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.

 

U.S. EPA Regulates Coal Ash under Subtitle D

Following a failure of the dike at the Kingston Fossil Plant in Tennessee which received national attention, the Obama Administration announced it would re-evaluate regulation of coal combustion residuals (CCR) or coal ash.  

The Administration's key decision was whether to regulate CCR under Subtitle C of the Resource Conservation and Recovery Act (RCRA) as a hazardous waste or Subtitle D of RCRA as a non-hazardous waste.  Industry feared that with the national attention from two major spills, EPA would take the more stringent path and regulate CCR as a hazardous waste.  

As indicated by the time line from the Bloomberg BNA article discussing the EPA announcement, EPA has been very slow to make a final decision. 

Time line of EPA Coal Ash Regulation

Dec. 22, 2008—Dike ruptures at the Kingston Fossil Plant in Harriman, Tenn., releasing 5.4 million cubic yards of coal ash slurry into surrounding area.
Jan. 14, 2009—At her Senate confirmation hearing, incoming EPA Administrator Lisa Jackson says the agency will review how it regulates coal ash.
June 21, 2010—The EPA proposes (75 Fed. Reg. 35,128) two possible ways for regulating coal ash—under the hazardous waste provisions of Subtitle C of RCRA or under the nonhazardous waste provisions of Subtitle D.
April 5, 2012—Frustrated with the slow pace of the rulemaking, environmental advocates sue the EPA over failure to complete a mandatory review of RCRA regulations every three years. They seek a deadline for final coal ash standards.
Jan. 31, 2014—Environmental advocates, coal ash recyclers, utilities and the EPA reach an agreement that requires the EPA to complete its coal ash regulations by Dec. 19.
Feb. 2, 2014—140,000 tons of coal ash and wastewater spill from a Duke Energy Corp. into North Carolina's Dan River.
Dec. 19, 2014—The EPA issues a final rule on the management and disposal of coal ash.

On December 19, 2014, EPA released its final CCR rule.  The rule will regulate CCR as solid waste under Subtitle D of the Resource Conservation and Recovery Act (RCRA), rather than as a special waste under Subtitle C.  

If EPA elected to regulate CCR under Subtitle C, EPA would have maintained greater authority over the material and enforcement of standards.  Under Subtitle D, states will take the lead on implementation and enforcement. 

Subtitle D also governs municipal solid waste landfills.  EPA's approach to regulating CCR in many ways is similar to standards established for solid waste landfills.  The rule establishes the following:

  • Minimum national criteria for new and existing CCR landfills and surface impoundments;
  • location restrictions;
  • design requirements;
  • groundwater monitoring, if constituents are detected in groundwater above protective standards, the owner will be required to institute corrective action;
  • inspection requirements, including evaluation of the structural integrity of impoundments;
  • fugitive dust controls;
  • surface water protection requirements; and
  • closure and post-closure care requirements.

Inactive Landfills Will Not Be Regulated

The final rule will become effective six months after publication in the federal register.  The new standards will not apply to CCR landfills that cease receiving waste prior to the effective date ("inactive units").  If these units complete closure (that is dewater and place final cover) within three years of the publication of the rule, then they are not subject to any additional requirements under the rule.

Recycling 

Coal ash is the second largest industrial waste stream.  This final rule supports responsible recycling of coal ash by distinguishing safe, beneficial use from disposal. In 2012, almost 40 percent of all coal ash produced was recycled (beneficially used), rather than disposed.

The rule establishes a comprehensive definition of beneficial use of CCRs. The rule
also clarifies that a use of a CCR that is not beneficial use is disposal.

 

NPDES Permit Pre-Empts RCRA?

An interesting case involving the interplay of the Clean Water Act (CWA) and RCRA highlights the complexity of sites that trigger multiple environmental statutes.  The U.S. District Court of Maryland in Sherrill, et al. v. The Mayor and the City Council of Baltimore, 2014 WL 3555956 ruled that an NPDES Construction Storm Water Permit preempted a RCRA enforcement action.  The Court ruled that the RCRA action sought remedies which would duplicate what had already been required under the NPDES permit.

Facts

The case involves property associated with the City of Baltimore's effort to revitalize its waterfront. The site in question was a former chemical manufacturing plant with historical solvent contamination.  

The City has a redevelopment agreement with a casino operator to construct a new casino on the property.  The City has also placed the property into Maryland's Voluntary Action Cleanup Program (Maryland's brownfield cleanup program) which resulted in the development of a voluntary cleanup plan for the property.

The casino operator complied with Clean Water Act requirements by securing a NPDES General Construction Storm Water Permit for the site.  The storm water permit contains requirements to manage soil and runoff from the property.  A key term of the permit was that the storm water management plan (SWP3) incorporated requirements from the Voluntary Cleanup Plan for the property.

Local residents opposed the casino and brought suit challenging the development plan.  Residents claimed that construction of the casino exacerbated pre-existing contamination on the property in violation of Section 6972 of RCRA.  

The casino operator argued that the RCRA action was preempted by the existence of the NPDES General Construction Storm Water permit under RCRA's anti-duplication provision which states:

nothing in [this Act] shall be construed to apply to (or to authorize any State, interstate, or local authority to regulate) any activity or substance which is subject to the [Clean Water Act]...except to the extent that such application (or regulation) is not inconsistent with the requirements of such Acts.  See, 42 U.S.C. 6905(a)

At issue was whether the existence of the NPDES permit terms requiring management of soil and storm water runoff rendered any potential relief available under RCRA duplicative.

Ruling 

The District Court held that the CWA storm water discharge permit triggered the "anti-duplication" provisions of RCRA and therefore shielded the casino operator from any RCRA liability.  The Court held that the storm water permit legally required implementation of the casino operator's storm water management plan (SWP3).  The SWP3 incorporated that Voluntary Cleanup Plan. Therefore, the cleanup plan, in reality, was no longer voluntary.

The Court held that the SWP3 activities to manage soil and runoff were the same remedies that would be available to plaintiffs under RCRA.  Therefore, RCRA's anti-duplication provision was triggered.  

Discussion

The Court's ruling is interesting in its conclusion that the remedies available under RCRA would be the same type of remedies currently required under the NPDES storm water permit.  SWP3 govern management of surface soils to protect surface waters.  RCRA can require cleanup of contaminated soils at depth and protection of ground water. 

The incorporation of the Voluntary Action Program cleanup plan is a unique fact to this case.  The court only discusses the incorporation of the cleanup plan in cursory fashion.  Was the court stating that if the casino operator failed to address soil contamination at depth or contaminated groundwater as called for under the cleanup plan it would be in violation of its NPDES storm water permit?  

It would appear that the answer must be "yes" in order to support the Court's ruling that the RCRA anti-duplication provision was triggered.

Review of Compliance with Job Commitments in State Incentive Packages

The Attorney General's Office completed its review of compliance with job commitments the state received in exchange for various incentives.  Here is the summary of its findings:

  • Workforce Compliance Rate: 100% (49 of 49 awards in substantial compliance)
  • Grant Compliance Rate: 74.4% (29 of 39)
  • Tax Credit Compliance Rate: 62.4% (78 of 125)
  • Loan Compliance Rate: 57.1% (24 of 42)

The chart and figures show the break down of compliance by type of incentive.  The report also contains an appendix which identifies all of the specific incentive packages by company and the status of compliance.  

The report really doesn't provide much insight as to why some incentives have a greater level of compliance than others. One explanation for the 100% compliance with workforce development is that the commitment is really just a training commitment, not a job creation commitment.

The state not only reviews compliance with the job commitments in state incentive agreements, it takes enforcement against those companies that it deems are not in substantial compliance.  This from the Columbus Dispatch Article discussing the Attorney General's Report:

The state has taken action against many of the companies behind the 75 projects that were not in compliance. It demanded the return of some grant money, modified terms on loans and shortened periods in which the companies were able to collect the tax credits. In other instances, the state found the companies were mostly in compliance despite coming up short and ordered no remedial action.

Incentive agreements also contain an out clause in the event there is an economic slowdown which prevents the company from meeting its commitments.  

Brownfields

One type of grant not covered in the report are brownfield grants.  This is because under the Clean Ohio Program, the grant agreement required a commitment to cleanup the property to Ohio EPA's Voluntary Action Program standards, not a specific job creation commitment.  While job creation was a metric evaluated when projects competed for Clean Ohio funding, the pledges did not make it into the grant agreements.  

That has changed under the JobsOhio Revitalization Program.  Under the new grant template being used by JobsOhio, companies are required to make specific commitments in terms of job creation, job retention and/or capital investment.  The JobsOhio agreement contains a specific deadline for meeting that commitment and the ability to require repayment of the grant in the event those commitments are not met.  

The JobsOhio agreement focus on job creation and investment  is similar to other State economic incentives.  It is an example of the shift in philosophy behind brownfield redevelopment in Ohio. Clean Ohio was focused on cleanup and redevelopment of contaminated property.  The JobsOhio Revitalization Program is focused on economic redevelopment.  

 

EPA's Long Anticipated Ozone Decision

On November 25th, U.S. EPA finally issued the long anticipated proposal to reduce the ozone standard.  The EPA is proposing to revise both the primary and secondary standards to a level within the range of 65 parts per billion (ppb) to 70 ppb.  The current (2008) ozone standard is 75 ppb.  Under the Clean Air Act, EPA is required to re-evaluate the ozone standard every five years.

EPA will also accept public comment on retaining the current standard or lowering the standard to 60 ppb.  Industry will strongly support retention of the current standard while environmental groups will argue for a reduction as low as possible. 

EPA will take comment on the proposal for 90 days after it is published in the Federal Register and will hold three public hearings. It plans to issue a final decision by Oct. 1, 2015.  

EPA has delayed issuance of a revised standard on multiple occasions, must recently in September of 2011 (see prior post).  Those delays have been beneficial because they have allowed for existing emission reduction regulations to take effect.  The longer EPA waits to finalize the new standard, the more time existing regulations have to take full effect.

Given the delays and controversy around lowering the standard, it appears very likely EPA will settle on a new standard of 70 ppb.  Maintaining the current standard would be very difficult given the EPA's science board has recommended further reductions.  However, going any lower than 70 ppb would result is too severe of emission reductions. 

Impact on Ohio

Ohio's major metropolitan areas have always faced challenges in meeting federal ozone standards. It will be no different this time around (EPA's national chart shows a long of red and orange dots in Ohio).  

The challenge facing the states is that federal regulations have been far more effective in reducing ozone compared with state or local regulations.  Each time EPA tightens the standard, the more difficult it becomes to find new reductions to lower ozone levels further. 

While reductions are hard to come by, the switch from coal to natural gas will have a huge impact on ozone levels.  The closure of multiple coal-fired power plants will lead to large reductions in ozone precursors (NOx).  While the switch to natural gas should help in achieving new ozone standards, it will still be very difficult for Ohio to achieve the necessary reductions.

In an article in the Cleveland Plain Dealer, Ohio GOP members expressed concern as to the impact of a lowered ozone standard on the economy:

House Speaker John Boehner and other GOP lawmakers from Ohio were unhappy with the EPA proposal.

Ohio Sen. Rob Portman fears the rule "will have a negative impact on job creation in the state of Ohio," his spokeswoman said, while Boehner predicted it could "slash family budgets by more than $1,500 per year, reduce GDP by trillions and cost our economy millions of jobs."

Wadsworth Republican Rep. Jim Renacci predicted it would lead to higher utility costs. He pledged "to rein in the EPA to ensure that its overreaching regulations do not crush job creation and increase costs for Ohioans."

"Significant portions of the country, including Ohio, are still struggling to meet the EPA's 2008 guidelines, so moving the goalposts now will only lead to more uncertainty and higher compliance costs, which will ultimately be passed onto the consumer," said a statement from Renacci.

Once again, Ohio finds itself at the center of the challenge to balance air quality improvements with economic welfare.
 

 

Local Governments, Land Banks and Brownfield Properties

One of the issues that has prevented local governments from being more aggressive in addressing brownfields has been liability concerns associated with existing environmental contamination.  Prior to 2009, some local governments learned the hard way that placing their name in the chain of title as an "owner" exposed the local government to liability under CERCLA (i.e. Superfund) or other environmental statutes. 

Ohio Passes Limited Environmental Liability Protection

Ohio attempted to address this gap in the law back in 2009.  Ohio Revised Code 5722.22 provides the following liability protection to County land banks:

R.C. 5722.22 Immunity of land reutilization corporation.
A county land reutilization corporation is not liable for damages , or subject to equitable remedies, for breach of a common law duty, or for violation of sections 3737.87 to 3737.891 of the Revised Code or Chapter 3704., 3734., 3745., 3746., 3750., 3751., 3752., 6101., or 6111. of the Revised Code or any rule adopted or order, permit, license, variance, or plan approval issued under any of those chapters in connection with a parcel of land acquired by the county land reutilization corporation.

This broad immunity provision appears to allow County land banks to assemble brownfield parcels without fear of exposing the entity to liability for pre-existing contamination.  However, what clearly is missing from the list of statutes in R.C. 5722.22 is a reference to CERCLA.  This is because a state cannot pass legislation that provides immunity from CERCLA, only Congress could create such an exception.   

Involuntary Acquisitions

Local governments are entitled to a liability defense if they acquire contaminated property involuntarily.  Pursuant to § 101(20)(D) of CERCLA, a unit of state or local government will not be considered an owner or operator of contaminated property (and thus is exempt from potential CERCLA liability as a PRP) if the state or local government acquired ownership or control involuntarily. This provision includes a non-exhaustive list of examples of involuntary acquisitions, including obtaining property through bankruptcy, tax delinquency, abandonment, or “other circumstances in which the government entity involuntarily acquires title by virtue of its function as sovereign."

While this provision is useful, there are times when a municipality or land bank would like to help facilitate brownfield redevelopment by proactively acquiring property.  In those circumstances, the local government will have to perform proper environmental due diligence just like any other buyer.

Municipalities and the Bona Fide Purchaser Defense

If a local government does not come into ownership of contaminated property involuntarily, it must proceed with caution in order to protect itself from liability.  In situations where a local government would like to acquire contaminated property voluntarily, it must act like a private party in order to establish CERCLA liability protection-  It must meet the requirements of EPA "All Appropriate Inquiries" (AAI) Rule in order to establish the Bona Fide Purchaser Defense (BFPD) to CERCLA.

EPA specifically identifies these steps in its CERCLA guidance document regarding local government acquisition of contaminated property:

While many abandoned properties that are of interest to land banks and redevelopment authorities are not likely to be contaminated, local governments should be aware that contamination and potential CERCLA liability may exist. A local government may increase the likelihood that the land bank or redevelopment authority is eligible for CERCLA liability protection by ensuring that the land bank or redevelopment authority conducts AAI prior to acquiring the property. Not only is AAI a critical requirement for obtaining most CERCLA landowner liability protections, but it also aids local governments in making informed property acquisition decisions. When acquiring abandoned contaminated properties, EPA encourages local governments to obtain BFPP status prior to acquisition if it is unclear whether other exemptions, affirmative defenses, or liability protections may apply. 

Under the BFPD, the local government must perform an ASTM 1527-13 compliant Phase I environmental assessment prior to taking ownership.  If potential contamination is identified, then the local government will also have to take "reasonable steps" to prevent exposures or stop ongoing releases of contamination.

County Land Banks Focus on Residential Property

Despite the environmental liability risks, some cities have been aggressive in attempting to manage brownfield properties.  Municipal land banks, such as the City of Cleveland Industrial-Commercial Land bank, have assembled and even cleaned up some brownfield sites. 

As discussed above, pursuant to R.C. 5722.22, County land banks have greater immunity from environmental liability pursuant to state statutes or common law.  Despite these protections, County land banks have been less proactive when it comes to brownfield properties.

Right now, County land banks are much more focused on addressing vacant residential properties. A current review of property held by the Cuyahoga Land Bank shows a long list of residential properties:

With the foreclosure crisis, its logical that County land banks would be focused on the residential property issue.  

However, the reason the Ohio General Assembly inserted the environmental immunity provisions contained in R.C. 5722.22 was to encourage land banks to address brownfield properties.  

County land banks that perform a limited amount of due diligence in advance of taking ownership (i.e. BFPD), coupled with the state immunity provision in R.C. 5722.22, can be powerful allies in addressing brownfield properties.  We need to see more examples of County land banks working collaboratively to facilitate cleanup and redevelopment of these properties.