Phase 1 Legal Lessons

Development of ASTM Methodology Prospective Purchaser Defense & Liability Protection, Recent Court Actions "Friends never let their friends bet chalk Florida Brownfields Conference 2011 November 14, 2011 Nicholas Albergo, P.E., DEE President & CEO Larry Schnapf, Esq. Schnapf LLC HSA Engineers & Scientists Larry@schnapflaw.com 4019 East Fowler Avenue Tampa, Florida 33617 nalbergo@hsa-env.com Phase 1 Legal Lessons Larry Schnapf Schnapf LLC Larry@schnapflaw.com 646-468-8483 1

CERCLA Defenses Third Party Defense (TPD) Innocent Landowner (ILO) Bona Fide Prospective Purchaser (BFPP) Contiguous Property Owner (CPO) TPD Release solely caused by Third Party No Direct or Indirect Contractual Relationship ILO exception to this element Due Care Precautions 2

ILO Did not know or have reason to know Exercise appropriate inquiry into past use and ownership Due Care Precautions Continuing Obligations 500 Assoc v Vermont American Corp (W.D.KY 2/4/11) 1986 Purchase- Cursory ESA detects metals (chromium) 1991ESA detects metals and VOCs No disclosure Sale falls through 1998 Enforcement Action 2002 KY ALJ Finds Joint Liability 2006 Ky Ct Appeal Holds No Due Care no precautions when demolishing buildings Left exposed soils Failure to secure property No disclosure to state 3

BFPP Defense Pre-existing Release No Affiliation Indemnity? AAI Substantial compliance? Post-Closing Continuing Obligations Appropriate Care Cooperation Compliance Notification CPO Did Not Know or have reason to know No affiliation AAI Continuing Obligations 4

Appropriate Care? Ashley v PCS Nitrogen (D.S.C.) 3000 E. Imperial v Robertshaw Controls (E.D. Cal. 2010) Saline River Properties v Johnson Controls, Inc (E.D. Mi. 2011) Robertshaw Controls Nov 2006-acquired site May 2007-Enter VCP and UST Sampled Sept 2007-TCE Detected Oct 2007- UST drained and drums removed 2009-9 USTs excavated Ct Says took reasonable steps by draining USTs. Not unreasonable to leave in ground 5

Borrower s Beware Lender s Acceptance Is Not Clean Environmental Adequate For Borrower s Plans? Ridge Seneca Plaza v BP Products (W.D.N.Y. 5/2/11); Ironwood Homes v Bowen (D.Or. 2010) Robert Hull and Point Pleasant Landco v. William Lewis (NJ App. 2009 Fact There is No Such Term as an Off-site REC! Recognized Environmental Condition (3.2.74) Presence or likely presence of HS or PP on a property under conditions that indicate a release or threatened release. Property (3.2.66) The real property that is the subject of the ESA. Includes buildings and other fixtures and improvements located on the property and affixed to the land. 6

Fact There is No REC if No Release Recognized Environmental Condition (3.2.74) Presence or likely presence of HS or PP under conditions that indicate a release or threatened release Not intended to include de minimis conditions (low health risk/unlikely enforcement). De minimis conditions are not RECs Includes conditions even in compliance with laws CERCLA Release 42 U.S.C. 9601(22) A release is defined as any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment (including the abandonment or discarding of barrels, containers and other closed receptacles containing any hazardous substance, or pollutant or contaminant), 7

Farmers Exemption Agricultural Land/Golf Course 42 U.S.C. 9607(i): No person (including the United States or any state or Indian tribe) may recover under the authority of this section for any response cost or damages resulting from the application of a pesticide product registered under the Federal Insecticide Fungicide and Rodenticide Act [7 U.S.C. 136, et seq. ("FIFRA"). ) SFWMD v. Montalvo, No. 88-8038-CIV-DAVIS 1988 WL 242688 (S.D. Fla. 1988), aff'd, 84 F.3d 402 Structures - Are there storage areas, structures, and/or potential mixing areas with signs of (or reported) releases? What are the conditions that indicate an existing release, a past release, or a material threat of a release? Material Threat (3.2.52) - must be: a physically observable or obvious threat which is reasonably likely to lead to a release... 8

Fact Historic Recognized Environmental Conditions (HRECs) May Need Further Scrutiny 3.2.39 Past release remediated to the satisfaction of the applicable regulatory agency (NFA) What was the criteria for closure at the time? What about self directed cleanups? Is/was the closure subject to continuing obligations? HREC Remedy Still Protective? Risk-Based Cleanup? Compliance With LUCs NFA Letter May Not Cut-off Liability File Review? Beware of Toxic Tort Liability Dry Cleaner and Tank Funds Groundwater ordinances Breach of Contract Alfieri v Bertorelli (Mich. 10/18/11)(condo owner reliance on sales brochure) 9

Fact Additional Environmental Record Sources MUST be checked when 8.2.2 Additional Environmental Record Sources In the judgment of the Environmental Professional, such additional records Are reasonably ascertainable Are sufficiently useful, accurate and complete Are generally obtained, pursuant to local good commercial and customary practice Bombing Ranges Landfills Dry Cleaners Old Tanks Inadequate Historic Research 10

Fact Opinions and Recommendations are Not the Same as Part of an ASTM E 1527 Phase I ESA 12.6 Opinion The report shall include the environmental professional s opinion(s) of the impact on the property of conditions identified in the findings section. Fact Recommendations are Not a Part of an ASTM E 1527 Phase I ESA Additional Services (12.9) Any additional services contracted for between the user and the environmental professional(s), including a broader scope of assessment, more detailed conclusions, liability/risk evaluations, recommendation for Phase II testing, remediation techniques, etc., are beyond the scope of this practice, and should only be included in the report if so specified in the terms of engagement between the user and the Environmental Professional. 11

Phase 1 Recommendations ASTM E1527 Opinion and Conclusion On RECs RECs vs BERs Sensitive Receptors Recommendations Not Required Make Sure Implement Recommendations Coordinate Schedule With Lender Ashley Site Conditions Widespread lead and arsenic Carcinogenic PAHs Low ph conditions throughout site that mobilized metals Site covered with limestone run of crusher (ROC) in phases 12

Notable Findings of Law Court rejects divisibility argument Ashley response actions found consistent with NCP despite absence of formal agreement with EPA or state Current operators do not need to direct operations related to pollution to be liable for response costs Exercise of due care includes informing authorities of discovery of contamination Ashley BFPP defense Materially Satisfied AAI Did Not Prove No Disposals After Title Effort to Dissuade EPA and Indemnity was Improper Affiliation No Appropriate Care for: sumps, debris pile maintenance of ROC Removal of pumps exacerbated conditions 13

Lessons Self-Implementing Nature of BFPP LLPs are legal Defenses Burden To Prove In Counterclaim Recommendations in Phase 1 Reports Exercise Extreme Care For Grading Actions Beware of Sensitive Receptors Disclosure Discuss Remedial Schedule With Lender Impact of Due Care on Apportionment Ashley II of Charleston, LLC v. PCS Nitrogen, Inc., No. 2:04-cv-2782- MBS, 2010 WL 4025885 (D.S.C. Oct. 13, 2010) ( Ashley II ). Purpose (1.1) this practice is intended to permit a user to satisfy one of the requirements to qualify for the innocent landowner, contiguous property owner, or bona fide prospective purchaser limitations on CERCLA liability (hereinafter, the landowner liability protections, or LLPs 14

Fact Opinions Regarding Additional Appropriate Investigation is Unusual Additional Investigation (12.6.1) The environmental professional should provide an opinion regarding additional appropriate investigation, if any, to detect the presence of hazardous substances or petroleum products. This opinion should only be provided in the unusual circumstance when greater certainty is required regarding the identified recognized environmental conditions. Fact The Opinion Does not Change the Outcome A Phase I Environmental Site Assessment which includes such an opinion by the environmental professional does not render the assessment incomplete. This opinion is not intended to constitute a requirement that the environmental professional include any recommendations for Phase II or other assessment activities. 15

Example Opinion The disposition of the identified REC, the applicability of one (or more) of the landowner liability protections to CERCLA, its relevance to the future intended uses of the subject property and, finally, the business risk tolerance of the User, may be clarified through further examination (or assessment) of XXX. OR If going the business environmental risk route, simply replace REC with a description of environmental concern/feature in Opinions Section of the Phase I Report. Fact - Vapor Intrusion is not a Part of the 1527-05 Standard Practice Current E 1527-05 could be viewed as having contradictory statements when considering the discrepancy between indoor air as a non-scope item (ASTM 13.1.5.12) and the REC definition. Includes releases into structures on the property (ASTM 3.2.74), and thus offers little direction other than vapor intrusion is not part of the current Phase I Standard. 16

Misconceptions Vapor migration evaluation is not part of a Phase I unless the client asks for it. Vapor migration must be treated no differently than contaminated groundwater migration in a Phase I CERCLA, AAI and the REC definition in E 1527-05 do not differentiate releases by media and include consideration of vapor releases Misconceptions All Vapor Encroachment Concerns (VECs) are RECs. Only for HUD More often than not VECs will not be RECs (i.e., E 1527-05 de minimus criteria in REC definition) 17

Summary VEC-REC Determination is Impacted By State VI Guidance and E 1527-05 de minimus criteria in REC definition Soil characteristics, subsurface layers and depth to water table Hydraulic barriers Physical barriers Building design and location on property Building operation Vapor Intrusion (RCRA 7002) Voggenthaler v Maryland Square (D.Nv 2010) Bozeman Solvent Plume Site Stoll v Kraft (S.D. Ind) Sher v Rayethon (M.D. Fla) First Property v Behr Dayton (S.D. Ohio) The Newark Group v Dopaco, Inc (E.D.Cal) West Coast Home Builders v. Aventis Cropscience (N.D. Cal) 18

REC ISSUES De minimis Not CERCLA Concept Release Broader Than Disposal Release Exclusions Building Product Exclusion (LBP, ACM) Naturally Occuring (Radon) Consumer Product Indoor Air Methane? Vapor Intrusion? Methane Case Studies Bank of NY Mellon V Morgan Stanley (S.D.N.Y) BancorpSouth v EOI (E.D.Mo) Florida subdivision on former landfill Numerous Mobil Home Park Developments 19

Diffuse Anthropogenic pollution ("DAP") The Dilemma How should common knowledge that urban soil (or surface waters) often contains substances (which may be hazardous) above unrestricted use criteria, be handled during the course and completion of an ASTM E 1527-05 Phase I Environmental Site Assessment? Diffuse Anthropogenic Pollution ("DAP") Question: What about Substances Present above Risk-based or Use Criteria vs. a Standard? Is it a REC? Is/was there a statutory Release? Is it an actionable source from the perspective of CERCLA (e.g., RQ release or impacts above an Action-specific ARAR)? Is it actionable the result of a State Standard (MCL)? 20

Question 1 Is/Was there a CERCLA release? What is known about the DAP? What is/are the mechanism(s) of release? Is/are there identifiable source(s)? Is/was there a hazardous substance, or pollutant or contaminant involved? Answer:??? Remember, if no release then no REC. ASTM 3.2.74 de minimis condition The term (i.e., REC) is not intended to include de minimis conditions that generally do not present a threat to human health or the environment and that generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies. Conditions determined to be de minimis ARE NOT recognized environmental conditions (RECs). 21

Question 2 Is it an actionable source from the perspective of the EPA? Is the soil impact the result of an RQ release/action-specific or automotive exhaust (for example) and not historic uses of the property or some long since discontinued industrial activity? Answer: By definition, if no CERCLA enforcement (even if there is a release), then No REC. Question 3 Is it actionable the result of a State Standard (MCL)? Notwithstanding an actual defined act (that caused the release) and data that demonstrates a violation of a State Standard (i.e., health threat), there is no obvious regulatory enforcement vehicle. Answer: The soil (for example) may contain DAP, but would not likely be subject to a specific enforcement action, and thus could qualify as a de minimis condition. Therefore, No REC. 22

Question 4 What about Substances Present above Risk-based or Use Criteria? Other than Location or Action-specific ARARs Regulatory mandated or Voluntary Criteria Answer: If no response the result of enforcement actions (i.e., a violation of a Standard), there may be an exceedance of risk-based criteria, but not the result of an enforceable release and therefore No REC. How should common knowledge that urban soil often contains substances present above unrestricted use criteria be handled during the course and completion of an ASTM E 1527-05 Phase I Environmental Site Assessment? Question 5 What about information which represents an "obvious" threat when considering future use(s)? 23

Statutory provisions that the Court will consider when ruling on the defense Specialized knowledge or experience If purchase price is below market value Commonly known or reasonably ascertainable information Obviousness of contamination Ability to detect by inspection ASTM E1527-05 Purpose (1.1) Define good commercial and customary practice (i.e., all appropriate inquiry AAI ) Intended to permit the User to satisfy one of the requirements to qualify for the landowner liability protections to CERCLA May identify other business environmental risk issues associated with non-cercla liability (1527-00/05) 24

Good Commercial or Customary Practice? RECs include releases of non-cercla petroleum products in the scope of E1527, why not DAP? Should the LLP Continuing Obligations impact how DAP is handled in the context of a Phase I ESA? What about liability from DAP that is incurred in the form of claims outside of CERCLA (i.e., business environmental risk issues? A REC? Is this where an opinion regarding additional appropriate investigation is warranted? Continuing Obligations LLPs remain available so long as the landowner: Takes reasonable steps to stop/prevent any ongoing release; Provides full cooperation in connection with response actions; Compliant with any land use restrictions or request for information; Does not impede the integrity of any institutional control employed for response actions; and Provides legally required notices with respect to the discovery of HS 25

Reasonable Steps Stop continuing releases Prevent threatened future releases; and Prevent or limit human, environmental, or natural resource exposure to earlier hazardous substances releases CERCLA 101(40)D Bona fide prospective purchaser CERCLA 107(q)(1)(A) - contiguous property owner CERCLA 101(35)(B)(II) - innocent landowner Bona fide Prospective Purchaser Knowledge of contamination and the opportunity to plan prior to purchase. Bona fide prospective purchasers may have an obligation to provide notice of discovery Providing notice of the contamination to appropriate governmental authorities would be a reasonable step in order to prevent a threatened future release and prevent or limit exposure. 26

Business Environmental Risk ASTM 3.2.11 A risk which can have a material environmental or environmentally-driven impact on the business associated with the current or planned use of a parcel of commercial real estate, not necessarily limited to those environmental issues required to be investigated in this practice. Consideration of business environmental risk issues may involve addressing one or more non-scope considerations Conclusions If DAP is likely to exceed the applicable risk-based criteria for a new use like residential or new development involving land disturbance activities, then the DAP would probably qualify as a REC because: Of new contamination It is now enforceable It represents a threat to public health, or All of the above. Since the user's intentions (which can reasonably be anticipated by the EP) could be construed as outside of "due care" and therefore in non-conformance with continuing obligations (i.e., not consistent with reasonable steps) and subsequently actionable under CERCLA, an opinion for additional appropriate investigation would be warranted 27

Conclusions If the user tells the EP why they are commissioning the Phase I (e.g. for purchase and continued use "asis" vs. redevelopment for a residential use), the EP should take the intended land use into consideration in the opinions section of the Phase I report regardless of the REC/No REC decision. And You Thought it s only a Phase I? Stick to the Agreed Upon Scope Stick to the Standard Feel Comfortable that you can connect the dots in regards to all REC determinations. Don t Forget the Power of Business Environmental Risk No Recommendations unless Asked and Then Provide under Separate Cover Get a Second Opinion when in Doubt 28

E1903 Phase II Legal Hooks (AAI) Additional Appropriate Investigation BFPP Continuing Obligations (i.e., reasonable steps to prevent or limit exposure to previous releases of H.S.) Data Gaps/REC s (i.e., confirm or refute) Regulatory Hooks Qualify for Brownfield Funding Financial Disclosure Responsibilities with respect to Environmental Liabilities required for compliance with the Sarbanes Oxley Act of 2002 E1903 Phase II Other Hooks Tools for Business Environmental Risk Benchmark for Common Law Matters (i.e., Foreseeable Risks) 29

E 1903 Scientific Method What is the question? (i.e., Objective) Research (Phase I or Similar Effort) Hypothesis (What do you expect from the data?) Experimental Strategy (Scope of Work) Sample/Test (Implement Site Assessment Plan) Analyze Results (QA/QC, Did you answer the question?) Conclusion (The Answer is X. Now What?) Report (i.e., = Phase II) 30