Legal Aspects of Cost Recovery Actions – Federal Statutes

Comprehensive Environmental Response,

Compensation, and Liability Act

(CERCLA or Superfund), 42 U.S.C. § 9601

Resource Conservation and Recovery Act

(RCRA), 42 U.S.C. § 6901

Others

Federal Law - What is CERCLA?

Allows state and federal governments and private

parties to recover the costs of environmental

clean-up from liable parties

Liability is "strict" or no-fault, based on a party's

connection to a contaminated site

Does not apply to releases of petroleum products

Federal Law – CERCLA (Cont'd)

Potentially Liable Parties for a Facility:

• Current owner/operator

• Owner/operator at the time of a release

• Persons who arrange for disposal of waste at a facility

• Persons who transport waste for disposal at a facility

Governmental unit not considered an "owner"

under CERCLA if it acquired the property

involuntarily (i.e. bankruptcy, tax delinquency,

abandonment) (42 U.S.C. § 9601(20)(D))

Federal Law – CERCLA Defenses

Defenses are very limited:

• Act of God / act of war

• Innocent landowner

• Acquires the property without knowledge of the contamination

• Contiguous property owner

• Owns property that became contaminated by a neighboring property

• Bona fide prospective purchaser (“BFPP”)

• Acquires the property with knowledge of the contamination

Privileged and Confidential

Federal Law – CERCLA Defenses (cont'd)

Defenses available if several criteria are met both before and after acquiring contaminated property.

Purchaser must comply with All Appropriate Inquiry requirements prior to purchase

Must take reasonable steps to address contamination and prevent additional harm after the property is acquired

Must not have played a role in the contamination

• Note: post-closing movement/grading of contaminated soils has been ruled to cause a release,

making these defenses inapplicable

Privileged and Confidential

Common Elements

Innocent Landowner

Contiguous Property Owners

BFPP

AAI X X X

No Affiliation Demonstration

Essentially X X

Compliance with land use restrictions and institutional controls

X X X

Taking Reasonable Steps (after Purchase)

X X X

Cooperation, assistance, access to government

X X X

Compliance with information requests and administrative subpoenas

Probably X X

Providing legally required notices

Probably X X

Federal Law - Summary of Elements of CERCLA Defenses

Federal Law - All Appropriate Inquiry ("AAI")

Standard varies depending on when property

acquired

Since November 1, 2006, standard is EPA’s All

Appropriate Inquiry rule, 40 CFR Part 312

In general, an ASTM 2005 Phase I guidance

document satisfies EPA rule

AAI is required to assert several defenses to

CERCLA liability and obtain Brownfields grant

funding

AAI - Phase I Environmental Site Assessment

Imposes requirements on both Environmental

Professionals (EPs) and Users (the purchasers)

Goal is to identify recognized environmental

conditions or "RECs," essentially a release of

hazardous substances that, if known, would result

in regulatory enforcement

A release of hazardous substances that would not

generally result in enforcement is called a “de

minimis” condition

AAI - Phase I (cont'd)

Requirements of Environmental Professional:

• Interviews with present owners / operators

• Interviews with past owners/operators usually not required

• Reviews of historical sources of information

• Reviews of federal, state, tribal and local government records

• Visual inspection of property and adjoining properties

• Commonly known or reasonably ascertainable information from the community

• Degree of obviousness of contamination and ability to detect contamination

AAI - Phase I (cont'd)

Obligations on User:

• Searches of environmental liens or activity and use

limitations of the property (may be conducted by

environmental professional)

• Complete Questionnaire for Phase I regarding:

• Specialized knowledge or experience of user regarding

the property

• Relationship of purchase price to property's fair market

value if not contaminated

• Commonly known or reasonably ascertainable

information

• Obvious indicators of contamination

AAI - Phase I (cont'd)

Phase I's Findings and Conclusions should

address:

• Current RECs

• Historic RECs (“HRECs”)

• Significance of RECs and HRECs

• Data gaps

• Other material matters

AAI - Phase I (cont'd)

Report should include a clear and concise statement of

the EP’s final conclusion with respect to RECs

(including HRECs) and other material concerns:

• Phase I ESA identified no evidence of RECs or other areas of potential

environmental concern; or

• Phase I ESA identified no evidence of RECs or other areas of potential

environmental concern other than those which are clearly and

specifically listed in the executive summary and the final conclusion.

Phase I ESA should contain a clear and concise

statement of the Consultant’s final conclusion as to

whether further investigation is recommended.

AAI – Phase I (cont'd)

What if an REC or HREC is identified?

o Bona Fide Prospective Purchaser defense can be used

even if you know or have reason to know of

contamination before you acquire it, though the other two

CERCLA defenses (innocent purchaser & contiguous

property owner) can no longer be used.

o No requirement that the purchaser understand what all of

the contaminants are, or where all of the contamination is

located prior to purchase to assert a CERCLA defense.

o Additional investigation will be recommended by EP to

understand the scope of the problem

AAI - Phase I (cont'd)

This language is required to be in the report to satisfy AAI:

“We have performed a Phase I Environmental Site Assessment of [Property] in accordance with the procedures of the American Society of Testing and Materials, including ASTM Standard Practice E 1527-05. Any exceptions to or deviations from these guidelines are described in Section [x] of this report. This assessment has revealed no evidence of recognized environmental conditions in connection with the property [except for the following: list]. No additional investigation is recommended OR additional investigation is recommended.”

AAI - Phase I (cont'd)

Time Limitations

• Completion of AAI investigation within one year before

property acquisition, (i.e., the closing date)

• Certain sections of AAI compliant Phase I must be updated

within 180 days before property acquisition:

Interviews

Environmental lien search

Government records review

Site Inspection

Phase I: Beyond AAI Requirements

AAI Compliant Phase I focuses on establishing defenses to CERCLA liability

Other environmental concerns outside the requirements of AAI that often are addressed in Phase I include:

• Asbestos containing materials

• Lead based paint

• Wetlands / Endangered Species / Cultural Resources

• Radon and radioactive materials

• Toxic mold

• Stormwater management

Phase II

Next step if possible REC identified, but not required

to assert a CERCLA defense

Goal: to refute or confirm existence of issue and

quantify dollars associated with potential issue

Normally involves sampling of soil or groundwater,

which is not required for Phase I Reports to satisfy

AAI

Before Phase II is authorized, must consider scope

and how different results may impact decision–

making, including reporting obligations

Phase II (cont'd)

If not required by AAI, then why have a Phase II

completed?

o Understand extent of contamination

o Avoid making a contamination problem worse by

knowing what the issues are at a site

Example: moving contaminated soil at a property can

be enough to contribute to contamination, even though

you did not conduct any manufacturing, etc. at a site

If you cause or contribute to contamination, you are

liable under CERCLA

Legal Aspects of Cost Recovery Actions – Indiana Environmental Statutes

Hazardous Response Trust Fund

(or Indiana's "mini-CERCLA"), Ind. Code § 13-25-4

Environmental Legal Action Statute, Ind. Code § 13-30-

9-1

Underground Storage Tank Act (USTA), Ind. Code § 13-

23-13-8

Citizens Suits and Private Attorney General Actions, Ind.

Code § 13-30-1

Indiana Environmental Statutes (cont'd)

Indiana Mini-CERCLA - Allows the state to

pursue the same categories of people potentially

liable under CERCLA

Indiana Law - Liability Protections Specific to Units of Government

Indiana's Mini-CERCLA exempts governmental units that

acquired interest in the property:

o Involuntarily

o Through exercise eminent domain

o As part of acquisition of area needing redevelopment

o To conduct remedial actions on a brownfield

Caveat: Only available if the governmental unit did not cause

or contribute to the contamination

CERCLA affirmative defenses also provide protection under

this state law

Indiana Law – Environmental Legal Action ("ELA")

Allows private parties to recover the costs of

cleaning up contamination.

o Available even if the party wanting to recover costs

caused or contributed to the contamination.

o No "strict" liability under ELA for simply owning a

contaminated property.

Defense for liability: You did not cause or

contribute to the contamination.

o No specific defenses for state or local government in

the statute

Indiana Common Law Theories (generally called

torts)

o Trespass

o Nuisance

o "Stigma"

o Others

Indiana Law - Legal Aspects of Cost Recovery Actions (cont'd)

Indiana Tort Claims Act – Governmental Immunity

A governmental entity is not liable for a tort suit if the loss

results from an act taken to investigate or remediate

hazardous substances, petroleum, or other pollutants

associated with a brownfield, unless:

o (A) the loss is a result of reckless conduct; or

o (B) the governmental entity was responsible for the initial

placement of the hazardous substances, petroleum, or

other pollutants on the brownfield.

(Ind. Code § 34-13-3-3(22)).

Other provisions in the Indiana Tort Claims Act could also

provide immunity from suits relating to ownership of

brownfield property, depending on the circumstances.

Common Defenses to Cost Recovery Actions

Statute of Limitations

o Old rule: six years/ten years from "discovery"

o New rule: limitations period begins when remedial

costs are incurred. (Ind. Code § 34-11-2-11.5)

Other Sources – Allocation of Liability

Collecting Cost Recovery Judgments

Solvent Defendants

Dissolved, Insolvent and Bankrupt Companies

Insurance Issues

o Pursuit of Insurers

o Claims Made v. Occurrence Policies

o Primary, Excess and Umbrella Policies

o Policy Limits and Exhaustion

Collecting Cost Recovery Judgments (Cont'd)

o Common Policy Issues and Defenses

Notice and cooperation

Pollution exclusion

Owned property exclusion

Occurrence

Allocation Issues

Choosing an Appropriate Site

Amount at Issue

Identity and Status of the Defendant(s)

o Dissolved companies

o Active companies

o Bankruptcy protection

Choosing an Appropriate Site (Cont'd)

Standing To Sue – Who Owns the Property?

o Has the city incurred any expenses?

o Does the city own the property?

o Has the city been ordered to

remediate the property?

Choosing an Appropriate Site (Cont'd)

Other Considerations

o Political issues

Example Cases

New Albany:

o New Albany v. Double Seven Tire

La Porte:

o La Porte v. Allis-Chalmers

Indianapolis:

o Indianapolis v. Ertel Manufacturing

o Indianapolis v. RM Cherry