down the Drain

                            CERCLA Operator Liability: A Tragedy in One Act
 

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Many thanks to Michael Foti at Attorney.org for including this blog in the list of "Top Environmental and Land Use Law Blogs."  The primary focus of Attorney.org is to raise awareness and take stands on pressing issues in an effort to fight for change.  They have decided to focus some of their resources on the environment and land use and have spent what appears to be a considerable amount of time researching the available law blogs. 

If you like to see good writing on very current environmental issues, take a look at the list that Attorney.org has put together.  The posts by those authors will make you laugh and make you cry.  But most of all, they'll make you think.  And in this environmental age, there's a lot of thinking--and acting--that needs to be done.

I'm proud to be included in the list and I would encourage you to look at all of the others found there. They deserve your attention and support.

RELATED POST: Best Environmental Law Blogs

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In September of 2009, the federal district court for the Eastern District of California issued a ruling in Adobe Lumber, Inc. v. Hellman.  If the holding catches on, it should scare the sewage out of every city in the country.

The facts are fairly unremarkable as Superfund facts go. Between 1974 and 2001, a shopping center, owned by Adobe Lumber,  housed a dry cleaning business. A floor drain from the dry cleaners connected to the sewer system for the City of Woodland, California through a waste pipe. The dry cleaning operators used the floor drain to dispose of waste water containing perchlorethylene, which is a hazardous substance under CERCLA.  In 2001, it was determined that PCE from the dry cleaning establishment had contaminated the soils and groundwater. So far, not too surprising. 

The interesting aspect of the case is that the plaintiff chose to include the City in the lawsuit. The plaintiff''s claim against the City was that the contamination was a result of the leakage of PCE from the sewer system and that the sewer system was

especially likely to leak due to … its age, the large number of joints, grout (mortared) joints and defects in the sewer system and that the city’s management and maintenance of the sewer system was re-active, minimal, and inadequate.

In suing the City, the plaintiff sought declaratory relief and cost recovery under CERCLA as well as several other theories. The plaintiff moved for summary judgment on the CERCLA claim under the theory that the City, as the owner and operator of the sanitary sewer system, had liability for any leaking hazardous substances from those facilities. 

The court first addressed the question of whether the sewer pipes constituted a “facility” under CERCLA. The court noted that the term “facility enjoys a broad and detailed definition.” (For those who don’t read a lot of cases, this kind of language is a bad sign). The court then found that the sewer pipes can be deemed a facility because the statutory language identifies a facility as any site or area where a hazardous substance has been disposed of or comes to be located. The court could find no language to exclude the city’s sewer system, so it held that the pipe was a “facility” under CERCLA.

The court then went on to determine whether the city was an owner or operator of the facility. This one, however, was easier because there was no question but that the city owned the sewer system.

Finally, the city asserted the innocent landowner defense. The elements of that defense are that the defendant must prove that: 1) the release or threat of release of hazardous substances was caused solely by the acts of a third party, and 2) the defendant exercised due care with respect to the hazardous substances and took precautions against foreseeable third acts or omissions. The Court found that neither of the elements were satisfied.

First, the court found that the dry cleaners did not constitute the “sole” cause because the City allowed the sewer lines to degenerate to the state which allowed the releases to occur. 

Second, the court found that though the dry cleaner's conduct clearly violated state and local law, that did not render the conduct unforeseeable as a matter of law. The evidence showed that the City did not take steps to remedy the leaks in the sewer system until 2004 even though it was aware that several dry cleaners did operate in the area. The court found that it was foreseeable that the City would be aware that PCE could be illegally discharged from these facilities and the City was required to take “reasonable steps” to prevent ongoing contamination, which the City did not do until 2004. Therefore, the City was the “owner” and “operator” of a “facility” that allowed the release of a hazardous substance.

I believe it is safe to say that the City was surprised at the outcome.

There is still a long way to go and appeals to be had, but, based on the cases cited by the court, there is every reason to believe that the City will ultimately be one of those parties who gets allocated some of the response costs for this clean up. It will be interesting to see if the Burlington Northern case lets them get out for a low percentage.

The real import to this case, in my mind, is that it, once again, highlights the idea that the “polluter pays” under CERCLA is often not true. The environmental regulatory schemes under both federal and many state laws are much less concerned with who caused a hazardous release than they are with who can be easily located to pay for the clean up of a hazardous release. And while that may be expedient, it is a far cry from making the polluter pay as that phrase is understood by most people.

RELATED POSTS: The SCARLETT Letter of Operator Liability

                            CERCLA Operator Liability: A Tragedy in One Act
 

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The principle of "polluter pays" for environmental contamination and the activity of land development have always been uneasy bedfellows.  The most recent example of a sleepless night can be found in the New Jersey federal district court case of Bonnieview Homeowner’s Association v. Woodmont Builders, LLC.  In a foreshadowing of things to come, Judge Deberoise’s opening line, in that case says:

This matter involves a dispute over the environmental contamination of an area of land in Montville, New Jersey, where a fruit orchard was operated in the mid-twentieth century and which was later developed into a residential neighborhood.

There is not a single well-read developer that doesn’t understand that by the end of the opinion, this is a tragedy of epic proportions.

The facts of Bonnieview HOA are the ones that every developer fears. A seemingly innocuous parcel of ground is ripe for development in the lovely city of Montville, New Jersey. At some point in the past, the property had been an apple orchard, though a Phase I Environmental Site Assessment failed to note that the orchards may have used pesticides which may have contaminated the soils.

The developer of the site, in an effort to provide the finest of “natural homesites” with a “great place to raise children” removed the topsoil from the site, stockpiled it, built the homes and returned the topsoil to the site for the lawns. No testing of the soils was done before or during the process, but, as luck (and tragedy) would have it, the soils were heavily contaminated with metals and pesticides.

The Plaintiff homeowner’s association, after discovering the facts, brought action against the developers and others contending that:

[B]y clearing the topsoil, stockpiling it, then spreading it over the Residential Lots, the Defendants caused the pesticide contamination to spread “ubiquitously across the Residential Lots” and into areas previously not contaminated, and to be extended from the surface into the subsurface soil.

Liability under CERCLA, the federal statute that requires cleanup of contaminated property, for a person operating on the property (such as a developer) requires that the operations occur at a time during which there was a disposal of a hazardous substance. In this case, there was no question that the pesticides in the soil constituted a hazardous substance. The open question was whether the mere movement of the previously contaminated soils constituted “disposal.” The Court conducted an analysis of the case law and found:

Woodmont Builders’ movement of the contaminated soils on the Residential Lots may be considered a “disposal” under CERCLA.

Ironically, the members of the Plaintiff homeowner’s association that had moved soils to put in swimming pools, driveways, etc. were also found to be liable for response costs.

It is important to note that the Court acknowledged that the developers were not liable as arrangers (due to the recent holding of Burlington Northern Railroad) but found that the developers were liable based on operator liability, which does not require knowledge of the presence of a contaminant for liability to be imposed.

There are several other interesting aspects of the case, but the fact that a developer (or a homeowner) who moves around soil that turns out to be contaminated can be responsible for response costs is the most problematic. Environmental attorneys who practice in the area of CERCLA are not particularly surprised at the outcome, but I haven't met a developer yet who isn't shocked.  It is yet another instance where the “polluter pays” principle means (tragically) very little.

RELATED POSTS:  City Superfund Liability Goes Down the Drain

                             The SCARLETT Letter of Operator Liability
 

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I have read, with interest, several posts that describe the most recently concluded United States Supreme Court term as being a miserable year   for environmental interests. The authors point out that of the five cases addressing the environment, all of them resulted in reversals of decisions that had favored environmentalists. Based on this scorecard, the posts are quick to label the majority of members of this Supreme Court as being hostile to the environment and pro-business. Glenn Sugameli, an attorney with the environmental group Earth Justice, went so far as to say that he believes that the Court put on “pro-business blinders.”
 

While the outcome of the cases certainly did not advance environmental interests, I find it difficult to refer to the outcomes as pro-business. In fact, in three of the cases, the Court deprived the business community of what it needs most.
 

Businesses necessarily rely upon predictability. They need to know, to the greatest extent possible, that the rules of the game are not going to constantly shift. They need to know that government will not make major changes in the regulatory scheme and that they can plan future  purchases, hiring, markets, expansion and the like on rules that are not subject to daily variation. This is critical in the area of environmental regulation where a change in the rules can shift millions of dollars in costs. Business owners understand that there will always be some changes, but they expect it to occur through a cumbersome and combative process (a/k/a Congress). In short, they hope for some level of stability. By this measure, the Supreme Court did not do business a favor during this term.
 

In my previous post relating to Entergy Corp. v. Riverkeeper, Inc., I noted that the end result was that the Court has now accorded broad deference to EPA to determine when and where the agency will employ the use of a cost-benefit analysis. In a similar vein, I noted that in the Coeur Alaska, Inc. v. SEACC case, the Court deferred to EPA’s interpretation as found in an unpublished memorandum authored by the Director of EPA’s Office of Wetlands, Oceans and Watersheds.  In both of these cases, the Supreme Court was making it clear that EPA can change the rules as it sees fit and without public comment.  In several articles written about the Coeur Alaska case, the comment was made that, although the environmentalists lost that case, there would be an easy fix by asking the present administration to take action (presumably without the need for public comment) to repeal the interpretation of the rule that allowed the Supreme Court to rule in favor of Coeur Alaska.  

In Winter v. NRDC, Inc., the Court ruled that the needs and prior practices of the Department of the Navy should receive deference. As in Entergy and Coeur Alaska, this case resulted in substantially strengthening the hand of the governmental entity.
 

Though it is an admittedly small sample, I believe that the best way to label this Court is pro-government when it comes to environmental questions. Given the complexities of environmental regulation, I can’t say that I’m surprised at the rulings which, in effect, simply defer to the expertise of the agency.  What does surprise me is that the Roberts Supreme Court believes that making federal agencies more powerful and less accountable is a good result.
 

Moreover, the impact on many types of businesses is likely going to be significant in light of the political climate. It is an understatement to say that the Obama  administration’s view of environmental regulation is significantly different  from the view held by the Bush administration. With this Court’s seal of approval, changes in EPA regulations, guidance documents and unpublished memos are going to come fast and furious. If anyone really believes that it is “pro-business” for the Supreme Court to tell EPA that it has discretion to change the rules whenever it desires and without notice or public comment, I would question their definition.
 

I believe I can safely guarantee that a change in the presidency, like death and taxes, is a certainty at some time in the future. When that happens, the rules will change yet again. And for business, the lack of certainty, or at least relative stability, is anything but “pro-business.”
 

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I’ve written about the Shell Oil finding in the case of Burlington Northern and Sante Fe Railroad Co., et al. v. United States, et al. in a prior post. Allow me to turn to a review of the Court’s decision regarding the liability of the railroads for the cleanup of the B&B facility.

Not unexpectedly, the Supreme Court based its finding of liability on the fact that the railroads owned a portion of the site in question.  As you can see from the diagram in the Court’s opinion, the portion of the property owned by the railroad (the "Leased Property") was less than 20% of the total land being used by B&B.  (My father once told me that in the rare instance where a court decision includes a diagram, do not ignore it.  The Court is trying to say that the answer is obvious and to make sure you get it, they are going to draw you a picture. District and circuit courts around the country should take note: the Supreme Court drew them a picture.)  Some other relevant facts relating to the property were: 

               • B&B commenced in 1960 but did not begin leasing the railroad property until 1975;
               • All of the property was graded to slope to the pond;
               • Only two of the three chemicals were released on the railroad parcel;
               • Not all of the releases ended up at the pond; and
               • None of the D-D chemical needed to be remediated on the railroad property.

The District Court apportioned  to the railroads 9% of the total remediation costs. This was based on three factors. First, the railroad parcel constituted 19% of the surface area of the total site. Second, the railroad parcels had been leased to B&B for only 45% of the time B&B operated the facility. Third, the volume of hazardous-substance-releasing activities on the B&B property was at least ten times greater than the releases that occurred on the railroad parcel and that only spills of two chemicals (not D-D) substantially contributed to the contamination that had originated on the railroad parcel and that those two chemicals had contributed to two-thirds of the overall site contamination requiring remediation. The District Court, with calculator in hand, then multiplied .19 x .45 by .66 to get 6% of the remediation costs. It then added 3% for “calculation error.” The Supreme Court spent some time picking through the available facts, but ultimately concluded that there was reasonable support for the 9% apportionment.

I have to tell you, I was shocked (though, to be fair, I shock easily). It isn’t that 9% is a crazy number, it’s that the Court agreed, under these facts, that any apportionment was appropriate.  Remember, the Court had eliminated Shell as a PRP and B & B had no money, so the only parties left to help pay the bill were the railroads. By finding an apportionment possible, the Court guaranteed that 91% of the cleanup costs would be left with the government.

Moreover, it’s not as though the facts screamed out for a division. In fact, the Court lamented that the railroads had taken a “scorched earth” all-or-nothing approach to litigating their potential liability. They failed to acknowledge any responsibility for the release of hazardous substances on their parcel during the lease. On the other hand, the Government refused to acknowledge any potential divisibility of harm. Between the two of them, they provided only minimal input to facts that would allow divisibility. Nevertheless, the District Court and the Supreme Court found divisibility. In the words of the Court:  

Despite these criticisms, we conclude that the facts contained in the record reasonably supported the apportionment of liability. 

        
In the past, I have been surprised that courts have routinely refused to find divisibility in Superfund cases. I know that it is hard to quantify the factors that justify divisibility, but it seems to me that the fact that divisibility is difficult to do, doesn’t mean it shouldn’t be done. In my own mind, I have rationalized that divisibility has not been “encouraged” in the environmental arena because when divisibility is found, it will often mean that a large portion of the remediation costs will be left with the government (i.e. tax-paying public), which frustrates the concept of "polluter pays."
 

I would suggest to district courts and circuit courts throughout the country, a new day has dawned. If apportionment was possible under the facts given to the Court in Burlington Northern, there aren’t going to be a lot of cases in which apportionment is not possible. Of course, they all will stand or fall on their own facts and I am sure we are going to have a number of very interesting fact scenarios with some very creative reasons for divisibility. However, the really significant holding of Burlington Northern, it seems to me, is that where there used to be a presumption against apportionment in Superfund cases, there is now a presumption in favor of it. That, for better or worse, is a very big change.
 

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Just when you think you have them figured out, the Supreme Court throws a curve ball.

Much will be written about the recent United States Supreme Court case of Burlington Northern and Santa Fe Railway Company, et al. vs. United States, et al., which was handed down on May 4, 2009. It is one of those decisions in the environmental arena that answers some questions while raising new ones.

An understanding of the facts is critically important to understand the ruling, so I would encourage you to read the decision. However, the short version of the operative facts is that a fairly small chemical distributor in California known as Brown and Bryant, Inc. (“B&B”) was the owner and operator of a plant that repackaged agricultural chemicals. The plant sat on a 4.7 acre parcel. About 1 acre of this parcel was leased from two railroads. One of the products made by B&B included a chemical sold by Shell Oil Company. Shell Oil shipped the product to B&B in bulk. During delivery of the product, Shell was aware that B&B occasionally had minor spills.

Not surprisingly, the site was found to have soil and groundwater contamination and, in 1988, the California Environmental Regulatory Agency ordered B&B to clean the soil and groundwater. As is often the case, B&B closed shop and the site was listed on the National Priority List in 1989. EPA, in trying to find someone to do the cleanup, quickly identified the railroads and Shell Oil, which were named as potentially responsible parties (PRPs). The theory against the railroads was based on ownership liability, even though the portion they owned did not require remediation. The theory against Shell was that they delivered chemicals which they knew or should have known would be spilled and therefore “arranged” for the disposal of a hazardous substance. Since the United States and the State of California had expended costs at the site for cleanup, they brought an action for cost recovery seeking over $8 million in response costs. 

The Court made two major findings. First, the 8-1 decision authored by Justice Stevens held that Shell was not liable at all because it did not “arrange for” disposal of a hazardous substance. The second major finding was that the facts supported an apportionment of the site remediation costs and that the railroad share of those costs should be 9%. 

Since the case raises several interesting questions, I’ll break the discussion down into separate posts. Let’s first talk about the fact that Shell was found to have no liability.

Since Shell was not an owner or operator of the site, the only PRP category that could fit was “arranger” liability. There have been many cases that have imposed liability on companies that have “arranged for the disposal” of hazardous substances.   Interesting, Superfund does not define the term so the Court decided it was time to define it. The Ninth Circuit, based on prior cases, held that someone who sells a useful product but is aware that some of it will spill is liable as an arranger. The Supreme Court disagreed and held that an arranger must take intentional steps to dispose of a hazardous substance. The fact that Shell had knowledge of the spills was not sufficient to satisfy the intent element that can be found in the “plain language” of the terms of the statute. The Court said:

While it is true that in some instances an entity’s knowledge that its product will be leaked, spilled, dumped, or otherwise discarded may provide evidence of the entity’s intent to dispose of its hazardous wastes, knowledge alone is insufficient to prove that an entity “planned for” the disposal, particularly when the disposal occurs as a peripheral result of the legitimate sale of an unused, useful product. In order to qualify as an arranger, Shell must have entered into the sale of D-D with the intention that at least a portion of the product be disposed of during the transfer process by one or more of the methods described in Section 6903(3). Here, the facts found by the District Court do not support such a conclusion.

When I first saw this explanation, I thought it was a monumental change from the past. Upon further reflection, maybe not so much. 

Maybe the Supreme Court is just kicking the proverbial verbal can down the road a little bit. It appears that the new question is: what do the terms “intention” and “planned for” really mean? Based on the Court’s language, I am certain that if Shell had included, as a term of the sale, that B&B would agree “that during the process of the transfer of the chemical, B&B shall leak some of it onto the ground,” Shell would have been hooked.  On the other hand, the Court made it clear that since Shell knew of the releases, but did nothing other than to take steps to encourage its distributors to reduce the likelihood of the spills, the necessary “intent” was not present. So what’s in between? What if Shell had known of the spills and had not encouraged its distributors to reduce the likelihood of the spills (a fact scenario which is much more likely in most situations)? What if Shell had a contract with its common carrier that said that the carrier will not inform Shell of any spills? Will willful blindness avoid an intent finding? We’ll just have to wait for the next set of facts.

With regard to our definitional problem, I would note an interesting fact that did not seem to bother the Court: Beginning in the mid-1960s, Shell directed its buyers to create and maintain bulk storage facilities to receive its product rather than to continue to deliver the product in 30 and 55-gallon drums. Presumably this was advantageous to Shell. But as the Court later noted, Shell’s mandated system caused spills to be "commonplace" (there was no reference to spills occurring when the barrel system was used). A cynical person might say that someone who requires a change from a system of no releases to one that virtually guarantees releases, particularly when the change results in an advantage to the supplier, has “planned for” and ”intended” a disposal. Luckily, neither the Supreme Court nor I are cynics.

Another very interesting aspect of this issue was raised by a question during oral argument. Shell’s counsel was asked what would be the difference if the transfer of ownership of product did not occur until the final placement of the product in the tank and that, during that process, the spilling occurred. The response was that “Shell would have been the owner of the waste.” The majority found, however, that the product had been shipped “FOB Destination” and that, at the time of the spills, the chemicals had come under B&B’s "stewardship." In essence, once the truck passed over the property line to B&B’s facility, the Court deemed B&B to be the owner of the product and, in turn, the owner of the spills. If the Court had found that Shell Oil remained the owner of the product until it was in B&B’s tank, Shell would have been liable. You might say that Shell avoided liability by the length of a football field. The dissent by Justice Ginsberg makes the interesting point that

CERCLA liability, or the absence thereof, should not turn, in any part, on such an eminently shipper-fixable specification as “FOB Destination.”

So what are some of the practical results to take from the holding of arranger liability in the case?  You need to talk to your attorney for his/her advise, but allow me to throw out some possibilities:

• Any seller of products containing a hazardous substance should consider including, in the sale document and on a warning label attached to the product, terminology that it is the intention of the seller that none of its product be released into the environment and that buyer should not allow the spilling, leaking, or other disposal into the air, ground or water at any time. And it might be helpful to add: “We really, really mean it.”
• A term of the sale might be that notwithstanding the terms of any shipping documents to the contrary, buyer agrees to become the owner of the product no later than the moment the product crosses the buyer’s property line. 
• If the buyer wants some protection, they should consider a contract term that says that the buyer does not accept or own any product until it is completely within the confines of a tank or has been delivered to the warehouse and the delivery person has left the premises, or at least gone on break. 

I don’t know that any of these will work, but I can say that if “intention” is the new litmus test, putting your intentions in writing might not be a bad idea (even if they might be technically impossible).

Next up, tracking the railroads' liability.

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As many of you know, a new era in purchasing environmentally contaminated (or possibly contaminated) land began in November, 2006. That is when new federal rules relating to All Appropriate Inquiry commenced and allowed new defenses to CERCLA liability for buyers of real estate. Without going into a lot of detail, the rule allows buyers to limit Superfund liability if they conduct a Phase I Environmental Site Assessment, in accordance with the rules, prior to purchasing the real estate. Under these circumstances, an individual or a company theoretically will not be liable for remediation of the property even if it is contaminated. However, in order to maintain the defenses, there are certain continuing obligations that are imposed on the buyer. These include complying with land use restrictions and institutional controls, responding to information requests and administrative subpoenas and providing legally required notices. Most importantly, there is a requirement of taking “reasonable steps” with respect to hazardous substance releases, and therein lies the problem.

The obvious question that is raised is what constitutes reasonable steps? If, for example, reasonable steps requires the removal of the hazardous substance from the ground, then EPA has effectively gutted the defense.

As a general rule, reasonable steps would include stopping any continuing release, preventing any threatened future release, and preventing or limiting human, environmental or natural resource exposure to any hazardous substance released on or from the property. But does it, for example, require a Phase II audit to identify the nature and extent of the suspected contamination? Does it require capping the contaminated soils with clay or asphalt? Does it require some sort of vapor intrusion protection around the basement of a building to avoid gas buildup?

ASTM has organized the Continuing Obligation Task Group to work on a draft continuing obligation standard which will define “reasonable steps.” Currently, it appears that the Group has identified two actions that may be taken to meet the requirement. They are: (a) lower the contaminate levels, also known as remediation; or (b) prevent exposure to the contamination through institutional or engineering controls. Obviously, both of these actions also require a Phase II site assessment and both could be extremely expensive to a purchaser.

I would suggest that if the ASTM Task Group does require these actions or something close to these actions, we will essentially be back to the pre-2006 days of sites having any potential contamination being difficult to market because banks will mandate a Phase II and, if any contaminate is discovered, bank financing will dry up.

I’ll let you know as soon as I hear the edict of the ASTM Task Group.

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Since 1996, Superfund has not really been a “fund.” From 1980 to 1996, the Superfund program levied taxes on petroleum and chemical companies and on corporate profits for its operational costs, but Congress failed to reauthorize it in 1995, and by 2003 the fund was fundless. It looks like that’s going to change.

President Obama’s 2010 budget calls for reinstatement of the tax to support the Fund to the tune of $17.2 billion from 2011 through 2019. Also, $600 million of the stimulus package is to go to the Superfund program.

The interesting question here is not whether or not the tax will pass, but how will the money get spent. During the sixteen years that Superfund was funded, less than half of the fund was used to do any cleaning of the environment. For example, in 1996, of the $1.4 billion spent by Superfund, only $614 million (44%) was actually used for cleanups. The remaining funds were used to oversee the cleanups and to administratively and legally chase “potentially responsible parties” (that wonderfully contradictory phrase that is at the heart of Superfund liability).

If we’re going to do this again, someone needs to ask the question of whether significantly more of the funds should be used to actually clean the environment rather than spending the money on chasing the parties who, after several years of administrative and legal appeals, may or may not have the money to pay for the cleanup.

It’s just a thought.

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