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

 

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.

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.

 

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.

 

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.

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.  

 

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.
 

 

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.

Does this picture show a waterbody that should fall under federal protection pursuant to the Clean Water Act?

Do you believe this is a stream that has a "significant nexus" to a navigable waterway (current test established under Rapanos by Supreme Court Justice Kennedy)

Is it reasonable to require a Federal Section 404 and State 401 Water Quality Permit in order to fill this drainage way adjacent to the road?

Well, the Army Corps of Engineers (ACOE) issued a Jurisdictional Determination (JD) finding that this is a federally protected stream.  This is a perfect example of why so much controversy surrounds the extent of federal jurisdiction under the Clean Water Act.

Recap of Rapanos

Since Rapanos, Justice Kennedy’s “significant nexus” test has been used to determine jurisdiction for streams and wetlands. Under the test, a waterway is evaluated to determine whether it impacts the chemical, physical, and the biological integrity of a navigable water. If it does impact a navigable water in that manner, then it falls under federal jurisdiction.

The significant nexus test is really a legal test, not a scientific one.  As such, the test is very subjective.  As a result, litigation has ensued over whether streams and wetlands fall under federal jurisdiction.

ACOE Extends its Reach

The ACOE applies the "significant nexus" test in making a JD.  It is the initial step in the process. However, as previously discussed in a recent post, it is difficult for a landowner to challenge a JD issued by the ACOE.  Their choice if they disagree with the Corps determination is either to proceed with the project and risk fines or acquiesce and initiate the permitting process.  

Perhaps in full recognition that most landowners will not fight a JD issued by the ACOE, certain Districts of the ACOE have been aggressive in their application of the "significant nexus" test.  The picture demonstrates one such example.  

Impact on EPA Rule

In attempt to address the increasing amount of litigation and uncertainty surrounding which water bodies fall under federal regulation, EPA released is proposed rule- "Definition of ‘Waters of the United States’ Under the Clean Water Act". The rule was released on March 25, 2014.

Many in the business community have commented that EPA’s proposed rule provides certainty by purporting to regulate virtually all waterways. The rule proposal contains an entirely new definition of "tributary," which under the proposed rule, would be classified as jurisdictional waters with no further analysis.  Under the proposal, a “tributary” is any waterway that meets the following characteristics:

  • Can have perennial, intermittent or ephemeral flow
  • Has a defined bed, bank and ordinary high water mark (a term defined under existing regulations)
  • Contributes flow, either directly or through another water, to as jurisdictional water
  • Or, is part of a network that drains to a jurisdictional water

The Agency’s proposed rule is controversial due to its open ended language providing discretion to capture almost anything as a federally protected stream.

Take the picture above, it could be argued this ditch has intermittent flow.  It may have a defined bed and bank.  If you traced its connections long enough, you probably could find another waterway to which it contributes flow.  

It is understandable why EPA would want to maintain the flexibility to broadly assert federal jurisdiction. There are many small tributaries that can impact water quality if destroyed.  EPA is worried about leaving such tributaries unprotected and allowing large impacts to those waterways with no oversight.

However, broad language cuts the other way as well.  The roadside ditch in the picture can also be deemed legally protected.  As such, the landowner, municipality or developer is forced to navigate a lengthy and costly permitting process to impact the ditch.  

A Reasonable Compromise?

Perhaps the vagueness of the "significant nexus" test isn’t such a bad thing.  It allows those small tributaries to be protected.  At the same time, the test allows for a legal demonstration that a small waterway is not worth protecting because it has no real value.

The issue is the inability of landowners to cost effectively challenge JD issued by the Corps. Perhaps establishing an administrative appeal process that would allow for quick challenges to JD determinations would be a reasonable compromise.

[UPDATE:  AFTER FURTHER INTERNAL REVIEW, I HAVE BEEN INFORMED THE ARMY CORPS AGREED TO NOT CALL THIS DITCH A JURISDICTIONAL WATERWAY]

 

The Ohio EPA enforcement process can appear to be a mystery, especially to companies that find themselves the subject of an EPA visit for the first time.  This post provides a general overview of the Ohio EPA civil enforcement process.

Step 1:  The Inspection

The enforcement process starts with the inspection.  The inspections can be announced or unannounced.  (A prior post discusses EPA’s inspection authority).

Typically, an inspector assigned to one regulatory area will perform the inspection. (i.e. air, surface water, drinking water, hazardous waste or solid waste).  Most time, the inspector will limit their inspection to compliance with their assigned regulatory area.

If you find multiple inspectors at your door (called a "multi-media inspection") then there is probably cause for concern.  Typically, the Agency will not perform multi-media inspections unless they suspect there is an issue at your facility.

Here are some tips regarding handling an EPA inspection:

  • Listen closely to the inspector- Accompany them during the inspection. If they point out concerns that can easily be addressed, fix them. Also, follow up in writing telling the inspector what you have done. EPA appreciates pro-active companies who listen and respond to Agency concerns. This can go a long way toward establishing a good reputation.
  • Debrief with the inspector- Don’t be shy about asking for an oral report of the inspector’s findings during or after the inspection. Take notes of any concerns or requests for information made by the inspector. Then follow up if possible. Don’t wait for the inspector to provide a letter if you can easily address some of the issues. If you are able to provide information not available during the inspection that demonstrates compliance, you may avoid seeing these issues in a formal notice or letter from EPA.

If the violations are not corrected after the first inspection, the inspector will more than likely return in the near future to document the ongoing nature of the violations.

Step 2:  Notice of Violation (NOV)

If the inspector believes that the company or facility is not in full compliance with applicable environmental regulations, they will issue a formal letter called a "Notice of Violation’ or NOV.  The NOV will specifically identify the regulation(s) that the inspector believes have been violated.  The NOV will also contain the facts observed during the inspection that the inspector believes supports their conclusion a violation has occurred.  

If you or the company receives an NOV, respond in writing. (Note:  This may be the appropriate time to consult with an environmental attorney to help craft an appropriate response)  Failing to respond will more than likely ensure the matter proceeds to Step 3 discussed below.  

When responding, make sure you gather all appropriate information.  Inspectors can be wrong in stating a violation has occurred.  However, you must be prepared to refute their finding(s) with supporting documents or information.  

Relatively minor violations can often be addressed without escalated enforcement.  However, make sure you respond as to how and when the issue will be addressed.  

It is mostly up to the discretion of the inspector to decide when to recommend escalated enforcement (Steps 3 through 5).  If violations are serious, the inspector could recommend further enforcement after only one NOV.  For less serious violations, it may take a few NOVs before an inspector recommends further action.

Step 3:  Enforcement Committee

If the inspector believes the Agency should take more formal action beyond a NOV, he/she will put together an enforcement referral from the District Office to Central Office.  The referral package will include a memorandum summarizing the issues and inspector’s recommendations.

The referral package will typically be reviewed by the Central Office Enforcement Committee.  The Committee is made up of enforcement coordinators from the Division as well as an attorney from the Legal Office.  The committee will review and discuss the recommendation and decide whether to: a) proceed to Step 4; b) jump to Step 5 or; c) take no action at the present time.

Step 4:  Director’s Final Findings & Orders (DFFOs)

If the Enforcement Committee decides further enforcement is necessary, in most instances they will begin with administrative orders- Director’s Final Findings & Orders (DFFOs).  DFFOs contain findings of fact which set forth the basis for the Agency’s conclusion that violations have occurred.

The DFFOs also contain an orders section.  The orders includes deadlines for correcting the violation  as well as proposed civil penalties.  Ohio EPA does not have unilateral civil penalty authority, therefore, any civil penalty contained in DFFOs must be agreed upon by the company.  

If the company and Agency cannot agree on terms of DFFOs, including but not limited to a civil penalty, Ohio EPA can refer the matter to the Ohio Attorney General’s Office (AGO).  Once a case has been referred to the AGO, it almost never will be sent back to Ohio EPA for resolution.

You should discuss with your attorney an legal advantages to resolving a matter at the DFFO stage versus the Attorney General’s Office.  

Step 5:  Referral to the Attorney Generals Office

This is the final step in the escalated enforcement process.  Once a matter is referred to the AGO, an Assistant Attorney General will be assigned to the case.  The attorney will send an initial letter asking whether the person/company would like to try and settle the matter without litigation in court.  This stepped is called an "invitation to negotiate" or ITN.  

If a settlement can be reached it will be in the form of a formal judicial consent order that is filed in court.  In order to file a consent order, a complaint (lawsuit) must be filed which contains the specific violations alleged by the State.

If the parties cannot reach agreement on the terms of a consent order, the AGO will file a complaint and proceed with litigation in court.  The AGO will typically indicate that higher penalties will be requested if the AGO is forced to proceed with litigation.

Conclusion

This meant only as a basic overview of the typical Ohio EPA enforcement process.  The specific facts of a case may result in the Agency taking different action.  

The best defense to Agency enforcement is to be well prepared and have a good team in place (technical and legal advisors).  Gather all the facts and respond strategically.  Keep in mind that no matter how the case is finally resolved, EPA will visit your facility again in the future and the process can start all over again.