Managing HAZMAT Liability Managing HAZMAT Liability in Easement Acquisitionsin Easement Acquisitions

Gary FremermanGary FremermanNRCS Easement Programs Division NRCS Easement Programs Division

WorkshopWorkshopDenver, ColoradoDenver, ColoradoOctober 31, 2006October 31, 2006

Gary M. FremermanGary M. Fremerman

USDA Office of the General CounselUSDA Office of the General Counsel

Pollution Control TeamPollution Control Team

3351 South Building3351 South Building

1400 Independence Avenue, SW1400 Independence Avenue, SW

Washington, D.C. 20250-1412Washington, D.C. 20250-1412

Tel: 202-720-8041Tel: 202-720-8041

Gary.Fremerman@USDA.GOVGary.Fremerman@USDA.GOV

Hazmat Lawyer

ObjectivesObjectives

Understand the potential environmental liabilities and Understand the potential environmental liabilities and financial risks related to NRCS easementsfinancial risks related to NRCS easements

Consider ways to avoid or minimize NRCS liabilityConsider ways to avoid or minimize NRCS liability

I. Environmental Liability relating I. Environmental Liability relating to Easement Acquisitionto Easement Acquisition

USDA/NRCS policy recognizes that: USDA/NRCS policy recognizes that:

– Environmental contamination is an Environmental contamination is an important consideration in real important consideration in real property easement acquisition, and  property easement acquisition, and  

– Should normally be avoidedShould normally be avoided

– Department hazmat funds may not be Department hazmat funds may not be used to clean up contaminated land used to clean up contaminated land that is acquired through an easementthat is acquired through an easement

  CERCLA: the “800-Pound Gorilla”CERCLA: the “800-Pound Gorilla”

The Federal Comprehensive Environmental The Federal Comprehensive Environmental Response, Compensation, and Liability Act Response, Compensation, and Liability Act (“CERCLA”) is the best-known cleanup law (“CERCLA”) is the best-known cleanup law

affecting NRCS easements affecting NRCS easements

CERCLA LiabilityCERCLA Liability

It is a powerful law:It is a powerful law:

Strict Liability Strict Liability

Retroactive liability Retroactive liability

Joint and several liability Joint and several liability

Owner/Operator/Arranger liabilityOwner/Operator/Arranger liability

CERCLA LiabilityCERCLA Liability

Costs can be quite high: Costs can be quite high:

--Investigation --Investigation

--Cleanup --Cleanup

--Operations and maintenance--Operations and maintenance

--Deed restrictions --Deed restrictions

--Natural resources damages--Natural resources damages

--Defense --Defense

CERCLA LiabilityCERCLA Liability

Deed “protections” may be illusoryDeed “protections” may be illusory

CERCLA Liability (cont.)CERCLA Liability (cont.)

2002 Brownfields Amendments 2002 Brownfields Amendments to CERCLA:to CERCLA:

Easement holders subject to Easement holders subject to CERCLA liabilityCERCLA liability

CERCLA Liability (cont.)CERCLA Liability (cont.)

Judicial decisions indicate easement holders Judicial decisions indicate easement holders maymay be liable under CERCLA be liable under CERCLA

But provide less practical guidance as to But provide less practical guidance as to when they when they willwill be liable be liable

CERCLA Liability (cont.)CERCLA Liability (cont.)

Potential for liability increases with NRCS’ Potential for liability increases with NRCS’ increased involvement in and control over increased involvement in and control over the easement areathe easement area

WRP involves significant likelihood of WRP involves significant likelihood of CERCLA liability due to (1) reserve interest CERCLA liability due to (1) reserve interest deed, and (2) substantial NRCS controldeed, and (2) substantial NRCS control

--Inundation-related complexities--Inundation-related complexities

Legal LiabilityLegal Liability

NRCS (and even individual NRCS NRCS (and even individual NRCS employees) could be liable under other laws employees) could be liable under other laws for consequences of hazmat problemsfor consequences of hazmat problems

Examples: CWA, RCRA, ESA, MBTAExamples: CWA, RCRA, ESA, MBTA

Lake ApopkaLake Apopka

CERCLA Liability (cont.)CERCLA Liability (cont.)

Other NRCS easement programs also Other NRCS easement programs also involve hazmat risk, but generally less than involve hazmat risk, but generally less than WRPWRP

II. Avoiding or Minimizing LiabilityII. Avoiding or Minimizing Liability

Recent Legal Changes: Recent Legal Changes:

On January 11, 2002, President On January 11, 2002, President Bush signed into law the Small Bush signed into law the Small Business Liability Relief and Business Liability Relief and Brownfields Revitalization Act Brownfields Revitalization Act

This “Brownfields Act” amended This “Brownfields Act” amended CERCLACERCLA

Avoiding/Minimizing LiabilityAvoiding/Minimizing Liability

Expanded potential defenses under CERCLA to Expanded potential defenses under CERCLA to three types of purchasers of real property interests:three types of purchasers of real property interests:

Innocent LandownerInnocent Landowner – persons who did not know, – persons who did not know, and had no reason to know, that the property was and had no reason to know, that the property was contaminatedcontaminated

Bona Fide Prospective Purchaser (BFPP)Bona Fide Prospective Purchaser (BFPP) – persons – persons who knowingly acquire contaminated propertywho knowingly acquire contaminated property

Contiguous Property OwnerContiguous Property Owner – persons whose – persons whose property is contiguous to another property that is property is contiguous to another property that is the source of the contaminationthe source of the contamination

Avoiding/Minimizing Liability Avoiding/Minimizing Liability   

Common Elements of these CERCLA defensesCommon Elements of these CERCLA defenses::

Perform “all appropriate inquiries” into the prior Perform “all appropriate inquiries” into the prior ownership and uses of the property (before closing)ownership and uses of the property (before closing)

--Also known as hazmat screening or environmental due --Also known as hazmat screening or environmental due diligencediligence

--ASTM Standard E 1527 has been the applicable --ASTM Standard E 1527 has been the applicable standard (records review, site visit, interviews, report)standard (records review, site visit, interviews, report)

--Often called a “Phase I” Environmental Site --Often called a “Phase I” Environmental Site Assessment Assessment

--Superceded as of Nov. 1, 2006 --Superceded as of Nov. 1, 2006

Avoiding/Minimizing Liability (cont.)Avoiding/Minimizing Liability (cont.)

No affiliation with a liable partyNo affiliation with a liable party

Comply with land use restrictions and not impede Comply with land use restrictions and not impede the effectiveness or integrity of institutional the effectiveness or integrity of institutional controlscontrols

Avoiding/Minimizing Liability (cont.)Avoiding/Minimizing Liability (cont.)

Take “reasonable steps” with respect to hazardous Take “reasonable steps” with respect to hazardous substances affecting the landowner’s propertysubstances affecting the landowner’s property

Provide cooperation, assistance and accessProvide cooperation, assistance and access

Comply with information requests and administrative Comply with information requests and administrative subpoenassubpoenas

Provide legally required noticesProvide legally required notices

All Appropriate Inquiries (AAI)All Appropriate Inquiries (AAI)

AAI is the most important stepAAI is the most important step

Why AAI screening matters:Why AAI screening matters:– Provides NRCS defenses to CERCLA liabilityProvides NRCS defenses to CERCLA liability– Helps avoid/minimize liabilities under other Hazmat lawsHelps avoid/minimize liabilities under other Hazmat laws– Helps avoid acquisition of unsuitable easementsHelps avoid acquisition of unsuitable easements

Existing NRCS hazmat “checklists” are not Existing NRCS hazmat “checklists” are not sufficientsufficient

All Appropriate Inquiries (AAI)All Appropriate Inquiries (AAI)

EPA recently finalized new, more EPA recently finalized new, more stringent standards for conducting AAI stringent standards for conducting AAI (Nov. 1, 2005 FR)(Nov. 1, 2005 FR)– Effective Nov. 1, 2006Effective Nov. 1, 2006

Compliance with these new standards Compliance with these new standards will be required to achieve the three will be required to achieve the three defenses to CERCLA liabilitydefenses to CERCLA liability

All Appropriate InquiriesAll Appropriate Inquiries

Key changes made by new AAI rule:Key changes made by new AAI rule:

– Requires hazmat screening to be under the “supervision Requires hazmat screening to be under the “supervision or responsible charge” of an “Environmental or responsible charge” of an “Environmental Professional”Professional”

– More stringent definition of “Environmental Professional”More stringent definition of “Environmental Professional”– More detailed, comprehensive reportMore detailed, comprehensive report– Reduced “shelf life”Reduced “shelf life”– New ASTM Standard E 1527-05New ASTM Standard E 1527-05

Avoiding/Minimizing Liability (cont.)Avoiding/Minimizing Liability (cont.)

The Department has its own environmental guidanceThe Department has its own environmental guidance

It is applicable to all USDA agencies, including It is applicable to all USDA agencies, including NRCSNRCS

The Department requires a fairly stringent level of The Department requires a fairly stringent level of hazmat screening in connection with real property hazmat screening in connection with real property acquisition acquisition

Avoiding/Minimizing Liability (cont.)Avoiding/Minimizing Liability (cont.)

See USDA Department Manual DM 5600-001, “Environmental See USDA Department Manual DM 5600-001, “Environmental Pollution Prevention, Control, and Abatement Manual.”Pollution Prevention, Control, and Abatement Manual.”

Chapter XIV, Environmental Compliance for Real Property Chapter XIV, Environmental Compliance for Real Property Acquisition or Disposal (amended Nov. 18, 2004)Acquisition or Disposal (amended Nov. 18, 2004)

Primarily concerned with easements and other real property Primarily concerned with easements and other real property acquisitions that may result in CERCLA liabilityacquisitions that may result in CERCLA liability

The appropriate level of hazmat screening is ultimately a The appropriate level of hazmat screening is ultimately a policy call with legal ramificationspolicy call with legal ramifications

www.ocio.usda.gov/directives/index.htmlwww.ocio.usda.gov/directives/index.html

Avoiding/Minimizing Liability (cont.)Avoiding/Minimizing Liability (cont.)

At minimum, should be using a “tiered” approach:At minimum, should be using a “tiered” approach:

--Start with site visit--Start with site visit

--Complete checklist--Complete checklist

--Interview owner/operator--Interview owner/operator

--If hazmat problem(s) suspected, involve --If hazmat problem(s) suspected, involve hazmat experts; do “Phase I” ESA hazmat experts; do “Phase I” ESA

--If “Phase I” indicates contamination, --If “Phase I” indicates contamination, consider “Phase II” sampling work consider “Phase II” sampling work

Avoiding/Minimizing Liability (cont.)Avoiding/Minimizing Liability (cont.)

Hazmat terms and conditions in deed Hazmat terms and conditions in deed instruments:instruments:

– DefinitionsDefinitions– Representations and warrantiesRepresentations and warranties– IndemnificationIndemnification

Use of “model” hazmat provisionsUse of “model” hazmat provisions

Avoiding/Minimizing Liability (cont.)Avoiding/Minimizing Liability (cont.)

Follow-up with problem properties:Follow-up with problem properties:

--Eligibility criteria--Eligibility criteria

--Shift “burden of proof”--Shift “burden of proof”

Closing ThoughtsClosing Thoughts

Legally: easement holders can be subject Legally: easement holders can be subject to liability under CERCLA and other Federal to liability under CERCLA and other Federal and State hazmat lawsand State hazmat laws

Hazmat provisions in deed instruments are Hazmat provisions in deed instruments are important but not a “silver bullet”important but not a “silver bullet”

Hazmat screening is an important decision-Hazmat screening is an important decision-making tool and a form of “insurance”making tool and a form of “insurance”

Closing Thoughts (cont.)Closing Thoughts (cont.)

The extent of hazmat screening that NRCS The extent of hazmat screening that NRCS will undertake is a will undertake is a policy decisionpolicy decision (involving (involving the Department) with the Department) with legal implicationslegal implications

NRCS personnel should do or supervise the NRCS personnel should do or supervise the hazmat screening themselveshazmat screening themselves

Address hazmat issues early in processAddress hazmat issues early in process

Closing Thoughts (cont.)Closing Thoughts (cont.)

Specialized skills needed to assess and Specialized skills needed to assess and remediateremediate

Inter-agency coordination is increasingInter-agency coordination is increasing

Landowners may not always be truthful Landowners may not always be truthful or forthcomingor forthcoming