General Practice, Solo & Small Firm DivisionMagazine

by Rachel A. Schneider

© American Bar Association. All rights reserved.

Rachel A. Schneider is an associate with Quarles & Brady in Milwaukee, Wisconsin. She advises clients regarding environmental compliance and litigation matters, including Superfund cost recovery and contribution litigation, compliance with state and federal air and water regulations, and compliance with community right-to-know provisions.

Thanks to the numerous federal and state environmental laws and regulations on the books, environmental legal issues affect virtually every real estate transaction, almost all manufacturing operations, and many mergers and acquisitions-regardless of size. These laws deal with air and water pollution and regulate the generation, transportation, treatment, and disposal of solid and hazardous wastes and substances.

Environmental law as a discipline has its roots in common law causes of action such as nuisance and trespass, but has evolved into its own specialty that combines legal and scientific technical skills. "Environmental lawyers" tend to either be affiliated with large law firms, or operate as solo or small firm boutiques. However, most lawyers need to have at least an issue-spotting awareness of environmental laws, especially practitioners dealing with the selling, buying, and using of real estate or the selling, buying, and operating of companies.


There are fewer Superfund sites than you might think, but the specter of Superfund liability has dramatically changed real estate deals big and small. Caveat emptor is not the law of the land any more. Sellers can no longer walk away from a piece of property absolutely confident that it will never come back to haunt them.

The Comprehensive Environmental Response, Compensation and Liability Act1 (CERCLA) was enacted in 1980, in the wake of Love Canal, to address the nation's hazardous waste disposal sites-the ghosts of industry past. The Superfund Amendments and Reauthorization Act (SARA), which expanded and clarified CERCLA, was passed in 1986. CERCLA established the Hazardous Substances Superfund, which provided monies for the government, through the Environmen-tal Protection Agency (EPA), to clean up sites contaminated by the release of hazardous substances. Superfund's revenue source was a tax on the chemical and petroleum industries. That tax lapsed on December 31, 1995, and has not been reauthorized because Superfund reauthorization legislation has failed to pass Congress to date.

Under CERCLA, the EPA may take actions to clean up a site from which hazardous substances have been released or where there is the threat of such a release. CERCLA also authorizes the federal government to order private parties to undertake the cleanup activities. The government and private parties who incur response costs cleaning up a site may seek recovery of those costs from liable parties. CERCLA also provides for contribution suits between private parties.

In the past, courts have been split on whether a private party who is also a potentially responsible party (PRP) may bring a cost recovery action against another PRP under CERCLA § 107,2 or if the private party is limited to a contribution action under § 113.3 However, along with a recent decision by the Fourth Circuit Court of Appeals, the appellate courts addressing the issue have held that parties who are themselves PRPs are limited to a § 113 contribution action.4 The statute of limitations is different for the two actions and some courts have held that liability under § 113 is not several. A defendant must be liable pursuant to § 107 in order to be liable for contribution under § 113, so the elements of the claims are identical.

To state a claim under CERCLA, a plaintiff must show that there was a "release" or threatened release of a "hazardous substance" from a "facility" by a "responsible party" that caused the plaintiff to incur response costs. Cases abound regarding the meaning and application of these statutory terms, but generally the terms are interpreted broadly. (The statute does exclude petroleum products from the definition of hazardous substances.) If the plaintiff is the government, then the recoverable response costs are those response costs that are "not inconsistent" with the national contingency plan (NCP), a set of regulations governing the manner in which a cleanup action is to be undertaken. Private party plaintiffs, however, may recover only those response costs that are consistent with the NCP, a slightly narrower standard.

CERCLA imposes liability upon four classes of PRPs:

  • Present owners or operators of the facility.
  • Past owners or operators who owned or operated the facility at the time hazardous substances were deposited or disposed of at the facility.
  • Any person who by contractual agreement or otherwise arranged to have waste taken to a facility for disposal or treatment where a release or threatened release occurs (generators).
  • Any person who selects and transports hazardous waste to a facility for disposal or treatment (transporters).

CERCLA's terms are defined broadly and courts have consistently held that the statute is to be construed broadly to give effect to its remedial purposes. Courts have interpreted CERCLA as imposing strict, retroactive, and joint and several liability. Courts have also interpreted CERCLA to impose personal liability upon corporate officers, directors, and shareholders; successor liability even in the event of an asset sale and purchase; and parent/subsidiary liability. The imposition of strict liability means that no showing of negligence or intent is necessary to prove liability. Causation is also not required-a plaintiff does not have to prove that the release of hazardous substance X caused the incurrence of response costs. A plaintiff is also not required to "fingerprint" waste and show that hazardous substance X at the site was the same hazardous substance X present in a particular PRP's waste stream.

CERCLA offers very limited defenses to liability:

  • Act of God.
  • Act of war.
  • Acts of third parties (with no contractual relationship).
  • Innocent landowner defense (a derivative of the third-party defense). This defense is not as useful as it might initially appear to be, as it requires a buyer to have undertaken all appropriate inquiry prior to purchase. Subsequent landowners will not avoid liability if they knew or should have known (under a reason to know standard) of facts or circumstances now giving rise to CERCLA liability.
  • Fiduciary and lender liability exemptions added by the Asset Conservation, Lender Liability, and Deposit Insur-ance Protection Act of 1996.

The EPA has authority to enter into settlements with de minimis waste contributors (as determined by the EPA). The EPA can provide contribution protection to the de minimis settlor, protecting the settlor from suit by other PRPs. The de minimis settlement provisions should be pursued diligently with the EPA if your client is a very small player at a site, for example, a small business that sent minimal amounts of office trash and perhaps some manufacturing waste for disposal. The EPA determines what the de minimis cutoff point is, but the EPA's current policy favors use of de minimis settlements and the contribution protection they provide.

The Resource Conservation and Recovery Act

While CERCLA deals with the past disposal of hazardous waste, the Resource Conservation and Recovery Act5 (RCRA) and the Solid Waste Disposal Act (SWDA) affect the current management and disposal of solid and hazardous waste. The regulations are designed to track hazardous waste from "cradle to grave." RCRA governs operators or owners of facilities that treat, store, or dispose of hazardous waste. It also regulates the construction and operation of solid waste landfills. RCRA requires generators of hazardous waste to comply with reporting and record-keeping provisions, including characterization of wastes and labeling. Transporters of waste must be licensed and comply with record-keeping, labeling, and packaging requirements.

While the EPA is the federal agency charged with implementing and enforcing RCRA, this authority may be delegated to states with regulatory programs approved by the EPA. State and federal agencies have broad enforcement authority. Both RCRA and CERCLA provide for substantial civil and criminal penalties and fines for violations, and RCRA has the stiffest criminal penalties of any environmental law. RCRA and CERCLA also authorize citizen suits against violators. RCRA citizen suits have been used by current site owners to get prior site owners and generators who caused petroleum contamination to clean up the contaminated site. The Supreme Court has held that RCRA citizen suits cannot be used to recover response costs.

Both RCRA and CERCLA may be applicable at some sites, and overlapping state and federal jurisdiction may also exist. EPA policies and memoranda of agreement or understanding between the EPA and the state are typically nonbinding documents that indicate how the state and federal agencies intend to handle enforcement and oversight at these types of sites. The problem of overlapping jurisdiction must be kept in mind not only in negotiating with environmental agencies regarding a particular site but also when assessing potential liability associated with a piece of property or business.

Underground storage tanks. RCRA specifically governs the installation, maintenance, and removal of underground storage tanks (USTs), which must be done in compliance with EPA regulations. Owners of USTs are required to upgrade their tanks to strict EPA standards, including corrosion and spill and overfill prevention standards that must be met by December 1998. Leak detection requirements must already have been met. EPA regulations exclude certain farm and residential tanks, heating oil tanks (if the tank is stored on the premises where the heating oil is used), septic tanks for storm water and waste water, tanks with a capacity of 110 gallons or less, and emergency spill and overflow tanks. However, state regulations may apply to these federally exempted tanks.

The Clean Water Act

The Federal Water Pollution Control Act6 (FWPCA) or Clean Water Act (CWA) regulates the use of the nation's waters through a system of permits and regulations governing the discharge of pollutants into those waters and publicly owned treatment works (POTWs). Under the CWA, state and federal authorities must be notified of spills. Liability for a spill is strict-no showing of fault or defect is required. The CWA imposes civil and criminal penalties.

The CWA generally prohibits the discharge of pollutants into a navigable water or POTW without a permit. Like RCRA, approved states may be authorized to implement and administer a permit program consistent with the provisions of the CWA. The CWA applies to discharges from "point sources," which are discrete sources such as pipes, ditches, or channels. In order to obtain a permit to discharge pollutants into a navigable water or a POTW, the discharger may be required to treat the waste prior to discharge. Under the CWA (as well as the Clean Air Act), the applicability and adequacy of a permit issued to an operating business should be addressed in any negotiations for the purchase of that business.

Nonpoint source discharges from uncontrolled storm water runoff have been addressed by EPA regulations promulgated under the CWA. These regulations apply to particular industries based on their standard industrial classification (SIC).7 Facilities may be required to draft and implement a storm water pollution prevention plan. Applicability of and compliance with federal and/or state storm water regulations is another issue to be addressed when negotiating the purchase of a business.

Wetlands. The CWA also regulates wetlands. Wetlands are areas that "are inundated or saturated by surface or groundwater at a frequency and duration sufficient to support...a prevalence of vegetation typically adapted for life in saturated soil conditions."8 The discharge or placement of fill into a federally regulated wetland requires a permit from the Army Corps of Engineers, which administers the federal wetlands program. State approval of the permit may also be required. The Army Corps of Engineers has a nationwide permit program that applies to about 40 common activities that have been found to minimally adversely affect wetlands. An individual, project-specific permit is not required for these activities, but written authorization from the Corps is required and state regulations may require additional approvals.

Wetlands regulation affects the development and use of property, and any wetlands areas on a site should be identified prior to purchase or development. Wetlands restrictions can affect the development potential and buildability of a site. However, wetlands benefits include water filtration to improve water quality and water retention, which helps prevent flooding. State and local zoning regulations may also regulate what type of activities and structures may occur in wetlands, shorelands, and flood plains.

The Clean Air Act

The Clean Air Act9 (CAA) was enacted in 1970 and significantly amended in 1977 and 1990. The CAA regulates air emissions from stationary sources such as manufacturing plants, and mobile sources like automobiles. Construction and operating permits are required for new and existing stationary sources of air emissions. A "person," which includes individuals, corporations, and other entities, is subject to civil and criminal liability for violating the CAA. The CAA also authorizes citizen suits and rewards "whistleblowers" with up to $10,000 for reporting employers who violate their permits. Purchasers should take steps to ensure they do not buy liability for past noncompliance with CAA requirements.

The CAA sets National Ambient Air Quality Standards (NAAQS) and addresses the attainment and maintenance of those standards. The primary implementation mechanisms of the NAAQS are state implementation plans (SIPs), which must be approved by the EPA. The EPA may promulgate primary and secondary NAAQS for all air pollutants reasonably anticipated to endanger public health or welfare. However, NAAQS have been established for only six pollutants so far: sulfur dioxide, nitrogen oxides, particulate matter, lead, carbon monoxide, and ozone. The EPA recently issued more stringent NAAQS for particulate matter and ozone that are highly controversial and may be subject to congressional action delaying their implementation.

Areas are classified by pollutant as either nonattainment, attainment, or unclassifiable, depending upon whether the area meets the NAAQS (attainment), cannot be classified based on available information (unclassifiable), or does not meet the NAAQS or contributes to ambient air quality in a nearby area that does not meet the NAAQS (nonattainment). Non-attainment areas are further classified as marginal, moderate, serious, severe, or extreme. Nonattainment areas are subject to stringent regulations affecting businesses and individuals to facilitate attainment by certain deadlines. Reformulated gasoline and low-emission vehicles are examples of technologies that may be implemented in ozone nonattainment areas. Nonattainment areas may be subject to permit moratoriums and cutoffs from federal grants and funds for highways, sewage treatment, and air pollution control-all of which may adversely affect your client's proposed business operation or acquisition.

Air toxics (also known as hazardous air pollutants or HAPs) are regulated under the CAA by imposing control technology standards upon stationary sources emitting more than specified amounts of listed air toxic pollutants. Air toxics regulations also require facilities with threshold amounts of certain materials to prepare risk management plans that calculate the worst case scenario associated with a materials incident at the facility.

To comply with these and other standards of the CAA, an environmental specialist should be consulted. However, compliance with the CAA, like compliance with the CWA, must be addressed when purchasing a manufacturing operation. If the operation is in a nonattainment area, strict air regulations and permit requirements may apply even for a relatively small facility. A prudent buyer should be aware of these requirements and make sure the operation is properly permitted and in compliance. Liability for any past violations should also be addressed.

Asbestos. Asbestos removal is regulated under CAA § 7412, the section regulating hazardous air pollutants. A phased ban on asbestos-containing materials (ACM) was adopted by the EPA under the Toxic Substances and Control Act (TSCA). There is no ban on the continued use of ACM already in place. Asbestos poses an environmental risk once it becomes "friable"-readily transferred through the air. Many property owners, residential and commercial, leave asbestos insulation, ceiling tile, etc. in place until there is evidence of flaking or deterioration. However, it is common for buyers of residential real estate to insist upon the removal of asbestos found in the dwelling, particularly if there is any indication of deterioration.

Removal of ACM must be done in compliance with EPA regulations, including notification of the EPA for the removal of 260 or more linear feet or 160 or more square feet of ACM. Lenders may require borrowers to notify them upon discovery of any flaking or deteriorating asbestos during the term of the loan, and may even require inspection including air samples. Because asbestos is a hazardous substance under CERCLA, CERCLA liability may attach for releases or the disposal of asbestos at a disposal site.

The Emergency Planning and Community Right-to-Know Act

The Emergency Planning and Community Right-to-Know Act10 (EPCRA) was enacted as part of SARA, the Superfund amendments passed in 1986, and is also referred to as SARA Title III. However, EPCRA is separate and distinct from CERCLA.

EPCRA's purpose is to provide information to state and local authorities and to the general public regarding chemical use in order to prepare for chemical accidents. EPCRA requires businesses using potentially hazardous chemicals to notify state and local emergency planning committees (LERCs). Also, releases of certain chemicals into the environment must be reported.

Four sections of the act govern its reporting requirements: EPCRA § 304 requires owners and operators of facilities to notify the LERCs immediately following the release of certain chemicals at and above certain "reportable quantities." EPCRA §§ 311 and 312 are the community right-to-know provisions and require owner/operators to prepare or have available material safety data sheets for the hazardous chemicals used at the facility. The material safety data sheets must also be submitted to the LERCs and the local fire department. Annual reports to the LERCs are also required for the amount of chemicals on site if greater than specified calendar year amounts for the chemical.

EPCRA § 313 requires owner/operators to submit a "Form R" report of the toxic chemicals manufactured, processed, or otherwise used per year if such use is in excess of the chemical's established threshold. The Form R must be submitted to the EPA and to the state in which the facility is located.

There are civil, criminal, and administrative penalties for violating EPCRA, and EPCRA authorizes citizen suits to be brought against either the facility's owners or operators or the government. Buyers of commercial or industrial properties and businesses should obtain the EPCRA reporting information from the seller and verify it with the information reported to the requisite state and local entities. The buyer must obtain any necessary information from the seller to assist in fulfilling reporting requirements. Additionally, stock purchasers should carefully review the seller's EPCRA compliance status to minimize liability for past fines and penalties stemming from previous EPCRA noncompliance.

The Toxic Substances Control Act

The Toxic Substances Control Act11 (TSCA) governs the testing and manufacture of chemical substances and mixtures, including a ban on the manufacture and use of polychlorinated biphenyl components (PCBs), except in limited circumstances. The provisions of TSCA are largely of concern to chemical and pharmaceutical manufacturers and manufacturing operations using regulated chemical substances and mixtures.

However, TSCA can affect the sale or lease of buildings serviced by electrical transformers or other equipment containing PCBs. Should an electrical transformer be located on residential property, it is important to determine whether it contains PCBs and who owns it. The local power company, who likely owns the transformer, may be helpful in providing information regarding the transformer and documentation regarding its policies related to responsibility for the transformer. Such documentation may render the transformer a "nonissue" for purposes of the transaction.


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