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Ed Greene Ed is an environmental lawyer and former owner of an environmental insurance firm - specializing in environmental risk management for lenders and their borrowers nationwide. Ed has a LL.M. in Banking & Financial law with expertise in the securitization process and has participated as a panelist at national conventions and published numerous articles on the topic of environmental best practices for lenders. A lesser known fact - Ed gave up his modeling career to review Phase I reports for the last 15 years.
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Recent Blog Entries
AVX Corp. vs. Horry Land Company, Docket No. 4:07-cv-03299-TLW (2007) is environmental litigation alleging $5 million in damages to undeveloped land and will come down to the battle of the consultants to acertain where the contamination has come from - with 2 entirely different stories and legal theories.
AVX Corp. operates a manufacturing facility of electronic components (which used VOC compounds including TCE in its operations) and is adjacent to a 27 acre wooded and unpaved parking lot parcel owned by Horry Land (vacant, undeveloped land). In 1979 Horry leased a portion of their property to AVX for use as a parking lot. AVX acknolwedges a release of contamination on said property in 1995 and began monitoring it with state DEP oversight. Horry was not notified of this and in 2005 conducted a Phase I to explore alternative uses for the property and to identify possible RECs. Horry's consultant recommended a Phase II which was conducted near the AVX property inlcuding water samples and five geoprobe borings. The borings found TCE contamiation according to Horry's consultant which greatly exceeding state standards.
Horry hired an appraiser in 2007 that valued the land at $5,375,000 without contamination and 0 with the existing contamination. At this point Horry sent demand letters to AVX Corp for costs and indemnification for remediation.
AVX Corp denies any liability and denies that it caused the contamination citing the defendant's own environmental reports conducted in 2007 which allegedly identified contamination never used by AVX and in remote areas not near the AVX property. AVX conducted its own testing under a work plan approved by the state DEP.
AVX Corp then filed suit under CERCLA against Horry Land in October of 2007 for contribution costs, and declaratory judgment - seeking to find the defendant as the responsible party. The defendant counterclaimed under a series of common law claims (not CERCLA) including: Negligence, Negligence Per Se, Strict Liability for Hazardous Waste, Nuisance and Trespass.
Both parties are seeking attorney's fees and costs involved with risk assessment to date. Each is also seeking to hold the other liable for the actual contamination.
Battle of the consultants - to determine where the contamination came from and the best evidence will probably carry the day.
Interesting one site - 2 completely different theories of who is responsible, where the contamination came from and the theories of law for recovery.
February 13, 2010 - Vermont's Yankee Nuclear Power Plant in Vernon, VT is leaking tritium into the groundwater including the Connecticut River. This obvious health and safety concern to humans and the environment is serious. However, this is not in any way a condemnation of nuclear facilities. On the contrary, nuclear facilities provide some of the cleanest, non-fossil fuel, clean energy available today. Since its conception to the present the US provides 15% of the world's nuclear electricity. France produces 77% of their electricity from nuclear plants. The Huffington Post reports that "Obama Nuclear Plant: President to Announce Loan Guarantee for More than $8 Billion.
More importantly; how are those harmed going to be made whole? How can a nuclear power plant, probably the most environmentally toxic and potentially catastrophic facility, possibly be insured if a regular real estate transaction with a REC cannot be insured?
President Dwight Eisenhower (D) signed into legislation the Price-Anderson Act providing "governmental insurance" above private commercial insurance after the first $10 billion from a collective pool of insurers.
The first layer of insurance for nukes comes from the private sector commercial insurance companies. Liability insurance is available up to $375 million from the American Nuclear Insurers.
Insurance covers a variety of environmental risk - from the most potentially catastrophic risk - nuclear - to the most mundane.
Everyone on commonground uses insurance in their personal lives and in business. However, no-one expects to have a fire or die tomorrow. Why then do you have fire and life insurance insurance? Either because it’s required – or because it provides a benefit! Every environmental consultant has (or should) have environmental insurance in the form of professional liability insurance.
Accordingly we can start with the 1 of the 3 major forms of environmental insurance – (1) Environmental Professional Liability Insurance for contractors/consultants (including remediation, lead & asbestos abatement). Why do you individually; or does your firm have environmental insurance? Because it’s both required by your clients and the government (see SBA requirements) and it protects you from unwanted liability. Do you expect to make a mistake, error or omission? No. But you still carry the insurance.
Environmental insurance is not a panacea; but rather it a tool to be implemented in various situations – most of which include a use in conjunction with environmental due diligence.
So where does the “transactional environmental insurance” fit in to the environmental due diligence industry? Namely, where does (2) Pollution Legal Liability (“PLL”) and (3) Environmental Lender Insurance fit in? Also who are the players and what are the limitations to environmental insurance? [Sidebar: environmental insurance is an approximately $2-3 billion premium industry with presently 30 insurance companies and has been around for over 30 years. Policy exclusions typically include mold, naturally occurring radon, lead, radioactive material – and existing environmental conditions above reportable levels. However, that being said – coverage can be procured for each of these named risks on a case by case basis].
Applications & Benefits (Mitigant to Risk); and Who Accepts It
We all know that each and every transaction is unique and there are numerous stakeholders involved and therefore this list, while factual and accurate to this day, does not proclaim that in every situation environmental insurance can be implemented. It is simply a list of its current uses and applications:
· Replace Phase I (mostly confined the environmental lender insurance policies for low risk properties), replace Phase II, in lieu of indemnification (borrower’s or in a purchase & sale agreement), in lieu of an escrow, provide protection for “reopeners” (see Vapor Intrusion), change in regulations, coverage for ongoing operational activities (USTs, ASTs, drycleaners, bulk fuel facilities, manufacturers, indoor air pollution), and in some cases - for existing contamination (i.e. just above reportable conditions in a risk-based state where monitoring only is required);
· Time element: if a portfolio of properties is being sold or refinanced and there is no time to update and/or order new Phase Is on all the properties – environmental insurance can be procured;
· EPA (see attached spreadsheet – provided by the EPA - which specifically acknolwedges enivronmental insurance: they do not endorse it), SBA, state Brownfield (the state of Massachusetts will subsidize the premiums of environmental insurance in conjunction with a Brownfield redevelopment), rating agencies; financial institutions, property owners, manufacturers, facilities - all recognize the application of environmental insurance. [Sidebar: numerous federal laws require Financial Assurance - and commercial insurance can be one acceptable form - they include: OPA, CERCLA, RCRA, OCSLA, FLPMA, AEA, TSCA, SDWA, SMCRA. Financial Assurance is required for vessels carrying oil or hazardous substances, USTs (some states ASTs), solid & haz. waste landfills, industrial oil and gas wells, offshore oil-drilling facilities and pipelines, nuclear power plants and coal/mining operations].
Insurance Brokers. Insurance brokers are regulated by their state of domicile, are required to have a license (several in some cases) and are under a duty to represent the Insured’s interest. See Johnson & Higgins v. Bloomfield, 907 P.2d 1371 (1995) – where an insurance broker was held liable for negligently performing his services to the tune of $600,000 for failure to procure environmental insurance for a client that owned a building that had “sick building syndrome.” Environmental insurance is a specialty insurance not unlike Directors & Officers, Fiduciary, and other insurance where the underlying risk needs to be known by the broker that owes you – the Insured (property owner, bank) a duty to procure the correct coverage. Would you ask your life insurance agent to procure an environmental insurance policy for your most trusted client? [Sidebar: insurance broker v. agent. Insurance broker works for the Insured; an insurance agent works for the insurance company]. Consequently, like Environmental Professionals and any other service provider – there are more qualified insurance brokers than others.
Insurance Underwriters. The vast majority of environmental insurance underwriters started their career in the environmental due diligence industry and typically have a technical background (geology, engineer, chemistry). Again, like every industry – there are better more experienced underwriters than others.
Insurance Carriers. The insurance industry is a highly regulated industry (regulated by the each individual state and not the federal government; although there is federal legislation as well). A failure of an insurance company to pay a valid claim can result in numerous penalties, punitive damages, cease & desist orders and – if bad enough – jail time! During the “Elliot Spitzer” crackdown – more than a few insurance people (brokers and insurance company employees) when to jail!
As stated earlier – environmental insurance is not the panacea of environmental risk and requires expertise to procure the appropriate coverage. Common complaints that insurance carriers deny claims and exclude risk (even go insolvent) – have validity (however, please remember that you would look a little silly asking for fire insurance when your house is already on fire!). But is this valid criticism unique to environmental insurance - or does it apply to the insurance industry in general? I believe it's the latter and that is the 'nature of the beast.' Insurance companies are no doubt in the business of making money and paying claims puts a dent in profits. And there is just criticism of a broker who is trying to get his/her commission - rather than providing a value-added service. Again, I believe that can be said about any service industry.
Regardless of whether one accepts the use of environmental insurance or not - the trend in environmental risk is increasing in most states which presents challenges to the best of the environmental service providers (EPs, attorneys, insurance brokers). Risk-based states like Massachusetts are 'reigning in' the acceptable levels of contamination (VOCs) and enforcement is still a big priority. A recommendation that a site is 'closed' with a state (especially in a risk-based state) with a 'sign-off' or a no further action letter is by no means a guarantee that environmental risk won't rear its ugly head in the future. In the courtrooms, plaintiffs are winning more environmental liability cases under the common law theories of nuisance and trespass. This presents another challenge to environmental professionals in providing expert advice on how to manage a client's environmental risk.
Perhaps environmental insurance is a tool to be considered, perhaps it is not .... Whether it is or not, hopefully it comes from a vantage point of understanding what environmental insurance is - and just as importantly - what it is not.
I hope this helps a bit and welcome all questions and constructive criticism. Thank you for reading.
Ed Greene
Consultants that have municipalities as clients - tell them they are strictly liable under CERCLA and more importantly - state and local laws for environmental contamination.
Adobe Lumber Inc.vs. Hellman et al. (2009) a property owner purchased a shopping center in CA only to find that the "Suite K" which contained a dry cleaner dumped its contamination down a drain connected to the city's sewer pipes (system). The sewer pipes leaked causing further contamination. CT: Held City strictly liable.
The city proclaimed it was an innocent landowner (the so-called panacea of Phase I ASTM AAI). In denying their status as an innocent landowner, the U.S. Federal District Court (E.District CA) cited intera alia Carson Harbor Village v. Unocal Corp., 270 F.3d 863 (2001) stating, "Commentators have written the obituary for the innocent landowner defense many times since it was created in 1986 - further citing Rosemary J. Beless, "Superfund's Innocent Landowner Defense: Guilty Until Proven Innocent", 17 J, Land Resources & Envtl. 247 (1997); Shane Claonton, Passive Disposal of the Innocent Landowner Defense, 9 J. Nat. Resources Envt. L. 255 (1993-1994); L. Jager Smith, Jr., Note, CERCLA's Innocent Landowner Defense: Oasis or Mirage?", 18 Colum. J. Envtl. L. 155 (1993).
See also case law U.S. vs. 150 Acres of Land, 240 F.3d 704 (6th Cir.2000).
Phase Is and CERCAL AAI are not relevant in reality.
Lowell, MA. The Grand Manor Condominium complex was built over a city dump around 1983 and now considered an "imminent hazard" by the DEP. However, the fact that the site was built over a city dump was not discovered until November 2008 when the condo association hired a contractor to install a new drainage system. Testing of the excavated dirt from the project revealed elevated levels of arsenic, cadmium, lead and tetrachloroethene.
Liable parties: The DEP says: The Condo owners and the City of Lowell. The developer has passed and it is unknown whether he knew it was a dump at the time (does it matter?). The City is denying liability at the present. So who pays for the cleanup? Each individual condo owner right now. I live in a condo - and I looked at one down the road and quickly found out it had an assessment due to petroleum contamination leaking into the harbor. I passed on that condo.
Condo owners - state they cannot sell their condos and renters have left breaking their leases. One condo onwer stated: "No bank would give anyone who wanted to buy one a mortgage." He is right.
Property valuation in 2009 = $5,891,300. Today = $3,123,600.
Condo president quickly found numerous newspaper articles on the city dating back to the 1950s stating the site was a city dump. How could this happen? How was the due diligence on this site missed?
And yes - environmental insurance could have been purchased and would be covering the Condo Association - so each individual (like you and me) would not be out-of-pocket on the cleanup. I can assure you their current policy excludes pollution.
However, this is not about insurance - it's about the fact that at any time, any place - this could happen to you or me! Pollution knows no boundaries.
TRC appears to be handling the cleanup. How do you consult an individual when you are at the site and they ask - how could this happen? Who is going to pay for this?
Highlights from the Conference: Keynote Speaker - Curt Spalding, EPA Region 1 Administrator: National and regional focuses of the EPA.
EPA Nationally: (1) Enforcement and Compliance, (2) Clear Air Act (Climate Change), (3) Clean Water Act - stormwater!, (4) CERCLA, (5) Environmental Justice and (5) Smart Growth.
EPA Region 1 (New England): much broader 'agenda' including: Wet Weather Pollution, Green Jobs, Lead Poisoning, Enforcement.
MA DEP indicated their Priorities are: (1) Compliance Assessment (i.e. UST compliance), (2) Verification of Compliance (i.e. audits of 'closed sites'), (3) Maintaining Healthy Environment (i.e. diesel emission from idling buses), (4) "Blitz" - High Intensive Inspection/Enforcement: Chapter 91 Enforcement - with the reduction in staff either you work with the DEP or they leverage outside sources - e.g. the Attorney General's office for enforce regulations, (5) Leveraging Outside Agencies for assistance with Enforcement.
- MA DEP about inspections (7,400 in 2009) and enforcements (3,500 in 2009). Total penalties in MA = $6.9M vs $5.4M in 2008. Focus on really cracking down on asbestos abatement contractors! Criminal violators were prosecuted and likely to see jail time;
- DEP referenced M.G.L. c 148 section 38J - residential ASTs and encouragement of insurance coverage;
- Some interesting case law referenced about arranger liability under CERCLA and other case law like Commonwealth v. Pan Am Railways - minor spill ($100,000 cleanup) of oil but a failure to report it lead to the highest fines possible under the law ($500,000 total fines $125,000 per violation);
- Case law on environmental contractors (LSP case) - to follow.
For those in the greater 'southern New England/NYC' area - Foxwoods (Ledger, CT) is hosting a day long Mortgage Expo: "Expo in the Sun."
Among the noteworthy Agenda meetings:
9-10:45am: "504 Basics: Getting the CRE Loan Made"
1:15-2:00: "Finding the Money: CRE Financing"
Some noteworthy speakers: Presidents of Salem Five Bank, Liberty Bank; SVP of Charter Oak Federal Credit Union and more cre (and residential) mortgage leaders and other providers.
As reported in Commercial Mortgage Alert (CMA, 12/18/09) - Envirofinance Group of Sacramento has raised $50 million of private equity to do just that - purchase distressed loans with brownfield issues. Envirofinance is the "outgrowth" of CERF; a company originally founded by the director of the Massachusetts Brownfield Redevelopment to Capital. Environfinance is backed by a big equity player - Snow Phipps of NYC.
Valuations of such loans/land is challenging for numerous reasons; one of the biggest is the fact that the secondary market is in a log jam. However, another is: what is the value of a distressed loan that also happens to be a brownfield?
Several investors suggest such loans/properties are only worth 5-15 cents on the dollar. CMA reports that Envirofinance is looking for a 25-30% return targeting loans between $5MM and $25MM. That is an unheard of return in any market, let alone a in recession (sign me up)!
Benjamin Leslie-Bole of ERM summer 2009 newsletter, "How I See it: The State of the Brownfield Industry", inter alia, subscribes to a common theme from me involving environmental risk. Namely, "creative solutions" and a "totality of the circumstances" approach to such transactions are essential. Stakeholder involvement is critical and one cannot look with tunnel vision at a particular environmental issue to be a successful seller/buyer, lender or equity stakeholder of a loan/property with environmental challenges. You have to look at the big picture. See OWS discussion! In fact, such an approach by a consultant should make you stand out in a competitive marketplace.
Given the disastrous outcome of property values plummeting - wouldn't a specialty appraisal group for such loans/properties (brownfieldS) be invaluable to the FDIC and equity players like Envirofinance?
In other words - wouldn't this be a great source of NEW BUSINESS for consultants?
I should have been a weatherman. In college I sincerely considered it - even taking a class called "the weather." Everyone mocked me.
The Boston area forcast as of today (12/18/09):
Sunday, December 20. Scenario 1: Cloudy, temps in 30s. Scenario 2: Two foot blizzard w 50 mph winds ... huh ...
That's a pretty good range cloudy; or a major blizzard.
Ok votes: How many say cloudy? How many say blizzard? Flurries? Partly Cloudy?
My prediction (100% Guaranteed): the Boston area media goes nuts for the next couple days (purely for ratings), people crowd the grocery stores like its the end of the world; and the storm goes out to sea ...
"Everybody talks about the weather, but nobody does anything about it." Mark T.
Despite myself - I have a real REC story that I sincerely welcome any and all input on.
Short version: A Massachusetts SBA borrower has a 2005 Phase I that said pesticides in soil is a REC. The property is a greenhouse and the new (purchasing) borrower's business will be to use the greenhouses but will not use or store new pesticides. What should the borrower do?
In MA pesticides in soil are arguably not regulated under the MCP ("Mass. CERCLA") - so a "totality of the circumstances" approach would say - in conducting a new Phase I - does that have any impact on your determination "to REC or not to REC?" So are you considering state law in your evaluation?
The reality (I was told this) is the CDC wants to get the deal done. SBA SOP's environmental policy states that when there is a REC - then something more needs to be done. There will be consultants that support that this is not a REC and then the borrower/lender go on the way to closing the loan. Others will not.
I realize there are 1,000 different factual scenarios that could impact the decision - i.e. how close to a drinking source, storm water runoff, how much contamination, etc., etc. Let's just keep it simple and say there are (low - maybe some level of concern) levels of pesticides in the soil and the small business owner just wants to make a living running a greenhouse with no more use of new pesticides at the property. A REC could possibly RECk his loan ...
Go get them ... (thanks).
Ed
To state the obvious - lending is not what it was in 2007. For comparison in 2007 CMBS issuance hit a record of $222 Billion (with a 'b'). In 2009 it is at $800 million (with a 'm').
The Urban Land Institute and PricewaterhouseCoopers issued their joint report: "Emerging Trends in Real Estate" for 2010. They interviewed over 900 commercial real estate professionals and the consensus is not pretty (on a nationwide basis).
However, commercial lending - and new developments are getting done! Thankfully under more stringent review from regulators and, ahem, rating agencies; and certainly institutional investors.
The Boston Business Journal (December 4-10 issue) has several articles on lending and development in the greater Boston area (obviously a microcosm of the national cre industry). On the lending front two articles detail that in Masschusetts cre lending has actually increased: "Mass Lenders stay cautious focus on bad-loan reserves" and "Glimmer of Hope: Despite troubled RE market, multi-family interest surges".
In my meetings with two lenders yesterday - they mirrored what these articles indicate. Lending is getting done on commercial real estate. Based on the BBJ article and FDIC data, "Net cre loans for a group of 100 banks increased 9%." One major property focus is multifamily (across the country - not just Boston). Lenders are seeking to lend on multifamily projects and in fact, Brookline's Dexter Park deal worth $129.5 million is the biggest multifamily deal in the country! (2009)
Boston development (where they are not making any more land) is also happening. BBJ has several articles on Boston developments: "Developers find ways to adapt to flaccid market" and "Education, health sectors see projects break ground." While construction is happening - the articles indicate it is down 33% from last year in the Boston area and 24% for New England. However, one cre expert, Robert Murray, chief economist with McGraw-Hill Construction, is predicting a 9% construction increase in 2010.
What does it all mean - who knows ... However, yesterday I reconfirmed what I already knew (from 2 lenders with expertise in environmental matters): most lenders still do not know a lot about environmental risk. This is particularly true for small (local) lenders that do not have in-house expertise. I was told some just lend and put their head in the sand regarding environmental matters. I also know that when speaking of multifamily - lenders tend to automatically think - how can there be environmental risk at an apartment complex? Ummm, in 2007 Capmark was ready to lend $8 million to an inexperienced multifamily borrower who was purchasing a property located in the middle of a Superfund site!
Multifamily properties come with numerous environmental issues: past, present and future - including, but not limited to: historical property uses (vapor intrusion), USTs/ASTs, indoor air quality (mold, asbestos, lead), and adjacent properties See Walnut Creek Manor vs. Mayhew Center wherein WCM is an apartment complex adjacent to a former industrial facility that contaminated WCM.
So opportunity exists. Focus on small (local) lenders and multifamily properties.
WSJ: "Business Fumes Over EPA Rule". The EPA and Obama Administration is anticipated to declare Carbon Dioxide a dangerous pollutant based on an endangerment finding.
The anticipated EPA regulation would give the feds the ability to require businesses to make costly changes to reduce emissions. This could come regardless of whether Congress accepts climate change legislation.
Is this the right thing to do in an already depressed economy? Appears to me the political verbiage has changed from global warming to climate change. See Hacked Emails regarding 'global warming.'
WSJ - "Why Commercial Real Estate Could be the Next Shoe to Drop". Why this seems to come as a surprise to the banks ("Banks will be slow to recognize the severity of the loss - just as they were in residential") is to me proof positive of the hubris of Wall Street and other big banks. The article describes the losses could be as severe as the crisis of the early 1990 - which is exactly where all the "know-it-all" rating agencies derived their 'stress tests' in evaluating CMBS. Hotels are one of the hardest hit property classifications. Ashford Hospitality Trust is in negotiations to modify the terms of its $101 million securitized mortgage on a 525 room Westin Hotel because ... per room revenue is down (precipitously). Construction loans are a big target of bank regulators (FDIC, OTS, FCC, OCC) and the scrutiny of banks for loan loss reserves. In good times - construction loans are the highest risk loans; as by definition there is no cash flow and the collateral is typically dirt or a partially finished building.
During 2006-07 I reviewed plenty of Phase I reports for proposed construction loans that identified contamination. It didn't matter. If you were a borrower with a pulse - Wall Street fell all over themselves to lend you money.
In a related WSJ article (today's WSJ), "BlackRock Up for Role Rating Risk At Insurers" - describes how insurance companies are turning to BlackRock analysts - not Fitch, Moody's, and S&P to "rate" MBS (residential loans backing securities). That is extremely significant as insurance companies are one of the biggest buyers of such bonds - holding nearly $3 trillion.
It is the 'secondary market' (securitization/rating agencies, etc.) that has driven Phase Is for commercial property from the 1990s through about 2007.
As the commercial defaults rise and AAA rated bonds get downgraded - the same institutional buyers (insurance companies, pension funds, REITs, etc.) could have the same reaction to rating agencies on the commercial side.
Ed
The All Appropriate Inquiry (AAI) / ASTM 1527-05 Phase I environmental site assessment is not the panacea to environmental risk. Environmental service providers (lawyers, consultants, and EH&S) must be knowledgeable about state laws, ongoing environmental obligations, financial responsibility and anticipate future regulatory changes to avoid unwanted liability - as well as leverage regulatory advantages.
CERCLA 42 U.S.C. section 9601 et al. is a federal law. It is not a state law (emphasis added twice). States can and do have more stringent laws affecting environmental liability; and can also provide different liability exemptions. For example, under “Massachusetts’ CERCLA” (M.G.L. c. 21E) an “eligible person” is statutorily precluded from third parties lawsuits. CERCLA does not provide a similar third party exemption. CERCLA does provide 3 important statutory defenses for landowners: (i) Innocent Landowner (ILD), (ii) Bona Fide Prospective Purchaser (BFPP), and (iii) Contiguous Landowner (CL). That being said, again each state has its own laws. For example, CERCLA’s BFPP is not recognized by the Wisconsin Department of Natural Resources. So state law, while required to be as strict as federal law, can cast a broader net than CERCLA's.
Even if one qualifies for a CERCLA defense – there are ongoing proactive obligations of conformity and financial responsibility to remain exempt from liability. Phase Is are like a financial statement – they a snapshot in time. They do nothing regarding ongoing liabilities (see dry cleaners, USTs, conformity with a land use restrictions), changes in the environmental regulations, and third party liability. In New York (and several other states) there has been regulatory movement to “reopen” of formerly closed sites due to vapor intrusion. If your site was ‘closed’ with institutional controls (deed restriction, no further action letter), it can be further investigated and require more remediation.
Under CERCLA an owner, operator, arranger or transporter of hazardous substances is strictly, retroactively, jointly and severally liable for environmental cleanup and liability to third parties. However, if an owner or prospective purchase conducts an AAI, they may qualify (liability exemption) as a:
(i) Innocent Landowner (CERCLA section 101(35)(A));
(ii) Contiguous Landowner (CERCLA section 107q); and
(iii) Bona-Fide Prospective Purchaser (CERCLA 101(40) and 107(r)).
Innocent Landowner Defense and Michigan’s “Baseline Environmental Assessment” (BEA). In Michigan a BEA allows one to purchase or begin operating at a facility without being held liable for existing contamination and must be conducted according to specific guidelines – otherwise you do not qualify. A former client (B-piece buyer/property investor) was contemplating taking possession of a contaminated industrial facility but did not want to run the risk of environmental liability. They hired an out-of-state environmental consultant that was unfamiliar with Michigan’s BEA to conduct a Phase I to establish AAI and the ILD. After spending money and waiting months for the results (time is money to Wall Street), the B-piece buyer received a Phase I that did not confirm to Michigan's specific regulations. This investor had to rehire a new consultant to conduct another report in conformity with MI's BEA. Valuable time and money was wasted because the specific state regulations were not followed.
U.S. v. Domenic Lombardi Realty, Inc., 290 F. Supp. 2d. 198 (D.R.I. 2003), is a case that grappled with the Innocent Landowner Defense (ILD). After a 6 day bench trial with 403 factual stipulations, witnesses, and hundreds of exhibits and written arguments the court found Lombardi Realty failed to prove it was an innocent landowner. To further complicate matters was the issue of what environmental standard applied; the 1986 standard when the property was purchased, or the 2002 standard when the government brought the action? While the court held the 1986 standards, the defendant still did not meet AAI.
Walnut CreekManor, LLC. v. Mayhew Center, 622 F. Supp.2d 918 (2009) is a another case that addressed, inter alia, AAI and environmental Phase I reports. In 1993 San Francisco Federal Bank foreclosed on the Mayhew Center (“WC”), an industrial property adjacent to a seniors-only residential apartment complex called Walnut Creek Manor (“WCM”). The bank performed a limited Phase I and sold it to the current owner, WC. In 2004, when the WC went to refinance, a new bank hired National Assessment Corporation to conduct a new Phase I that revealed contamination and recommended additional testing. WC hired another consultant, Allwest Association to review NAC’s findings. Allwest concluded that subsurface investigation was not warranted and did not mention the adjacent landowner, WCM. In 2004, the California Regional Water Quality Control Board ordered both parties to submit a technical report proposing site investigation and a work plan to assess the soil and groundwater contamination. Summary judgments were filed and it quickly became a battle of the experts. WCM prevailed on summary judgment.
Contiguous Landowner. In Massachusetts its dubbed ‘downgradient property owner status’ and is a viable defense to liability. Under both federal and state law, the contiguous landowner must first prove they did not cause the contamination and are not connected to the responsible party. See Walnut Creek Manor case above. This defense also requires an ongoing obligation of compliance.
Bona Fide Prospective Purchaser is designed to provide liability exemptions under CERCLA and therefore encourages purchasing and remediating contaminated properties. However, the BFPP must take all “reasonable steps” to stabilize and limit exposure to the contamination. Needless to say, that language is highly subjective requiring a site specific approach. As stated earlier, some states like Wisconsin do not even recognize the BFPP exemption. Most practitioners believe the BFPP is a confusing outgrowth of EPA Prospective Purchaser Agreements that really offer little in the way of additional protection. Again, the BFPP is confined to federal law. States and third party liability would still remain. A preferred and more conducive approach would be for a potential purchaser to ascertain their state’s Brownfield legislation.
Environmental Risk – A Proactive Approach is Required
Today, environmental risk pervades all aspects of business and every company wants to be ‘green.’ Therefore, environmental service providers must be proactive in managing this risk under a comprehensive approach - and even leverage the recent beneficial changes (i.e. tax credits, grants, low interest loans, environmental insurance premium discounts, liability exemptions, etc.). CERCLA and AAI are just one small element of environmental risk and potential liability exemption.
WSJ Today: Renewable Energy, Meet the New Newbys. A Vermont resident in response to a developer's proposed wind turbines: "There should be a place for these - someplace that isn't going to impact families quite so much."
The article states that Paris based International Energy Agency cited "not in my backyard" as among the top 5 threats to growth of renewable energy world wide.
Another quote from the Gov. of Wyoming (big wind state) - "Generally in this state, support economic development" ... but ... "when all of a sudden it ends up in our backyard, our view changes a lot."
So which is it folks? Do you want to save the planet ... but only if it does not impact your view of the clean smog free sunset?!?
Recent Comments
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