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On April 23rd, the U.S. Supreme Court issued a major ruling interpreting the breadth and scope of the Clean Water Act in County of Maui v. Hawaii Wildlife Fund.   The central issue was whether the Clean Water Act requires a permit when pollutants originate from a point source but are conveyed to navigable waters by a non-point source (in this case groundwater).  The Court ruled that a permit is required when such a discharge is the “functional equivalent of a direct discharge.”

Why is this decision noteworthy?

A source of ongoing debate over the scope of the Clean Water Act has been to what extent does the statute regulate discharges when they come into contact with groundwater?  The case at hand involved a wastewater treatment plant that discharges polluted water into the ground where it mixes with groundwater, which in turn, flows into a river or the ocean.  Does the wastewater treatment plant need a Clean Water Act permit?

Industry and the Trump Administration advocated for a narrow reading that “all releases of pollutant to groundwater” are excluded from the Clean Water Act (CWA) permitting program.  This would have resulted in a bright line test that a CWA permit is not required unless the point source directly discharges to a river, lake or the ocean.

Environmental groups argued that the 9th Circuit Court of Appeals got it right when it said a CWA permit is needed anytime a pollutant is “fairly traceable” to a point source discharge regardless of the time and distance the pollutant traveled before entering a navigable waterway.  Under the “fairly traceable” test, a CWA permit would be needed anytime a pollutant that enters a river, lake, or ocean could be traced back to a point source.

The Court found a middle ground with its “functional equivalent of a direct discharge” test.  The Court indicated that factors, which are discussed in more detail below, can used to determine whether a specific discharge triggers the need for a CWA permit.

In arguments before the Court, industry and the Trump Administration argued that anything other than the bight line test could lead to the requirement of CWA permits being required for 650,000 wells similar to Maui’s or the over 20 million+ septic systems used by homeowners.  As described in a Bloomberg article about the ruling, the reaction from some industry is that the ruling would be “devastating to industry.”

No doubt the ruling means more CWA permits will be required which means greater regulation of discharges to groundwater.  As discussed below, exactly how far the Court’s ruling extends will likely not be decided for years.

What are the factors that would determine whether a CWA Permit is needed for an indirect discharge?

The Court laid out several factors that lower courts can use to evaluate whether a specific discharge would trigger the need for a permit when there is an indirect discharge to a river, lake or ocean:

  1. Transit time
  2. Distance traveled
  3. Nature of material through which the pollutant travels
  4. Extent pollutant is diluted or chemically changed as it travels
  5. Amount of pollutants entering navigable waters (i.e. certain streams, rivers, lakes and oceans) relative to the amount of pollutants that leaves the point source
  6. The manner by or area in which pollutants enters navigable waters
  7. Degree to which the pollution (at that point) has maintained its specific identity

The Court indicated that the most important factors would be the time it takes for a pollutant to reach navigable waters and the distance traveled, but it provided very little clear guidance regarding the time and distance factors.

In its opinion the Court suggested that a distance of 50 miles from the point source before it reaches navigable waters may be too far to trigger a permit.  The Court also suggested that if pollution from a point source took 60 years to reach navigable waters, that would be too long.

Dissenting Justices Thomas, Gorsuch, and Alito criticized the majority for providing only vague guidance rather than a bright line test.  Questions remain as to how the factors will be applied.  For example, is 10 years, five years, one month, or one week too long to reach a navigable water?  Or, with regard to distance, what if the pollution has to travel five miles, one mile, or 300 yards?  Clarity on those questions won’t happen until there are additional lower court rulings regarding the “functional equivalent test.”

Why will this ruling will likely result in a lack of regulatory certainty and years of litigation?

In 2006, the Supreme Court issued Rapanos v. U.S. which is another landmark Clean Water Act decision.  In the Rapanos decision, Justice Kennedy established the “significant nexus test” to determine which streams and wetlands are regulated under the Clean Water Act.  Similar to the “functional equivalent” test, the “significant nexus test” was not a bright line test.  The “significant nexus test” significantly extended jurisdiction to streams and wetlands that were not adjacent to navigable waters if impacts to those streams or wetlands “affect the chemical, physical, and biological integrity of other covered waters understood as navigable.”

What ensued in the aftermath of Rapanos was years of litigation and two attempts by U.S. EPA to provide clarity through rulemaking to the “significant nexus test.”  Fourteen years later, the Trump Administration has enacted the latest rulemaking referred to as the “Navigable Waters Protection” rule. The Trump Administration rule will be challenged immediately as being inconsistent with the Clean Water Act and the Rapanos decision.

Similar to the aftermath of Rapanos, it is easy to see there will be years of litigation in the courts and efforts by U.S. EPA to define the “functional equivalent” test.

Why the ruling may not be good news for the Trump Administration’s environmental deregulatory agenda?

The Trump Administration has adopted a number of rules designed to reduce environmental regulation on industry.  Some of those recent rulemaking efforts were designed specifically to unwind Obama Administration environmental rules.

The Navigable Water Protection rule is one such example.  After signing Executive Orders early in the Administration, in 2020, the Trump Administration finalized the Navigable Water Protection rule which was designed to narrow federal jurisdiction over wetlands and streams.

A New York Times Article suggested that, as of end of 2019, there were 95 rules that the Trump Administration has targeted to reduce regulation of industry.  One may certainly find flaws with this analysis, but the Administration has been upfront that it believes there are too many environmental regulations on businesses.

In the County of Maui case, the Court noted that the Trump Administration had issued interpretative statement in 2019 that “all releases of pollutants to groundwater” are excluded from the permitting program.  Even though the Court noted that EPA guidance is entitled to deference, the Court ruled that EPA’s interpretative guidance results in a “loophole that defeats the statute’s basic purpose.”

Most noteworthy, two conservative Justices- Chief Justice Roberts and Justice Kavanaugh- sided with progressive Justices (Breyer, Ginsburg, Sotomayor and Kagan).  While Justice Kavanaugh in his concurring opinion suggests he was following Justice Scalia’s literal reading of the statutory language, he still disagrees with the position advocated by the Trump Administration before the Court that would have narrowly defined when a CWA permit is required.

There are multiple challenges to other Trump Administration rules working their way through the Courts.  The County of Maui case suggests a willingness by conservative justices to put some restraints on efforts to reduce federal environmental regulation.

Polyfluoroalkyl substances (PFAS)- used in non-stick applications such as cookware, paper packaging, and textiles, as well as in certain types of firefighting foam- have become the new asbestos, and  PFAS litigation has been filed in multiple states.  Both the federal government and state governments have been moving forward with significant new regulation of the PFAS compounds.  Summarized below are actions taken at both the federal and state levels to regulate PFAS substances.

Federal Regulation of PFOS and PFOA

  • Interim Cleanup Recommendations for PFOS and PFOA– On December 19, 2019, U.S. EPA established preliminary cleanup standards for CERCLA and RCRA cleanup sites; however, as the guidance documents makes clear in the first footnote on the memorandum, it is “not considered binding on any party.”
  • Safe Drinking Water Act (SWDA)- On February 20, 2020, U.S. EPA issued a preliminary regulatory determination under the SWDA for perfluorooctane sulfonate (PFOS) and perfluoroctanoic acid (PFOA).  EPA has proposed a standard of 70 parts per trillion as the maximum amount allowable in drinking water.  This is the first step in a lengthy regulatory process to establish “maximum contaminant level” (MCL) under National Primary Drinking Water Regulation.  MCLs   have two major regulatory impacts: 1) drinking water plants must treat finished drinking water below the MCLs ; and 2) MCLs become the default cleanup standard for groundwater contamination at most cleanup sites.  While EPA is taking this initial step, it could take four or five years before the MCLs are finalized between public comments periods and scientific justification of the new MCLs.
  • Certain PFAS Compounds Listed as Hazardous Substances under CERLCA– According to the National Law Review, EPA had committed to regulated PFOA, PFOS, and a PFOA-replacement chemical known as GenX as hazardous substances under CERCLA by the end of 2019;  however, EPA has not yet issued a proposed rulemaking.  Even if designated as hazardous substances, U.S. EPA would have to establish appropriate cleanup levels.  If EPA waits for finalization of MCL standards it could be years before cleanup standards are established; however, as discussed below, some states have moved forward in establishing their own MCLs.  In those states, once the PFASs are designated hazardous substances, state cleanup standards must be followed in CERCLA cleanups in those states.  In those states that adopt state specific MCLs, it will unlock CERCLA’s broad reach to recovery cleanup costs from companies that generated, transport or disposed of PFAS compounds.
  • Petition to Regulate as Hazardous Waste- On January 15, 2020, environmental groups filed a petition asking U.S. EPA to regulate certain PFAS compounds as a hazardous waste under the Resource Conservation and Recovery Act (“RCRA”).  If PFAS compounds were regulated as hazardous waste it would have huge implications for the generation, transport and disposal of PFAS waste materials.
  • Added to List of Reportable Chemicals- On December 4, 2019, EPA published a proposed rule for public comment adding certain PFAS compounds to the list of toxic chemicals subject to reporting under section 313 of the Emergency Planning and Community Right-to-Know Act (EPCRA).  One component of the proposed rule is whether the reporting threshold should be lowered from the typical thresholds of 25,000 lbs or 10,000 lbs depending on how the chemicals are used. On December 20, 2019, the National Defense Authorization Act added certain PFAS chemicals to the list of reportable chemicals pursuant to the Toxic Release Inventory (TRI) set forth in EPCRA Section 313.  Businesses should be tracking releases of these chemicals this year and will be required to report by July 1, 2021.
  • Import Regulation under TSCA– EPA is committed to using its authority under TSCA to evaluate new uses of PFAS.  On February 20, 2020, U.S. EPA issued a proposed supplemental significant new use rule (“SNUR”) under its TSCA authority.  A SNUR would require anyone seeking to import one of the listed  PFAS compounds to notify the EPA in advance.  EPA would then evaluate the risks posed by the proposed use.  EPA also recently developed a proposal to require notification and review under TSCA before PFAS chemicals are imported or manufactured in the U.S.
  • National Defense Authorization Act-  On December 20, 2019, the National Defense Authorization Act (NDAA) was signed into law.  NDAA automatically added 172 PFAS compounds to the EPA’s Toxic Release Inventory (TRI) which requires companies to report management of certain toxic chemicals. As a result of NDAA, facilities that manufacture, process, or otherwise use PFAS must report releases of these chemicals by July 1, 2021.  NDAA also requires all public water systems that serve 10,000 persons to monitor PFAS under the Safe Drinking Water Act.  While proposed, NDAA did not designate PFAS compounds as hazardous substances under CERCLA.

Ohio Action on Regulation of PFOS and PFOA

On December 2, 2019, Ohio EPA and the Ohio Department of Health issued the PFAS Action Plan for Drinking Water.  The plan includes the following steps:

  • The Ohio Plan calls for 1,500 public water systems to be sampled for PFAS compounds by the end of 2020.
  • While U.S. EPA moves forward with the slow process of establishing MCLs for PFAS compounds, Ohio EPA is using U.S. EPA’s non-binding Health Advisory Level (HAL) of 70 parts per trillion (ppt) for PFOS and PFOA.  Ohio EPA also will use action levels for four other PFAS compounds-  GenX compound (>700 ppt), PFBS (>140,000 ppt), PFHxS (>140 ppt) and PFNA (>21 ppt).
  • Ohio EPA and Ohio Department of Health will issue response protocols for public and private water systems that show exceedances of the HALs.
  • Ohio EPA will provide information on loans and technical assistance to public water systems on treatment for PFASs compounds.

As discussed below, other states have moved forward with the establishment of MCLs without waiting for U.S. EPA to finalize national drinking water standards.  As more states adopt standards, pressure will increase on Ohio to do the same, especially once it collects data showing contamination in public drinking water supplies above HALs.

Other States Adopt Drinking Water Standards

Many states have decided not to wait for EPA to move through its long rulemaking process to establish a national drinking water standard.  The following states have moved forward with adopted regulations establishing MCLs for drinking water in their states:

  • New Jersey proposed an MCL of 14 ppt for PFOA and 13 ppt for PFOS in drinking water
  • New Hampshire established an MCL of 12 ppt for PFOA and 15 ppt for PFOS in drinking water
  • New York proposed an MCL of 10 ppt for PFOA and PFOS in drinking water
  • Minnesota has established non-binding health advisories of 15 ppt for PFOS and 35 PFOA in drinking water
  • California established response levels of 10 ppt for PFOAs and 40 ppt of PFOS in drinking water
  • North Carolina proposed 70 ppt for PFOS and PFOAs in groundwater; 140 ng/l for Gen X compounds as a health advisory
  • Illinois proposed 14 ppt for PFOS and 20 ppt for PFOA in groundwater
  • Massachusetts proposed an MCL for drinking water at 20 ppt for six PFAS
  • Wisconsin has proposed a groundwater enforcement standard of 20 ppt for PFOA and PFOS
  • Michigan has proposed MCLs for seven PFAS compounds, including 8 ppt for PFOA and 16 ppt for PFOS
  • Colorado adopted the U.S. EPA health advisory standard of 70 ppt for PFOA and PFOS

The Council on Environmental Quality has proposed a new rule which would streamline the National Environmental Policy Act (NEPA) which is the federal law that requires review of the environmental impacts from federal projects or projects that receive federal funding.  NEPA has been called by its critics as an unnecessarily long paperwork exercise that delays projects.

The Trump Administration responding to criticism from industry has proposed the most significant overhaul to the process in its history.  The changes highlighted below are designed to shorten the review process and limit the scope of the review.

What is the NEPA review process?

The purpose of NEPA is to force the federal government to review the impacts of projects it controls or that receive federal funding.  Unless the project or action falls under an exemption, the agency must prepare an Environmental Assessment to determine if it will have significant impacts on the environment.  If the project or action will not have significant impacts, the agency issues a “finding of no significant impacts” (FONSI).  If the review shows the project or action will have significant impacts on the environment, the agency must prepare an Environmental Impact Statement (EIS).   The EIS process is long with opportunities for public comments.  The goal of an EIS is to force the agency to consider the impacts of the project or action in the agency’s decision making process.  If the agency decides to move forward with the action or project it must publish a Record of Decision (ROD) documenting what it considered and any changes to the project.

What are the proposed changes to NEPA?

  1. Limit which projects are covered by NEPA- The proposed rule redefines what is considered a “major federal action” triggering the NEPA process.  Only those actions are subject to “federal control or and responsibility” are covered by NEPA.  If the action or project is nondiscretionary, limited federal funding or limited federal control, NEPA will not be triggered.  As an example, if a project receives funding for design, but local or private funding will pay for the project, NEPA would not be triggered.
  2. Only direct environmental effects must be considered (i.e. not cumulative impacts like climate change)-  the proposed rule eliminates consideration of indirect or cumulative impacts.   Impacts that are considered remote in time or geographically remote do not need to be considered.
  3. Speed up the review process- the proposed changes seek to limit Environmental Assessments to one year and Environmental Impact Statements to no longer than two years (unless senior management approves a longer time period).  The proposed rulemaking notes that the average time to complete an EIS and ROD is 4.5 years.
  4. Reasonable alternatives- the proposed rule defines which alternatives must be considered as “reasonable alternatives” as those that are technically and economically feasible, meet the purpose and need for the proposed action and the goal of the applicant.

There are numerous other major proposed changes.  All of the changes are designed to limit which projects trigger a review, reduce the time period to complete reviews and limit what impacts must be considered.

The rule was proposed on January 10, 2020.  Comments must be submitted by March 10.


What action was taken?

On January 23rd, the Trump Administration released the final version of the rule which defines which waters are protected under the Clean Water Act.  The new rule is called the Navigable Waters Protection.  It replaces the prior Obama Administration rule referred to as WOTUS- “Waters of the United States.”

Back on February 28, 2017, President Trump signed an Executive Order titled “Restoring the Rule of Law, Federalism, and Economic Growth by Reviewing the “Waters of the United States Rule.”  The Order called for repeal of the WOTUS rule and replacement with a new definition of federally protected waters.

The Navigable Waters Protection rule goes into effect 60 days after publication in the federal register.

What is the significance of the action?

The Navigable Waters Protection Rule defines which waters and wetlands in the country are protected under the Clean Water Act.  WOTUS broadly defined federally protected waters.  The Trump Administration wanted to rollback protections under federal law to benefit development and farmers.

For federally protected waters (i.e. waters that are regulated under the Clean Water Act), businesses must obtain permits prior to discharging wastewater into such waters.  In addition, before development can occur which impacts federally protected waters, any person placing fill into either federally protected streams or wetlands must obtain a 404 permit from the Army Corps of Engineers along with a 401 water quality certification from the state or U.S. EPA.

What is the current extent of federal regulation prior to the new rule taking effect?

The Obama WOTUS rule never went into effect nationwide.  As a result, which waters were protected under the Clean Water Act was largely based a test that emerged from years of litigation in the courts.  Following the 2006 decision by the U.S. Supreme Court in Rapanos v. United States, the “significant nexus” test was used to determine which waters were jurisdictional (i.e. federally protected).   Basically, any waters that if impacted could have a chemical or biological impact on navigable waters.  However, under the significant nexus test it was difficult to ascertain how far federal protection extended.  In some cases, it extended to ephemeral streams that were dry except for when it rained.  It could also extend to wetlands that were not adjacent to navigable waters.

What waters are protected under the new rule?

The Navigable Waters Rule covers four categories of waters:

  1. The territorial seas and traditional navigable waters (i.e. waters currently used, or were used in the past, or may be susceptible to use in interstate or foreign commerce);
  2. Perennial and intermittent tributaries that contribute surface water flow to navigable waters;
  3. Certain lakes, ponds, and impoundments that contribute surface flow to jurisdictional waters; and
  4. Wetlands adjacent to other jurisdictional waters (in some circumstances even when an artificial or natural barrier exists between the wetland and jurisdictional water).

Which waters are now excluded from federal protection?

The rule specifically excludes certain types of waters from regulation under the Clean Water Act, including the following:

  • groundwater;
  • ephemeral streams (streams that only contain water when it rains);
  • diffuse storm water runoff;
  • categories of road and farm ditches (ditches that constructed to relocate a tributary can be jurisdictional);
  • prior converted cropland (prior to December 23, 1985 was drained or otherwise manipulated for agriculture);
  • manmade features for irrigation;
  • mining, construction or other activities located upland of jurisdictional waters; and
  • wastewater treatment systems

What’s next?

Litigation will certainly continue.  Expect multiple challenges to the new rule.  The legal basis for such challenges will likely include whether the Trump Administration provided sufficient justification for revoking the Obama WOTUS rule.  Legal challenges may also focus on whether the new rule’s definition of federally protected waters is too narrow under the U.S. Supreme Court’s 2006 Rapanos ruling.

Does Ohio have different standards for which waters are protected?

Yes. Ohio was one of a few states that passed separate legislation protecting so called “isolated wetlands.”  Therefore, in Ohio even if the wetland is not protected under the Clean Water Act you will still need to obtain an isolated wetland permit.

Also, the definition of “Waters of the State” under Ohio Revised Code 6111.01 includes:

  • “all streams, lakes, ponds, marshes, watercourses, waterways, wells, springs…” (Ohio EPA takes the position that “all streams” includes ephemeral streams that only receive water when it rains);
  • irrigation systems and drainage systems;
  • underground waters (i.e. groundwater)

Based on this definition of “waters of the state” more waterways, including groundwater, are protected under state law versus the Clean Water Act as defined in the Trump Administration’s Navigable Waters Rule.

The Greater Ohio Policy Center (GOPC) has been calling attention to Ohio’s so-called “legacy cities.”  These are the smaller to mid-sized cities across the state other than Cleveland, Columbus, Cincinnati, Toledo, Akron, Canton and Youngstown.  Cities like Portsmouth, Mansfield, and Lorain.

A recent Dispatch editorial called attention to GOPC’s efforts regarding Ohio’s legacy cities citing to a recent GOPC report.  Once fact highlighted in the report shows that, despite the nation’s booming economy, legacy cities continue to struggle.

Between 2000 and 2014, most Ohio cities with populations of 20,000 or more lost jobs, population and property value even as Columbus and the state overall improved on those measures.

With the loss of population and jobs comes more brownfield sites-  More empty buildings and factories with legacy pollution issues complicating their reuse.  It is difficult enough to attract new companies and jobs to smaller cities in Ohio, but the additional hurdle of historical contamination deters reuse.

The only way to address these properties is through brownfield grant programs such as former Clean Ohio program.  Grant funds are needed to pay for cleanup to prepare sites for reuse.  The State cannot wait until a company or developer shows interest in these properties.  That interest may never come if the company or developer has deal with the added cost of historical pollution on site.

As detailed in a prior post, with the sunset of the Clean Ohio program, brownfield cleanups declined.  The Voluntary Action Program (VAP) is the Ohio EPA cleanup program.  Here are the statistics of the number of completed cleanups in the last two years:

  • 2018 there were eighteen (18) completed VAP cleanups
  • 2019 there were nine (9) completed VAP cleanups with several pending
  • At the height of the Clean Ohio program, Ohio was completing thirty-five (35) VAP cleanups per year

GOPC has been advocating for new funding into the Clean Ohio program as one strategy to help legacy cities.  The Columbus Dispatch editorial board endorsed that proposal.  Now is the time to provide that funding while the economy in Ohio is still fairly strong.  Once the next recession hits, legacy cities will fall even further down the priority list.

On Friday, the Legislative Service Commission hosted a seminar discussing Ohio’s efforts to solve harmful algae blooms in its waterways including Lake Erie.  The seminar brought together researchers, government officials and business groups to discuss the science and solutions for addressing algae blooms.

The biggest takeaways from the seminar is that Ohio has a  very good understanding of the causes of harmful algae blooms.  Here is a quick summary of the causes of the large blooms in Lake Erie:

  • Lake Erie is the most shallow Great Lake
  • There is very little forested land around Lake Erie, in particular in the land along Ohio’s shoreline
  • Non-point source runoff, primarily from the Maumee River, carry the pollutants that provide the fuel for the algae blooms
  • Phosphorus loading from fertilizer is the primary cause of algae growth
  • More rainfall results in more runoff and worse seasonal algae problems
  • Warmer temperatures mean more algae (there has been a 2 degree increase in average temperatures since 1900 in Lake Erie Region)

With an understanding of the causes of harmful algae blooms, what is the solution?  Scientists have a pretty good understanding of the solution- reduce phosphorus loading.  Ohio is targeting a 40% reduction target in phosphorus loading.  A 40% reduction equates to 3,316 metric tons (7.3 million pounds) in phosphorus.

The level of cooperation in Ohio has never been greater.  I was impressed by one panel that included the Farm Bureau, The Nature Conservancy and the Ohio Environmental Council.  The presenters all spoke about the unprecedented level of cooperation between these organizations in the last few years.  In this age of divisive politics, it was encouraging to see environmental and industry groups working together.

This July, the H2Ohio Water Fund was established by Ohio Governor Mike DeWine. The legislation establishing the fund was a bipartisan effort.  H2Ohio will provide $172 million for projects to address water quality issues over the next two years.  The money will be used for the following:

  • Soil and nutrient management on farms
  • Restoring floodplains and wetland; and
  • Slowing down water through creation of two-stage ditches or other management practices

The level of commitment and cooperation is certainly unprecedented.  The open question is whether the 40% phosphorus reduction can occur simply as a target using voluntary efforts.  The significant water quality improvements that have been made in Ohio over the last several decades have largely been through permitting and regulation of wastewater discharges from industry.

Many businesses or developers are intimidated about purchasing property former industrial or commercial property that may be contaminated.  The fear of the unknown can be the biggest deterrent to considering properties that may be contaminated.  Common concerns include:


  • Could I be buying a potential mess, which could cost me six to seven figures to cleanup?
  • Could I be risking being liable to neighboring property owners if contamination is migrating off-property?
  • I don’t like spending upfront money on due diligence that may be lost if I don’t purchase the property; and
  • The complexity of environmental risk management is daunting.

These are legitimate concerns.  However, with the right approach there could be advantages to developing potentially contaminated property.  First, you should likely be able to negotiate a reduced purchase price.  I have had multiple deals where the property was purchase for $1.  Second, you may be able to leverage brownfield incentives to offset your due diligence or cleanup costs.

I have reviewed hundreds of Phase I and Phase II environmental assessments.  I also have managed redevelopment of highly complex brownfield sites as well as smaller sites with moderate contamination.  Here are five common mistakes I see by businesses, developers and even attorneys when purchasing potentially contaminated property.

1.  The LLC

Many buyers think that if the simply put contaminated property under ownership by a limited liability company (LLC) they will avoid personal liability.  While putting such property under separate corporate ownership is still advisable, it will not insulate you from personal liability.  There are a number of cases in which members of the LLC have been held personally liable even though they purchase the property with pre-existing contamination.  Ohio is particularly aggressive in pursuing members of an LLC personally.  Check out the following Ohio cases:

  • State ex rel. Petro v. Mercomp, Inc.  (2006) 167 Ohio App. 3d 64 – sole shareholder individual liable for corporation’s violations;
  • State ex rel. Cordray v. Evergreen Land Development, LTD 2016 WL 5408651- members personally participated in violations, and thus were jointly and severally liable with the LLC;
  • State ex rel. Petro v. Pure Tech Sys., Inc., 2015 WL 1959935- evidence sufficient to hold shareholder personally liable for a $6 million dollar penalty;
  • State v. Tri-State Group, Inc., 2004 WL 1882567- shareholder found personally liable for permit violations;
  • State ex rel. DeWine v. Sugar, 2016 Ohio 884- shareholder personally liable for failure to correctly remove and dispose of asbestos;
  • State ex rel. DeWine v. Marietta Industrial Enterprises, Inc., 2016 WL 6875425- overruled lower court and found there were genuine issues of material fact as to whether the president of the company, who was engaged in day-to-day compliance, could be held personally liable

2.  The “As Is” Sale 

This is more of a mistake on the seller’s side, but it is probably the singled biggest costly mistake I see made in transactions involving contaminated property.  The seller includes an “As Is” clause in the sale agreement and believes that the buyer is taking on all liability with regard to pre-existing contamination.

An “As Is” clause is simply a disclaimer of representations with regard to the condition of the property.  Unless the seller specifically includes a release of liability in the sale agreement, buyer still can sue seller for pre-existing contamination under a number of environmental statues as well as common law.  If you are selling property make sure you include a well-crafted release of environmental causes of action.

3.  If I Buy Contaminated Property I Must Perform a Highly Expensive Cleanup 

Most transactions involving contaminated property actually do not involve a full-blown cleanup under a particular environmental statute.  In Ohio, the brownfield cleanup program is called the Voluntary Action Program (VAP).  While the VAP can work well with highly contaminated property it doesn’t fit well with smaller or properties with marginal or moderate contamination.

To promote more redevelopment and reuse of contaminated property, U.S. EPA created the “Bona Fide Purchaser Defense” (BFPD).  The BFPD allows a buyer or potential tenant to significantly reduce their potential liability if the perform a certain level of due diligence (Phase I and Phase II property assessments).  If those assessment identify contamination, the BFPD requires the buyer to take “reasonable steps” to address contamination.  Broadly speaking, reasonable steps means eliminating ongoing releases of contamination and prevent exposure to contamination.  In the vast majority of cases, it will not mean full-blown cleanup of contamination.  Someone who properly utilizes the BFPD can appropriately manage their environmental risk allowing them to purchase or lease property that other buyers or tenants may avoid.

4.  Seller Gave Me a “Clean” Phase I 

Often I will hear a buyer say they don’t need to worry about environmental contamination because the seller of the property gave them a Phase I environmental assessment that showed no issues (i.e. a “Clean” Phase I).  However, over reliance on another party’s Phase I could be very problematic for several reasons:

  • A Phase I must be less than a year old and updated after six months to still provide BFPD protections to a buyer;
  • In order to use the seller’s Phase I, the buyer must get what is called a reliance letter from the environmental consultant that allows the buyer to rely on the conclusions of the report;
  • Low quality Phase I environmental assessment often show no issues.  Make sure the Seller used a reputable company and that the Phase I was performed to appropriate standards (i.e. ASTM 1527-13)
  • Remember that a Phase I does not involve any actual sampling of the property, therefore, contamination may go missed which is why it important to make sure you, as the buyer, qualify for the BFPD

5.  Not Having an Environmental Attorney Review the Purchase Agreement

I know this sounds self-serving, but I cannot tell you how many times in my practice I have seen this issue cause huge issues for both buyers and sellers of potentially contaminated property. A number of times I have been brought in late into a deal and the Client sends me a form purchase agreement that doesn’t address environmental issues. There are very specific environmental provisions in purchase agreements, which need to be carefully reviewed and negotiated.  These include:

  • Reps and warranties- Is there an “As Is” Clause?  Are there other reps being made about the environmental condition of the property?  Has the buyer made a rep that they have provided all available environmental reports in their possession?
  • Release- Is there a release of environmental liability included in the contract?  If so, what is the scope of the release?  There are court cases which have heavily analyzed the exact wording of environmental releases in contracts
  • Environmental Indemnity- Is either buyer or seller or both providing indemnification for environmental liability?  This is often the most challenging environmental provision in a purchase agreement to negotiate.

The Trump Administration has made it a priority to shift more responsibility to the states on enforcement.  On July 11, 2019, U.S. EPA released a memorandum to the Regional Administrators regarding federal and state enforcement.   The latest policy memorandum was a collaboration between U.S. EPA and State EPA Administrators.  The memorandum includes:

  • Best Practices for Coordination between U.S. EPA and the states on enforcement; and
  • Emphasizes the states primary role in performing inspections and taking enforcement

The first part of the memorandum discusses joint planning between U.S. EPA and the States to avoid duplicative inspections and enforcement.  The second part of the memorandum emphasizes a Trump Administrative priority that the states should be in the primary role of implementing programs under the Clean Air Act, Clean Water Act, Safe Drinking Water Act and hazardous waste regulation (i.e. RCRA).  The memorandum indicates that U.S. EPA will step in to take enforcement when “a state lacks economic or technical capability or the will to take timely an appropriate action.”

The memorandum identifies specific instances when it may be appropriate for U.S. EPA to take the lead on inspections or enforcement, including:

  1. When States request U.S. EPA take the lead;
  2. Violations that are part of the National Compliance Initiative (i.e. federal enforcement priorities);
  3. Emergency situations or where there is a substantial risk to human health or the environment;
  4. States lack the resources;
  5. Situations involving multi-state issues;
  6. Significant violations that a state has not timely or appropriately addressed;
  7. Situations where U.S. EPA criminal enforcement may be needed;
  8. When reviewing the effectiveness of a state’s enforcement program; and
  9. Enforcement at state owned or operated facilities

With a federal decrease in enforcement has there been an increase at the state level?

As reported in the Washington Post, in 2018 U.S. EPA inspected around 10,600 industrial facilities.  This amounts to about half as many inspections as U.S. EPA performed in 2010.  U.S. EPA assessed approximately $69 million in civil penalties which is the lowest in almost twenty-five years.  These statistics are based on data released by U.S. EPA.  While there has been a steady decline in enforcement over the last decade, the drop is more significant since the Trump Administration announced its policy that states will take the lead on enforcement.

Has there been a corresponding increase in the number of inspections and enforcement in the states?  It is very difficult to tell.  There a lack of consistency among the states in reporting enforcement statistics. Therefore, it is very difficult to determine if there has been an increase in recent years to correspond with the increased reliance on state enforcement by U.S. EPA.

Ohio is a good example of the difficulty in tracking whether states have increased enforcement in the past two years.  Ohio EPA no longer maintains a comprehensive enforcement report which annually reports its enforcement statistics.  Instead, each division publishes, in different locations on their webpages, links to each enforcement action taken sorted by calendar year.  A review of the number of enforcement actions taken over the last five years shows the difficulty in making any conclusions regarding Ohio EPA’s overall enforcement record.

    Air     Surface Water Hazardous Waste Drinking Water  Solid Waste/C&DD
2018  Not reported            69            11  Not reported                17
2017 Not reported            31            13 Not reported                16
2016 Not reported            39            17 Not reported                22
2015 Not reported            31            15 Not reported                12
2014 Not reported            33            18 Not reported                16

With the exception of a significant increase in enforcement actions in 2018 for the Division of Surface Water, the other divisions at Ohio EPA have not seen a significant increase in enforcement.  Two of the divisions do not publish issued enforcement actions on their webpages.  The Division of Air Pollution Control stopped listing the enforcement actions taken by calendar year in 2012.  No listing of enforcement actions taken could be found on the Division of Drinking and Groundwater webpage.

Some debate whether states should be required to report enforcement statistics.  During a time when there is major shift toward prioritizing state enforcement by the Trump Administration transparency is even more critical.

Despite its limitations, most commercial and industrial property transactions rely on the Bona Fide Purchaser Defense (BFPD) to CERCLA as the principal means of protecting new owners from environmental liability.  While EPA has adopted the “All Appropriate Inquiry” (AAI Rule) to provide some clarity to the steps necessary to qualify for the defense, there is still aspects of the AAI Rule that are open to interpretation.  Therefore, court rulings on applicability of the BFPD can be very instructive to practitioners, developers and property owners.

There have been very few court rulings interpreting application of the BFPD to CERCLA liability. The most notable prior ruling, PCS Nitrogen Inc. v. Ashley II of Charleston, limited the BFPD based on the defendant’s failure to establish certain required elements of the defense.

In a decision issued last month, Von Duprin LLC v. Moran Elec. Serv., Inc., No. 116CV01942TWPDML, 2019 WL 535752 (S.D. Ind. Feb. 11, 2019), the Indiana Federal District Court granted the BFPD even though the party asserting the defense did not obtain a Phase I prior to purchasing the property.  The Court’s ruling is notable in that EPA’s AAI Rule is mostly focused on the required elements of a Phase I environmental assessment to qualify for the BFPD.  The AAI rule also discusses “reasonable steps” that are needed if the Phase I identifies the possibility of any contamination on the property, which include:

  1. Stop any continuing release;
  2. Prevent any threatened future release; and
  3. Prevent or limit any human, environmental, or natural resource exposure to any previously released hazardous substance

Plaintiff’s argued Defendants should not qualify for the BFPD because the Defendants failed to perform a Phase I in accordance with AAI prior to acquiring the property.  Plaintiff also contended that the Defendants failed to perform necessary “reasonable steps” post-acquisition to address the contamination and, therefore, should not qualify for the BFPD.  The Court rejected Plaintiff’s argument regarding the adequacy of Defendants “reasonable steps” stating that Plaintiff’s contention was not “well developed.”  The Court also held that the Defendants’ performance of a Phase II was sufficient to establish the defense even without a Phase I stating:

CERCLA makes it clear that performing a Phase I Environmental Site Assessment is sufficient to satisfy the all appropriate inquiries prong of the BFPP defense. 42 U.S.C. § 9601(35)(B)(iv)(II). But the law leaves open to interpretation whether a Phase I assessment is the only way to satisfy that prong, saying that a Phase I assessment “shall satisfy the requirements” of the all appropriate inquiries prong. At least one court has determined that a Phase I assessment is not the exclusive means by which a purchaser of land can make all appropriate inquiries. R.E. Goodson Const. Co., Inc. v. International Paper Co., No. 4:02-4184-RBH, 2006 WL 1677136, at *6 (D.S.C. June 14, 2006). The Goodson court determined that the Senate Report on the amendment adding the “shall satisfy” language to CERCLA read that a Phase I assessment “can satisfy” the “all appropriate inquiries” requirement. Id. That court also noted that “Congress could have provided that a Phase I site assessment was required or was the exclusive procedure to satisfy the ‘all appropriate inquiries’ standard; however, Congress made no such mandate…This Court is inclined to agree with Goodson that Congress did not intend to make a Phase I Environmental Site Assessment the exclusive means by which a purchaser could satisfy the BFPP defense’s all appropriate inquiries standard.

Defendants Phase II assessment included collection of seven soil samples and three groundwater samples.  The sampling showed some exceedances of cleanup standards.  The Phase II report recommended removal of an underground storage tank (UST) and the associated contaminated soil in accordance with Indiana Department of Environmental Management (IDEM) regulations.  Defendants did perform the removal and the UST and excavation of the contaminated soil as recommended in the Phase II report.  After excavation, the Defendants backfilled the excavation with clean soil.

What is interesting is that with no Phase I performed how could the Court determine that the Phase II scope was adequate?  What was the basis of the determination that the UST was the only potential source of contamination on site that warranted sampling?  It is possible there was testimony on this issue, but it was not discussed in the opinion.

The ruling is a hopeful sign for the thousands of transactions that rely on the BFPD to address potential liability that the BFPD will be recognized by Courts.  However, despite the ruling, it is still strongly recommended that parties wishing to establish the BFPD do not skip the Phase I assessment process as set forth in the EPA AAI Rule.  Doing so leaves a new owner open to many different avenues of challenging its assertion of the BFPD.  Furthermore, the cost of a Phase I is somewhere between $2,500 to $4,500- a relatively small price to pay for environmental liability protection.