Volume 20, Number 6
September 2003

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By Robert P. Dahlquist and Tiffany A. Barzal

Robert P. Dahlquist is a partner and Tiffany A. Barzal is an associate at Latham & Watkins in San Diego, California.

The Small Business Liability Relief and Brownfields Revitalization Act (the Act) grants relief from liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, also known as Superfund), under certain limited circumstances, to (1) de micromis producers of hazardous waste; (2) small producers of household-type trash; (3) owners of properties that are neighbors to contaminated sites; and (4) bona fide prospective purchasers of contaminated properties.

But, in light of the tremendous lack of clarity in the original Superfund statute and the new complexities introduced by the Act, the exemptions may prove to be more illusory than real for most businesses.

De micromis exemption. The Act exempts persons who either produced or transported hazardous materials to a site listed on the National Priorities List (NPL) if the total amount was less than 110 gallons of liquid material or 200 pounds of solid material, and all or part of the relevant activity occurred before April 1, 2001. The exemption will not be available under the following circumstances: (1) if the Environmental Protection Agency (EPA) determines that, despite the small volume, the hazardous substance contributes significantly to the cleanup costs; (2) if the EPA determines that the person asserting the exemption has failed to comply with an information request/subpoena or has impeded cleanup at the site; or (3) if the person asserting the exemption has been convicted of a crime relating to the conduct to which the exemption would apply.

Household waste exemption. The municipal solid waste (household waste) exemption is available only to (1) an owner/operator of a residential property; (2) a business entity that for the prior three taxable years employed an average of not more than 100 full-time employees and is a "small business concern" as defined by the Small Business Act; or (3) a nonprofit organization that employs not more than 100 people.

The Act defines municipal solid waste as waste material that (1) is generated by a household or, if generated at a commercial facility, that is essentially the same as household waste; (2) is collected with other municipal solid waste; and (3) contains a relative quantity of hazardous substances no greater than the relative quantity contained in household waste.

This exemption is unavailable if the EPA determines that the waste contributes significantly to the cleanup costs; if the EPA determines that the person asserting the exemption has failed to comply with an information request/subpoena; or if the person asserting the exemption has impeded any cleanup action. This exemption only applies to sites listed on the NPL.

Contiguous property owner exemption. This exemption applies to a person who owns property that is contiguous or "similarly situated" to a neighboring property from which contamination originates. The owner of such property will not be considered an owner/operator under CERCLA if the owner (1) conducted all appropriate inquiries with respect to the property at the time it was acquired and did not know or have reason to know that the property was or could be contaminated by a release of hazardous substances from neighboring property; (2) did not cause, contribute to, or consent to the release or threatened release of hazardous substances at the neighboring property; (3) is not potentially liable for cleanup costs and is not affiliated with or related to a person who is potentially liable for cleanup costs; (4) takes reasonable steps to stop any continuing release, prevent any threatened future release, and prevent or limit human, environmental, or natural resource exposure to any hazardous substance released on the property; (5) provides full cooperation to parties conducting cleanup actions; (6) complies with any applicable land-use restrictions and does not impede any institutional controls established in connection with the cleanup; (7) is in compliance with any information requests/subpoenas; and (8) provides all legally required notices with respect to the hazardous substances.

In practice, the exemption will seldom provide relief to private parties because of the requirement that the property owner conduct "all appropriate inquiries" when the owner acquires the property and not have reason to know that the property could be affected by a neighboring property.

Prospective purchaser exemption. A "bona fide prospective purchaser" is defined as a person who acquires ownership of a property after the enactment of the act and who (1) acquires ownership of the property after all disposal of hazardous substances occurred; (2) makes all appropriate inquiries into the previous ownership and uses of the property in accordance with established standards and practices; (3) takes reasonable steps to stop any continuing release, prevent future releases, and prevent or limit exposure to the hazardous substances; (4) cooperates with parties conducting cleanup actions; (5) provides all legally required notices with respect to the releases of hazardous substances and complies with all information requests/subpoenas; (6) is in compliance with any applicable land use restrictions and does not impede the effectiveness of any institutional controls, established in connection with the response action; (7) is not otherwise potentially liable for cleanup costs and is not affiliated with or related to a person who is potentially liable for cleanup costs; and (8) does not impede any cleanup action.

Clarifying "all appropriate inquiries." The act seeks to clarify the "all appropriate inquiries" standard by requiring the EPA to issue regulations defining the standard and by, pending issuance of regulations by the EPA, identifying interim guidelines that should be followed.

Pending issuance of the EPA's regulations, a buyer of a nonresidential property should follow the environmental site assessment procedures established by the American Society for Testing and Materials (ASTM) in a guidance document entitled "Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process."

Ability to pay. The EPA will evaluate the party's ability to pay its fair share of cleanup costs, taking into account the party's costs of continuing its regular business operations. If a party lacks the ability to pay its share of liability, it may qualify for a reduced settlement amount. The EPA can decline to settle with a party that has failed to comply with an information request or has impeded a cleanup. As a condition for obtaining a reduced settlement amount, the party is required to waive all claims that it may have against other potentially responsible parties.

State response programs exemption. The act contains complicated provisions that, subject to exceptions and limitations, prohibit the EPA from pursuing CERCLA enforcement actions in connection with sites that are being handled by state environmental agencies. This exemption is likely to have little real effect on businesses. In many parts of the country, the EPA already allows state regulators to oversee cleanup actions at all but the worst sites; also, the exemption is not applicable any time the EPA determines that there is "an imminent and substantial threat to the environment," a notoriously low threshold.

Brownfield revitalization. The act establishes two programs for making grants to revitalize brownfield sites. One is devoted to site characterization and assessment, and the other to brownfield remediation. The grants are only available to state and local governmental authorities, re-development agencies, and Indian tribes, although some nonprofit organizations may qualify.

- This article is an abridged and edited version of one that originally appeared on page 39 of Business Law Today, May/June 2003 (12:5).
- For more information or to obtain a copy of the periodical in which the full article appears, please call the ABA Service Center at 800/285-2221.
- Website: www.abanet.org/buslaw/.
- Periodicals: Business Law Today, bimonthly magazine; The Business Lawyer, quarterly law journal.
- Books and Other Recent Publications: Employee Use of the Internet and E-Mail: A Model Corporate Policy; Guidebook for Directors of Nonprofit Corporations, 2d ed.; Hereof, Thereof, and Everywhereof: A Contrarian Guide to Legal Drafting; Managing Closely Held Corporations: A Legal Guidebook; Model Asset Purchase Agreement with Commentary; Model Business Corporation Act, 2002; Prototype Limited Liability Partnership Agreement.

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