Archive for the ‘Hazardous Waste’ Category

Remedial Program Reform Proposals for EPA Administrator Pruitt

Tuesday, February 28th, 2017

Regulatory reform is at the centerpiece of the Trump Administration’s plan to stimulate economic growth. During the presidential campaign, candidate Trump vowed to rollback a variety of Obama Administration Climate Change Initiatives but said little about EPA remedial programs such as the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or superfund). Based on his testimony and follow-up written response to Congress, it appears that EPA Administrator Scott Pruitt recognizes the value of brownfield programs and the need to remediate contaminated sites. There also seems to be strong bipartisan support for the brownfield program in the House committee responsible for the EPA budget.

As a result, I have shared the following recommendations to Administrator Pruitt for reforming EPA’s remedial programs. These suggestions could improve the efficiency of the remedial programs without weakening environmental protections. Some of the changes could be achieved through legislative amendments but could be administratively implemented if Congress does not have the time to address environmental issues during the current term. The proposals are not in any order of importance

  1. CERCLA Continuing Obligations Guidance– The 2002 amendments to CERCLA added the Bona Fide Prospective Purchaser (BFPP) and Contiguous Property Owner defenses. These defenses (in particular the BFPP defense) were enacted to help incentivize purchasers to acquire and remediate contaminated properties so they can be put back into productive use. While EPA promulgated an all appropriate inquiries (AAI) rule to help define the pre-acquisition obligations necessary to be able to assert these defenses, there is little guidance from EPA on how property owners or operators may satisfy their “appropriate care” or “continuing obligations” so they can maintain their liability protection after taking title or possession of property. The 2003 “Common Elements Guidance” is inadequate. The lack of guidance and recent caselaw have created uncertainty for developers and undermined the value of these defenses. EPA should issue detailed guidance on what constitutes appropriate care. Developers and property owners should not have to rely on ASTM to provide guidance on how to comply with their legal obligations.

2. Revise “Enforcement Discretion Guidance Regarding the Affiliation Language of CERCLA’s Bona Fide Prospective Purchaser and Contiguous Property Owner Liability Protections” – This memo did not sufficiently address concerns raised by the Ashley decision that purchasers of contaminated property could lose their eligibility for the BFPP by agreeing to indemnify sellers. 

3. More Robust Use of PPAs and CPO “Assurance Letters”- With the passage of the 2002 CERCLA amendments, EPA announced in guidance that it would issue PPAs or CPO assurance letters only in rare instances because the landowner liability protections were self-implementing. However, these agreements can be incredibly valuable. EPA should urge its regional offices to issue such documents where they can facilitate redevelopment such as in urban superfund sites (e.g., GowanusCanal, Newtown Creek) and where municipal governments are willing to foreclose on contaminated properties and then convey title to redevelopers. 

4. Clarify Scope of Municipal Liability Protections Under CERCLA to Encourage Taking Title of Vacant Properties and Facilitate Reuse- There is considerable uncertainty among local government community if municipalities can invoke the protections of 42 U.S.C. 9601(20)(D) and (9601(35)(A)(ii) where they take title in lieu of formal tax foreclosure proceeding since this may not be “involuntary”. Local governments might be more willing to take title and assemble vacant properties so they would become more attractive to redevelopment if they could obtain clarity on the scope of this protection. Presumably, a purchaser from a municipality would then be able to assert the BFPP or third party defense. A related problem is that the BFPP defense would not apply to local governments who took title prior to January 11, 2002.

5. Reform EPA Remedial Programs Into a Single Unified Cleanup Program- Our nation’s remedial programs were created as we became aware of new concerns. This has resulted in different cleanup standards and procedures. We have separate staffs for CERCLA, RCRA, TSCA (PCBs), USTs, etc. We now have three decades of experience remediating sites. I think we should strongly consider combining these discrete offices into one streamlined remedial office that will provide consistent regulatory approach and reduce unnecessary staff. 

6. Clarify Lender Obligations Following Foreclosure- The original EPA lender liability rule contained a “bright-line” test for lenders to follow so they can be deemed to have taken commercially reasonable steps to sell property following foreclosure, thereby staying within the safe harbor created by the secured creditor exemption. Unfortunately, when the rule was vacated and the 1996 lender liability amendments were added to CERCLA, the “bright line” test was omitted. So lenders have no guidance on how to proceed during what is the worst economic downturn since the Great Depression. Can they reject an offer that is equal to artificially depressed price? How long can they hold onto property without losing protection? Some states allow for two years while others allow up to five years to sell the property. Greater clarity will help lenders move these properties.If control of Congress changes, this can be legislative proposal.  

7. Encourage States to Adopt Licensed Professional Programs– States are facing severe staffing constraints which are creating backlogs in site remediation.  EPA could use its authority under section 128 of CERCLA (approval of state response programs) as well as its RCRA delegation authority to have states adopt licensed site professional programs like MA, NJ and CT so that states could devote their limited resources to the sites that pose the greatest risk to human health and the environment. EPA could establish a national licensing program for consultants that sets forth minimum professional requirements and states could adopt these programs as part of their remedial programs. One way to accomplish this could be by amending the All Appropriate Inquiries (AAI) Rule to revise the definition of Environmental Professional. This could avoid having to promulgate a new regulation.  

8. Revise NCP- revising the NCP. It was last revised in 1990. Since then we’ve learned a lot about cleanup and have lots of informal guidance to help streamline the process and make it more cost-effective. Doesn’t make sense to continue to follow the RI/FS lockstep process. Why review five alternatives? The NY brownfield program requires applicants tp propose remedy and an unrestricted cleanup alternative, and this approach has been able to generate robust cleanups. The NCP could be revised to incorporate streamlined provisions for brownfield sites that will produce faster and more cost-effective cleanups while preserving right of contribution. Right now, firms are incentivized to follow the lock-step approach to preserve their ability to pursue cost recovery. 

9. Revise CERCLA Disclosure Requirements With Amnesty Program To Incentivize Accelerated Cleanups- Property owners are not currently required to disclose historic contamination. As a result, many sites remain unremediated until the owner is ready to sell the property. To help accelerate cleanups, I think EPA could announce it was going to change its disclosure rules from reportable quantity approach to contaminant concentrations and at the same time provide current property owners a one year amnesty period to voluntarily disclose contamination. Much like the EPA audit policy, owners who disclose the existence of contamination that they are not responsible for would be afforded BFPP status. They would have to exercise “appropriate care” but not full cleanup. The SARA Title III program resulted in substantial reductions in pollution. It seems worth the try to experiment with an amnesty period for contaminated sites. 

10. Seek Cost Recovery from Responsible Parties When Brownfield Grants Are Awarded – According to a 2004 EPA study, there may be 300,000 contaminated sites in the nation that may cost over $200 billion (not adjusted for inflation) to remediate.  Many brownfield sites were created when corporations closed plants and either relocated elsewhere in the country or exported the jobs overseas yet remains financially viable. EPA has been granting brownfield grants to local governments without considering if there is a responsible party.  Before EPA gives away public money, it should make a determination that there are no responsible parties. If responsible parties are available, RPA should give the responsible party an opportunity to conduct an investigation and remediation of the contaminated property is has left behind. If the responsible party declines to participate int he cleanup, EPA could then award the Brownfield grant and seek cost recovery. In this way, the brownfield funding program would not have to rely entirely on Congressional appropriations.

11. Move Away from Brownfield Grants/Loans and To Tax Credits- The brownfield financial incentives are becoming like public works projects. The funding often takes too long for private development. Rather than giving funds to local government to investigate and reuse planning, EPA could incentivize the private market to do this work by expanding and extending brownfield tax credits. The New York Brownfield tax credit program has resulted in an estimated $7.5B in investment in the state at a cost of $750MM. Tax credits put the upfront risk on the developer instead of the taxpayers. 

12.Adopt National Environmental “WARN” Obligations Under RCRA- to prevent future brownfields, companies closing operations should be required to notify relevant permitting authority at least 90 days in advance of closing to ensure that appropriate closure occurs so that public money does not have to be used to address cleanup or local government seeks brownfield funds.

13. Require States To Use Parceling To Encourage RCRA Brownfields- EPA RCRA Brownfield Reforms urged states to allow owners or operators of TSDF to sell off clean parcels of their facilities (e.g., portions never used for any waste management) while the HWMUs or SWMUs were undergoing corrective action. EPA should more forcefully use its delegation authority to allow this much needed reform.  

14. Clarify RCRA liability for Generator-only sites- There is much confusion if closure obligations for a generator site run with the land. In other words, a site may have been owner or operated by a defunct generator. A prospective purchaser is interested in redevelopment but is concerned it will become subject to closure obligations for the areas where wastes were managed. Presumably, generator sites could be treated as any brownfield site without the need to undergo formal RCRA closure.  

15. Add Landowner Liability Protections to TSCA for PCB Cleanups- Purchasers often take steps to qualify for CERCLA BFPP only to learn after taking title that the property has been impacted with PCBs and they are subject to TSCA cleanup. This might require Congressional action but I do not see any reason why TSCA should not have a BFPP defense. Congress added AAI and BFPP to OPA in 2004 with little controversy.

16. TSCA PCB Reform- The PCB cleanup and disposal rules are a bit RCRA-like, a bit CERCLA-like and not well integrated. The cleanup should also not depend on the original spill concentration but on current concentrations and media. I’d like to see the entire Subpart D to 40 CFR 761 repealed, and disposal of PCB-containing material handled entirely within RCRA via the listed-waste and LDR route. 

17. Adopt Restatement (Third) of Torts Approach to Joint Liability– When CERCLA was enacted, Congress said that liability should be premised on evolving concepts of common law. At the time of its enactment, the Second Restatement was in effect which favored use of joint liability for indivisible harm. However, this was before states began adopting comparative negligence statutes. The Third Restatement states that the law has shifted dramatically from the use of joint liability and that courts should try to find a basis for apportioning liability where there is a reasonable basis. Despite the publication of the Third Restatement in 2000, federal courts continue to cling to the doctrine espoused by the Second Restatement. Recently  an appeals court declined to adopt the suggestion of an amicus brief submitted by The American Tort Reform Association to use the Third Restatement to apportion liability for the Fox River cleanup. My post on this case is at: . The Administration might want to have Congress clarify that CERCLA liability should be based on the Third Restatement or  EPA could issue interpretative guidance that it now considers the Third Restatement to be the governing law for CERCLA liability. This  would reflect the Congressional intent to follow the evolving common law and confirm the direction where the law has moved.

Appellate Court Restricts NYSDEC Ability to Spend Superfund Money

Monday, November 14th, 2016

A legal maxim is that  bad facts often make bad law. It appears that complex facts may have confused an Appellate Division court in In the Matter of FMC Corporation vs New York State Department of Environmental Conservation, 2016 N.Y. App. Div. LEXIS 6785 (App. Div.-Third Dept. 10/20/16) where the three judge-panel appeared to rule that the NYSDEC may not spend money from the state superfund until it first provides a hearing to a potentially responsible party.


The facts are dense but can be summarized as follows. FMC Corporation (FMC) operated a 103-acre facility located in the Village of Middleport, New York that manufactured a variety of organic and inorganic pesticides, fungicides, herbicides and insecticides containing calcium arsenate and lead arsenate since the early 1940s. In 1980, the NYSDEC added the facility to the Registry of Hazardous Waste Disposal Sites which is informally known as the state superfund (SSF) list. In 1986, the agency reclassified the facility as a class 2 site. The facility was  an interim status facility under the federal Resource Conservation and Recovery Act (RCRA).

In 1988, NYSDEC completed a RCRA Facility Assessment (RFA) that identified 53 solid waste management units (SWMUs), including eight hazardous waste management units (HWMUs). Contaminants consisting of heavy metals and dozens of other organic compounds were detected in the soil and groundwater at the Facility. Heavy metals were found in the soils at a nearby school and nearby private residences primarily from aerial deposition.

In 1991, FMC, EPA and the NYSDEC entered into an administrative order on consent (AOC)  pursuant to RCRA § 3008(h) and ECL § 71-2727(3). The AOC required FMC to complete an RCRA facility investigation (RFI), implement interim corrective measures (ICMs) and conduct a corrective measures study (CMS) if EPA determined that additional work was necessary to protect human health or the environment.

Under section section XXIX, FMC had the right to invoke the dispute resolution procedures if EPA determined additional work and/or CMS was required or if FMC disagreed with EPA decisions to disapprove or amend submissions. To exercise its right to dispute resolution, the AOC provided that FMC would have to tender a written “Notice of Dispute and Request for Resolution”  containing the basis or the objection within 15 days of receipt of any such disapproval or modification. The AOC also provided that it would be deemed satisfied and the FMC’s obligations would shall terminate upon receipt of a written statement from EPA that FMC has completed to the satisfaction of the terms and conditions of the AOC including any additional investigatory work that EPA may have determined was be necessary. The AOC also contained a reservation of rights for EPA and NYSDEC.

Between 1996 and 2003, FMC implemented a number of ICMS to address soil contamination at the school and several dozen private residences. In 2009, the agencies approved a draft RFI and directed FMC to perform a corrective measure study (CMS) to develop a corrective action plan. One year later, FMC submitted its draft CMS report, which proposed eight corrective measure alternatives (CMAs).

In June 2012, NYSDEC issued a draft statement of basis (SOB) for the remediation of OUs 2 (consisting of 285 residential properties), OU4 (school property) and OU5 (a storm water drain discharging into several creeks). In addition, the agencies rejected FMC’s preferred remedy and proposed a hybrid remediation program, known as CMA 9 that established a more stringent arsenic remedial goal of 20 parts per million (ppm) for soils at all locations and depths.

Two months later, FMC submitted a written response challenging the selection of CMA 9. EPA and NYSDEC notified FMC in a joint letter dated October 19, 2012 that the CMS report for the three OUs had been accepted and that the AOC was “deemed by the Agencies to be closed.” Although the purpose of the AOC was to compete an RFI and an CMS if required, FMC sent a remarkable letter to EPA and NYSDEC on October 25, 2012 claiming the agencies did not have the right to close the AOC because a final CMA had not been selected by the EPA. However, FMC did not specifically invoke the dispute resolution procedures in the AOC.

On May 28, 2013, NYSDEC issued its final SOB formally selecting CMA 9. FMC and the NYSDEC then entered into a series of tolling agreements extending the time in which to challenge this selection through April 30, 2014. On May 1, 2014, FMC sought to invoke the dispute resolution provisions of the AOC. NYSDEC then sent a letter dated May 7, 2014 to FMC’s counsel because FMC had refused to implement CMA 9, FMC planned to complete the work using the SSF.

In a letter dated May 22,2014,  EPA informed FMC that NYSDEC’s selection of a remedy in its Statement was not subject to the dispute resolution provisions of the AOC because the AOC had been closed. FMC then filed an article 78 proceeding on May  30, 2014 asserting NYSDEC’s unilateral selection of CMA 9 was arbitrary and capricious, that the agencies could not unilaterally modify the AOC and had acted arbitrarily when they declared the AOC closed and that NYSDEC did not have the authority to decision to use the hazardous waste remedial fund to pay for the remediation. FMC also sought a declaratory judgment finding that the Final Statement of Basis should not be used for the selection of a remediation program. In response, the DEC asserted its October 19, 2012 letter was a final determination and moved to dismiss the petition as time-barred.

The Supreme Court ruled that the October 19th was as a final determination for purposes of triggering the statute of limitations because the court said that the letter left “no doubt that there would be no further administrative action” and the agency would not alter its position. In addition, the court said FMC’s October 25th letter did not extend the statute of limitations because a request for reconsideration of an agency decision does not expand the statute of limitations. Since FMC did not file its petition by February 16, 2013, the court dismissed the petition.   Application of FMC Corporation vs NYSDEC, Index No. 2884-14 (Sup. Ct.- Albany, 08/20/15).

On appeal, the appellate division held the court had erred because the October 19th letter made no reference to the selection of a remedy. The court said the actual selection of a remedy did not occur until NYSDEC issued its final statement of basis in May 2013. Since there was no dispute that the parties entered into the tolling agreements in an effort to negotiate a resolution, the court held FMC timely filed its article 78 petition.

Since the trial court had only addressed the statute of limitations question, the appeals court could have stopped there and remanded the matter for further proceedings on the substantive claims. However, the panel then plunged into reviewing the merits of the dispute and this is where the judges went off the rails.

The court acknowledged that NYSDEC was authorized to assert its authority under titles 9 and 13 of Article 27 of the ECL and to issue the SOB. The court also found the SOB was the final corrective measure for OUs 2, 4 and 5 and also served as the Record of Decision (ROD) for purposes of selecting a remedial plan for these OUs under the SSF.

NYSDEC argued it was authorized to select CMA 9 and proceed with the remedial work pursuant to ECL 27-0916 (1) because FMC “unlawfully” dealt with hazardous waste. The court disagreed, saying that FMC at all relevant times was operating lawfully pursuant to its interim status. In so holding, the court confused having interim status and improperly allowing hazardous waste to released into the environment.

Section § 27-0916 is titled “Department authority for cleanups”. § 27-0916(1) provides:

The department shall have authority to clean up or return to its original state any area where hazardous wastes were disposed, possessed or dealt in unlawfully in violation of section 27-0914 of this article.

Section 27-0914(2), in turn, provides “No person shall dispose of hazardous wastes without authorization”.

What the court got wrong, though, was that while FMC was authorized by its interim status to manage waste in compliance with law, it was not authorized to dispose of wastes at the facility.

However, that was not the court’s worst stumble. In the last two paragraphs of the opinion, the court held that the agency was not authorized to implement the remedial work without first giving FMC an opportunity for a hearing to assert its challenge to CM, relying on ECL § 27-1313 [5] [a], [b], [c].  Now it is true that § 27-1313[3][a] provides that when a site poses a significant threat to the environment, the NYSDEC may order an owner (i) to develop an inactive hazardous waste disposal site remedial program, subject to the approval of the agency and (ii) to implement such program within reasonable time limits specified in the order. [emphasis added] Clearly, the use of the word “may” means that NYSDEC has the authority to issue an order but is not required to do so.

ECL § 27-1313[4] then provides that any such order “shall be issued only after notice and the opportunity for a hearing is provided to persons who may be the subject of such order.”

ECL 27-1313[5][a] also provides that when person ordered to eliminate a significant threat fails to do so within the time limits specified in the order, the NYSDEC may develop and implement a remedial program for the site. [emphasis added] Again, note the use of the word “may”.

However, the court ignored two other important provisions of § 27-1313 that give NYSDEC the discretion to unilaterally implement a remedial action. For example, § 27-1313[3](b) authorizes NYSDEC to spend money when the agency commissioner finds:

(i) that hazardous wastes at an inactive hazardous waste disposal site constitutes a significant threat to the environment; and

         (ii) that such threat is causing or presents an imminent danger of causing irreversible or irreparable damage to the environment; and

         (iii) the threat makes it prejudicial to the public interest to delay action until a hearing can be held pursuant to this title, the department may, pursuant to paragraph c of subdivision five of this section and within the funds available to the department…”

The court also ignored § 27-1313[5](d) authorizes NYSDEC to develop and implement a remedial program where the agency determines it is cost-effective. In determining if it is cost-effective to develop and implement a remedial program, the NYSDEC is required to consider the following four factors:

         (i) the ability of the department to determine, through the exercise of its scientific judgment, whether the elimination of the imminent danger of irreversible or irreparable damage to the environment can be achieved through limited actions;

         (ii) the ability of the department to identify the owner of the site and/or any person responsible for the disposal of hazardous wastes at such site with sufficient financial resources to develop and implement an inactive hazardous waste disposal site remedial program at such site;

         (iii) the nature of the danger to human health and the environment which the actions are designed to address; and

         (iv) the extent to which the actions would reduce such danger to human health or the environment or would otherwise benefit human health or the environment.[emphasis ended]

Based on the record in this case, it appears that NYSDEC made these requisite findings. For example, the agency determined that the interim actions that had been taken had been insufficient to eliminate the risks to human health, the contamination still posed a threat that warranted further action, that CMA 9 would eliminate that threat and that while FMC had sufficient financial resources, it had refused to implement the required cleanup.   Likewise, State Finance Law § 97-b(4) provides that NYSDEC does not have to obtain a voluntary agreement with owners or operators of inactive hazardous waste sites or other responsible parties to pay the costs of necessary remedial actions when it has been determined that condition dangerous to life or health exists.

In so ruling, the court ignored the legislative history of the SSF. The Legislature gave the NYSDEC Commissioner “[b]road powers … to respond to situations which significantly threaten public health or environmental degradation” with State funds (1982 Legis. Ann, at 273). The idea that the NYSDEC would first have to hold a hearing and have the responsible party refuse to implement a remedy before spending money to protect human health is simply contrary to the purpose of the statute. The decision also flies in the face of Allied Princess Bay Co. #2 v. Atochem N. Am., 855 F. Supp. 595 (E.D.N.Y. 1993) where the court ruled that NYSDEC could act to clean up the site itself under ECL § 27-1313(5)(d) if the NYSDC determines it is cost-effective.

Under this decision, NYSDEC might not have been able to respond to the Hoosick Falls crisis earlier this year. Unlike EPA which can issue unilateral administrative orders (UAOs) under section 106 of CERCLA and section 7003 of RCRA, NYSDEC lacks the authority under the SSF to issue UAOs. The principal tool DEC has to respond to human health emergencies involving hazardous wastes is the SSF. The last three paragraphs of the decision are written almost like an afterthought but they have the potential to cripple NYSDEC’s ability to spend money under the SSF.  With rumors leaking from the Trump transition team that the incoming administration is consider eliminating the federal Superfund program, it is more important than ever for the NYSDEC to have the right to use the SSF to respond to hazardous wastes that pose a risk to human health.

NY Court of Appeals Finds PRP Letter Triggers Contractual Indemnification

Wednesday, January 27th, 2016

The New York State Court of Appeals held that a PRP letter issued by the New York State Department of Environmental Conservation (NYSDEC) was sufficient to trigger an indemnity obligation under a purchase and sale agreement. While lower courts have found PRP letters to constitute “suits” within the meaning of  a Comprehensive General Liability policy so as to trigger a duty to defend, this is the first time the a PRP letter has been interpreted within the context of a private indemnity agreement.

In Remet Corp. v. Estate of Pyne, 26 N.Y.3d 58 (N.Y. 2015), James R. Pyne sold all of his stock in Remet Corporation (Remet) and real property to Burmah Castro Holding (BCH) for approximately roughly $28 million. During pre-acquisition due diligence, BCH learned that a leased facility in Utica was located adjacent to the Old Erie Canal site, a parcel that was listed on the New York State List of Inactive Hazardous Waste Sites. BCH became concerned that Remet could become responsible for the remediating the Old Erie Canal site which BCH’s consultant estimated could cost as much as $29MM.  After BCH proposed excluding the site from the transaction, Pyne agreed to provide a ten-year indemnity to BCH for losses related to pre-existing environmental conditions provided that the losses resulted from actions that the purchaser was “required to take under or in connection with any Environmental Law.” The indemnity also contained a “muzzle” clause that provided that such required actions could not be a result of  communication by BCH with NYSDEC.  A $2.7 million environmental escrow account was established.

In October 2002, the NYSDEC sent Remet and four other parties a notice letter identifying them as a generator PRPs for the Old Erie Canal site.  The notice letter provided in part that if the PRPs did not enter into a signed Consent Order within 30 days, NYSDEC would terminate discussions and implement a remedy using the state superfund. The letter warned that NYSDEC would seek cost recovery for its costs and that the letter constituted a demand for payment of all monies the NYSDEC might expend for the investigation and remediation of this site, plus any and all interest.

Remet tendered an indemnification claim to Pyne in accordance with the indemnification procedures under the purchase and sale agreement (PSA). Pyne declined to assume control of the defense but cooperated with Remet in implementing the company’s initial response to the PRP letter. Remet, three other PRPs, and Mr. Pyne investigated the Old Erie Canal site and prepared a report with Pyne and Remet splitting 25% of the costs. In discussions with NYSDEC, Remet and Pyne argued that Remet should not be considered a PRP because Remet did not generate any waste stream from its processes and the chemicals it used did not match the contaminants identified at the Old Eric Canal site. The NYSDEC negotiations were unsuccessful. Pyne died in March 2003. Later that year, Remet’s management team acquired all of Remet’s stock and the Pyne estate agreed to assume the Pyne’s indemnification obligations under the PSA.

NYSDEC subsequently issued a letter indicating that since none of the PRPs had agreed to perform any work, the agency would use state funds to complete the investigation and implement the remedy.  Eventually, NYSDEC selected a remedy estimated to cost $12.5MM

With its indemnification claim still pending, Remet filed a claim against the Pyne estate in the Surrogate Court seeking to bar distributions from the estate until the indemnification claim was resolved. The Pyne estate objected to any release of funds from the escrow account to cover the approximately $550K demanded by NYSDEC for a portion of the work and instructed Remet that any unilateral contact with the NYSDEC would constitute a waiver of any right to indemnification under the PSA.

Remet then commenced an action against the Pyne estate to enforce the estate’s indemnification obligations of $550K as well as a declaration that it was entitled to reimbursement for all future costs. The trial court granted summary judgment to Remet, holding that Remet would have to expend money since it would either have to respond to the PRP letter or defend a NYSDEC cost recovery action. The court also noted that Pyne’s cooperation following the PRP Letter was inconsistent with the estate’s position that the PRP letter did not “require” action. The estate appealed and the appellate court reversed, ruling that the DEC did not “require” any action but merely informed Remet of its potential liability and sought voluntary action.

Before the Court of Appeals, Remet relied heavily on a line of insurance cases holding involving that PRP letters were “suits” within the meaning of Comprehensive General Liability policies that triggered an insurer’s duty to defend. Remet analogized that if a PRP letter was coercive and adversarial enough to constitute a “suit,” it is coercive and adversarial enough to “require” responsive action. Moreover, Remet argued that if the appellate decision was affirmed, “every business insured under a liability policy that provides coverage for defense of environmental claims will have an incentive to resist cooperating with DEC upon receipt of a PRP letter, until there has been a final determination of liability.”

The estate argued that the NYSDEC letter simply indicated that Remet was a PRP and that it had no indemnification obligation under the PSA until a court actually held that Remet was found to actually be a  responsible party. The estate pointed out that the NYSDEC never categorized or ever asserted that Remet was anything other than a PRP. Indeed, the estate emphasized that NYSDEC had not taken any enforcement action against Remet or any other of the PRPs.

The Court of Appeals rejected this creative but strained interpretation, holding that the PRP letter was sufficiently coercive and adversarial as to “require” action ” under Environmental Law as provided under the PSA. The court noted that the PRP letter, which was labeled “Urgent Legal Matter,” demanded either a consent order or payment. It further indicated that a prompt reply was “necessary” and set forth imminent legal and financial consequences that would occur if Remet refused to act. Thus, even though Remet was labeled a “potentially responsible party,” it responses to the letter were coerced and  not voluntary. The court also found persuasive the circumstances surrounding the execution of the indemnification clause and the funding of the environmental escrow account as evidence that the parties were aware of the potential for substantial expenses relating to the Erie Canal Site, and that Pyne’s cooperation after receipt of the PRP letter was evidence that Pyne thought action was required action.

Principal New York State Environmental Laws Impacting Commercial Leasing Transactions

Saturday, January 16th, 2016

Parties to commercial leasing transactions frequently overlook environmental issues because they believe that tenants who do not use large quantities of hazardous chemicals will not be exposed to significant environmental liability. Consequently, the parties may do little to no environmental due diligence and use obsolete or boilerplate lease provision that do not specifically allocate environmental risks. Even when a lessee examines environmental conditions of a site, the investigation is often limited to ensuring that there are no environmental conditions that would impair its ability to operate at the site or that the property is adequate for the intended use.

What these parties do not realize that owners and operators of commercial property can be liable for contamination associated with historic uses. This means that landlords can be liable for contamination caused by their tenants and tenants may be responsible for contamination that preceded its tenancy.

In the second installment of a series that I am publishing in the venerable New York State Bar Journal, I review the key New York State Laws that can impact commercial leasing transactions. The article is available here. The next installment in this series will cover NYC environmental laws. The first article discussing federal environmental laws impacting commercial leasing transactions is available from our publications page here.

NYSDEC Proposes Amendments to Haz Waste Rules

Tuesday, February 10th, 2015

The New York State Department of Environmental Conservation is proposing significant changes to its hazardous waste management regulations (6 NYCRR Parts 370-374 and 376). The proposed amendments are available here.

The proposed changes will incorporate thirty-seven (37) amendments to the federal Resource Conservation and Recovery (RCRA) regulations that have been adopted by the federal Environmental Protection Agency (EPA) from January 2002 through April 2012. The June 26, 2014 Cathode Ray Tube Export rule is also included in this rule making. The list of federal rules along with brief descriptions is available here 

Specifically, NYSDEC is seeking comments on the following EPA rules:

  • Solvent Contaminated Wipes Rule – EPA’s July 31, 2013 rule revises the definition of solid waste to conditionally exclude solvent-contaminated wipes that are cleaned and reused and revises the definition of hazardous waste to conditionally exclude solvent-contaminated wipes that are disposed.
  • Carbon Dioxide Sequestration Rule – EPA’s January 3, 2014 Carbon Dioxide Sequestration Rule provides a conditional exclusion for carbon dioxide (CO2) streams in geological sequestration activities. This rule would conditionally exclude CO2 streams that are hazardous waste from the definition of hazardous waste, if they are captured from emission sources and are injected into Class VI Underground Injection Control wells for geological sequestration, provided that certain requirements are met.
  • Hazardous Waste Electronic Manifest (e-Manifest) Rule – EPA’s e-Manifest Rule provides the legal and policy framework to authorize th use of electronic manifests. The e-Manifest system will go into effect through out the United States at the same time, whether or not authorized states have amended their regulations.
  • EPA’s 2008 Definition of Solid Waste Rule, as amended in January 2015 redefines “hazardous secondary materials.” It streamlines regulation of hazardous secondary material to encourage beneficial recycling and help conserve resources. By removing unnecessary regulatory controls, it is expected to make it easier and more cost-effective to safely recycle hazardous secondary materials. EPA published substantial revisions to this rule on January 13, 2015. As amended, the rule provides greater safeguards from mismanagement. Certain parts of the 2015 Final Rule are more stringent than current DEC regulations. DEC must adopt these provisions, which include a revised definition of “legitimate recycling,” a prohibition on sham recycling, and new recordkeeping requirements related to speculative accumulation provisions.
  • Amendments to DEC’s Used Oil Management regulations (6 NYCRR Subpart 374-2). DEC is considering whether or not to continue to require Petroleum Bulk Storage (PBS) registration for certain small used oil tanks for which PBS registration is not otherwise required; whether to amend the used oil collection center requirements to allow entities collecting used oil in small volumes to obtain a Part 360 registration and more closely follow EPA requirements in lieu of obtaining a Part 360 permit. Changes in record retention time requirements to more closely follow EPA requirements are also being considered.

In addition, NYSDEC is proposing approximately 80 changes to clarify regulatory language and to correct errors. This list of so-called state-initiated changes can be accessed here

DEC will host a live webinar on February 25, 2015, 10:00am-12:00pm. To register for the webinar, click here 

Bankruptcy Courts Rules Bank May Not Seek Cost Recovery for Contaminated Site Purchased in Auction Sale

Thursday, November 27th, 2014

Pete Seeger’s popular song from the 1960s “Where have all the Flowers Gone?” has the haunting recurring lyrics “When will they ever learn”. This song came to mind when we came across another case of a bank taking title to contaminated property without doing any environmental due diligence.

In this case, Suburban Bank and Trust SBT-BB, LLC (SBT”) extended a $4MM loan Boston Blackies Properties IV, LLC (“Boston Blackies”) in October 2006 that was secured by a mortgage on the property located on East Grand Avenue in the Streeterville section of Chicago. Unfortunately, the gourmet hamburger chain embarked on an aggressive expansion plan that was derailed by the Great Recession and had to file for bankruptcy in 2009. (The owners of the chain apparently also had some ethical issues.

SBT foreclosed on the Property in March 2011. SBT did not perform a new phase 1 before taking title and included the October 2006 phase 1 in the Bidder’s Information Package when the property was put up for auction in April 2011. Standard Bank (Standard), the successful bidder also did not conduct a phase 1 report before submitting its bid.

Standard planned to demolish the existing building and construct a new branch office. However, when Standard applied for a building permit, it learned that the property was within the Lindsay Light Streeterville Thorium Monitoring Area (a/k/a as the Moratorium Area) because of the presence of radioactive fill material associated with the former Lindsay Light Chemical Company (“Lindsay Light). Applicants planning to excavate or disturb soils for properties within the Moratorium Area are required to perform soil testing, conduct certain radioactive monitoring and comply with other work practices. Applications for permits which involve work in the Moratorium Area will be held in the City Permit System until the applicant meets with the Department of Public Health (CDPH) and agrees to implement the health and safety work plan that has been established for the Moratorium Area.   Standard performed the required screening and learned the site was contaminated with thorium contamination.

During the early 1900s, Lindsay Light manufactured gas mantles containing radioactive thorium at three locations in an area in downtown Chicago including a location across the street from the restaurant location that Standard purchased. The process of gas mantle manufacturing involves dipping gauze mantle bags into solutions containing thorium nitrate and small amounts of cerium, beryllium and magnesium nitrates. The mesh bags were then placed inside the glass globe of a light fixture.  When heated by the gas flame, the fabric would burn off and the metal mesh would glow.

The thorium processing refining process produced a sand-like waste known as thorium mill tailings, which were used for fill for development projects in the low-lying areas including in utility installations in City-owned street and sidewalk rights-of-way throughout the  Streeterville AreaIn the 1990’s, EPA excavated approximately 40,000 tons of radioactive thorium-contaminated soils that were discovered during property development and utilities installation and maintenance. In 2000, EPA created the Moratorium Area as a form of institutional control in and around Streeterville to impose restrictions and conditions on excavation to limit exposure to the thorium problems created by Lindsay Light plants. 

Six months after learning of the thorium-contaminated soil, Standard retained a law firm to preparing a claim against Tronox, the successor to Lindsay Light. Tronox had itself filed for bankruptcy and a plan for reorganization had that was confirmed in February 2011. The confirmation order established the Tronox Incorporated Tort Claims Trust Agreement (the “Tort Claims Trust”) that assumed the liabilities for all tort claims of Tronox and was to pay holders of allowed tort claims. Because the bar date for filing proofs of claim in the Tronox bankruptcy had been August 12, 2009, Standard filed a motion for leave to file a late claim of approximately $1.5MM. Standard hoped it could be reimbursed by the Tort Claims Trust.

Standard Bank asserted that its failure to file a timely claim was the result of “excusable neglect” because it had no notice from Tronox and acted within a reasonable time. However, in In re: Tronox Incorporated, 2014 Bankr. LEXIS 4678 (Bankr. S.D.N.Y. 11/7/14), the bankruptcy court found that Standard Bank has not introduced admissible evidence as to the notice provided to Boston Blackies or, equally important, that Boston Blackies was aware of the contamination or Tronox’s chapter 11 case. Moreover, the court said there was nothing in the record that suggested that Tronox knew or should have known that Boston Blackies was a potential creditor based on Tronox’s own records.

In denying the motion to file a late claim, the court said that allowing a purchaser of property after the Bar Date would make finality impossible in any bankruptcy case. Instead, the court said a subsequent purchaser of property can protect itself by obtaining representations and warranties from its predecessor and “may also, of course, obtain an environmental report.”

Standard has also filed a complaint against the firm that prepared the October 2006 phase 1 alleging malpractice and breach of contract. Standard Bank and Trust v The English Company, 2014-L-005825 (Cook Cty Circuit Ct. 6/2/14) . This lawsuit appears to be dead on arrival.

First, the phase 1 contained the following passage discussing the review of the CERCLIS database:

“The Lindsay Light Company, 161 E. Grand Avenue, south adjacent property. This building was one of the former gas mantle manufacturing locations for the Lindsay Light Chemical Company, which refined thorium containing ores and made incandescent gas mantels for home and street lighting. This site is listed as a removal only site with no site assessment work needed, but no further information on the status of this site is provided. Based on the close proximity of this site to the subject property, there is the potential that soils have been impacted.”

Had Standard retain an environmental consultant to perform a phase 1, a transaction screen or even review the October 2006 report prior to submitting its bid, Standard would have learned that the property was likely in the Moratorium Area and that its construction plans might be complicated by the presence of thorium-contaminated soil.

In addition, the report was issued to SBT. By the express terms of the phase 1 report, Standard was not entitled to rely on the report. The complaint does not allege that the consultant knew its report would be included in the Bidder’s Information Package or that the consultant consented to allow bidders rely on its five-year old report. 

NY Governor Sends Revised BCP Reform Bill to Legislature

Saturday, February 15th, 2014

Earlier this week, Governor Cuomo sent his sweeping BCP reforms to the State Legislature. Under the state Constitution, the Governor has 30 days to make technical amendments to his budget legislation without involving the legislature.

Despite vociferous complaints by brownfield developers, environmental lawyers and affordable housing advocates about the severe curtailments to the categories of projects that would be eligible for brownfield tax credits, the Governor made only modest revisions to the original bill. However, the Governor submitted his legislation under a self-imposed 21-day amendment process so it is possible that there will be additional tweaking to the BCP portion of the bill.   Once the 30-day period has expired, changes to the BCP would be subject to the usual legislative process.

Notwithstanding the cacophony of critical voices to the proposed BCP changes, there is much to like about the proposed revisions. In this post, we will cover the positive changes. In a second post, we will then discuss the changes that need to be tweaked and then close the series with a review of the changes that threaten to transform the BCP into a zombie program.

The Good 

The changes listed below are not in order of importance but simply track the changes in the legislation.

1. Extension of BCP- Obviously, the most important change is that the legislation would extend the brownfield tax credits (BTCs) to December 31, 2022.  The fact that the Governor agreed to extend the BTCs was a victory for brownfield developers since there was considerable sentiment within the budget office to allow the BTCs to expire because of their costs. Sites accepted into the BCP after December 31, 2022 would not be eligible for brownfield tax credits.

2. New COC Deadlines– Under the existing BCP, all sites had to obtain their COCs by 12/31/15 to be able to qualify for the tax credits. The proposed amendments retain the 12/31/15 COC deadline for sites that were accepted into the BCP prior to the 6/23/08 amendments. Projects that were accepted after 6/23/08 but before 7/1/14 will have an extra two years to obtain their COC (12/31/17)  to remain eligible for the BTCs.  Sites accepted into the BCP after 7/1/14 will have until 12/31/25 to obtain their COCs and qualify for BTCs.

3. Revised Brownfield Site Definition- The new definition requires that an applicant do sufficient sampling to establish actually contains contaminants that exceed the applicable soil cleanup objectives or other health-based environmental standards promulgated by the NYSDEC.  This change brings more clarity to what constitutes a brownfield site but really just conforms the definition to current NYSDEC policy since the agency was requiring applicants to demonstrate that the site was actually impacted by contamination by performing and including the results if a phase 2 in the BCP application. The revised language indicates that the applicant must submit an investigation that is sufficient to demonstrate that the site requires remediation to meet the remedial requirements of the BCP.

Significantly, the revised brownfield definition does not require the contamination to be from an on-site source which represents a significant eligibility expansion since applicants are currently required to establish an on-site source of contamination to be eligible for the BCP.  Instead of excluding these sites from the BCP, the proposed bill would simply prohibit applicants of these sites from claiming tangible tax credits for addressing such contamination.  For example, an applicant who would have to install an sub-slab depressurization system (SSDS) to address vapors from contaminated soil gas because of a plume that originated from an adjacent dry cleaner could enroll in the BCP and be eligible for site preparation costs tax credit but not the tangible property tax.

4. Eligibility Extended to Class 2 Sites- The original BCP legislation contained a six month amnesty period for class 2 sites to apply to the NYSDEC that expired in July 2004.  Since then, class 2 sites have been ineligible for the BCP even when innocent parties seek to redevelop the properties or the site may simply sit above a regional plume.

The proposed changes would allow state superfund sites (class 2 sites) to be eligible for the BCP where the applicant is a volunteer who owns the site or where the applicant is a volunteer who is under contract to purchase a class 2 site and the NYSDEC has been unable to identify a PRP with the ability to pay for the cleanup. [emphasis added]. It is unclear if the clause containing the limiting language following the “and” only modifies the clause pertaining to volunteers under contract to purchase a class 2 site or if the clause applies to sites already owned by the volunteer.

The explanation for the “viability” test is that the State of New York does not want to incur BTC liability when there is a financially responsible party who could pay for the cleanup. A responsible party is likely only to remediate a site to its current or reasonably anticipated use but in the absence of a development plan, the reasonably antiicipated use of a property with obsolete or deteriorating buildings may not be obvious.  In contrast, a brownfield developer will be enhancing the property and likely doing a more robust cleanup in a shorter period of time. While there is a legitimate concern for requiring class 2 sites that are under contract to be eligible only if there is not a financially viable responsible party, it may be worthwhile to consider other tests for determining when a class 2 site should be eligible for the BCP such as the responsible party does not currently own or has not owned the site since the expiration of the original amnesty period.

While pondering the conditions for allowing class 2 sites to be eligible for the BCP, the legislature should also consider allowing sites that are under enforcement orders to be eligible for the BCP. This would particularly make sense for sites that are covered by multi-site manufactured gas plant (MGP) orders on consent that several utilities have entered into with NYSDEC. Many of these sites will have cleanups that  require long-term institutional and engineering controls because the contaminants lie beneath existing commercial structures. So long as these sites are subject to site management plans (SMPs), the NYSDEC considers these sites to be still subject to an enforcement order and therefore not eligible for the BCP. It seems that the same rationale for allowing class 2 sites to be eligible for the BCP should apply to sites subject to enforcement orders. Indeed, there is precedent for this suggestion. In 2004, the legislature amended the BCP law to allow sites that were subject to petroleum stipulations agreement issued under the Oil Spill Program of the Navigation Law to be eligible for the BCP. If an innocent party is willing to remediate and redevelop a contaminated site, it should be able to enroll in the BCP subject to reasonable conditions such as ensuring that NYSDEC is reimbursed for past costs and the volunteer has not indemnified the responsible party.

5. Expansion of Track 1 Cleanups- If a BCP project has to use institutional or engineering controls, it is not eligible for a track 1 cleanup which allows for a higher site preparation cost tax credit and a 2% bonus for the tangible property tax credit. Where all the contaminated soil has been removed but elevated levels of contaminants remain in groundwater, the NYSDEC has been willing to approve conditional track 1 cleanups if there has been a significant reduction in the contaminant mass and contaminant levels have reached asymptotic conditions. Under this approach, the applicant will have to record an environmental easement and continue to monitor groundwater for five years. However, if the contaminant concentrations remain above groundwater standards after five years, the cleanup would revert to a lower cleanup track that could cause recapture of tax credits.

The proposed legislation will allow sites to qualify for an unconditional track 1 status where engineering or institutional controls are required for more than five years solely to address vapor intrusion as well as for groundwater remediation where the bulk contaminant concentrations have been reduced to asymptotic levels. However, there would no longer be a 2% tangible tax credit bonus for achieving track 1 cleanup;

6. Transfer of COCs- The legislation clarifies that COCs may only be transferred to subsequent legal or equitable title holders of all or a portion of the brownfield site. It had been unclear if the COC could be transferred without title changing hands.

7. BCP-EZ program- The proposed amendment would create a streamlined remedial program that would be called the BCP-EZ program. Applicants that qualify as volunteers would be exempt from certain procedural requirements for implementing remedial investigations and remedial actions for sites where the contamination does not pose a significant threat provided  the applicant waives rights to any tax credits and the work satisfies the technical requirements of Part 375.

8. Oversight Costs- Because both the NYSDEC and the New York State Department of Health (NYSDOH) play a role in the state remedial programs, oversight costs can be significant especially for larger projects. Under the proposed bill, volunteers will no longer be required to pay oversight costs on or after July 1, 2014. This exemption applies both to applications submitted after July 1, 2014 as well as sites accepted into the BCP prior to July 1, 2014. However,  parties that are accepted into the BCP as “Participants” will be required to pay the NYSDEC for past costs incurred prior to the effective date of the brownfield cleanup agreement but the NYSDEC may negotiate a “reasonable” flat rate fee for future oversight costs.

9. Extra Tangible Tax Credits For Certain Projects– The Governor’s bill would allow certain categories of projects to be eligible for extra tangible property tax credits above the base of 10%.  A bonus of  5%  would be available for projects with affordable housing (based on square footage of the total affordable housing units(§25), an extra 10% could be claimed by projects on sites located Environmental Zones and a bonus of 5% would be available for “strategic sites” located in and conforming with a Brownfield Opportunity Area (BOA) plan.

10. Clarifies Treatment of Costs for Expired Federal Brownfield Tax Credit-  BCP applicants are currently allowed to claim up to $35MM ($45MM for manufacturing sites) in tangible property tax credits (known as the “hard cap”) or 3x the site preparation costs (6x for manufacturing ), whichever is less. The 3x or 6x times site preparation calculation is known as the “soft cap.”  The proposed legislation clarifies that on-site groundwater remediation costs and costs that could have been  ”expensed” and deducted for purposes of the IRS 198 brownfield tax credit but were not given such treatment may be used in calculating the “soft cap.”

11. Clarifies Treatment of Costs To Address Treatment of Contaminated Groundwater From Off-Site Source– Based on the way the qualifier in section 3 of the proposed legislation excluding tangible property tax credits for off-site contamination migrating onto property, it appears that site preparation tax credits will be available for costs to address contamination migrating onto site if required in the approved remedial action plan.

12. Abatement and Disposal of Hazardous Building Materials- The proposed amendment would allow applicants to include abatement costs for removing and disposing asbestos-containing materials, lead-based paint or PCB caulking in their site preparation costs provided the work is done under supervision of the Department of Labor or Department of Health would be eligible.

13. Hazardous Waste Generation Fee Exemption– Urban sites often contain significant swaths of fill material that may contain constituents such as heavy metals, semi-volatile organic compounds (SVOCs), petroleum and lead-based paint from demolished buildings. As a result, construction projects in urban areas can generate large quantities of excavated soil that may have to be managed as hazardous waste. Having to dispose soils and building debris as hazardous waste not only significantly increases disposal costs but can also trigger two types of state hazardous waste tax assessments or fees that can significantly add to the total project costs.

If the remediation is performed under the state superfund program or BCP, the generator of the waste does not have to pay the hazardous waste tax or fee. However, projects enrolled in the Voluntary Cleanup Program (VCP) administered by the New York City Office of Environmental Remediation (OER) are not exempt from the tax or fee. Depending on the size of the site or the depth of the excavation, the hazardous waste taxes could approach or even exceed the total remediation costs. Click here for more information about the hazardous waste fee and tax

The bill would also exempt remediation wastes from the state hazardous waste generator fee that are generated for cleanups are done under an agreement with EPA, pursuant to an order issued by a court or an agreement with a municipality such as OER that has entered into a memorandum of agreement with NYSDEC.

The “Meh” 

The legislation also includes some new submission deadlines and grounds for revoking COCs that have been criticized by some business groups but seem to fall into the  into the “Meh” category (for readers who are not fans of the TV show “The Simpsons”, the term is like a verbal shrug of the shoulders that expresses  indifference or lack of enthusiasm). At the very least, the provisions do not seem to be worth expending political capital and advocates would probably be better served keeping their powder dry for other more important issues raised by the bill.

  • An applicant will not be eligible for the BCP if it has failed to substantially comply with an agreement or order under another NYSDEC remedial program and the applicants participation in that other remedial program has been terminated by the NYSDEC or a court;
  • NYSDEC will now have 30 days to advise an applicant if its application is complete;
  • Applicants must implement work plans within 90 days of approval and complete the work in accordance with the schedule set forth in the document;
  • Every report required to be submitted under the BCP must include a schedule for submitting subsequent work plans required under the BCP;
  • Applicants must execute environmental easements within 180 days of commencement of the remedial design or at least 90 days prior to the anticipated issuance of the COC;
  • The period of time for recording an environmental easement by an owner of an inactive hazardous waste site or the person responsible for implementing the remedial program is extended from 60 days to 180 days of commencement of the remedial design;
  • Applicants seeking tangible property tax credits must evaluate two alternative remedies, with one alternative being a track 1 cleanup;
  • Where the NYSDEC approves an alternative remedy (cleanup tracks 2,3 or 4) at a site that has been determined not to pose a significant threat, the public comment period notice shall apply to both the selected remedy and the approval of the alternative analysis by the NYSDEC;
  • Final Engineering Reports now have to describe any interim remedial measures (IRMs) and the costs of the IRMs;
  • COCs will now include the date of the brownfield cleanup agreement (BCA); the names of the parties eligible for the tax credits and the applicable percentage available as of the date of the COC;
  • A COC may be revoked if the applicant makes a misrepresentation of a material fact concerning its eligibility for the tangible property tax credit. There was already a revocation for misrepresentation about the applicants qualification for volunteer status;
  • A COC may be revoked if the environmental easement is not effective or enforceable. This was revocation condition was added as part of the streamlining of the environmental easement process to highlight the consequences of not properly preparing and recording the environmental easement;
  • NYSDEC authority to grant waivers from local permits extends to investigations or remediation for contamination migrating from a brownfield site;
  • NYSDEC is expressly authorized to inspect sites for compliance with site management plans including evaluating operation and maintenance of remedial components, confirming site use and collecting samples;
  • The Department of State has responsibility for not only certifying Brownfield Opportunity Areas (BOA) but also confirming conformance with BOA plans for purpose of qualifying for the tangible property tax credit;
  • Elimination of the environmental insurance tax credit for sites admitted after July 1, 2014;
  • A municipality seeking to apply for funds from the Environmental Restoration Program (ERP) must assist in identifying responsible parties for the site by searching local records including property tax records;
  • NYSDEC may implement an ERP project on behalf of a local government provided the municipality periodically pays its share of the costs to the state.


NYSDEC Adds New Categories of Sites To Database To Chagrin of Some Property Owners

Wednesday, November 6th, 2013

The New York State Department of Environmental Conservation (NYSDEC) recently announced that it had added approximately 1,950 sites to its Environmental Site Remediation Database Search database of sites that are subject to one of the agency’s remedial programs. The  NYSDEC said it was adding these additional sites to facilitate real estate transactions and address the rising number of requests from the public for information about possible environmental contamination.

Previously, the NYSDEC searchable database contained summary information on on approximately 2,500 sites that were subject to one of the NYSDEC remedial programs such as the Brownfield Cleanup Programs (BCP), the Voluntary Cleanup Program (VCP), Environmental Response Program (ERP) for municipal sites, the Oil Spill Response Program (Spill Program) as well as sites on the Registry of Inactive Hazardous Waste Disposal Sites” (commonly referred to as the list of State Superfund Sites). The newly added 1,950 sites include three site classification types: Class P, Class PR, and Class N.

The “P” classification is used for are properties that the NYSDEC is considering placing on the Registry  because preliminary information indicates that a site may have contaminated at levels that could warrant listing on the Registry.  Generally, to qualify for placement on the Registry, there must be evidence that hazardous waste was disposed on the site and that any resulting contamination presents a significant threat (or reasonably foreseeable threat) to public health or the environment. If a site is found to present a significant threat, the NYSDEC may place the site on the Registry as a “Class 2” site unless a party agrees to implement remedial actions pursuant to an oversight document. Class P sites require information and/or investigation to if the property  qualifies for listing of the site on the Registry.   This contrasts to Class 3 Registry sites where NYSDEC has determined that contamination does not presently and is not reasonably foreseeable to constitute a significant threat to public health or the environment. A Class 3 designation is not used for sites where insufficient data is available to make a definitive decision concerning significant threat.  Many Class P sites do not end up being listed on the Registry. Sites that do not qualify for Registry listing are typically then reclassified on the database as a “Class N” (No Further Action At This Time) site.  In making information available about Class P sites, the NYSDEC emphasized that the information provided for a Class P site is preliminary in nature and unverified and that NYSDEC has not yet completed its investigation. Due to the preliminary nature of this information, NYSDEC said that significant conclusions or decisions should not be based solely upon these summaries.

Class PR sites (Potential RCRA Corrective Action)  are sites that are, or have been, subject to the Resource Conservation and Recovery Act (RCRA) program because hazardous wastes are or have been actively managed. These sites may have been contaminated if hazardous wastes were improperly stored, treated, or disposed. Similar to a Class P site, Class PR sites are investigated and reviewed to determine if RCRA corrective action is necessary. If so, remediation is carried out under a RCRA permit, order, or other legal mechanism.

The last category of sites that have been added to the Remediation Site Database are Class N sites. Many Class N sites were investigated decades ago before NYSDEC had an online database to store site information. This category can former Class P site where NYSDEC determined that contamination did not warrant placing the site on the Registry or it is being addressed under a brownfield program. Other Class N sites may include BCP, ERP or VCP sites where an application to participate was submitted but was either withdrawn or did not proceed because it did not qualify for the program. Other Class N sites include those where work was began under the brownfield program or voluntary cleanup program but work was not completed for lack of funding or some other reason.

Prior to 2013, information about Class P, PR, and N sites was usually only available by filing a Freedom of Information Law. In now making the information, NYSDEC  cautions users that the information should be used with caution and should not be used to form conclusions about site contamination beyond what the definition of the classification provides.

Finally, another important category is the Class A (Active) site. This classification has been used for sites in the BCP where the work halted for economic reasons and the contamination qualifies for placement on the Registry. If a new party proposes to re-enroll the site in the BCP or other remedial program, the NYSDEC can reclassify the site to Class A (active) to indicate that work has recommenced as  a non-registry site. This classification has also been used for Manufactured Gas Plant sites or those being remediated under an EPA Cooperative Agreement.

The newly added sites will make it easier to perform environmental due diligence as well as help developers identify potential brownfield sites. However, owners of Class P sites may be concerned that there properties may become stigmatized by the incomplete information about the extent of the contamination at their sites.

The NYSDEC Environmental Remediation Site Database Search is available at: The Petroleum Spills database is available at:

9th Circuit Finds Shopping Center Owner Did Not Establish BFPP Status for Dry Cleaner Contamination

Wednesday, July 31st, 2013

We have previously discussed the series of district court rulings in Voggenthaler v Maryland Square LLC where homeowners and the Nevada Department of Environmental Protection (NDEP) sued past and former owners of a shopping center and operators of a former dry cleaner because of a mile-long groundwater plume resulting from PCE spills from the dry cleaner in the 1980s has migrated into a high end residential neighborhood.

Now in what may be the most important vapor intrusion case decided to date, the United States Court of Appeals for the Ninth Circuit affirmed the summary judgment in favor of homeowner plaintiffs who obtained injunctive relief under RCRA 7002 and to the Nevada Department of Environmental Protection for past response costs. However, the appeals panel vacated the grant of summary judgment against the current owner and remanded that aspect of the case back to the district court for further proceedings on the bona fide prospective purchaser (BFPP) landowner protection. The three-judge panel also reversed on procedural grounds the grant of summary judgment under RCRA against the current owner and the operators because those defendants did not have an adequate opportunity to respond to plaintiffs’ claims. Finally, the panel reversed the grant of summary judgment against a guarantor because there was no evidence of spills during the term of the guaranty. The court also ruled on state law issues but we are limiting our discussion to the more significant CERCLA and RCRA rulings. Voggenthaler v. Md. Square LLC, 2013 U.S. App. LEXIS 15307 (9th Cir. 7/26/13).

In the case, the Herman Kishner Trust (“Trust”) owned the shopping center between 1968 and 2002 when the releases from the dry the cleaner occurred. The documented spills consisted of an approximately 100-gallon spill in 1982 during a filter change. There were also occasional spills from clogged button traps from 1969 to 1984 that flowed into a trench drain that was connected to sewer pipes beneath the shopping center.

During the period when the spills occurred, Shapiro Bros. Investment Co. (“SBIC”) operated the dry cleaner pursuant to a lease where SBIC agreed to indemnify the Trust for all claims arising from SBIC’s actions, omissions, or negligence. SBIC signed a replacement lease in 1982 where it agreed to indemnify the Trust for violations of law. In 1984, Johnson Group, Inc., a predecessor of DCI USA, Inc., (collectively “DCI”) purchased the dry cleaning business and operated it until 2000. While DCI used PCE, no confirmed spills have been documented. When SBIC sold the dry cleaning business to DCI in 1984, the SBIC controlling shareholder, Melvin Shapiro, personally guaranteed DCI’s performance of the lease obligations, including the indemnity obligation.

PCE contamination was first reported to NDEP in November 2000 during a pre-purchase investigation by Clark County School District. NDEP commenced an investigation that identified PCE in the soil and groundwater with the highest concentrations around the floor drain and drain pipes beneath the former dry cleaning facility. In late 2002, NDEP determined that PCE had migrated off site. Groundwater wells installed in the adjacent the Boulevard Mall property in 2003 and 2004 showed that the PCE plume had traveled due east beneath the property. A July 2005 report indicated that the PCE plume had extended further east under the residential neighborhood. In October 2006, NDEP directed DCI to prepare complete a remedial investigation of the dry cleaner, prepare a groundwater corrective action plan and characterize the extent of the off-site plume. In 2007, DCI also completed an off-site soil gas survey that revealed that there was a potential for PCE vapor intrusion at the residential neighborhood.

In the meantime, Maryland Square LLC (Maryland Square) purchased the property from the School District in 2005. After taking title, Maryland Square demolished the building containing the former dry cleaner in 2006, leaving contaminated soil exposed.

In April 2007, NDEP also sent PRP notices to the current and former owners and operators stating that NDEP had expended approximately $160,000, that it intended to incur additional response costs to address human exposure, and that it planned to seek recovery of its expenses.

The plaintiff homeowners filed their RCRA 7002 action in November 2008 and the district court granted summary judgment on the plaintiff homeowners RCRA injunctive action claim in July 2010. Maryland Square moved for a rehearing after the entry of the RCRA summary judgment, contending that it was in a different position from the other owners because it did not acquire title until after the dry cleaning facility had closed down. The homeowners responded that Maryland Square “contributed to” the imminent and substantial endangerment because its demolition of the building in 2006 had exacerbated the situation by exposing the contamination and allowing it to spread. In October 2010, the district court said it lacked jurisdiction to hear the motion for reconsideration because other defendants had already filed a notice of appeal of the RCRA summary judgment order and denied the motion. On the contractual indemnification issues, though, the court ruled that SBIC was obligated to indemnify the owners under the lease. The court also held Melvin Shapiro liable under the 1984 guaranty signed in connection with the sale of the business from SBIC to DCI. The court rejected his position that the guaranty acted only prospectively and did not take effect until after the spills occurred.  In December 2010, the district court then entered a permanent injunction under RCRA, ordering the owners and operators to remediate the contamination.

Following is a summary of the significant CERCLA and RCRA rulings of the Ninth Circuit.

Commerce Clause Ruling

Maryland Square asserted that CERCLA could not apply to purely intra-state contamination under the Commerce Clause of the Constitution on the grounds that groundwater within a state could not be an article of commerce. The court quickly dispensed with this argument, citing opinions of the Second and Eleventh Circuits that held that the generation and disposal of waste in connection with the operation of a business are economic activities properly regulated under the Commerce Clause.

BFPP Ruling-

In the district court proceedings, Maryland Square had attempted to establish it satisfied the requirements of the BFPP defense by submitting an affidavit of its manager that stated that Clark County School District had disclosed the PCE contamination during the sale negotiations, that Maryland Square had retained counsel and hired an environmental consultant to review and report on the NDEP files concerning the Site. The affidavit also stated that after purchasing the Site, Maryland Square hired an environmental contractor to demolish the building. However, the affidavit did not indicate that Maryland Square took any steps such as removing the soil after demolishing the building to prevent ongoing releases but simply stated that Maryland Square followed the remedial progress of the previous owners and that Maryland Square had some correspondence with NDEP. Because the affidavit was not notarized, the district court barred Maryland Square from introducing the affidavit into evidence. The court then held that Maryland Square had failed to meet its burden of establishing that it qualified for BFPP status.

The Ninth Circuit ruled that the statements in the unnotarized affidavit were insufficient to establish the BFPP because Maryland Square failed to show that it had complied with its appropriate care/continuing obligations. Specifically, the appeals court said that Maryland Square failed to limit human and environmental exposure to the pre-existing contamination when it demolished the building but did not identify any steps that it took to remove the contaminated soil or limit the spread of PCE. The court went on to say that as a result of this failure, NDEP was forced to remove the contaminated soil six years after the building was destroyed, thereby creating a situation contemplated by Congress when enacting CERCLA—reimbursement of a government entity forced to clean up a site because the owner refused to take action.

In addition, the appeals court said that the affidavit did not establish that Maryland Square complied with the all appropriate inquiries (AAI) requirement of the BFPP. The court noted that affidavit merely stated that Maryland Square retained the environmental consultant to review files and prepare a report but did not indicate if the consultant qualified as environmental professional, the substance of the report, or any description of the assessment conducted.  As a result, the court held that the affidavit was “woefully insufficient” to establish that Maryland Square was a BFPP under CERCLA.

Because the district court rejected the submission on the basis of its form rather than its substance, though, the appeals court vacated the district court’s grant of summary judgment against Maryland Square and remanded the issue back to the district court so that Maryland Square may have an opportunity to cure the deficiency of its prior submission and establish that it has met the statutory and regulatory requirements for qualifying for the BFPP.

SBIC Liability as Former CERCLA Operator-

SBIC argued it could not be liable as an operator “at the time of disposal” because the PCE leaked onto the contaminant onto the floor and not directly onto land or water. Since there was no disposal of PCE directly onto land or water, SBIC asserted there could not be a “disposal” as that term is defined under CERCLA.

The appeals court rejected this interpretation, noting the definition of “disposal” included any discharge or spill of waste may enter the environment.  Because the phrase “enter the environment” is qualified by the word “may” in the definition of “disposal,” the court ruled the statute could not be interpreted to cover only spills that go directly and immediately into the  groundwater. The court also said that SBIC’s cramped interpretation conflicted with the Ninth Circuit’s jurisprudence of liberally construing CERCLA liberally to achieve the legislative goals of cleaning up hazardous waste sites promptly and ensuring that the responsible parties pay the costs of the clean up.

Lease Indemnification

The 1968 indemnification provision provided that SBIC would indemnity the owner “from and against all claims arising from any act, omission or negligence of lessee . . . or arising from any accident, injury or damage whatsoever caused to any person, or to the property of any person during the demised term, in or about the demised premises . . . from and against all costs, expenses and liabilities incurred in or in connection with any such claim or proceeding brought thereon.” SBIC argued it was not liable under the indemnity because the previous owners had not proved that the spills that occurred when SBIC operated the dry cleaner had not resulted in contamination of the soil and groundwater happened during the term of its lease. The appeals court, though, held that the basis for liability under the guaranty was the RCRA claim that arose from conduct of SBIC’s employees during the lease.

SBIC also contended that the 1982 lease replacement cutoff any liability it might have under the 1968 lease. The 1982 termination provision provided, inter alia, that “upon the commencement of the lease term… any rights and obligations… arising out of the [1968 lease] shall be deemed terminated as if said lease as amended had expired by its term, i.e., lapse of time . . . .” The appeals court said this 1982 lease terminated the provisions of the prior lease but did not extinguish the obligations SBIC incurred during its term.

SBIC also challenged its liability under the 1982 lease. The indemnification provision provided that SBIC would indemnify the landlord for “….liability, loss, cost, …. damage, claim or demand of any kind whatsoever in connection with, arising out of, or by reason of any violation of law, ordinance or regulation…. during the term of this Lease.”SBIC argued that the RCRA 7002 action did not arise out of a “violation of law”. The appeals court disagreed, finding that RCRA imposed liability for failure to clean up contamination. SBIC thus must indemnify the owners for the obligations they incurred as a result of SBIC’s RCRA violations.

It is unclear if the court was aware of that RCRA 7002 has two provisions-7002(a)(1)(A) addresses failing to comply with RCRA while 7002(a)(1)(B) authorizes injunctive relief against persons “contributing to” an imminent and substantial endangerment. The homeowner plaintiffs only obtained summary judgment under 7002(a)(1)(B). It is unclear of if the cross-claim filed by Maryland Square against SBIC cited to 7002(a)(1)(A). Thus, SBIC might have had a good argument to seek en banc review.

Shapiro Guaranty-

On the personal guaranty, the appeals court said a guaranty agreement is prospective unless it expressly states otherwise. The previous owners did not identify any violation of the 1982 lease that occurred after the effective date of the Assignment and the only documented spills occurred during SBIC’s operation of the facility. Because the violations occurred before Melvin Shapiro signed the guaranty, and the guaranty did not apply retroactively, the court reversed the judgment against Melvin Shapiro.

Dry Cleaner Settles Foreclosing Lender RCRA Action

Tuesday, June 4th, 2013

We previously discussed the RCRA lawsuit filed by a bank that had foreclosed on a residential property that turned out to be impacted by contamination from an adjacent dry cleaner in Forest Park National Bank v Ditchfield.  The bank had alleged that vapors migrating from the contaminated groundwater and soil constituted an imminent and substantial endangerment under RCRA 7002.

The parties recently settled this lawsuit. The defendant has agreed to reimburse the bank $200K in attorney fees and $20K to resolve its common law claims. The defendant also agreed to demolish the residence, enroll the property in the Illinois voluntary cleanup agreement, excavate all contaminated soil and obtain a no further remediation (NFR) letter for a residential cleanup.

A copy of the settlement is available here: