December 17, 2012
The availability of Superfund defenses to tenants of contaminated properties is often uncertain, raising the potential of lessee liability and impeding the redevelopment and reuse of contaminated lands. In an attempt to ameliorate this problem and provide assurances to responsible tenants, EPA recently revised and expanded its guidance clarifying when tenants can make use of one of the central liability protections under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Bona Fide Prospective Purchaser (“BFPP”) defense.
The BFPP defense provides that a party is not liable under CERCLA if it can demonstrate that it has made all appropriate inquiries into the possibility of contamination at the site, has acted in good faith, and has met various other requirements. As the definition of BFPP under CERCLA refers to both qualifying purchasers and “tenants of such [purchasers],” EPA has previously stated that where a landlord qualifies for BFPP status, the tenant automatically qualifies as well. If the landlord loses BFPP status through no fault of the tenant, EPA has indicated it will treat the tenant as a BFPP if the tenant himself meets all the requirements for BFPP status other than the requirement for all appropriate inquiries.
The new guidance goes on to provide that if the landlord does not qualify for the BFPP defense, a tenant can still qualify if he meets the requirements for BFPP status. However, it is important to note that the BFPP defense is only available to a tenant in these circumstances if the lease was executed after January 11, 2002. This date requirement is derived from the CERCLA statute, which provides that BFPP status is available to persons who “acquire[d] ownership” of a facility after January 11, 2002.
In addition, the guidance indicates that EPA will, in appropriate circumstances, issue comfort letters or prospective lessee agreements in order to clarify the nature of a tenant’s potential liability. EPA has explained that the guidance is intended to complement a broader EPA initiative to facilitate the development of renewable energy on contaminated lands, and has released se several sample comfort letters for renewable projects. However, this guidance is applicable much more broadly, as it provides useful direction for managing the environmental liability of tenants of contaminated lands in general.
July 20, 2012
Recent court cases in Brazil are creating significant concern within the financial community that public prosecutors and courts may impose liability on banks — without regard to fault — merely because they provided financing for activities that later caused pollution. As a result, lenders should carefully evaluate the environmental aspects of projects in Brazil and the current state of the liability regime before disbursement of any loan.
Brazil’s national environmental law (Federal Law No. 6,938/1981) requires the polluter, independently of fault, to indemnify or repair the damages caused to the environment and to third parties affected by its activity. Moreover, “polluter” is defined broadly to include any entity that is directly or indirectly responsible for the activity that caused environmental degradation. Under these provisions, all parties involved in environmental damage are jointly and severally responsible for its remediation.
In December 2009, the Superior Court of Justice, Brazil’s highest federal court of appeals on non-constitutional matters, issued a decision involving damage to a mangrove area allegedly caused by a hardware manufacturer. The decision would not have attracted much attention by lenders had the court not gone on to state that, “for the purpose of evidencing the chain of causation in environmental damage, equivalent liability attaches to those who do, those who don’t do when they were supposed to, those who fail to do, those who don’t care about others doing, those who finance what others do, and those who benefit when others do.” This statement, and in particular its reference to “those who finance what others do,” has created significant concern that banks could find themselves enmeshed in a web of environmental liability based on the action or inaction of their borrowers.
A well-known opinion by one of the judges who ruled in the mangrove case reinforced the notion that an “indirect polluter” could include not only banks, but also the environmental agency, engineer, architect, real estate developer, and broker that are deemed to be facilitating or enabling the environmental harm.
As a result of these interpretations, two class action lawsuits were filed in 2011 by the Federal Prosecutor against Banco da Amazônia S.A. (“BASA”) and Banco do Brasil (“BB”). The main allegation against the banks in those cases is that they failed to comply with Brazilian environmental legislation when they granted credit for cattle raising on lands located in the Amazon Region. The Federal Prosecutor asserted that, without that credit, the allegedly unlawful cattle raising, and the consequent deforestation in the Amazon Region, would not have occurred.
These cases are still in preliminary stages and have not been decided on the merits. Nonetheless, their mere filing has turned into one of the top environmental concerns in Brazil. It is not yet clear whether the court will accept the banks’ contention that they exercised due diligence in granting the credits and that they did not directly or indirectly approve of any unlawful activity by their borrowers.
The uncertainty that now bedevils financial institutions in Brazil may chill responsible lending activity and cause unwarranted disruption until the law is clarified to better define what lenders can do to ensure that they do not attract environmental liability.
For more information about this topic, contact Renata Soares Piazzon at firstname.lastname@example.org.
Renata Soares Piazzon, an attorney in the Sao Paulo office of Lobo & de Rizzo Advogados, completed a two-month exchange program at SPR.
October 27, 2011
In recent months, ASTM International (“ASTM”) has issued or revised key environmental standards governing the performance of and response to environmental site assessments, with potentially significant impacts for lenders, developers and owners of contaminated property.
Before contaminated property is sold or remediated, federal and state law and transactional due diligence generally require an environmental site assessment to be conducted pursuant to ASTM standards. Such assessments may be undertaken to preserve the innocent landowner, bona fide prospective purchaser, or contiguous property owner defenses to Superfund liability, which require “all appropriate inquiries” into the environmental conditions on a given site and impose “continuing obligations” to stop, prevent, or limit human exposure to hazardous substance releases.
Under EPA regulations, compliance with ASTM’s Phase I site assessment standards (E1527-05 or E2247-08) is sufficient to establish “all appropriate inquiries” for the purpose of these defenses.
After more than two years of review and deliberation, ASTM recently revised its Standard Practice for the Phase II Environmental Site Assessment Process (E1903-11). Phase II site assessment involves the sampling of soil, groundwater or other exposure pathways, typically after a Phase I reveals a likelihood of contamination. While Phase II assessments are not required under Superfund regulations, they can be useful in determining what “continuing obligations” are needed to establish landowner liability protections. Phase II assessments may also be required as part of transactional due diligence or to inform a company’s disclosure of its environmental liabilities.
Recognizing the variety of contexts in which Phase II assessments arise, the revised ASTM standards set forth an iterative process, emphasizing communication between the “user” who commissions the assessment and the “assessor” who performs it. Unlike the prior standards, the new version requires the user and assessor to agree upon a written statement of objectives that sets the scope of the investigation. These objectives are tailored to the user’s needs; they can limit the investigation to only certain parts of the Site or certain contaminants, or expand it beyond the recognized environmental conditions (“RECs”) identified in a Phase I. These objectives may be revised throughout the assessment process, as sampling increases the amount of information about environmental conditions on Site, culminating in the production of a written Phase II Report.
Last July, ASTM released a new “Standard Guide for Identifying and Complying with Continuing Obligations” (E2790-11). These standards establish a four-step process for developing and implementing a “continuing obligation plan,” which will be tailored to meet site-specific conditions. Since “continuing obligations” are broadly defined under CERCLA and its regulations, courts may look to the new ASTM standards for more specific guidance.
For more information on ASTM’s new standards and the environmental site assessment process, contact Michael Bogin or Christine Leas.
August 4, 2011
On July 29, 2011, Governor Cuomo signed a law authorizing local governments to create not-for-profit corporations to act as land banks with respect to vacant, abandoned, or tax-foreclosed property. These non-profit land banks will have the ability to sell property free and clear of prior tax liens. However, the new law does not insulate these newly created non-profits from liability for site contamination.
Newly created land banks will need to exercise caution in acquiring abandoned and foreclosed property, which are often contaminated from historic industrial activity. Such contamination may have been a factor contributing to the abandonment of the property, particularly in economically depressed areas. Federal and state laws can impose strict liability on owners of contaminated property to address the actual or potential release of hazardous substances. Although these laws provide a defense to government entities acquiring property involuntarily or through eminent domain, such defenses do not appear to be available to a land bank. Land banks would be well advised to consider this risk and to protect themselves by conducting due diligence investigations before taking title (in order to qualify for certain statutory defenses to liability) or by delaying taking title until a developer or other entity has been identified with the financial capacity and willingness to assume environment liability for past contamination.
February 16, 2011
SPR attorneys recently served as environmental counsel to Acumen Capital Partners in its acquisition of the former Pfizer manufacturing facility in Brooklyn. The plant, comprising 660,000 square feet, had been vacant since Pfizer operations ceased there in 2008. Pfizer traces its corporate origins to the neighborhood, having commenced its operations there in 1849.
Plans for the property include conversion to light industrial and commercial uses. Acumen seeks to incorporate environmental sustainability into its redevelopment projects, and is known for constructing a rooftop farm comprising 43,000 square feet on another former industrial property in Long Island City. Five acres of undeveloped property remain north of the former Pfizer plant, which Pfizer has envisioned for potential development as affordable housing.
SPR represented Acumen in evaluating the environmental aspects of the purchase of the plant. For more information contact Michael Bogin or Jeff Gracer.
October 4, 2010
Four years ago, New York’s Department of Environmental Conservation (“DEC”) and Department of Health (“DOH”) issued new guidance on soil vapor intrusion, triggering the ongoing reevaluation of over 400 contaminated sites and the reopenings of dozens for new testing or mitigation. Now, the U.S. Environmental Protection Agency (“EPA”) is taking the first steps towards revising its own vapor intrusion guidance.
On August 30, 2010, EPA’s Office of Solid Waste and Emergency Response released its Review of the Draft 2002 Subsurface Vapor Intrusion Guidance. The Review highlights areas of existing guidance that EPA plans to update or change over the next two years.
In 2002, EPA released draft guidance for detecting and responding to vapor intrusion, caused by the migration of subsurface contamination into overlying buildings. Vapor intrusion is most commonly found at sites with elevated levels of volatile organic compounds – including chlorinated solvents and gasoline – in the soil or groundwater.
In response to recent scientific developments, last year the EPA Inspector General recommended that the agency update and finalize its guidance, which remains in draft form. EPA hopes to complete that process by November 2012, with the recent Review highlighting various assumptions and methodologies that are subject to change. For instance, the agency plans to incorporate multiple lines of evidence into vapor intrusion screening determinations, expand its guidance related to non-residential and yet-to-be-constructed buildings, and provide for the collection of indoor air samples earlier in the investigation process.
As it moves forward, EPA intends to solicit public comment and hold hearings on the guidance revisions in 2011. The agency asserts it is not required to take comment on guidance documents, but often does so for higher profile issues.
Meanwhile, New York continues its process of re-evaluating contaminated sites for vapor intrusion pathways, including many properties that had previously been remediated and de-listed. Purchasers and lenders are also increasingly investigating vapor intrusion as part of their Phase 1 environmental site assessments.
Thus far, EPA has not announced plans to re-open Superfund sites to investigate vapor intrusion. Where low levels of contamination are left at a remediated site, however, the Superfund statute requires a site review every five years, at which point additional work may be needed to address vapor intrusion threats based on new guidance.
Sive, Paget & Riesel represents a number of property owners on vapor-intrusion evaluations and re-openings. For more information on this topic, please contact Christine Leas, Jeffrey Gracer or Michael Bogin.
September 8, 2010
According to an article published last week in the New York Times, major banks conducting business in the United States appear to be increasingly wary of financing mountaintop removal mining. This practice, a form of surface mining, involves the use of explosives to remove the tops of mountains to expose coal seams beneath. While viewed by industry as an efficient, legal, and relatively safe means of coal extraction, mountaintop removal mining has been sharply criticized by environmental advocates. The adverse impacts of this practice include habitat destruction and water pollution from mining overburden that is deposited in neighboring valleys. The practice is not illegal, although bills have been introduced in Congress that would effectively disallow the placement of such fill into valley streams – for example the Clean Water Protection Act and the Appalachia Restoration Act.
In recent years, as the practice has engendered more controversy, several of the nine banks known to finance companies that conduct mountaintop removal mining in Appalachia have indicated an intention to apply greater scrutiny to, and/or phase out, financing of mountaintop removal mining. However, according to a report issued jointly by the Sierra Club and the Rainforest Action Network, which ranks responsiveness to mountaintop removal mining concerns, some of the banks’ statements are vaguely worded — allowing significant leeway for continued financing of mountaintop removal mining — or do not provide for public accountability.
The substantive impact of the banks’ policy statements remains to be seen. While some may view such statements as a harbinger for the eventual demise of a “dirty” practice, mining industry representatives have told the New York Times that funding has not become problematic, and that the mining companies will not have trouble finding new lenders in the event that existing lenders sever ties.
For more information on environmental due diligence and corporate transactions, please contact Jeff Gracer.
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