Patrick Sutton
    How do Phase I reports hold up in court?
    Topic posted February 4, 2010 by Patrick SuttonSuper Contributor , last edited January 19, 2012
    724 Views, 12 Comments
    How do Phase I reports hold up in court?

    I understand that ASTM 1527-05 complies with AAI requirements to qualify the user for the innocent landowner liability protections under CERCLA.  However, for most of the sites I've worked on, I don't think a potential CERLCA site is lurking beneath the subsurface.  Would people agree that the ASTM 1527-05 standard provides the best defence for ANY potential contamination that may be discovered at a later date, regardless if it becomes a CERLA site or not?   

    Does anyone have any stories of a Phase I report being used in a court case? 







    • MaxEng

      What exactly do you mean by "defense for contamination?"

      In Ohio, there is no requirement that a property owner clean up contamination on a site it owns.  Cleanup requirements are usually triggered by property abandonment (in which case the state emergency response people control the project) or by the needs of the buyer in a transaction.  Phase I (AAI or otherwise) provides no defense whatsoever in such latter cases; the deal and its conditions are what govern cleanup.

      Cleanup here is truly compelled regulatorily only by CERCLA, RCRA, or UST corrective action regulations.  Aside from CERCLA liability limitations, a Phase I provides no protection at all against cleanup obligations in these programs.

      • Tom Speight

        I think I may misunderstand the question... are you asking whether the CERCLA landowner liability protections towards which a Phase I is geared hold up in court, or is there some other context? 

        I don't know how relevant CERCLA would be to a state court or civil matter which wasn't being conducted directly under Federal law. 

        "Defense for contamination" sounds strange in my ears... since even having a permit (e.g. a wastewater discharge) isn't considered a right to pollute...

        A great deal would likely depend on the quality of the assessment, anyways......

    • Patrick Sutton

      Sorry, sounds like I've phrased this question poorly.  Tom started hit on the kind of response I'm looking for with...

      "I don't know how relevant CERCLA would be to a state court or civil matter which wasn't being conducted directly under Federal law."

      So let me attempt to provide a better framework for my question:

      • A Phase I has been completed for the property buyer, who wants to develop the property.
      • The hypothetical Phase I report was "good" and didn't identify any RECs (can we all just pretend).
      • After purchasing the property, the buyer discovers hazardous materials in the soil above applicable state screening levels for protection of human health and/or the environment.  This triggers cleanup actions and management of the hazardous materials.

      If the buyer goes to court to seek cost recovery from the previous owner (assuming the previous owner is the responsible party), would the Phase I be of any relevance?

      Or, is a Phase I only used in Federal courts for CERCLA sites?  


      • Tom Speight

        Well, if the Phase I didn't identify the hazmat issue for whatever reason, I don't see why you'd want to rely on it.  The stuff is there and the cleanup must be conducted, and that you didn't find it earlier doesn't exempt you from responsibility for cleanup (unless you can identify someone else as the Responsible Party. If anything, the previous owner could probably make some hay by saying "look, a Phase I didn't find it, so it's not my problem."

        You could probably get it introduced but I don't think it'd help very much, since it doesn't change the facts on (or in) the ground.

        More likely the company that did the Phase I is going to start getting angry phone calls from lawyers.....

      • MaxEng

        In the case you've described (no RECs found in Phase I, later contamination is found), the greatest legal relevance probably relates to the consultant who did the Phase I and their professional E&O and/or PLI insurer(s), both (all) of whom are likely to be sued.  

        I don't think a "clean" Phase I would take the seller off the hook in most states, if the seller proves to be a responsible party.  I think most states have their own environmental liability statutes that take effect if CERCLA responsibility is not invoked.  Attorneys, am I wrong in this belief?

    • EdG

      State courts are absolutely permitted to interpret federal law.  CERCLA AAI would be evidence that your client should not be held liable. However most CERCLA cases are brought in federal courts (for various reasons - not necessarily because CERCLA is federal law - but that would be one reason).  However, it will be the battle of the experts to demonstrate whether or not all was done to find the contamination.

      In my blog "CERCLA It's Just a Federal Law" - I included one case (there aren't many at all) regarding using the AAI defense in court.  The case was U.S. v. Lombardi Realty, 290 F.Supp.198 (D.R.I. 2003), involved the Innocent Landowner Defense.  There was a 6-day bench trial on this issue with 403 facutal stipulations, witnesses, and hundreds of exhibits and written arguments.  It is a rather complex case - and there are probably other better case law examples - but I think this gives you the idea.

      It doesn't end with one report if a lot of money/liability is at stake.  It will be a battle of experts, witnesses, what was said, documents, etc., etc.

      Sorry for the broken record:but this is the poster-child for environmental insurance!  Insurance would have covered this case 100%.  You have a Phase I with no RECs = insurable. Then suddenly someone finds contamination that wasn't supposed to be there and now there is the anxiety of litigation.  Such coverage includes defense costs for litigation .... And people continue to say - if you can get insurance - you probably don't need it.  No-one wins in litigation (except the attorneys).  So an open mind to such options (insurance before the problem arises) is in my opinion recommended for your clients.


    • Tom Speight

      I agree with Ed, but with the caveat that just because CERCLA could be applicable doesn't mean that it's the law under which the case is brought-- you can do it under a state law (or even another federal law, such as the Clean Water Act) without invoking CERCLA. 

      Also yes-- it's the poster child for enviro insurance since (AIGF) the reason he could get it was because it wasn't obvious he'd need it...and if it's not obvious why you'd need it, why bother with it?.  ;)  Good and useful, yes, but it probably seemed a luxury at the time of purchase.

      But yeah-- get ready for a barroom brawl in court.

      The big question likely to be on most consultants' minds, though, is how the release was missed during the Phase I?

      I must admit, though.... I work mostly in MA and CT, and find the Ohio stuff strange, with the lack of regulatory stuff....

    • EdG

      Yes - I have been saying most cases are brought under state laws!  So agreed with Tom.  However, still don't quite get the disconnect with everyone on the insurance thing.  All of you have it as professionals and don't think (I would hope you don't think) you will be sued.  You have car insurance, home owners, etc.  Do you expect a fire at your home?  So my point is there are plenty of cases where it "appears" you don't need insurance but you buy it - that is the entire essence of insurance.  It's insurance against an unknown risk - not a known risk (i.e. if your house is on fire - you can't buy fire insurance).

      Anyway - I will eventually get to the blog on insurance so I don't have to drag this discussion into that arena.

      Back to the case - yes Tom is right.  Try to figure out a settlement or it will be everyone pointing fingers.  It's amazing to me how much lititgation can be avoided with a bit of stepping back (yes it takes both sides to do so) and saying - how to we reasonably fix this?  Settlement should be defined as "a resonable outcome in which no-one is totally happy."

    • Matt Fox

      Somehow I don't see the local lead agency saying "Oh, you had a clean Phase 1, well, then you don't have to clean it up.  Sorry for the inconvenience."

      Bottom line is someone has to clean it up, which means someone will have to pay for it.


    • Patrick Sutton

      Right, someone has to pay for it, which is why I'm asking about the relevance (or should I say "power") of a Phase I report in a State or civil lawsuit.

      I'd like to think that a well written Phase I report could be effectively used by the buyer (new property owner) to sue the responsible party.  I imagine it could also be used to have the LOP go ofter the responsible party and not the buyer (new property owner).  Since there don't seem to be many cases reported out there where a Phase I report has been used, maybe this question is left open ended for the lawyers to decide.  A lack of reported court cases is good, it means we're doing our job.         

      Ed, I like your advice about environmental insurance.  We have some clients who would probably be interested in this for future sites if they are not already aware of it. 



    • EdG

      Pat - I will get to you soon.  Busy day today.

      And an interesting case to read where everyone and their uncle is being sued - including the banks (Wells Fargo).

    • Matt Fox

      I'm no expert on real estate law, but I would think that the buyer would have to prove that the seller knew about the contamination and purposely failed to disclose it to have any recourse against the seller.

      In which case, the Phase 1 could hurt the buyer, because the seller will just say "Your own environmental expert didn't find it, and no one's ever told me about it, so how should I have known?"