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Mr. Andreasen is of counsel at Shook, Hardy & Bacon, L.L.P. in Kansas City, MO, and a member of the editorial board of Natural Resources & Environment.
The American Society for Testing and Materials (ASTM) recently issued its standard E2790–11, Standard Guide for Identifying and Complying With Continuing Obligations, covering some of the requirements applicable to various defenses established under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601 et seq. (CERCLA). The standard covers the so-called “continuing obligation” requirements that are incorporated into the CERCLA bona fide prospective purchaser, innocent landowner, and contiguous owner defenses. Practitioners need to be aware of the standard, but will have to develop over time with their clients approaches that they believe will protect available defenses, in light of the standard and developing case law. The standard may be useful as guidance to comply with similar continuing obligation requirements under state law.
To preserve their defenses, innocent owners, bona fide purchasers, and contiguous owners must provide any legally required notices relating to discovery or release of any hazardous substances at the facility. They must also
See 40 U.S.C. §§ 9601(40) (bona fide prospective purchaser), 9601(35)(A) and (B)(II) (innocent owner), and 9607(q)(1)(a) (contiguous owner).
The actions required to comply with established land use restrictions, and to avoid impeding institutional controls, will often be relatively evident, but they do require careful investigation. Identifying and undertaking “appropriate care with respect to hazardous substances found at the facility” will often be a less obvious undertaking, requiring the owner to discover the facts and apply judgment to determine how to deal with the identified conditions. In March 2003, the U.S. Environmental Protection Agency (EPA) issued its “Guidance Regarding Criteria Landowners Must Meet in Order to Qualify for Bona Fide Prospective Purchaser, Contiguous Owner, or Innocent Landowner Limitations on CERCLA Liability” (Common Elements Guidance). While concepts within the Common Elements Guidance have become part of the practice in transactional work, they technically apply only to EPA’s exercise of its enforcement authority. ASTM has filled the void by creating a comprehensive process for identifying and complying with continuing obligations.
ASTM E2790-11 is replete with assertions that it does not constitute legal advice, admonitions to seek legal counsel, and recognition that the standard cannot control the outcome of a judicial review of a particular use of the standard to establish a CERCLA defense. Other ASTM standards have been admitted as evidence in litigation, however. For example, in Elledge v. Richland/Lexington School District, 352 S.C. 179, 573 S.E.2d 789 (S.C. 2002), the court admitted an ASTM standard as evidence of the standard of care in a case involving injury to a child on school playground equipment. It is possible that ASTM E2790-11 may become a key standard in litigation over whether a particular owner has met its obligations to qualify for a defense.
The standard therefore can be expected to become part of the currency of environmental practice. The standard lays out a four-step process to identify and implement continuing obligations. None of these processes is self-implementing, and the standard does not provide a cookbook to choose and implement continuing obligation activities. It does provide a rational, stepwise method to gather and analyze information to make decisions. Step one uses the Phase 1 environmental review resulting from the pre-acquisition “appropriate inquiry” to screen for the possibility that continuing obligations may apply to the property. Step two contains a process to gather information to evaluate established use limitations or institutional controls that may affect the property and to understand environmental conditions that may drive additional reasonable steps. Step three describes a process to select the actions to be performed as continuing obligations at a specific property. Step four covers monitoring, including the appropriate monitoring schedule, to assess ongoing compliance with continuing obligations. Importantly, the standard includes guidance on documenting decisions and implementation of the continuing obligations.
Land use restrictions and institutional controls generally will consist of requirements imposed by environmental regulators, or agreed to between a former owner and the regulators, to keep residual constituents at the site from causing greater risk than was considered acceptable at the time of a prior site assessment or remediation. Thus, an industrial site might be cleaned to “industrial” standards, with the restriction that residential or school use in the future will not be allowed without further cleanup. Similarly, fencing may be required to prevent access, and notices posted to warn of risks of exposure to substances at a property. While in many cases the nature and extent of land use restrictions or institutional controls established in connection with a prior cleanup will be revealed by a seller, and readily identifiable through easily accessed public records, this may not always be the case, especially as time passes, memories fade, and records become more deeply buried.
The standard recognizes that the Phase 1 report may not capture all established activity or use limits for a property and calls for additional investigation to assure that the owner identifies all the obligations. For experienced practitioners, the steps posited by the guidance, such as checking agency records, land title filings, and statutes or regulations that may limit property use, may not contain any revelations, but the standard at least constitutes a solid checklist for this important process. The standard calls for “reasonable due diligence” to identify activity and use limitations, and states the degree of diligence that is reasonable varies depending on the extent and nature of known environmental issues at the site. Standard Guide for Identifying and Complying With Continuing Obligations § 6.2 (Am. Soc’y for Testing and Materials 2011) (hereafter, Standard).
Because an agency may possess relevant documents that are not indexed or organized in such a way as to allow a person to find them readily, the standard also provides that the user should identify the applicable access and use limitations by reviewing “reasonably ascertainable” sources of information, defined as “information that is (1) publicly available, (2) obtainable from its source within reasonable time and cost constraints, and (3) practically reviewable.” Standard § 3.2.29. While this concept may appear reasonable, it is a likely source of dispute because CERCLA at least arguably contains no express reasonableness limitation on its requirement that a person comply with use controls. Additional physical investigation may be necessary in some circumstances, where the Phase 1 and any previous environmental work do not define environmental conditions adequately to allow the owner to define reasonable steps to prevent releases or reduce exposure to released substances. Standard § 6.2.
Under CERCLA, persons asserting one of these defenses also must take reasonable steps to stop or prevent actual or threatened releases and prevent or limit exposure to hazardous substances. According to EPA, “Reasonable steps in the context of a purchase by a bona fide prospective purchaser may differ from reasonable steps for the other protected landowner categories (who did not have knowledge or an opportunity to plan prior to purchase).” Common Elements Guidance at 11. Nevertheless, persons who seek the protection of any of the continuing obligation defenses must, once continuing obligations are triggered, take reasonable steps to identify and implement steps to stop continuing releases, prevent threatened future releases, and prevent or limit exposure to released substances. “Reasonableness,” of course, tends to be in the eye of the beholder. The standard provides a framework process to assess potential requirements and meet them. Whether compliance will be viewed as constituting reasonable steps by a court or EPA remains to be seen, but an entity ignoring the standard risks being held not to have attempted to be reasonable.
Once the relevant information regarding site conditions has been gathered, the standard calls for development of a site conceptual model to assess exposure pathways and receptors, including reasonable anticipated future receptors based on anticipated site use changes. Standard § 126.96.36.199. The site model becomes the basis on which reasonable steps are defined. The standard provides no direction on how to identify appropriate reasonable steps, but it does provide examples of responses to hypothetical situations. These include over-packing leaking drums or installing secondary containment for above ground releases, and removal of product from underground storage systems that leak or threaten to leak. Standard § 188.8.131.52. The standard also suggests replacing or removing a storage tank system to prevent future threatened releases if there are signs of deterioration, or evaluating secondary containment systems for tanks or container that store hazardous substances. Standard § 184.108.40.206. Other examples of reasonable steps include contacts with occupants of the property, or nearby residents, to inform them of potential exposure risks, adding signage, implementing vapor barriers, creating clean corridors for utilities, or refraining from digging in impacted areas as potential reasonable steps. Standard § 7.6.
The standard calls for development of written reports, potentially including a statement of no continuing obligations if no obligations are identified, a continuing obligations plan if obligations are identified, and reports monitoring the effectiveness and completeness of performance of continuing obligations. Standard § 9.1. The documentation can be valuable in circumstances where the investigation, assessment, and decision-making processes are complex. Documenting ongoing performance and review of continuing obligation requirements can help property owners ensure they meet their expectations. But there are practitioners and clients who balk at record creation where the records are not strictly required by law. Many have had the experience of a motivated opposing counsel managing to create a negative sound bite out of context from a document that, taken as a whole, is positive for the client. Because the ASTM standard says documents should be created, clients and attorneys who are opposed to creating documents should think carefully about the possible repercussions of failure to create documents called for in a standard that may come to set a floor for continuing obligation performance.
The standard also notes a preliminary legal issue that may affect the value of the innocent owner, contiguous owner, and bona fide purchaser defenses: If a court should determine that ongoing leaking or migration of previously released hazardous substances constitutes “disposal” or a “release” within the meaning of CERCLA, the defense may be lost. Standard § 220.127.116.11. For example, Nurad, Inc. v. William E. Hooper & Sons Co., 966 F.2d 837, 846 (4th Cir. 1992), cert. denied, 506 U.S. 940 (1992) held that leakage from underground drums constituted disposal. If leakage or migration is held to constitute disposal within the meaning of the statute, an innocent owner, contiguous owner, or bona fide purchaser could lose their defense because the statute makes liable persons who own a property at the time of disposal. 42 U.S.C. § 9607(a)(2). This is not an issue that a property owner can easily plan around. Persons who acquired property without knowledge of the presence of hazardous substances are particularly unlikely to be able to prevent leakage or migration of the unknown hazardous substances. Nevertheless, especially because the standard calls the issue out specifically, it may be important for practitioners to make clients aware of this potential pitfall.
Persons who purchase property, or represent such purchasers, should review the ASTM standard. It may affect in a significant way the approach that parties choose to follow to establish and preserve important defenses that may avoid potentially significant CERCLA liability at properties where some hazardous substance has come to be present. Because of the breadth and importance of the issues involved, practitioners should consider carefully how to fold the ASTM standard’s provisions into their transactional work.