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

                                   “Be afraid. Be very afraid.”
                                                    Genna Davis in The Fly

In November of 2006, a remarkable thing happened – EPA allowed for the purchase of contaminated real estate without ownership liability. A change in the rule allowed a person buying real estate to assert the Bona Fide Prospective Purchaser Defense, the Innocent Landowner Defense or the Contiguous Property Owner Defense. The rain stopped, the clouds parted and the sun shined.

Surprisingly, EPA did not demand all that much in return. It set out concise rules about what needed to be included to conduct "all appropriate inquiry" (AAI) and permitted the use of a Phase I Environmental Site Assessments (compliant with ASTM 1527-05) to qualify for the protection. Apparently, some consultants have trouble reading.

In a recent investigation conducted by the United States EPA Office of Inspector General, a review of 35 Phase I Reports was undertaken to see if they satisfied the requirements of AAI. Low and behold, every one of them – 100% – failed. Every one of them left out something that must be addressed under the AAI protocol.

Among the findings:

• Seven reports failed to have a statement regarding data gaps;

• None of them included the Statement of Qualifications of the Environmental Professional;

• All of them left out the EP opinion statement in the Conclusion that is required;

• In the most baffling finding of all, nine were not signed by the EP.

So of the 35 reports received, none passed. Is this so devastating?  In the context of the Brownfields program that was being reviewed, maybe not.  But these Phase I reports were the same reports that we order up every day for real estate purchases.  Would it really be a problem if the Environmental Professional forgot to include one of the listed items? 

Imagine your client comes to you and says she wants to buy a site that was previously a manufacturing facility. The Phase I identifies the past use of toluene at the facility and finds evidence of a release. Your client purchases the property and undertakes all requirements necessary to satisfy the Bona Fide Prospective Purchaser Defense.  Five years later, a toluene plume, identified as originating from the site, is threatening the drinking water supply for the city of Puppyville. EPA investigates and determines that the prior owner is bankrupt. Your client, having used the site very successfully and profitably as the home office of a mortgage foreclosure company, is the only one around who might be able to pay for the clean-up. She refuses and asserts the Bona Fide Prospective Purchaser Defense.

At the summary judgment hearing, your client concedes that the only thing standing between her and clean-up liability is the fact that she conducted AAI by performing a Phase I Environmental Site Assessment prior to buying the property. EPA agrees that if the Phase I is valid, the defense would be available. However, EPA points out that the Phase I did not include the Statement of Qualifications of the Environmental Professional. As it turns out, the Environmental Professional that conducted the Phase I is the same one who received the Environmental Professional of the Year Award for the past five years, but he concedes that his office manager failed to include the Statement in this particular report.

You be the judge. Is the Puppyville drinking water supply protected or does Ms. Mortgage Foreclosure get to keep her money?

The teaching point of the OIG Report is that your client might not have the protection that was bargained for due to some pretty basic mistakes. For those who think that it is the consultant’s job to provide a Phase I ESA that is AAI compliant, you’re right. However, if the consultant is uninsured or underinsured, being right will be of little consolation to your client. And your client might very well look for someone else to blame.

As an aside, I feel compelled ask the question: What in the world prompted EPA to conduct the study in the first place? I am sure it wasn’t to confirm that if they ever needed to void a Phase I ESA in the future, they will likely be able to do so. I'm not that cynical. So why? I don’t know, but it’s why I’m afraid – very afraid.

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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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