ENVIRONMENTAL DUE DILIGENCE

Transcription

1 ENVIRONMENTAL DUE DILIGENCE Developing Solar on Landfills & Brownfields June 12-13, 2017 Chicago, Illinois Matthew E. Cohn Greensfelder Hemker & Gale, P.C. 200 West Madison Street Suite 3300 Chicago, Illinois (312)

2 What is environmental due diligence? Phase I Environmental Site Assessment (noninvasive - records, conversations, and a walk through) Phase II Environmental Site Assessment (invasive soil borings, groundwater testing, vapor samples, sediment samples, surface water samples, etc.)

3 Why are you doing environmental due diligence? 1. To learn if there are or are not any environmental concerns and decide whether or not to walk away 2. To find no environmental concerns and become an innocent landowner 3. To find environmental concerns and become a bona fide prospective purchaser 4. Because the bank said to do it 5. Because that is what buyers do

4 What is not in a Phase I Environmental Site Assessment? Asbestos Lead-based paint Mold Radon Regulatory compliance (e.g., environmental permits)

5 What is CERCLA? Comprehensive Environmental Response, Compensation and Liability Act (Superfund Law), 42 U.S.C. 9601, et seq. Enacted in 1980 after Love Canal Amended in 1986 (contribution, settlements) Amended in 1996 (lender liability) Amended in 2002 (brownfields) Liability is strict responsible for conduct that was once acceptable Liability is typically joint and several, divisibility is the exception

6 CERCLA Section 107 (a) Covered persons (b) Defenses (1) owner and operator (2) owner or operator at the time of disposal (3) disposal arrangers (4) transporters (1) acts of God (2) acts of war (3) act or omission of third party in connection with a contractual relationship if the defendant exercised due care

7 CERCLA Defenses CERCLA 101(35) contractual relationship Includes contracts for the sale of real estate unless the property was contaminated before acquisition and (A)(i) At the time the defendant acquired the facility the defendant did not know and had no reason to know that any hazardous substance which is the subject of the release or threatened release was disposed of on, in, or at the facility.

8 CERCLA Defenses CERCLA 101(35) contractual relationship (B) Reason to know (i) All appropriate inquiries. -- To establish that the reason to know, the defendant must demonstrate that defendant had no (I) [before the purchase], the defendant carried out all appropriate inquiries into the previous ownership and uses of the facility in accordance with generally accepted good commercial and customary standards and practices find no contamination innocent landowner defense (II) the defendant took reasonable steps to stop any continuing release, prevent any threatened future release, prevent or limit any human, environmental, or natural resource exposure to any previously released hazardous substance find contamination bona fide prospective purchaser defense

9 CERCLA Defenses If the buyer will be asserting an innocent landowner or bona fide prospective purchaser defense, the All Appropriate Inquiries documentation (i.e., Phase I and Phase II ESAs) must be perfect. An inadequate Phase I ESA makes the purchaser not innocent. Failure to identify and implement continuing obligations makes the purchaser not bona fide.

10 All Appropriate Inquires Pointers The All Appropriate Inquiries process is self-executing. The EPA will never tell you that your Phase I and Phase II Environmental Site Assessments are good enough. Your environmental consultant will always tell you that they are. You won t really know until the buyer gets sued as a Section 107 liable party (i.e., owner) and has to defend the environmental consultant s work. The environmental consultant should be hired by the buyer. Buyer should be skeptical of Phase I and Phase II Environmental Site Assessment reports provided by the seller.

11 What other authority should I look to besides the CERCLA statute? EPA regulations at 40 CFR 312 ASTM E standards State law in Illinois, 415 ILCS 5/22.2(j) Federal Register publication of All Appropriate Inquiries rule, 70 FR

12 Ten Criteria for All Appropriate Inquiries (Must Be in the Phase I ESA Report) 1. Environmental Professional PE or PG and 3 years relevant experience Licensed by state to perform AAIs Bachelors degree or higher and 5 years experience 10 years experience

13 Ten Criteria for All Appropriate Inquiries (Must Be in the Phase I ESA Report) 2. Interviews Owners, operators, and occupants Current and past facility managers Past owners, operators and occupants Employees of past and current occupants For abandoned properties, owners and operators of neighboring properties

14 Ten Criteria for All Appropriate Inquiries (Must Be in the Phase I ESA Report) 3. Historical Records Look back to as far back as property contained structures or to time first time the property was used. Types of records: aerial photographs, fire insurance maps, building department records, chain of title documents, and land use records.

15 Ten Criteria for All Appropriate Inquiries (Must Be in the Phase I ESA Report) 4. Environmental Cleanup Liens Search for existence liens filed or recorded under federal, state, local or tribal law Records obtained by the person for whom report is being prepared may be provided to the environmental professional

16 Ten Criteria for All Appropriate Inquiries (Must Be in the Phase I ESA Report) 5. Review Government Records Databases of government records Government records Federal, state, local or tribal Subject property and adjoining properties Records of reported releases and investigation reports Records of activities that may cause contamination landfill, storage tanks, waste handling CERCLIS records Public health records

17 Ten Criteria for All Appropriate Inquiries (Must Be in the Phase I ESA Report) 5. Review Government Records (cont.) Registries of engineering controls, land use controls, institutional controls Records of releases or threatened releases on nearby properties Records of nearby NPL sites Records of nearby leaking storage tanks sites Records of RCRA generator sites Distance of nearby release sites relevant and considers: nature of release, geology, land development density, property type, past use, migration pathways

18 Ten Criteria for All Appropriate Inquiries (Must Be in the Phase I ESA Report) 6. Site Inspection Visual inspection of facility and locations where hazardous substances may have been used, stored, treated, handled, and disposed Visual inspection of adjoining facilities from the subject property line Visual inspection must be performed and cannot accept seller denial of access

19 Ten Criteria for All Appropriate Inquiries (Must Be in the Phase I ESA Report) 7. Specialized Knowledge or Experience Buyer s knowledge of the subject property Buyer s knowledge of area surrounding subject property Buyer s knowledge of conditions of adjoining properties Any other experience American Nat l Bank v. Harcros, 1997 WL (N.D. Ill.)

20 Ten Criteria for All Appropriate Inquiries (Must Be in the Phase I ESA Report) 8. Purchase Price Property being sold for less than the market value, because the seller knows the property is contaminated Deal is too good to be true

21 Ten Criteria for All Appropriate Inquiries (Must Be in the Phase I ESA Report) 9. Commonly Known or Reasonably Attainable Information Information generally known about the property in the local community Current owners or occupants Local and state governmental officials Other persons in the community Local newspapers, websites, organizations, libraries, historical societies Hemingway Transport v. Kahn, 74 FR 148 (Bankr. D. Mass. 1994) had [defendants] exerted a modicum of effort, would inspect further

22 Ten Criteria for All Appropriate Inquiries (Must Be in the Phase I ESA Report) 10. Degree of Obviousness Consideration of the totality of information collected Foster v. US, 922 F.Supp. 642 (D.D.C. 1996) cursory visual inspection, soil stained, in run-down industrial area, and did no testing not an innocent landowner The All Appropriate Inquiries process does not require sampling, but in some cases, it is obvious that sampling should be performed.

23 Other Things to Look for in a Phase I Environmental Site Assessment Report An opinion The environmental professional must describe any conditions indicative of releases or threatened releases Recognized Environmental Conditions (RECs). This is the whole point of the process. Make the consultant say what he/she believes no squishy language, no passive voice. Identification of data gaps How do those data gaps impact the environmental professional s opinion? Qualifications of environmental professional (resume) Statement that environmental professional is such and a signature

24 Other Things to Look for in a Phase I Environmental Site Assessment Report Statement that report and work done complies with the 40 CFR 312 rules Statement that report and work done complies with the ASTM E standard Statement that report and work done complies with any state law requirements (in Illinois, see 415 ILCS 5/22.2(j)) Certification of the environmental professional at the end of the report using language consistent with 40 CFR 312 and 415 ILCS 5/22.2(j)

25 Other Things to Look for in a Phase I Environmental Site Assessment Report Contains the sections identified in Appendix X4 of the ASTM E standard recommended table of contents. Conclusions that contain a summary of all Recognized Environmental Conditions. Conclusions which contain the statement contained in paragraph of ASTM E The report was prepared or updated in the last 6 months. Reliance on the report is authorized to any party other than the original party for whom the report was prepared.

26 Other Things to Look for in a Phase I Environmental Site Assessment Report May address non-scope items described in paragraph of the ASTM E standard Asbestos Radon Lead-based paint Lead in drinking water Wetlands Regulatory compliance Cultural or history resources Industrial hygiene, health & safety Ecological resources, endangered species Indoor air quality Biological agents, mold

27 Phase II Environmental Site Assessments Invasive investigation of Recognized Environmental Conditions (RECs) How much testing is enough? Soil borings around perimeter of site Soil borings in hazardous material areas Looking for the right chemicals EPA analytical test methods Looking in right media soil, groundwater, soil gas, sediment, surface water This is case-by-case, and a matter of professional judgment. You must be confident in your environmental consultant and environmental lawyer.

28 State Voluntary Programs Should I get a No Further Remediation letter before the closing? Do not be in a hurry. Lengthen the due diligence period. Recognize the limitations basically, it is protection from state enforcement. Compliments your environmental due diligence, does not replace it.

29 Ways to Manage Environmental Risk Associated with Contaminated Property Knowledge Engineering Controls Institutional Controls Insurance Indemnification Escrow

30 Consulting Agreement for Phase I Environmental Site Assessments States that the work will meet requirements of 40 CFR 312. States that the work will meet requirements of ASTM E States that the work will meet requirements of 415 ILCS 5/22.2(j) (for Illinois). Look at the limitation of liability. Look at the indemnity. Look at the price is it realistic? Who will actually be doing the work is he/she competent?

31 Most Phase I Environmental Site Assessments Fail to Meet the Standard EPA Must Implement Controls to Ensure Proper Investigations Are Conducted at Brownfields Sites, US EPA Office of Inspector, Report No. 11-P-0107 (February 14, 2011) EPA has relied on the environmental professional conducting the AAI to self-certify that requirements are met. Of the 35 AAI reports we reviewed, from three EPA regions, none contained all the required documentation elements.

32 Grand Pier Center v. ATC Group Services 2008 WL (N.D. Ill.) Streeterville, Chicago, Illinois Neighboring property was the Lindsey Light EPA site. After the Phase I was performed, EPA discovered radioactive thorium at the Grand Pier site and over 10,000 cubic yards of contaminated soil had to be removed. Phase I report incorrectly said that remediation was completed at the Lindsey Light site. ATC learned of radiation issues in the area within days of the report and did not amend the report.

33 Grand Pier Center v. ATC Group Services ATC said that it focused on VOCs, SVOCs, and priority pollutant metals. These tests do not include thorium. ATC placed one boring proximal to the Lindsey Light site, but never tested for radioactive waste. Phase I and Phase II ESAs were prepared for R.M. Chin and Associates, not Grand Pier Center LLC Only reliance for the Phase II ESA was only granted to Grand Pier Center Grand Pier cannot rely on the Phase I ESA and blame the consultant for the inadequate Phase I ESA

34 PCS Nitrogen v. Ashley II of Charleston 714 F.3d 161 (4 th Cir. 2013) First appellate court decision on the bona fide prospective purchaser defense Ashley II purchased a property with a long history of industrial use. Redevelopment plan was mixed-use. Ashley II knew the property was contaminated. Ashley sued prior owner and operator for response costs. Ashley II said that it was not itself liable. Ashley II said it was a bona fide prospective purchaser and met the eight requirements.

35 PCS Nitrogen v. Ashley II of Charleston Eight requirements of a bona fide prospective purchaser 1. Disposal of hazardous substances occurred before purchase 2. Buyer made all appropriate inquiries into property condition before purchase 3. Buyer provided required notices concerning hazardous substances 4. Buyer exercised appropriate care with respect to hazardous substances 5. Buyer complied with institutional controls for hazardous substances 6. Buyer cooperated and assisted response action personnel 7. Buyer complied with EPA information requests 8. Buyer not related to person potentially liable for response costs

36 PCS Nitrogen v. Ashley II of Charleston Ashley II ran into trouble with appropriate care (criterion 4) What is appropriate care take reasonable steps to: Stop any continuing release Prevent any threatened future release Prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substance These are the buyer s continuing obligations

37 PCS Nitrogen v. Ashley II of Charleston Ashley II did not take the reasonable steps to prevent any threatened future release that a similarly situated reasonable and prudent person would have taken Why did the court find Ashley II failed to exercise appropriate care? Ashley II did not timely clean out and fill sumps Ashley II did not monitor and address a debris pile Ashley II did not maintain a crushed rock cover on part of the site

38 Environmental Due Diligence Advice Start early Take it seriously Involve competent and smart people Manage expectations Be creative Make a record

39 DEVELOPING SOLAR ON LANDFILLS & BROWNFIELDS June 12-13, 2017 Chicago DEVELOPING SOLAR ON LANDFILLS & BROWNFIELDS

40 Due Diligence and CERLA Liability: Process and Pitfalls of Phase I ESAs and AAI June 12, 2017 Chicago DEVELOPING SOLAR ON LANDFILLS & BROWNFIELDS

41 Process and Pitfalls of Phase I ESAs and AAI What is a Phase I ESA What the goal of the Phase I? Who performs the Phase I? What's in the report? What are my responsibilities? What makes it successful? DEVELOPING SOLAR ON LANDFILLS & BROWNFIELDS

42 What is a Phase I ESA? Non-invasive Environmental Due Diligence Inspection Intended to identify conditions or issues which may pose current of future environmental risk: Recognized Environmental Conditions (RECs) Driven by lender requirements, need for business risk analysis, and/or need for CECRLA liability protection Performed on behalf of the User, typically the buyer or lessee DEVELOPING SOLAR ON LANDFILLS & BROWNFIELDS

43 Phase I ESA Standardization ASTM International E Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process US EPA All Appropriate Inquiries Final Rule (40 CFR Part 312) Performance under the direction of an Environmental Professional (EP) DEVELOPING SOLAR ON LANDFILLS & BROWNFIELDS

44 Who is an Environmental Professional? PE/PG with 3 years experience B.A./B.S. degree or higher in relevant discipline (engineering, environmental science, or earth science) with 5 years experience BA./B.S degree or higher with 10 years experience Essentially requires hiring and environmental consulting firm DEVELOPING SOLAR ON LANDFILLS & BROWNFIELDS

45 What is a REC? means the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (1) due to any release to the environment; (2) under conditions indicative of a release to the environment; or (3) under conditions that pose a material threat of a future release to the environment. It is NOT: asbestos, wetlands, lead based paint, compliance issues, etc.- these concerns must be addressed separately DEVELOPING SOLAR ON LANDFILLS & BROWNFIELDS

46 Components of the Phase I ESA 1.Records Review Federal, State and Tribal Environmental Records City, County, and State Records Review Building Department County Environmental Health Department City Fire Department Historical Records Review Aerial Photographs Fire Insurance Maps (Sanborn) Topographic Maps City directories Former Reports DEVELOPING SOLAR ON LANDFILLS & BROWNFIELDS

47 Components of the Phase I ESA 2. Site Reconnaissance Current Property Use Presence of Hazardous Materials and Petroleum Products Indications of Historical Use Adjacent Site Observations 3. Interviews Current owners and occupants Past owners and occupants, if available 4. Report Compile all data obtain and review Identify Findings and Document Opinion on RECs DEVELOPING SOLAR ON LANDFILLS & BROWNFIELDS

48 What is the role of the Consultant/EP? Conduct Site Inspection and Interviews Review Historical Records Compile Report and Identify RECs Guide the next steps as necessary, understanding your needs and risk tolerance DEVELOPING SOLAR ON LANDFILLS & BROWNFIELDS

49 What is the role of the User? Satisfy User Responsibilities (E Section 6) User Questionnaire- as provided by Consultant Review Title and Judicial Records for Environmental Liens and Activity and Use Limitations (AULs) Specialized Knowledge or Experience Actual Knowledge or Experience Purchase Price Commonly Known Information Understand the Process- What is likely to be found and what s next? DEVELOPING SOLAR ON LANDFILLS & BROWNFIELDS

50 What drives a successful Phase I ESA? Knowledgeable and Careful Consultant: Understands the ASTM/AAI requirements Understands the needs of the User Understands the next steps and their context User involvement: Understanding Who is the User? Understanding the responsibilities of the User Involved and cooperative parties: Knowledgeable site contacts Inclusion of previous reports and known issues DEVELOPING SOLAR ON LANDFILLS & BROWNFIELDS