How Easy is it for Cities to Re-Open their CSO/SSO Consent Decrees?

For over a decade, U.S. EPA has embarked on a national enforcement strategy regarding combined sewer overflows (CSOs) and sanitary sewer overflows (SSOs) from municipal wastewater treatment systems.  As part of the enforcement strategy, U.S. EPA has entered a large number of federal consent decrees which establish deadlines for the elimination of CSOs/SSOs.  These decrees impose costs in the billions of dollars and have compliance schedules that extend over decades.

As part of those decrees, U.S. EPA requires the municipalities to adopt Long Term Control Plans (LTCPs) to address wastewater treatment plan bypasses, SSOs and CSOs.  The standards and deadlines imposed within those LTCPs, in many cases, were based upon U.S. EPA guidance from the 1990s.  

Many national organizations have been sharply critical of U.S. EPA guidance, including:  NACWA (National Association of Clean Water Agencies), Association of Clean Water Administrators (ACWA), Conference of Mayors, National Association of Counties, and the National League of Cities.  These organizations argued the 1990's guidance was outdated and demonstrated significant flaws once implemented in decrees.

Following an outcry by national organizations for municipalities, U.S. EPA revisited a number of their guidance documents to address concerns raised.  As discussed in detail below, new guidance has been released by U.S. EPA in the following areas:

  • Integrated Planning- The cost of meeting both stormwater (MS4) as well as wastewater treatment system compliance requirements;
  • Affordability-  U.S. EPA's guidance was outdated and does not allow municipalities to fully present information regarding the impact of increased sewer rates on municipalities;
  • Green Infrastructure-  U.S. EPA has increasingly supported use of green infrastructure (stormwater retention, reduction of infiltration/inflow, etc.)  to reduce the amount of grey infrastructure (storage tunnels, control strategies, etc.)

Integrated Planning

One of the major criticisms of U.S. EPA national CSO enforcement strategy is that it failed to take a holistic look at all the compliance costs faced by municipalities in meeting Clean Water Act requirements. The most significant of those costs relate to stormwater management.  

U.S. EPA finally acquiesced to this criticism allowing cities to evaluate compliance with both wastewater and stormwater requirements concurrently.  U.S. EPA released new guidance titled  “Integrated Municipal Stormwater and Wastewater Planning Approaches Framework.” Memorandum from Nancy Stoner, Acting Assistant Administrator (June 5, 2012)

While the new guidance was welcomed, many municipalities are already under court orders imposes settlements to did not consider integrated planning.  

Affordability

In 1997, U.S. EPA finalized specific guidance on assessing community financial capability
titled- “Combined Sewer Overflows- Guidance for Financial Capability Assessment and
Schedule Development”
. The purpose of the guidance was two-fold: 1) identify the types of financial information that was relevant in determining a community’s financial capability; and 2) establish a specific methodology for gauging a community’s financial capability.

The most important methodology utilized by U.S. EPA to evaluate a community's ability to afford the controls and schedule for implementing controls in its LTCP is the "Residential Indicator" (RI) factor. The 1997 guidance established the methodology for calculating RI.  

  • Total annual wastewater and CSO control costs per household as a percent of median household income (referred to as the “Residential Indicator” or “RI”)

Despite statements by U.S. EPA in its 1997 guidance and in subsequent communications that RI is but one factor in evaluating affordability, a review of federal consent decrees clearly demonstrates it is the most heavily relied upon factor in establishing compliance schedules.  

Following calculation of RI, the long term compliance deadlines are established based upon whether the community falls into a "low," "medium," or "high" burden community.  

  1. Low = normal construction schedule for all improvements;
  2. Medium = up to 10 years; and
  3. High = up to 15 years and in some cases 20 years depending upon circumstances.

One of the main criticisms of RI is that it tends to washout or dilute the true impact of higher sewer rates on the lower income segments of the community.  RI only utilizes median household income to determine the percentage of overall income dedicated to paying for sewer service.  

On November 24, 2014, U.S. EPA issued new guidance on financial capability assessments- “Financial Capability Assessment Framework for Municipal Clean Water Act Requirements.” Memorandum from Ken Kopics, Deputy Assistant Administrator Office of Water (November 24, 2014).

Under the new guidance, Cities have wider latitude to present information regarding the unique
impacts of CSO/SSO and wastewater treatment compliance costs on the local community.  U.S. EPA argues that the 2014 guidance does not "replace' the 1997 guidance on affordability, it merely clarifies what was allowable under the old guidance all along.  This statement seems disingenuous given how RI has been directly referenced in a large number of SSO/CSO federal decrees.  

Clearly, the new guidance allows cities to present information regarding the impact of sewer rates on segments of its overall population, including lower income residents.  While the guidance clearly allows such information to be presented, it does not provide an strict guidance as to how much of a burden is "too much" for low income residents.  The lack of clear standards for determining unacceptable burdens on lower income residents further complicates the ability of cities to reopen existing CSO/SSO decrees.

Green Infrastructure

Most early efforts to control CSOs utilized “gray infrastructure” which involves the use of pipes,
sewers, and other structures involving concrete and steel. A very common technique to address
CSOs or WWTP bypasses is the use of storage in tanks, basins, or deep tunnels to store wet
weather combined sewer flows. The wet weather related flows can be held in storage until the
wastewater treatment plan has the capacity to treat the stored wastewater.

“Green infrastructure” (GI) use natural processes to reduce the quantity or rate of stormwater
flows into the sewer system. Common techniques are infiltration, evapotranspiration, and
capture and use (i.e. rainwater harvesting). Green infrastructure can be utilized on a small or
large scale. Small scale techniques include rain barrels, bioswales, porous pavements, green
roofs and infiltration planters. Larger scale techniques include wetlands, riparian buffers, open
space or other techniques involving larger tracts of land.

U.S. EPA has increasingly supported the use of green infrastructure to address CSOs and wastewater treatment plant bypasses. October 2013, U.S. EPA Headquarters released the Green Infrastructure Strategic Agenda which directs EPA enforcement personnel to:

  • “Ensure all water enforcement actions consider the use of green infrastructure;” and
  • “Consider green infrastructure approaches in the development of orders and settlements
    related to SSOs, CSOs and MS4s and incorporate green infrastructure as part of
    injunctive relief were appropriate.”

U.S. EPA released additional green infrastructure guidance titled “Greening CSO Plans: Planning and Modeling Green Infrastructure for Combined Sewer Overflow (CSO) Control.” U.S. EPA Publication #832-R-14-001 (March 2014).  The new guidance strongly encourages incorporation of green infrastructure into LTCPs.

While U.S. EPA has moved aggressively toward encouraging uses of green over grey infrastructure, many decrees predated the most recent information on the benefits of green.  Cities that have LTCP that almost exclusively rely upon grey infrastructure will need to make detailed demonstrations that green approaches are equivalent if not better than existing grey infrastructure. 

Re-opening Existing SSO/CSO Consent Decrees

With all the new guidance that has been released since 2013, many municipalities who have been under existing decrees rightfully question whether they have an ability to revisit their settlements. U.S. EPA indicates that it is willing to revisit settlements:

  • U.S. EPA states that remedy and affordability determinations under existing decrees can be reexamined under EPA's new Integrated Planning Approach.  EPA states such requests must be supported "with sufficient information and analysis to determine whether an Integrated Planning Approach makes sense based on sound science and appropriate technical and financial analyses." (See, Integrated Municipal Stormwater and Wastewater Planning Frequently Asked Questions (July 25, 2013))

However, the practical reality is that cities will be required to continue to comply with their existing LTCP while concurrently generating new extensive studies to support reopening their existing decree.  Most decrees also require the municipality to petition the U.S. EPA first before requesting that the court intervene. 

In addition, as highlighted by the City of Akron's recent inability to reopen its CSO decree citing new U.S. EPA guidance, cities face significant challenges.

Nevertheless, U.S. EPA has issued so much new guidance and strongly indicated a willingness to revisit existing settlements, it will be very difficult for the Agency to not acquiesce when cities present a legitimate request that is well supported using the new guidance.  

It will be interesting to see how EPA handles these requests in the next few years given what is at stake in terms of compliance costs.   

City of Cleveland Proposes Riparian Setback Ordinance

Northeast Ohio has had the largest number of political subdivisions in Ohio enact riparian and wetland setback ordinances.  Now, the City of Cleveland is proposing to get into the act with its proposed Setback Ordinance 1555-13.   

News of the City's proposal got out this week when many property owners who could be subject to the ordinance received a standard public notice letter regard the proposed riparian setback ordinance.  I received calls with concerns regarding the potential impact.

Applying setback requirements to an urban core will present more challenges than applying them to rural areas or even in the suburbs.  As discussed below, urban areas are denser, with smaller lots which increases the impact of setback on landowners in the City.

Despite the difference in applying setback ordinances to an urban core, the City's proposal is based upon the model ordinance that had been circulated and was adopted by many suburban communities. No significant changes were made to account for the differences.

Cleveland Proposed Setback Ordinance

Here are some key elements of the proposed setback ordinance:

  • Setbacks apply to all watercourses, except the Cuyahoga Navigation Channel and lake front areas;
  • A map is referenced purporting to show which areas are covered by the setback ordinance.  However, the ordinance states that if the map is inconsistent with the definition of watercourse in the ordinance, the ordinance trumps the map;
  • River and stream setbacks are from 75 to 300 feet depending upon the size of the watercourse.  However, if the 100 year flood plain extends further, then the setback is extended to the edge of the 100 year floodplain;
  • New new structures can be constructed within the setback area without a variance; 
  • Existing structures are exempted from the the ordinance, so long as they are not abandoned for more than six months;
  • Activities prohibited within the setback include:
    • Grading or filling
    • Any disturbance of natural vegetation
    • Dredging or dumping
    • Roadways or parking lots
  • A violation of the ordinance is a criminal misdemeanor

Map versus the Ordinance- What Streams are Covered?

The ordinance includes a map which purports to show the location of all rivers and streams covered by the ordinance.  However, the ordinance makes clear that setbacks apply to all "watercourses" except the Cuyahoga Navigation Channel and Lake Erie.  

Watercourse is defined as anything with a "defined bed and bank."  By this definition even drainage ditches will be potentially deemed covered by the setback requirements.  

This has proved to be true with regard to Army Corps of Engineer jurisdictional determinations under the Clean Water Act. (Click here for article discussing controversy on Corps jurisdictional determinations). 

Some may say this fear is overblown, however, in the 404/401 permitting process many small waterways are considered federal jurisdictional streams that many in the general public would not even consider a stream. 

One way to address this issue would be to revise the definition of "watercourse" to apply the setback requirement to only perennial and intermittent streams (excluding ephemeral streams and man-made ditches).

Challenges to Applying Riparian Setback to More Urban Areas

The setback ordinance operates basically as a no build zone.  Property owners are typically concerned that the restrictions will limit the productive use of their property.  In urban areas, where lots typically are smaller, the setbacks have the potential for much greater effect on a landowner's "reasonable use" of their property.  

Studies show that parcels of 1-2 acres can be significantly impacted by relatively narrow setback requirements.  In some cities, such as Cupertino California, city planners attempted to address this concern by reducing the size of these setback based upon the lot size. Lots less than one acre in size must provide a 50-foot stream buffer zone; sites over one acre must leave 100-foot buffers. 

Not many other major cities have enacted riparian setback ordinances, one such example is the City of Atlanta's Riparian Buffer Law.  

Seeking a Variance

Construction within the setback is permissible, however, the property owner must obtain a variance. The legislation puts significant limitations on granting of variances.  Some of the grounds for granting a variance include:

  1. A parcel existing at the time is rendered unbuildable-  this is a very high standard, equating to a total taking of the parcel.
  2. Degree of hardship on the landowner weighed against the degree of hardship with respect to maintaining the setback.  This includes the availability of alternatives to the proposed structure or use.
  3. The presence of impervious cover or maintain lawns in the setback area that diminish the value of the setback.
  4. Whether the building shape or design can be modified to minimize the impact to the setback.
  5. in cases where the lot is unbuildable, the minimum variance needed to make the lot buildable.

Takings Claims under the United States Constitution

I've been often asked whether imposing setback requirements on property owners constitutes a Takings under Constitution.  The Takings Clause of Article V of the United States Constitution states that “nor shall private property be taken for public use, without just compensation.”

The general test as articulated by the U.S. Supreme Court (Pennsylvania Coal Co. v. Mahon, 260 U.S. .393, 413 (1922)) for whether government action constitutes a takings is as follows:

  1. The regulation “denies all economically beneficial or productive use of land.” Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015 (1992) (often referred to as the “Lucas test”); or
  2. The regulation, although falling short of denying all economic use of the
    land, nonetheless effects a taking upon a review of a complex set of
    factors, including: (i) the economic impacts of the regulation, including
    the extent to which the regulations has interfered with “distinct
    investment-backed expectations”; and (ii) the character of the
    governmental action, specifically whether health, safety or general welfare
    would be promoted by prohibiting particular uses of land. Penn Central,
    438 U.S. at 124-25 (often referred to as the “Penn Central test”).

The Supreme Court also has stated that when evaluating whether something constitutes a Takings you must consider the "parcel as a whole," not just the portion subject to the law or restriction.  Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 535 U.S. 302 (2002)

The City's proposed legislation tries to build in some safeguards to prevent Takings Claims.  For example, one ground for issuing a variance is whether the property is rendered "unbuildable."

Whether something constitutes a Takings under the proposed legislation will be property specific.  It will also depend upon how the ordinance is applied in practice, if it passes.  

Conclusion

Given the impacts of the proposed legislation, it is certain to attract a lot of attention.  If the setback ordinance is enacted, a entirely new regulatory program will impact development within the City.   It is also likely legal claims will be brought to either challenge the ordinance or its application to specific property.

 

Split in Circuits as to Whether Army Corps JD's are Appealable

Bringing some level of sanity to the current state of wetland and stream permitting, the Eighth Circuit Court of Appeals has determined that an approved jurisdictional determination (JD) is a final agency action that can be challenged. See, Hawkes Co., Inc. et al v. Corps, Case No. 13-3067 (April 10, 2015). The Eighth Circuit Court decision reached the opposite conclusion as the Fifth Circuit in Belle v. Corps., 761 F. 3d 383 (5th Cir. 2014)(Click here for prior blog post discussion of Belle).

What is a Jurisdictional Determination?

Under the Clean Water Act (CWA), you cannot impact a federally protected stream or wetland unless you obtain a 404 permit from the Army Corps of Engineers (ACOE).See 33 U.S.C. §§ 1344(a), 1362(7). The key issue- what is a "federally protected stream or wetland?"

You might think determining what is federally protected would be an easy question to answer and there must be some easily accessible inventory of wetlands or streams. However, there is no reliable national database of wetlands and streams.  The National Wetland Inventory is based upon outdated information and is totally unreliable.

Due to a lack of such basic information, it falls upon the property owner or developer to comply with the law.  This includes ensuring that they do not impact federally protected wetlands or streams without obtaining the requisite Army Corps 404 permit and State 401 Water Quality Certification.

As a first step, many developers and property owners will hire a wetland consultant to perform a wetland delineation on the property.  The delineation is the consultant's opinion as to whether federally protected wetlands or streams exist on the property.  The delineation will also determine the size and quality of the water resources on the property.

However, the delineation is not a legal determination.  Only the ACOE can determine if wetland or streams are federally protected.  Therefore, although not required, many property owners/developers submit their wetland delineations to the ACOE for concurrence.  This is called a "Jurisdictional Determination" or JD.  See, 33 CFR 320.1(a)6)

The issue that arises is that the ACOE and consultants don't always agree as to whether a wetland or stream is federally protected.  In many instances, the ACOE can be much more aggressive in asserting jurisdiction which triggers a lengthy and costly permitting process for impacts to those water resources.

Due to significant implications of a JD, it can be in the property owner/developers interest to challenge the JD if they believe the ACOE has been overly aggressive.  Until the Eighth Circuit opinion, courts had held that JDs were not final appealable actions.

Facts of Case Highlight the Issues with the Current Wetland Permitting Process

The Eighth Circuit Court recites the factual background that led to the case.  The facts show actions by the ACOE that were aggressive and abusive toward the property owner.  The facts are worth discussing because they demonstrate that extreme frustration that some property owners experience in dealing with the ACOE and the current state of the wetland permitting process:

In March, the Corps sent a letter advising it had made a “preliminary determination” the wetland is a regulated water of the United States and, “at a minimum,” an environmental assessment would be required. At an April meeting, a Corps representative told Pierce a permit would take years and the process would be very costly. During a site visit in early June, another Corps representative told a Hawkes employee that “he should start looking for another job.”

In August, the Corps sent Hawkes a letter advising that nine additional information
items costing more than $100,000 would be needed, including hydrological and
functional resource assessments and an evaluation of upstream potential impacts. In
November, Corps representatives met with the land owner and urged that he sell the
property to a “wetlands bank,” advising that an environmental impact statement would likely be required, delaying the issuance of any permit for several years.

Making matters worse, the property owner's consultant felt that the ACOE preliminary determination that the wetlands were federally regulated was flawed.  As a result, the owner exercised its limited administrative appeal right to challenge the preliminary decision.

The Corps’ Deputy Commanding General for Civil and Emergency Operations sustained the appeal, concluding after detailed analysis that the administrative record “does not support [the District’s] determination that the subject property contains jurisdictional wetlands and waters,” and remanding to the District “for reconsideration in light of this decision.”

Despite the decision, the ACOE decided to re-issue the JD as final still concluding that the wetlands were federally protected.  When the property owner attempted to appeal the final JD, the ACOE, consistent with the Belle Case, determined there was no appeal right from a final JD.

As discussed below, the facts in this case made it very easy for the Court to reach its decision a JD is an appealable action.

Eighth Circuit Determines JD is a Final Appealable Action

The U.S. Supreme Court summarized the test for determining whether a federal agency action is a final appealable action:

As a general matter, two conditions must be satisfied for agency action
to be “final”: First, the action must mark the consummation of the
agency’s decisionmaking process -- it must not be of a merely tentative
or interlocutory nature. And second, the action must be one by which
rights or obligations have been determined, or from which legal
consequences will flow. See, Bennett v. Spear, 520 U.S. 154, 177-78 (1997)

Courts, including Belle, have determined that JDs satisfy the first prong of the test- JDs mark the consumation of the agency decision making process.  For example, the Corps’ Regulatory Guidance Letter No. 08-02, at 2, 5, described an Approved JD as a “definitive, official determination that there are, or that there are not, jurisdictional ‘waters of the United States’ on a site,”
and stated that an Approved JD “can be relied upon by a landowner, permit applicant,
or other affected party . . . for five years”

However, courts, including Belle, held that the second prong of the test was not met-  that the 
JD is not a final agency action “for which there is no other adequate [judicial]
remedy,” 5 U.S.C. § 704,

Courts had held that property owners/developers have two other adequate ways to contest the Corps’ jurisdictional determination in court -- complete the permit process and appeal if a permit is denied, or commence construction without a permit and challenge the agency’s authority if it issues a compliance order or commences a civil enforcement action.

The Eighth Circuit strongly disagreed with this view.  First it noted the time and cost of the typical 404 permitting process citing to the Supreme Court comments in Rapanos, 547 U.S. at 721, that the average applicant for an individual Corps permit “spends 788 days and $271,596 in completing the process.”  The Court said that even if the property owner completed the permitting process and then challenged the JD determination, it would never recover the lost time and money necessary to complete the permitting process.

Second, the Eighth Circuit dismissed the notion a property owner can simply initiate construction and wait to see if the ACOE tried to stop the work from progressing.  The Court noted that commencing construction without a permit and impacting wetlands or streams the ACOE determined were federally protected would expose the property owner/developer to substantial criminal monetary penalties and even imprisonment for a knowing CWA violation.

On this basis, the Eighth Circuit concluded that a JD is appealable.  It noted that to hold otherwise would allow the ACOE to be overly aggressive in asserting jurisdiction knowing the property owner/developer had no realistic legal remedy.  

There is very strong logic to the Eighth Circuit determination.  Now that there is a split in the Circuits we will see whether the Supreme Court hears the forthcoming appeal of the Court's determination.

Budget Bill Contains Brownfield Service Station Cleanup Funds

The current version of the budget bill (H.B. 64) contains language to create a gas station cleanup fund. The funding for this initiative is left over Clean Ohio money.  It is estimated that $20 million in Clean Ohio funds were either unused or represent cost savings from completed projects.  

Rather than redirect the leftover funds back into the Clean Ohio program, the budget proposal seeks to create a new "Service Station Cleanup Fund" for abandoned gas stations.  The program would be run by the Development Services Agency.  

The current version of the bill would provide up to $500,000 in assessment grant funding and $2 million in cleanup funding to address these sites.   The funding could not be used by property owners that contributed to the contamination at these former service stations.  

The advocacy organization, Greater Ohio, testified in support of the proposal.  However, they suggested revisions to the available funding for assessment (reduce to $100,000) and for cleanup (reduce to $500,000). They also proposed expanding the costs eligible for reimbursement using grant funding to include acquisition, demolition and infrastructure costs.  

One of the issues associated with the proposal is the requirement that the abandoned gas station must be designated by the Bureau of Underground Storage Tank Regulation (BUSTR) as a "Class C" site.   To be designated as Class C the service station must meet the following:

  • Must be a release of contamination above BUSTR standards, if no information exists to determine if such a release has occurred, a limited Phase II assessment (Phase II sampling) would be necessary to document such a release;
  • The party seeking funds must not be responsible for the contamination;
  • No ongoing BUSTR enforcement action to cleanup the site may exist; and
  • No viable responsible parties may exist;

Currently, there are not a significant number of Class C designated abandoned service stations in Ohio. As the proposal currently stands, this designation will be a prerequisite to eligibility. 

If you are interested in the funding, it may be a good idea to investigate the site Class C status quickly and, if the facility is not a Class C site yet, consider seeking such a designation.  

This program is temporary due to the limited funding.  Once the remaining Clean Ohio funds are used the program will likely cease to exist. 

There are a number of abandoned service stations in Ohio.  Historically, it has been difficult to attract brownfield grant money to address these sites due to their limited redevelopment potential.  This proposal may present a very good, albeit limited, opportunity to address these sites.

I have heard some opposition to the proposal from those in the brownfield community.  Some believe the remaining funds should be redirected back in to the Clean Ohio Revitalization Fund (CORF) so that larger brownfield projects can be addressed.  However, it seems likely that the proposal will move forward in its current form.

 

Ohio Supreme Court Invalidates Nearly Two Thousand Water Quality Determinations

The Ohio Supreme Court provided a major set back to the Ohio EPA efforts to establish water quality based discharge limits in its surface water discharge permits (i.e. NPDES permits).  The Court determined in Fairfield County v. Nally that TMDLs must go through formal administrative rulemaking before they can be used to support discharge limits in NPDES permits.

Ohio EPA had argued the TMDLs were just guidance.  The Court rejected the Agency's argument and said that TMDLs establish new legal obligations and, therefore, must go through the formal rulemkaing process contemplated by Ohio Revised Code Chapter 119.

What is a TMDL?

Section 303(d) of the Clean Water Act requires the identification of polluted rivers, streams, lakes and other waterbodies.  Once impaired waterbodies are identified, the Clean Water Act contemplates use of the Total Maximum Daily Load (TMDL) process to determine the maximum amount of a pollutant that may be discharged without causing the receiving body of water to violate water-quality standards.  See, U.S.C. 1313(d)(1)C).

A TMDL is a complex technical analysis of a waterbody.  The analysis includes chemical and biological testing of the waterbody to determine whether it currently doesn't meet water-quality standards.  If the waterbody doesn't meet water-quality standards, the TMDL process determines how much reduction must occur in various pollutants for the waterbody to be able to meet water quality standards.  If the waterbody meets water-quality standards, the TMDL determines how much additional pollution may be discharged to it before it will no longer meet those standards.  

Once the TMDL process determines either the amount of pollutant loading reduction needed or available pollutant loading remaining, the Agency allocates the available pollutant loading among the NPDES permitted dischargers to the surface water body (i.e. wastewater treatment plants, utilities, manufacturers, etc.).  The allocation takes the form of effluent discharge limits for dischargers through NPDES permits.

Impact of Supreme Court Decision on Ohio EPA Discharge Permits

As of May 9, 2013, Ohio EPA has listed approximately 86 watersheds for TMDL development, approximately one half had been completed and approved by U.S. EPA.  While there are 86 watersheds, there may be multiple surface waters in each watershed.  According to information provided by Ohio EPA, the Agency has issued approximately 1,761 TMDLs for watercourses throughout Ohio, including 132 TMDLs to determine phosphorus loading alone.  

The adjacent map is from Ohio EPA's website and shows the current status of the TMDL process for each watershed. The purple areas show those watersheds that have TMDLs that have been approved by U.S. EPA.  The other colors show the progress toward obtaining U.S. EPA's approval of the TMDL.

After the Ohio Supreme Court decision, all of the purple areas will have to through the rule making process before those TMDLs can be used to support discharge limits in NPDES permits for those watersheds. 

Furhtermore, any NPDES permit that currently has a discharge limit based upon a TMDL approved by U.S. EPA is likely not enforceable.  Given the large number of NPDES permits that have been issued in these areas, the Court decision represents a huge setback for the Agency.  

Not only does the decision make it more difficult for the Agency to enforce discharge limits in existing NPDES permits, the Agency will also have to expend significant resources going back through the rule-making process for potentially each the 1,761 TMDLs the Agency had previously considered completed.  

Latest Environmental Due Diligence Case Highlights the Value of the "Innocent Landowner Defense"

There has not been a lot of recent case law applying the CERCLA Bona Fide Purchaser Defense or Innocent Landowner Defense.  Every time a new case emerges it is picked apart by the environmental bar trying to discern the value of the CERCLA defenses as well as pitfalls that will result in failure to establish the defense. 

The latest case is Viola Coppela v. Gregory Smith (Case No. 11-cve-01257-AWI-BAM, E.D. Cal., Jan 15, 2015).  The case involved contamination from dry cleaners.  Plaintiff owned a dry cleaner facility.  In 2011, the State of California issued an order requiring plaintiff to investigate and remediate contamination from its dry cleaner.

Defendant, Martin and Martin Properties, LLC ("M&M") owned a commercial center in close proximity to Plaintiff's property.  As it turns out, a former dry cleaner operated on Defendant's property from 1959 to possibly 1971.

Plaintiff learned about the former dry cleaner on Defendant's property likely because it was listed on CERCLIS (a federal database of properties that are suspected to have contamination).  Defendant's listing on CERCLIS was due to a 2006 investigation performed by the State of California .  In 2009, a site investigation was performed which did detect low levels of PCE in the soil.  EPA determined that no further cleanup was needed due to the low levels.

Once Plaintiff learned of the investigation of Defendant's property it likely believed it had an opportunity to claim releases from Defendant's property migrated onto its property.  Therefore, Plaintiff asserted Defendant should share responsibility in cleaning up its property.  This is very common with regard to dry cleaners and gas stations (i.e. parties try to deflect blame by pointing to historical releases that may have occurred on neighboring property).

Plaintiff sued Defendant under CERCLA as well as brought common law claims.  Defendant asserted the Innocent Landowner's Defense under CERCLA.  The defense allows parties to avoid CERCLA liability if it did not contribute to contamination, conducted proper due diligence prior to purchase and exercised due care with any contamination found.  The burden is on the party asserting the defense to establish it is entitled to the liability protection provided by the defense.

Court's Analysis of the Innocent Landowner's Defense

M&M moved for summary judgment on Plaintiff's CERCLA claim alleging to be an "innocent landowner."  M&M alleged prior to its purchase it had performed the following due diligence activities:

  • Reviewed prior environmental reports prepared for the prior owner;
  • Conducted a physical inspection;
  • interviewed the seller, neighboring business owners, and financial consultant's regarding the properties prior use

Clearly, the level of due diligence exercised by M&M would not be adequate under current standards (ASTM 1527-13). Defendant did not even retain its own environmental consultant to perform an independent review.  Rather, it relied on reports prepared for the prior owner- something not allowed under U.S. EPA current "All Appropriate Inquires Rule" (AAI) which recognizes ASTM 1527-13.

However, the property transfer took place in 1995- before U.S. EPA promulgated its AAI rule. Therefore, despite the fact Defendant's level of due diligence was inadequate under current standards, the Court was willing to rule mostly in favor of Defendant, concluding some of the key elements for the "Innocent Landowner" defense were satisfied.  To establish the innocent landowner defense you must establish the following:

  1. The party acquired the property after the disposal or placement of the hazardous substances occurred;
  2. At the time of acquisition, the party did not know and “had no reason to know,” i.e. made all “appropriate inquiries” in accordance with customary “standards and practices,” that any hazardous substance was disposed of or placed at the facility;
  3. The party did not actively or passively contribute to the “release” of the hazardous substance; and
  4. Once contamination was found, the party exercised due care with respect to the hazardous substance concerned, took precautions against foreseeable acts or omissions of third parties and the foreseeable corresponding consequences, and acted in compliance with land use regulations and governmental responders.

The Court determined that M&M satisfied elements 1, 3 and 4.  With regard to element 2, the Court noted that the M&M did not hire its own consultant and simply relied on reports prepared for the benefit of the prior owner.  With regard to the issue of whether M&M exercised "all appropriate inquiries" (element 2) the Court refused to grant summary judgment.

Frankly, I'm surprised how far the Court went in finding in favor of Defendant on elements 1, 3 and 4. Furthermore, Defendant still has the possibility of establishing element 2.  At trial, Defendant could produce evidence that it was common in 1995 (prior to EPA's AAI Rule) to rely on a prior owners environmental reports.  If successful, Defendant will still be entitled to the "Innocent landowner" defense.

I think the key takeaways from this case are the following:

  • Prior to EPA's "All Appropriate Inquiries" Rule, Parties may have wider latitude to argue what was standard industry practice and the accepted level of due diligence;
  • After AAI, the party should make sure it follows ASTM 1527-13 or it is very unlikely a party will meet its burden in establishing the defense;
  • There is a lot of value to the defense to fend off exactly this type of litigation- a property owner in the vicinity with contamination on-site who is looking to deflect blame or try and offset their own costs; and
  • Courts may inclined to protect parties that showed genuine effort to perform proper due diligence prior to purchase.

 

U.S. EPA Encourages Use of Third Party Verification of Compliance with Enforcement Settlements

We know that U.S. EPA budget is tight.  Maybe that is why they are looking for new and innovative ways to reduce their work load.  This is evident in the memorandum released on January 7, 2015 by EPA's Office of Enforcement and Compliance Assurance.

The memorandum is titled "Use of Next Generation Compliance Tools in Civil Enforcement Settlements." In the memo, U.S. EPA Assistant Administrator Cynthia Giles discusses use of advances in pollutant monitoring and information technology to "increase compliance with environmental regulations."  

Third Party Verification

One the the tools U.S. EPA recommends in its memorandum is the incorporation of "independent third party verification" into settlement agreements.  The concept is that an outside firm would be identified in the settlement to monitor a companies compliance with the injunctive relief portion of the settlement.  

U.S. EPA notes that the verifier must be truly independent.  It cannot be an environmental consultant who provides a report to the company before it supplies the compliance review report to U.S. EPA.  The verifier will have to certified as independent.  

The Agency notes that use of third party verifiers may be especially valuable in situations where the injunctive relief has a lengthy and/or complex compliance schedule. While the memo doesn't discuss it, I'm certain the expectation is that the company will pay for the third party verification costs.  

Other Advanced Compliance Techniques

Other tools discussed in the memorandum include:

  • Advanced monitoring- Examples include monitoring techniques that are "not yet in widespread use," or less expensive, easier to use or mobile monitoring techniques. 
  • Electronic reporting-  A company would set up a system whereby it would electronically submit required reports and data in a searchable format.  EPA makes clear electronic reporting doesn't mean just e-mailing the report to a U.S. EPA Regional Office.
  • Public accountability through increased transparency of compliance data-  The memo encourages companies to display compliance status on their webpage, via a mailer or on the Enforcement and Compliance History Online database (ECHO).  The idea is wider dissemination of compliance data will allow the public to monitor and notify U.S. EPA if a company is not meeting its commitments.

Conclusion

While EPA states this strategic initiative is designed to increase compliance.  The reality is that U.S. EPA doesn't have the staff to keep up with its ever increasing workload.  The U.S. EPA wants to use monitoring equipment, the public and third parties as another set of eyes to monitor compliance. The additional costs for all of these new techniques will almost certainly be placed upon the settling party.  

Ohio High Court Ruling on Local Authority Over Fracking More Limited Than Portrayed

Municipalities across the country have attempted to place restrictions on the use of fracking associated with oil & gas drilling.   Most cases involve outright bans on fracking or more rigorous permitting requirements.    Ohio was no different.  Other states, like Pennsylvania and New York, both allowed local regulation of fracking.  Ohio was different, sort of.

The Ohio Supreme Court issued its decision in State ex del. Morrison v. Beck Energy Corp., ruling 4-3 that the City of Munroe Falls could not stop Beck Energy Corp. from drilling based on non-conformance with local ordinances.  Justice French wrote the decision for the majority:

R.C. Chapter 1509 regulates oil and gas wells and production
operations in Ohio. While it preserves certain powers for local governments, it
gives state government “sole and exclusive authority” to regulate the permitting,
location, and spacing of oil and gas wells and production operations within the
state. R.C. 1509.02.

Ohio has Home Rule, which grants local governments the power to adopt local regulations.  Ohio's Home Rule provision is set forth in the Ohio Constitution, Article XVIII, Section 3, which states:

"Municipalities shall have authority to exercise all powers of local self-government and to adopt and enforce within their limits such local police, sanitary and other similar regulations, as are not in conflict with general laws."

It is the last part of the provision which is key- "as are not in conflict with general laws."   Justice French opined that R.C. 1509 is a state law that establishes all regulation on permit, location and spacing of oil and gas wells.  Justice French ruled that since the General Assembly clearly intended R.C. 1509 to regulate most aspects of oil and gas exploration, it follows that local governments lack authority to pass their own regulations.  However, Justice French opinion was only supported by three of the Court's seven justices.

Fourth Vote- Justice O'Donnell's Concurrence

While Justice French's opinion seems to be very clear that R.C. 1509 prohibits most aspects of local regulation of fracking, the fourth and deciding vote of Justice O'Donnell concur in judgment only.  While his fourth vote struck down the City of Munroe's law, his concurring opinion is not as clear cut as Justice French in terms of the scope of preemption of R.C. 1509.

Justice O'Donnell begins his opinion by noting that the Court's decision is limited to the City of Munroe's ordinances only.  He also states that ordinances designed to add permitting requirements are preempted by R.C. 1509.  However, Justice O'Donnell indicates other traditional areas of zoning may still be valid. He states:

"This appeal does not present the question whether R.C. 1509 conflicts with local land use ordinances that address only the traditional concerns of zoning laws, such as ensuring compatibility with local neighborhoods, preserving property values, or effectuating a municipality's longterm plan for development, by limited oil and gas wells to certain zoning districts without imposing a separate permitting regime applicable only to oil and gas drilling."

This language makes clear the door is still open for local regulation.  With Justice O'Donnell representing the swing vote, this decision is not as clear cut as the news media has portrayed.  The majority of Justices do believe municipalities have powers to regulate fracking.  

This key point seemed to be missed by many of the stories in the media. These are headlines from various papers (click on the link to read the full story):

"Local governments cannot regulate fracking, Ohio Supreme Court says."  Columbus Dispatch

"Ohio Supreme Court case over Munroe Falls' drilling laws could impact home rule authority across the state."  Cleveland.com

"Ohio Municipalities Can't Regulate Drilling and Fracking On Their Own, State Supreme Court Rules." Huffington Post

 

Why Businesses Should Consider an Environmental Audit?

An environmental audit is a self-evaluation of current compliance with applicable environmental regulations.  The audit is typically performed by an outside environmental consultant. However, more sophisticated businesses can utilize advanced electronic compliance tools or their own EHS personnel.

An audit can be wide in scope (i.e. compliance with all applicable regulations) or it can review just one issue at a specific facility (Ex: Does a particular process need an air permit). Common areas of noncompliance identified in audits include:

  • Failure to obtain permits or update expired permits;
  • Failure to evaluate waste streams; and
  • Failure to perform mandatory reporting (TRI and SARA are very common reporting violations)

There are many reasons why a company should consider performing an environmental audit, including the following:

1.  Environmental Audit Policies and Immunity Laws

The states and federal government have laws and policies designed to encourage performing environmental audits.  These policies and laws provide incentives as well as privilege over communications related to the audit.

U.S. EPA has its own environmental audit policy which encourages environmental audits and self-disclosure of violations.  Under the current policy, U.S. EPA will provide penalty forgiveness if the company meets nine (9) requirements when making a self-disclosure.  To take advantage of these incentives, regulated entities must voluntarily discover, promptly disclose to EPA, expeditiously correct, and prevent recurrence of future environmental violations.

Many states have passed environmental audit & immunity laws.  Each state has different requirements with regard to self-disclosure and penalty forgiveness.  However, in many cases the immunity laws provide very strong incentives to self-disclose and correct violations.  The protections and incentives offered at the state level are often much better than available under U.S. EPA's audit policy.

Many state's allow all records  associated with the performance of an environmental audit to be privileged.   U.S. EPA does not provide privilege for environmental audit.  Therefore, in order to protect communications related to the audit from disclosure, the audit must be performed in a state that has passed an environmental privilege law.

Such privilege laws allow the company to review compliance and consultant with legal counsel prior to making a determination whether to self-disclose any violations identified during the audit.  It is important to carefully review the exceptions to privilege.  Some examples of common exceptions include:

  • Criminal activities are not entitled to privilege
  • If there is a mandatory duty under existing environmental regulations to report a violation (Ex:  Title V certification of compliance)
  • The audit cannot be performed after the company is aware it is the subject of a possible environmental enforcement action.

2.  Buying a Business is the Perfect Time to Perform an Environmental Audit?

When purchasing a business it is often difficult to assess whether the seller has taken environmental compliance seriously.  Most transactions rely upon three strategies to address the risk that the business being purchased may not be in compliance:

  1. Reps & Warranties in Purchase Agreement-  This is the most common strategy.  While a breach of a rep may provide buyer a right to indemnity, it doesn't protect buyer from the regulator.  In the eyes of the law and regulator, the current owner is responsible for ensuring compliance.
  2. Data Room-  It is common to request that documents related to environmental compliance be placed into the data room for the transaction.  However, a data room that has no documents related to environmental issues does not mean there are no issues, it just means there may be no historical documents which help identify compliance issues.
  3. ASTM 1527-13 Phase I Environmental Assessment-  An ASTM 1527-13 Phase I environmental assessment is geared to identifying historical releases of contamination, not whether a business or facility is in current compliance.  Evaluation of compliance in terms of permitting, reporting or documentation are considered non-scope items for the typical Phase I environmental assessment.  

As discussed above, each of these strategies have their limitations.  A material compliance evaluation (i.e. audit) of the business or facility to be purchased is the best way to get a comprehensive evaluation.

3.  The Risk of Noncompliance

You don't just need to be purchasing a business for an environmental audit to make sense.  It is important to understand that noncompliance can expose the business to civil penalties.  Most environmental statutes impose penalties on a per day basis.  Therefore, the longer a business goes without correcting its violations, the larger the potential penalties.  

It is important to determine the appropriate strategy for addressing noncompliance issues.  Many companies simply turn in missing permits or reports without ever considering utilizing environmental audit laws or policies.  However, the submission of those permits or records can immediately trigger a significant enforcement actions with penalties.

Once regulators identify serious noncompliance at a facility through their own inspections, it is much more likely that facility will get more intense scrutiny.  This could mean more inspections or multi-media inspections.  Most regulators are inclined to work with and provide leniency to companies that self-audit and correct their noncompliance.

4.  Audit Laws and Strategies are Complex

If a business decides to conduct (or is thinking about conducting) an environmental audit, it is important to consult is experienced environmental attorney.  Many of the laws and policies associated with privilege, immunity & self disclosure have unique and complicated requirements.  It is important to put a strategy together before initiating an audit.

Environmental Insurance- A Top Broker Discusses Seven Key Aspects of this Specialty Coverage

I interviewed Rob Snyder of the Fedeli Group. (click link to Rob's contact information)  Rob has more than 20 years of experience as a broker of environmental insurance.   He has obtained everything from standard pollution liability insurance to brownfield insurance on highly complex cleanups.  He has familiarity with all of the major carriers that provide environmental insurance coverage in today's market.  I have worked with Rob for years and he truly is an expert in this highly specialized area.  

I interviewed Rob to get his thoughts on key aspects and considerations for businesses that may benefit from environmental insurance.

1.  What are the general categories of environmental insurance (e-insurance) you deal in?  

The term environmental is very broad.  Insurance coverage can mitigate risks associated with releases to the air, ground, surface water or ground water.  Coverage can be obtained for new releases and spills.  Or, in the brownfield context, coverage can be obtained for historical releases to the environment.  The most standard coverage is called "Pollution Legal Liability Insurance" or (PLL coverage).  The typical PLL coverage protects against new releases and third party lawsuits.  However, there is a wide range of possible coverage that can be obtained in the market.

2.  When does securing environmental insurance make sense?  

There are some common situations when securing e-insurance makes sense:

  • Contractors- When an owner or general contractor requires coverage;
  • Consultants- Professional liability insurance is standard coverage needed for engineers and environmental consultants;
  • Real Estate-  Acquisition or use of property can pose significant financial risk (real or perceived) to capital, lender and developer interests.  E-insurance can mitigate risk from historical contamination, new regulatory standards or third party lawsuits.
  • Transactions-  Reps and warranties insurance typically doesn't include e-insurance.  E-insurance can be a very cost effective tool to bridge the gap between Seller and Buyer in allocating environmental liability risk.  Small deals or major multi-national deals may both benefit from e-insurance.  

3.  What are some key considerations when choosing a carrier? 

The financial clearing house for insurance companies is the AM Best Company.  This independent source grades companies by size and performance.  A school like grading system is utilized, with grades of A+ (Excellent) to F (Failing).  Balance sheet size is ranked from I to XV with XV being the strongest.  In this grading format a carrier of A IX or better is considered acceptable. Most financial markets will require a size and performance ranking of this or better for financial underwriting.  In addition to size and performance, it is important that the carrier has a positive track record in underwriting, claims management and coverage offerings. 

4.  How does a business or individual decide on limits of coverage?

Liability limits are one way in which a policy holder can control premium.  Higher limits add more cost to the program.  Often times coverage limits are set by stakeholder interests relative to financial risk.  Limits may be set by regulatory laws, corporate risk management standards, loan value, cleanup assessment or defense costs and other costs associated with the environmental risk. In deciding what liability limits to procure, keep in mind that environmental exposure is more likely catastrophic than frequent in nature.

5.  What are some key things to look for in the policy terms and conditions?

Most third party liability coverage includes bodily injury, property damage and legal defense costs. E-insurance may include all of these plus cleanup costs.  Understanding the conditions and limits on coverage as set forth in the policy is very important.  Policy terms can often be negotiated. Therefore, it is important to not just accept the standard language in the policy. Other considerations include whether coverage is for known and/or unknown conditions.  Is it for only new or does it include pre-existing conditions.  Coverage may be extended to include transportation and offsite disposal of materials from the site.  Because environmental law makes liability for generators both retroactive and continual, coverage may be critical for off-site transportation and disposal of materials.  

6.  What are some common mistakes an insured makes when filing a claim?

The most common mistake is not reporting an incident quickly enough.  It is well known in the environmental consulting world that the cost of cleanup is directly related to the amount of time it take to clean something up.  Early reporting is the first  and most critical mistake commonly made. Another common reporting mistake is failing to report the claim within the same policy period in which the loss occurred.  Many e-insurance policies are claims made and reported forms of coverage.  Obtaining coverage becomes useless if you fail to report a claim within the limits specified in your policy. Another common mistake is lack of documentation as to the what, where, when and how regarding a release.  

7.  What are some key trends you see with regards to environmental insurance?

The insurance market place is maturing.  There are more carriers to approach with a risk.  Coverage terms and conditions continue to be all over the map.  No two carriers or policies are the same. Professional consulting services are still required to properly identify risk, match risk to market coverage and obtain competitive pricing.