SCHNAPF ENVIRONMENTAL  REPORT
A Newsletter Covering Recent Environmental Developments and Caselaw
March 2001						Vol. 3, Issue 2	

Editor’s Note
On Jan. 20, President George Bush issued an executive order instructing federal agencies to withdraw regulations so-called “midnight regulations” that had been proposed in the last weeks of the Clinton Administration but not yet been published in the federal register. The order also delayed for 60 days the effective date of rules that had been been published prior to January 20th.  
While the new arsenic rule (discussed below) appeared in the Jan. 22 Federal Register it is probably not subject to the Bush moratorium since the rule was actually published on Janaury 19th (the Federal Register takes three days to publish). However, the following unpublished rules could be affected by the moratorium:
•	The proposed rule to set a secondary standard for methyl tertiary butyl ether (MTBE). 
•	The final Long-Term 1 Enhanced Water Treatment Rule. 
•	The final Radon Rule. 
•	A final rule to regulate fuels and fuel additives. 
•	A proposed rule to prohibit the manufacture, import, sale, storage and transportation of MTBE. 
•	A final rule to set radioactive protection standards for the Yucca Mountain nuclear waste storage site.

Contents
Page 2 	EPA Announces Results of 2000 Enforcement Actions
Page 3	EPA Discloses Results Of Audit Program
Page 4	Companies Said to Be Filing Incomplete Environmental Filings with the SEC
Page 5	EPA Rekindles Survey of Pollution Abatement Spending
Page 5	EPA Lowers TRI Threshold for Lead
Page 5	Ford Offers Web-Based ISO 14001 Certification For Suppliers
Page 6	Companies Achieve Compliance Savings By Using Internet
Page 6	Use of Environmental Insurance In Transactions Is Increasing
Page 7	Chubb Introduces Secured Creditor Policy
Page 8	Insurers Do Not Have to Pay for Costs of Complying With Administrative Orders
Page 9	Insurer Not Liable for Contamination Prior to Acquisition by Insured
Page 9	US Supreme Court Upholds Revised NAAQS for Ozone
Page10	Price of NOx Emissions Credits Soar in California
Page10	Illinois Announces Results of Emissions Trading Program
Page11	EPA Proposes to Approve Emissions Trading Programs in Michigan and New Hampshire
Page11	New Jersey Reports Large Banking of Emissions Credits
Page12	EPA Issues Notice to 11 States for Not Complying with NOx SIP Call
Page12	EPA Brings Additional NSR Enforcement Actions
Page12	Purchaser of Mini-Steel Mill Must Install Opacity Emissions Controls
Page13	New Hampshire Adopts Multi- Pollutant For Utility Emissions
Page13	EPA Proposes Amendments to Regional Haze Rule
Page14	States Step Up Asbestos Enforcement
Page15	Power Plant To Switch from Coal to Grass
Page15	EPA Financial Assistance for Transportation Projects that Reduce GHG Emissions
Page16	Federal Government Estimates Loss of Wetlands
Page16	Federal Appeals Court Imposes Harsher Sentence on Developer for Wetlands Violations
Page16	Burden of Protecting Isolated Wetlands Will Now Fall on States
Page17	EPA Finalizes Revised Tulloch Rule
Page17	NH Company Agrees to Pay $525,000 for Wastewater and Stormwater Violations
Page18	EPA Arsenic Standards for Drinking Water
Page19	EPA Brings Enforcement Action Against Public Water Systems
Page19	EPA Announces New RCRA Brownfield Pilots
Page20	EPA Encouraging Innovative Corrective Action Agreements
Page20	Not All Hazardous Constituents Are UHCs for the LDR Program
Page21	EPA Releases UST Enforcement Statistics
Page21	States Increasing UST Enforcement Actions
Page22	State UST Fund Denies Consultant’s Reimbursement Request
Page23	Building Reuse Centers May be Used to Recycle Construction Debris
Page23	EPA To Focus On Older PCB Transformers
Page24	EPA Fines Utility for Violation of PCB Spill Policy
Page25	GAO Study Finds Brownfield Program Data Incomplete
Page26	BCRLF Loan Will Be Used to Develop Athletic Fields
Page26	PA Announces More Brownfield Cleanup Completions
Page26	PA Upgrades Internet Brownfield Directory
Page27	PA Awards Grants To EDAs to Develop  Brownfield Inventories
Page27	Florida Freezes Funds for Dry Cleaning Program
Page28	Ohio Proposes Changes to VCP
Page28	NC Brownfield Site To Be Redeveloped
Page28	NJ Announces First Innovative Technology For Brownfield Program
Page29	Sales Of Marin Subdivision Not Affected By MTBE Contamination
Page30	Contaminated Trailer Park Will Cost $16 Million To Cleanup
Page30	Property Owner to Pay $7.1Million for Contamination Caused by Tenant			
Page30	Generator Liable When Transporter Takes Waste to Unauthorized Site
Page31	BASF Will Remediate Former Industrial Site
Page32	Bank Trustee Recovers Cleanup Costs From Tenant
Page33	Property Owner May not Use Divisibility To Claim Innocent Purchaser Status
Page34	Owner Who Allows Waste To Migrate is Not Innocent Owner
Page35	Sixth Circuit Rules Sole Shareholder Liable Under CERCLA
Page35	Environmental Inspection Clause Prevents Buyer from Enforcing Contract						

DUE DILIGENCE/ AUDITING/ DISCLOSURE/ ENFORCEMENT

EPA Announces Results of 2000 Enforcement Actions
EPA set an agency record in fiscal year 2000 by bringing 6,027 civil, criminal and administrative enforcement actions. These actions resulted in $224.6 million in civil and criminal penalties which was the third largest in agency history. Parties subject to the enforcement actions expended $2.6 billion to bring facilities into compliance with environmental laws and to remediate contaminated sites. 
The Agency issued a record 1,763 administrative complaints and 3,660 administrative compliance orders or field citations. EPA conducted 660 civil investigations in FY 2000 and referred 368 or 56% of these matters to the Department of Justice (“DOJ”). The agency also commenced 477 criminal cases and referred 236 or 49% of those matters. These criminal enforcement actions resulted in $122 million in criminal fines which was the second largest total of criminal penalties in the EPA history and was double the FY 1999 total of $61.6 million.  The federal courts imposed 146 years of criminal sentences in FY 2000. 
EPA Discloses Results Of Audit Program
EPA also reported that 430 companies disclosed potential violations at nearly 2200 facilities for FY 2000 under its audit policy. Last year, 260 companies disclosed violations at 989 facilities.  More than 215 companies corrected violations and received penalty relief at 435 facilities. In the first quarter of FY2001, 72 companies have disclosed violations at 455 facilities.  Since the inception of the policy in 1995, more than 1,150 companies have disclosed potential violations at more than 5,400 facilities  
EPA has also used the audit policy as part of a focused enforcement initiative in the following priority sectors:
•	Aboveground Storage Tanks (“ASTs”) - Under the agency’s Storage Tank Emission Reduction Partnership Program with the American Petroleum Institute, 61 companies agreed to install enhanced emission controls on ASTs that are equipped with fittings known as “slotted guidepoles". While these guidepoles allow for fuel sampling and drainage, they also allow vapors to escape into the atmosphere. EPA has agreed to dismiss all penalties for companies that agreed to audit, disclose and repair leaks from guidepoles by December 11, 2000 and who agreed to install the enhanced emission controls by June 13, 2000.
•	Wetlands- The EPA Region 4 office commenced a self-disclosure program for 95 landowners who had illegally drained 11,400 acres of wetlands. Property owners who restored the wetlands would not be assessed any penalties. Thus far, ten owners have agreed to restore 3,600 acres of wetlands.
•	Universities- EPA Regions 1,2 and 9 provided academic institutions with the opportunity to audit their laboratories and other facilities and correct violations in return for reduced penalties.
•	Nitrate Compounds- Last year, EPA sent letters to over 600 facilities who reported treating over 18,000 pounds of nitric acid but failed to file TRI forms for nitrate compounds. The agency offered to provide the companies with reduced penalties in exchange for correcting the violations and participating in a compliance incentive program. All the facilities have corrected the violations.
•	Non-Road Engines- EPA received more than 2,200 disclosures for importing illegal non-road engines. The companies were able to receive reduced penalties in exchange for correcting the labeling violations for non-road engines that meet emissions standards. To receive penalty rekuef fir uncertified engines, companies had to export the illegal engines and provide new certified engines to the end user.
•	Grain Producers- EPA Region 7 invited grain processing facilities to voluntarily audit and correct violations under the New Source Review (“NSR”) program. Because of increased demand, this sector has increased capacity by modifying existing process units or building new facilities. Increasing capacity could trigger the pre-construction review requirements of the NSR program.
•	Telecommunications- EPA has provided 100% penalty mitigation for gravity-based penalties to 24 telecommunications companies that voluntarily disclosed and corrected violations at more than 2,200 facilities. The companies paid $607,000 in penalties to cover the economic benefits they received from the non-compliance and received $32 million in penalty waivers.
•	Airlines- Seven airlines and one fuel distributor voluntarily disclosed a variety of violations. The companies received approximately 90% reduction in penalties. 
•	Iron and Steel Minimills- EPA recently invited 41 minimills to voluntarily audit their operations and disclose violations. The companies had until February 28th to disclose the violations.
Companies Said to Be Filing Incomplete Environmental Filings with the SEC
The World Resources Institute ("WRI") recently released two reports which indicated that environmental liabilities were being significantly underreported in disclosures filed with the Securities and Exchange Commission (“SEC”) and that these potential environment liabilities could were likely to have negative impacts on the financial performance of companies.
In "Pure Profit: The Financial Implications of Environmental Performance," WRI developed a comprehensive method for assessing corporate environmental risks and has tested it on 13 companies in the pulp and paper industry The study revealed that environmental issues could significantly influence input costs, revenues, asset values, competitive advantage, and shareholder values. WRI concluded half of the companies investigated were likely to face negative impacts from environmental issues equal to 5% or more of total shareholder value. 
In "Coming Clean: Corporate Disclosure of Financially Significant Environmental Risks", WRI reviewed various financial statements filed by the 13 companies in 1998 and 1999 and found that few of the companies adequately disclosed these financial risks or potential competitive impacts arising from their exposures to known environmental concerns. WRI also reviewed 5,000 administrative proceedings initiated by the SEC over the last 25 years and found that the agency had only brought 3 actions for insufficient disclosure of environmental risks or liabilities. WRI called on the SEC to strengthen its enforcement rules pertaining to environmental risk reporting.
Commentary: The WRI report was consistent with the findings of an earlier study by Martin Freedman of Binghamton University and A. J. Stagliano of Saint Joseph's University. The report entitled “Environmental Disclosure by Companies involved in Initial Public Offerings” found that many companies ignore or only minimally comply with the SEC disclosure rules for environmental liabilities.  
The study indicated that of the approximately 20,000 PRPs identified at 1,200 sites on the 1993 National Priority List, 900 of these entities were subject to SEC disclosure requirements. 45 of the PRPs had been identified as a PRP prior to their initial public offering (“IPO”).  The study then compared the disclosures of the IPOs with annual reports and Form 10-Ks of comparable companies. 
The environmental disclosures were classified into five categories: disclosure that the company was named a PRP;disclosure of the number of sites for which the company was named a PRP; names of specific sites with a description of the progress and problems of cleaning up the site; discussion if the costs are, or will materially impact the company's financial statements; the dollar amount of Superfund liability exposure.
Despite the fact that companies going through an IPO are under intense scrutiny and engage in extensive due diligence, the study found that the IPOs had the same relatively low level of disclosure as companies that were already subject to SEC disclosure obligations. The authors theorized that if the environmental disclosures of IPOs firms was significantly greater than companies that were already publicly-registered, this might indicate that greater due diligence could lead to enhanced disclosure and that further regulation would not be needed to ensure compliance with environmental disclosure laws.  However, since the study found that the IPOs did not disclose information about Superfund liability, the authors concluded that strict disclosure requirements and expected public scrutiny did not appear to ensure the adequate disclosure of environmental liabilities. The data suggested to the authors that companies will make full environmental disclosures only when they perceive there will some risk for failure to comply. In the face of minimal SEC enforcement and only a modicum of encouragement to make such disclosures from accountants, the authors predicted that environmental disclosures would continue to be inadequate.
EPA To Survey Pollution Abatement Spending
EPA recently announced that it would survey pollution abatement control expenditures (“PACE”) by facilities in the mining, manufacturing, and electrical utility industries. The survey known as PACE MA-200 is being distributed by the Census Bureau to 21,000 companies that are required by law to respond. The survey requires companies to report on their investments in pollution reduction activities during 1999.
All manufacturing establishments with at least 20 employees and SIC codes from 20-39 except apparel and other textile products (SIC 23) and some publishing establishments in SIC 27 are required to complete the form. In addition, mining and petroleum firms with SIC Codes from 10-14, and electric and gas utilities in SIC groups 491 and 493 are also required to participate in the survey. 
The PACE MA-200 survey specifically asks plant managers to provide information on 1999 capital expenditures pollutant abatement activities by type of pollutant and abatement technique, operating costs by form of abatement, and costs avoided or recouped from abatement activities. The survey also covers costs for underground tank replacement, site cleanups, noise pollution and radiation. The PACE MA-200 will not collect information on other indirect environmental costs such as Superfund transaction expenditures. 
 EPA will use the data collected from the surveys to satisfy legislative and executive requirements to assess the costs and benefits of proposed environmental rules and regulations as well as any alternative approaches. Results of the most recent PACE MA-200 survey will be released in fall 2001.The last survey was conducted in 1994. 
EPA Lowers TRI Threshold for Lead
In January, EPA published a final rule that significantly lowered the Toxic Release Inventory (“TRI”) reporting thresholds for lead and lead compounds (66 FR 4500, January 17, 2001). The rule lowered the reporting threshold from 10,000 pounds to 100 pounds and will dramatically increase the number of facilities that will have to file TRI reports for lead and lead compounds. The final rule is effective for reporting year (“RY”) 2001. TRIs for RY 2001 are due on or before July 1, 2002. 
EPA believes that there is no safe exposure level for lead. Because the agency's Science Advisory Board concluded that lead and lead compounds are highly persistent, bio-accumulative, toxic chemicals (“PBT”), EPA indicated that it might further lower the reporting threshold.
Commentary: Since the Emergency Planning and Community Right To Know Act (“EPCRA”) was enacted in 1986, EPA has been expanding the scope of the program. For example, EPA added 286 EHS to the original list of 300 EHS that had to be reported under EPCRA. In 1997, EPA added seven new industrial categories that were covered by EPCRA. 
Beginning January 1, 2000, new TRI threshold reporting requirements went into effect for 27 PBTs (64 FR 58667). The TRI rule lowered reporting thresholds for some PBTs that are already covered by EPCRA such as mercury and PCBs. In addition, EPA added seven new chemicals and two chemical compound groups to the list of toxic chemicals that are subject to the TRI. This new list included dioxin and dioxin-like compounds when the dioxin is present as a contaminant and was created during the manufacturing process of a chemical.  
Under the PBT rule, companies have to file TRIs if they use 100 pounds a year of PBTs but the reporting threshold is only 10 pounds a year for PBTs that are highly persistent and highly bio-accumulative. For dioxin and dioxin-like compounds, the reporting threshold is just a tenth of a gram of dioxin each year.
Ford To Offer ISO 14001 Certification Web-Based Training To Suppliers 
 	In 1998, Ford Motor Company became the first automaker to certify all of its manufacturing facilities under ISO 14001. Now, the company will be requiring that all of its 5,000 production and non-production suppliers have at least one manufacturing site certified for ISO 14001 by the end of 2001. All manufacturing sites shipping products to Ford must be certified by July 1, 2003. ISO 14001 is one of the most stringent environmental management standards under which independent auditors evaluate environmental processes and systems.
To help its suppliers meet these requirement, Ford has established an online ISO 14000 training course. Ford suppliers can register on the web, pay a nominal fee and have 12-month access to the training. The first portion of the program is awareness training and is free. The training program includes many of the lessons learned by Ford employees who completed the certification process and provides access to Ford experts. It is a joint effort by Ford's Purchasing organization and its Environmental Quality Office. The course can be accessed at any time anywhere. Last year, Ford launched a more traditional ISO 14001 awareness training to suppliers. This training was performed in classrooms located in the United States, United Kingdom and Germany. 

Companies Achieve Compliance Savings By Using Internet
According to a study conducted by the BTI Consulting Group, some companies have saved up to 56% on environmental compliance costs by using the Internet. The study examined how 225 companies used the Internet as a tool for the environmental information management. The typical large company in the study had previously spent $80 million annually on environmental compliance but was able to reduce those costs to less than $40 million through strategic use of the Internet. The majority of savings were achieved through standardizing and automating environmental management processes, developing work processes, and then developing common work platforms for these processes. The study, entitled “E-Strategies for Environmental Management: Opportunities for Performance 2001” includes a comprehensive needs analysis and guidelines for success.

ENVIRONMENTAL INSURANCE

Use of Environmental Insurance In Transactions Is Increasing
The new environmental insurance products are becoming increasingly popular in business transactions. According to Risk Management magazine, premiums for environmental insurance have grown from $200 million to $1.2 billion during the past 15 years. 
Traditionally, environmental insurance were used to meet financial assurance requirements mandated by RCRA for facilities that treat, store or dispose of hazardous wastes or for underground storage tanks. The newer products are being used most commonly to backup environmental indemnities and  address unknown environmental liabilities in transactions. In addition, the policies are often used for guaranteed or fixed-based remediation contracts offered by environmental consultants. Electric utilities seeking to divest themselves of assets are also using environmental insurance to package the assets on the auction block.
For example, last month a $7.55 million environmental liability policy was underwritten by International Environmental Risk Underwriters ("IERU") The policy securitized an environmental indemnity for known and unknown risks including toxic torts and natural resource damages to facilitate the sale of a 430-acre parcel from a Fortune 500 chemical company to a Manhattan-based real estate developer.
Commentary: One advantage of the new environmental products is that they cover known contamination which is particularly useful for brownfield transactions. Brownfields by definition have historical contamination but typically do not pose potential environmental issues from on-going operations. Other important features include policy periods of as long as ten years, the availability of coverage for cleanup costs voluntarily incurred as opposed to ordered by a government agencies as well as the ability to negotiate or manuscript policies to address specific issues of a transaction. 
Long-term policies can be obtained to cover historical or "legacy" liabilities that may exist at the time of the transfer but may not be known and which may arise in the future. Known issues can be addressed with a cost cap policy or perhaps an indemnity from a seller that is backed up by an insurance policy. It should be noted that cost cap policies are getting more expensive and increasingly difficult to obtain especially for remediation less than $500,000. 
A ten-year term is becoming a standard period for environmental insurance policies. If may be possible to negotiate a term as long as 25 years for larger transactions with a portfolio of properties where the premium is well in excess of $100,000 and for sites that are just mildly contaminated. However, there are creative ways to get around the ten-year limitation. For example, some carriers have offered a 10-year term with guaranteed annual renewals. Under this approach, the carrier will issue a renewal endorsement at the end of the first policy year that will extend out the policy another year so that the insured always has 10 years of prospective coverage. Alternatively, some carriers have offered a 10-year term with a 5-year or 10- year extended reporting period endorsement. We will discuss additional insurance tips in future issues.
Chubb Introduces Secured Creditor Policy
The Chubb Group of Insurance Companies recently joined other insurance carriers when it introduced a secured creditor policy. The new product which is called “Collateral Impairment and Environmental Liability Insurance for Financial Institutions” helps protect lenders from financial loss resulting when a loan is in default and its collateral is contaminated. The policy reimburses the insured for the outstanding loan balance or cleanup costs depending on the coverage the insured chooses. The policy also reimburses the insured for damages or cleanup costs it becomes legally obligated to pay to third parties during the policy period. 
Policies are available for terms up to 20 years on individual loans with limits ranging from $1 million to $5 million and subject to an aggregate limit applicable to a portfolio of loans. This aggregate limit ranges from $10 million to $50 million. A one time per loan premium, typically ranging from $250 to $1,500, is paid at loan closing.
Commentary: One advantage of secured creditor policies is that the borrower does not have to pay for the policy if the loan does not close. The borrower completes a questionnaire which can be processed in several days following a database search by the insurance carrier. In contrast, if a bank required the borrower to perform a Phase I environmental site assessments (“ESA”), the borrower must incur the costs of the ESA regardless if the loan is consummated. Moreover, the ESA may take as long as four weeks to complete. 
Many brokers are increasingly suggesting to prospective property owners that they purchase environmental insurance in lieu of performing environmental due diligence. While the secured creditor policies may be useful to banks as a substitute for requiring due diligence, there is considerable debate whether environmental insurance should be used by property owners as a substitute for due diligence. 
	Property owners perform due diligence not only to be able to assert an innocent purchaser’s defense but also to develop information about property so that the risks can be effectively allocated in the transaction. There is a common misperception that insurance underwriters perform substantial due diligence before issuing these policies. In fact, the investigation performed by the underwriters is essentially just a database search. Thus, except for “low risk” transactions, there is no substitute for a comprehensive site inspection and thorough search of the local and historical records- not just the database searches. 
However, many sites that are perceived to be “low risk” actually have been used decades ago by business that could create significant environmental liabilities. In many cases, these prior uses will predate agency regulatory database search and thus not be picked up in the cursory reviews done by underwriters. There have been numerous instances where a restaurant was built on the site of a former gasoline station, residential development was built on farmland where wastes were dumped or a retail shopping center is refinanced that was contaminated by dry cleaner who operated 20 years ago. 
Insurance can also be used as a screening technique in multi-parcel deals to ferret out the sites that the insurers will not underwrite. For those and most other sites, it would seem that the most prudent thing to do is to take the ASTM Phase I ESA standard and modify it to the needs of the deal and then use insurance to back up any indemnities, etc. In addition, if the client is buying a business, it needs to understand compliance issues that may affect going-forward operations. 
If a client does not want to do the right kind of due diligence on a seemingly "low risk" deal, an insurance policy in liue of an ESA might provide some protection to a client to cover the issues that might be missed by sloppy or incomplete commodity-style ESA. However, there are uncertainties remaining about these policies including exclusions (no stigma coverage for adjacent contaminated property), deductibles, and whether the insurer will actually pay claims under these policies. The language of these insurance policies is still rather untested and the policies are still new enough that there is not extensive claims payment experience. 
There is an important role that insurance can play in helping allocate risks in transactions An insurance policy from an insurance company with a good Best's rating is generally much better than a personal indemnity from a principal who may or may not have a real net worth to backup the indemnity. Moreover, a property owner does not have to qualify as an innocent purchaser to obtain an insurance policy. However, substituting these policies for environmental due diligence would not appear to be the most effective use of these products.
Insurers Do Not Have to Pay for Costs of Complying With Administrative Orders
Last month, the California Supreme Court ruled in Certain Underwriters of Lloyd’s of London vs. Superior Court  that insurance companies do not have to pay under comprehensive general liability (“GCL”) policies for cleanup costs incurred by insureds pursuant to state administrative orders. Under the 5-2 decision, the court said the language of the GCL policies was vague and expressly require payment for cleanups ordered by state agencies. The majority concluded that insurance companies are only liable for cleanup costs arising from court orders. The ruling follows opinions issued by the highest state courts in Alabama, Illinois, Maryland, Maine, Minnesota, and Wyoming.
Commentary: The decision may result in delays in cleanups and straddle hundreds of companies with millions of dollars in costs cleanup cosys. To get around the decision, some policyholders to try to follow the approach followed in CERCLA settlements where the parties reach an agreement with the EPA and then have the agency file a “friendly” lawsuit in federal court so that a judge may approve the settlement. 
Insurer Not Liable for Contamination Prior to Acquisition by Insured
A California state court ruled that an insurer is not liable for claims under a GCL policy for pre-acquisition contamination at a site. In Tosco Corp. v. General Insurance Co. of America (No. A082765), the California Court of Appeals for the First District ruled that while the contamination occurred during the policy period, the policyholder was not entitled to coverage because it did not own or have a relationship with the property at the time it was contaminated. Under California law, the court said that the insured must be associated with the property at the time the damage occurred. Liability insurance coverage cannot be created after the fact. 

AIR POLLUTION DEVELOPMENTS

US Supreme Court Upholds Revised NAAQS for Ozone
In a unanimous decision, the United States Supreme Court upheld the stringent National Ambient Air Quality Standards (“NAAQS”) for ozone and particulate matter. In Whitman v. American Trucking Association (No. 99-1257, 99-1426), the Court said that section 109(b) of the Clean Air Act did not require the EPA to consider costs when establishing NAAQS. The Court also said that the delegation of authority to EPA was not unconstitutional. 
Section 109(a) of the CAA requires the EPA to promulgate NAAQS for each air pollutant for which “air quality criteria” have been issued under §108. Once a NAAQS has been promulgated, the EPA must review the standard and the criteria on which it is based at five-year intervals, and make revisions that the agency believes is appropriate.
The matter arose on July 18, 1997 when EPA issued revised NAAQS for particulate matter and ozone. Under the revised NAAQS, many cities and urban areas would not be compliance and would have to impose tighter emission controls. In May 1999, the Court of Appeals for the District of Columbia invalidated the new rules. The court noted that §109(b)(1) which instructs the EPA to set ambient air quality standards based on criteria of §108 and to allow for an adequate margin of safety that is necessary to protect the public health. The court said this amounted to an improper delegation of authority to EPA because there was no “intelligible principle” to guide EPA’s exercise of authority when setting NAAQS. However, the court remanded the matter back to EPA to try to articulate the basis for the standards. The court rejected the argument that the EPA had to take costs into account when developing NAAQS. 
The respondents had also argued that the general provisions for non-attainment areas in §172 were supplanted by §181 which established categories for non-attainment areas based on concentrations of ozone. Therefore, they argued, the EPA did not have the authority to promulgate more stringent NAAQS for Ozone. However, the court ruled that the additional standards for non-attainment areas contained in Part D, subpart 2 (§181-§185B) could be harmonized with EPA’s authority to promulgate NAAQS under §109. 
The Supreme Court said that under §108(a)(2) is required to identify the maximum airborne concentration of a pollutant that the public health can tolerate, decrease the concentration to provide an “adequate” margin of safety, and set the standard at that level. The opinion written by Justice Antonin Scalia held the CAA unambiguously barred EPA from taking costs into account when setting NAAQS. Justice Scalia also found that the scope of discretion in §109(b)(1) was well within the discretion permitted by Court in prior decisions precedents on non-delegation. 
However, because of the discrepancy between Subsections 1 and 2 of Part D, the Court found the EPA’s implementation policy unlawful. Justice Scalia observed that the principal distinction between Subpart 1 and Subpart 2 was that Subpart 1 permits the EPA to establish classifications for non-attainment areas while  Subpart 2 classifies areas as a matter of law. He said the revised ozone NAAQS would create gaps in the classification scheme because §181 would fail to classify areas whose ozone levels are greater than the new standard but less than the equivalent of the old standard. These gaps prevented the Court from concluding that Congress clearly intended Subpart 2 to be the exclusive means of enforcing a revised ozone standard in non-attainment areas. On the other hand, the Court said, EPA could not completely ignore the provisions of §181 which seemed to limit the agency’s discretion. Accordingly, remanded the standard to and develop a reasonable interpretation of the application of non-attainment implementation provisions to the revised ozone NAAQS.
Price of NOx Emissions Credits Soar in California 
Because of the recent power shortage in California, power generators in the state have consumed nearly two-thirds of all the credits available from the Regional Clean Air Incentives Market (“RECLAIM”) program. 364 manufacturers, oil refiners and power plants participate in the RECLAIM program. Power plants comprise only 5% of the RECLAIM facilities but consumed 67% of the RECLAIM trading Credits (“RTCs”). 
The state relies heavily on gas-fired plants that emit several tons of nitrogen oxide (“NOx”) each day. As a result, the cost for NOx RTCs has soared to an average of $45,000 per ton which is more than 10 times the 1999 price. According to the regional Air Quality Management Board, NOx RTCs have traded as high as $105,000 per ton while the average cost of emissions controls ranges from $6,000 to $9,000 per ton of NOx. The agency has estimated that total outlays for RTCs during 2000 may be high as $80 million. The RECLAIM credit crunch occurred in June and December which is when the compliance cycles end. Unfortunately, the end of compliance cycles occurred when the state’s power shortages became most acute.
To increase power supplies older power plants without emissions controls have had to temporarily operate for longer hours than permitted which result in higher level of emissions that exceed the emissions caps for the plants. Approximately 40 of the 93 generating units operating in Los Angeles, Riverside, Orange, and San Bernardino counties currently have no pollution controls. The South Coast Air Quality Management District (“SCAQMD”) has proposed to remove existing plants producing 50 megawatts or more of electricity from the RECLAIM program for 2001- 2003. The agency also plans to impose a freeze on RTCs for these plants at their original allotment plus any RTCs purchased through January 11th. The plants would have to enter into abatement orders requiring them to install pollution control equipment on boilers and turbines by 2003. Any of these plants that exceed their emissions caps would be required to $15,000 per ton of NOx into a special air quality investment account that would be used to reduce emissions from mobile sources. Other RECLAIM facilities that emit more than ten tons of NOx per year will be required to file compliance plans to demonstrate steps they are taking to come into compliance with emission allocations for 2001-2003. SCAQMD also hopes to increase the pool of available NOx RTCs by working with state officials to revise the state implementation plan to allow the generation of NOx RTCs for businesses that purchase low emission vehicles and also area sources that reduce NOx emissions.  
Illinois Announces Results of Emissions Trading Program
 	In May 2000, Illinois instituted the nation’s first market-based emissions trading program for major sources of volatile organic materials (“VOM”) in the Chicago area.  179 sources participated in the Emissions Reduction Market System (“ERMS”) program which uses an emissions cap and assigns allowances for each ton of VOM the source is allowed to emit. The allowances are known as allotment trading units (“ATUs”). The emissions cap required a 12% reduction in VOM emissions during the ozone season. 
 	Sources may either reduce their own emissions to meet their ATUs or trade with another source that has excess ATUs to sell because it has reduced emissions below its cap. While the ATUs may be traded at any time, most transactions have taken place in the three-month reconciliation period following the “ozone season” which lasts from May through September. By the end of the reconciliation period, these sources must hold the proper number of ATUs to cover the reported seasonal emissions. Trades are conducted through the Internet
Another innovative feature of the ERMS program is the ability of sources to donate or sell ATUs that will be immediately retired. For example, Nova Chemicals U.S.A. Inc. donated 55 ATUs to the University of Illinois at Chicago who will permanently retire the credits to benefit the overall quality of the air in the Chicago metro area. 
Thirty-five ATU transactions occurred during 2000. A total of 24 sources sold ATUs while 31 sources purchased ATUs. An average of 43 ATUs were involved in each transaction. The average cost of the ATUs was about $76. A total of 1,380 ATUs (138 tons) were involved in seasonal trades while 318 ATUs (31.8 tons) were involved in permanent transfer agreements. The total cost of purchasing ATUs was $79,284.The state estimated that the cost of the ATUs was nine times less expensive than the cost of the pollution controls that the plants would have had to be installed. 
EPA Proposes to Approve Emissions Trading Programs in Michigan and New Hampshire
	EPA has proposed to conditional approve the Michigan Emission Averaging and Emission Reduction Credit Trading Rules (66 FR 9264) and the New Hampshire Discrete Emissions Reduction Trading Program (“DER”) Program (66 FR 9278). EPA previously conditionally approved the emissions trading programs of Illinois (65 FR 81799) and the New Jersey Open Market Emissions Trading (“OMET”) Program for NOX and VOCs (66 FR 1795). The agency also previously approved a regional NOx trading program for Massachusetts, Connecticut and Rhode Island (65 FR 81743). 
The Michigan and New Hamsphire programs establish emissions caps and create tradable emissions credits. Sources will be assigned allowances or allotments for each ton of NOX and VOCs. Sources that reduce their emissions below their allotment may sell their emission credits to other companies that exceed their emissions cap. New Hampshire proposed to allow sources to conduct inter-pollutant trades where VOC credits may be traded for NOx credits. However, EPA will require New Hampshire to revise its program before allowing inter-pollutant trades. 
	Michigan does not allow sources to generate emission reduction credits (“ERCs”) during a production slowdown. To qualify, the source would have to plan the slowdown and would have to adopt an enforceable requirement not to increase production. Unlike most open market programs, Michigan also limits the ability of sources to generate ERCs from production increases.  Most open market programs create a baseline for reductions based on historical emissions and activity level during the period of generation. In contrast, Michigan’s program creates a baseline based on actual emissions. 
Commentary: EPA remains concern about the possibility of sale of duplicative emissions credits. The rule of Caveat Emptor remains very much in effect for these transactions. Purchasers who acquire invalid credits and use those credits to satisfy their emissions allowances could be subject to penalties for the excess emissions. Therefore, it is important for sources that are considering purchasing emissions credits to conduct their own due diligence to make sure that the credits are properly registered and valid.
New Jersey Reports Large Banking of Emissions Credits
	In our June 2000 issue, we reported that 29 percent of the SO2 allowances available in the Acid Rain program were not used. This data suggested that utilities had been banking those allowances so that they may be used to comply with the more stringent requirements of the Phase II portion of the Acid Rain program. Under Phase II, the number of regulated combustion units will increase to over 2,000 and the allowable SO2 emissions will be capped at 8.5 million tons which will represent a 50 percent reduction from 1980 levels.
A parallel development may be occurring with the New Jersey NOx and VOC trading program. DEP records show that there are 511,832 credits representing 25,600 tons of NOx that have been banked but only 21,150 credits representing 1,060 tons have been used. Similarly, 11,420 VOC credits have been registered or banked representing 570 tons of VOC emissions while 2,703 VOC credits for 135 tons of VOC emissions have been used. 
An organization of EPA employees known as Public Employees for Environmental Responsibility (“PEER”) claim the New Jersey trading program is flawed. PEER claims the DEP is not doing enough to verify that the accuracy of the emissions reductions and that air quality will become more deteriorate as the “banked” emissions credits are used.  
EPA Issues Notice to 11 States for Not Complying with NOx SIP Call
On December 19, 2000, EPA informed 11 states in the southeast and midwest that they have failed to meet the court-mandated October 30th deadline for submitting State Implementation Plans (“SIP”) to lower NOx emissions required by the EPA NOx SIP Call rule. The 1998 rule had required 22 states to reduce NOx emissions to reduce ozone levels in the northeast. The Court of Appeals for the District of Columbia upheld the NOx SIP Call earlier this year (Michigan v. EPA, No 98-1497) but exempted Wisconsin, Georgia and Missouri from the rule. A coalition of industries and trade organizations has petitioned the United States Supreme Court to review EPA’s authority to issue the NOx SIP Call (Appalachian Power Co. v. EPA, No. 00-445). 
Commentary: Under §179 of the CAA, EPA may impose sanctions on these states 18 months from the date the notices were issued. The sanctions may include loss of highway funds as well as the requiring emissions offsets in a 2:1 ratio for new or modified sources. The EPA may also impose its own federal implementation plan (“FIP”) for those states.   
EPA Brings Additional NSR Enforcement Actions
In the waning days of the Clinton Administration, EPA continued to extend its New Source Review (“NSR”) enforcement initiative beyond the electric utility industry. The EPA Region 5 office recently issued a notice of violation to Citgo Petroleum asserting that the company made major modifications at a refinery located Lemont, Ilinois without undergoing NSR. The same region office issued a NOV to Subaru-Isuzu claiming that the automaker made major modifications to its Lafayette, Indiana plant without undergoing NSR or obtaining a PSD permit. Meanwhile, Archer Daniels Midland Co. (“ADM”) agreed to resolve charges that it failed to undergo NSR at its wet corn mill plant in Decatur, IL. The company agreed to pay a $1,463,500 penalty and installation of scrubbers costing $1,600,000. EPA asserted that ADM made a major modification to the plant without obtaining a PSD permit. 
	In California, CENCO Refining Co agreed to undergo NSR to reactivate a refinery that had been closed since 1995. The company acquired the refinery in 1998. CENCO has agreed to install Best Available Control Technology (“BACT”) that will reduce emissions by up to 85%. In addition, emissions controls for the fluid catalytic cracking unit which is one of the largest NOx sources at the refinery will make the refinery one of the two cleanest facilities in the US. 
Commentary: This enforcement action shows the value of performing environmental compliance as part of comprehensive pre-acquisition due diligence. At the time the company acquired the closed facility, it was not apparent that the facility would have to undergo the cost of NSR. It was only after EPA visited the site that the agency determined that the company would have to undergo NSR to reopen the refinery. 
Purchaser of Mini-Steel Mill Must Install Opacity Emissions Controls
Rocky Mountain Steel Mills (“RMSM”) agreed to install a $15 million state-of-the-art emission control system to reduce smoke and particulate matter emissions from a mini-steel mill located in Pueblo, Col. The company acquired the facility when it purchased the assets of the bankrupt CF&I Steel Corp. 
RMSM agreed to meet a three to six percent opacity limit which is substantially below RMSM's current permit requirements of 20%. RMSM also agreed to pay a fine of $600,000 for alleged opacity violations and to fund $400,000 of environmental projects in the Pueblo community. 
Since acquiring the plant, RMSM has invested over $6 million in environmental equipment and has committed to spend a minimum of $29 million to remediate contamination caused by the previous owners of the 100-year old plant. Since RMSM purchased the mill, VOC emissions have decreased by 90%.  The company has also reduced the volume of chemicals that it must report in its TRI reports by 80%. 
The plant manufacturers high quality steel for rail, rod, tubular and semi-finished applications and is the state's largest recycler of steel scrap metal, recycleing more than 800,000 tons of scrap metal each year in its electric arc furnaces (“EAF”).  Traditional ``integrated'' steel making is based on mining and processing iron ore using coke ovens which have higher air emissions than EAF.
Commentary: While some environmental liabilities associated with off-site disposal of hazardous substances may be discharged in bankruptcy, purchasers who acquire assets in a bankruptcy sale remain liable for contamination or environmental compliance at the assets they operate. This enforcement action reinforces the need to perform comprehensive due diligence, including environmental compliance, when acquiring the assets of a business in bankruptcy. 
New Hampshire Adopts Multi- Pollutant For Utility Emissions
While Congress considers using a multi-pollutant approach for power plant emissions as part of a comprehensive energy strategy, New Hampshire became the first state to implement a multi-pollutant strategy. The state adopted a SIP that requires power plants to reduce SO2 by 75% below the federal 2000 levels, NOx by 70% to a level 90% below 1990 levels, mercury (“Hg”) by 75% and carbon dioxide (“CO2”) by 7% below the 1990 levels required by the Kyoto protocols. Power plants would have five years to achieve the emissions reductions. The plants can achieve their targets by reducing emissions or purchasing emissions credits.
Commentary:  Potential bidders for power plant assets need to follow the emissions reductions being implemented by the states under the EPA NOx SIP Call so that they will know how much they will have t invest in the plants to make sure that the plants are in compliance with the ever-tightening emissions requirements. 
EPA Proposes Amendments to Regional Haze Rule
EPA has proposed an amendment to its regional haze rule to help states determine how to set air pollution limits for older utilities and other industrial plants that were built between 1962 and 1977, that emit more than 250 tons per year of pollutants and violate federal visibility standards, particularly at national parks. Facilities potentially affected by the rule include power plants with a capacity exceeding 750 megawatts, industrial boilers and industrial plants at petroleum refineries, chemical plants and steel and paper mills. 
Under the amendments, states would have to require the older facilities to the Best Available Retrofit Technology (“BART”). Depending on their location, states would have to identify affected plants between 2004-08 and require the plants to install BART within five years after EPA approves the state regional haze plans. The amendment also provides guidance to states on establishing emission-trading programs as an alternative to requiring pollution control equipment. 
Commentary: The proposed rule was not published in the federal register prior to the change in administrations.  
States Step Up Asbestos Enforcement
In prior issues, we have reported on the discovery of widespread non-compliance with asbestos regulations. As a result, EPA and a number of states have stepped up their enforcement of their asbestos rules. 
For example, the Pennsylvania Department of Environmental Protection (“DEP”) fined Investment and Enterprise Inc. of Pittsburgh $30,000 for 1999 asbestos violations at a hatchery. In 1999, DEP found the company had removed asbestos-cement pipe without complying with the 10-day pre-notification rule, had not properly wet and labeled the material, and did not have trained supervision on-site. A second inspection three months later revealed that the company had backfilled the raceway areas of the hatchery with material that contained asbestos, and had committed six other violations. In addition, a contractor hired by the company dumped 10-15 piles of soil and asbestos-containing waste from the hatchery on private property without the owner’s permission. 
In Alaska, Technic Services Inc. ("TSI") and the company president were sentenced for illegally removing and disposing of asbestos at an Alaska pulp mill. The company president was sentenced to 57 months in jail, assessed a fine of $520,000, and will serve three years probation. TSI was sentenced to pay a fine of $600,000 and must serve five years probation. During the illegal asbestos removal, substantial amounts of asbestos- contaminated slurry was rinsed into floor drains emptying directly into a bay. The company president also directed his employees to sign documentation disavowing any knowledge of these practices. Furthermore, he induced his employees to remove or otherwise tamper with their personal monitors that indicated asbestos exposure levels.
In West Virginia, an administrative law judge fined an asbestos removal contractor $20,000 for failing to comply with the federal asbestos regulations during a 1996 renovation at an aluminum mill. EPA had filed a complaint against Ohio Valley Insulating Company (“OVIC”) and Century Aluminum after observing that 43 bags of asbestos-containing insulation had not been adequately wetted. Century agreed to pay $12,500 penalty. 
In Texas, an investigation revealed that nearly 90 percent of the 3,000 asbestos removal jobs performed in central Texas cities failed to comply with asbestos workpractice requirements and had exposed thousands of construction workers to dangerous levels of asbestos fibers. The investigation revealed that commercial building owners as well as government offices routinely failed to check for asbestos before starting renovation or demolition projects. The bulk of the illegal projects involve renovation of commercial buildings, ranging from “mom-and-pop” shops to office towers. 
In Austin, at least 1,645 of the renovation and demolition projects that were issued city building permits during the 12-month period ending Sept. 30, 2000 likely disturbed asbestos but only 55 commercial projects and 89 governmental jobs followed asbestos workpractices. Furthermore, evidence suggests that 81% of asbestos removals in Dallas and 63% in Houston failed to comply with the asbestos rules. San Antonio was the only major Texas city without likely violations probably because it has a building ordinance prohibiting the city building department from issuing permits for the renovation or demolition of commercial buildings unless the owners demonstrate compliance with asbestos rules and that they have hired a licensed consultant survey for asbestos.
Power Plant To Switch from Coal to Grass
A power plant in Iowa has been retrofitted to burn grass instead of coal as part of a demonstration program. The plant will burn native perennial grass which grows on southern Iowa farms. The switch grass resembles straw and is packaged in 4- by 8-foot rectangular bales. The bales are fed by conveyor into a machine that pulverizes the grass to a dust that gets blown into the furnace. 
The purpose of the test is to measure how efficiently the boiler can burn the grass. Switch grass produces about 6,400 Btus/lb which is  less than 8,300 generated from coal. The goal is to replace up to 5% of the coal with grass. The power plant which is owned by Alliant Energy currently burns 450 tons per hour (“tph”) of coal. Burning 5% switch grass could cut CO2 emissions by nearly 177,000 tpy and SO2 by up to 113 tpy. At a 5% mixture, the plant would burn about 25 tph of switch grass. Approximately 50,000 acres of land would be needed to grow that much switch grass for a year. 
The project is being funded by $4 million in state and federal grants and another $4 million from private partners, farmers, and Alliant Energy. Because IRS rules only allow tax credits only for newly built biomass plants, most of the biomass plants in the country are not eligible for tax credits since they are retrofitted from existing plants. However, Senator Charles Grassley has drafted legislation that would extend the tax credit to existing coal-fired plants modified for biomass.
EPA Financial Assistance for Transportation Projects that Reduce GHG Emissions
	EPA recently announced that it would provide seed funding ranging from $50,000 to $300,000 for up to ten pilot projects that will help communities identify and launch suites of innovative and practical transportation solutions that reduce transportation-related emissions and vehicle miles traveled ("VMT"). 
	The funding is being made available under §103(b)(3) of the CAA. Under this provision, projects must satisfy two thresholds to be eligible for funding. First, the project must address the causes, effects, extent, prevention, reduction, and elimination of air pollution.  Second, the project must consist of activities like research, investigations, experiments, demonstrations that are within the scope of §103(b)(3) of the Clean Air Act. Therefore, the proposals should focus on the learning opportunities they present for future pollution control efforts rather than on simply addressing pollution problems through well-established methods. EPA is particularly interested in the projects that incorporate at least one of the following: smart growth efforts that reduce transportation-related emissions, commuter choice, and cleaner vehicles/green fleets.
     	In addition to the examples of possible program elements mentioned above, applicants might want to consider such elements as improvements to “connecting'' activities at campus institutions. Another high priority will be initiatives that reduce VMT and/or emissions at organizations with multiple facilities in limited geographic areas. . These activities may include promoting teleconferencing, video conferencing, telecommuting, vehicle pools or other “connecting'' activities that may address movement within a campus or office area as well as movement on/off the campus area. Other incentives may include real time casual carpool ride matching, pay-as-you-drive car leases, pay-as-you-drive automobile insurance, automobile insurance incentives for driving vehicles with low emission or high fuel economy, vehicles that utilize cleaner or renewable fuels, and HOV-lane access for ultra-clean vehicles and/or those having high fuel economy or that utilize cleaner or renewable fuels. The proposal deadline April 24th.
Commentary: Historically, EPA has encouraged the development of emissions controls to reduce pollutants from vehicles. While this has reduced tailpipe emissions by over 90%, the agency recognizes that it must develop incentives to reduce total VMT to achieve further air quality improvements. 

WATER POLLUTION/ENDANGERED SPECIES

Federal Government Estimates Loss of Wetlands
According to a report issued by two federal agencies, the annual loss of wetlands has plunged to the lowest level in nearly a half-century. The Interior Department issued a report which showed that the rate of wetlands loss fell by 80% percent from nearly 290,000 annually between the mid-1970s and mid-1980s to 58,500 acres a year in 1997.  Similarly, a separate report by the National Resources Conservation Service of the U.S. Agriculture Department found an average annual loss of only 32,600 acres of wetlands from 1992 to 1997.   The agencies estimate that nearly 458,000 acres of wetlands were destroyed annually until the 1970s. Currently, there are about 105.5 million acres of wetlands in the United States. 
Federal Appeals Court Imposes Harsher Sentence on Developer for Wetlands Violations
The Court of Appeals for the Sixth Circuit ruled that a trial judge had abused its discretion when it applied the federal Sentencing Guidelines to reduce the jail term imposed on a developer convicted of illegally filling in wetlands. 
In U.S. v. Rapanos (No. 98-2424), the defendant had spent more than $300,000 between 1988 and 1989 to clear land of trees and fill in wetlands with sand to develop a shopping center. The defendant ignored a cease and desist order issued by the state Department of Natural Resources and fired a consultant who had advised him that the land contained 50 acres of wetland. 
A federal district court had imposed a fine of $185,000 and sentenced the defendant to three years probation as a level eight offender. The court determined that the defendant was entitled to four levels of reduction under the sentencing guidelines and another two levels of reduction because the fill was sand and not a toxic pollutant. In addition, the district court further reduced the sentence by two levels because the defendant accepted responsibility. 
However, the appeals court said the reductions were not authorized by the sentencing guidelines and that the defendant’s firing of its consultant, refusal to comply with the cease and desist orders and refusal to provide financial information to his probation officer evidence a complete lack of acceptance. Accordingly, the court remanded the defendant back to the district court as a level 12 class I offender. The defendant now faces a mandatory sentence of 10-16 months though the district court may allow the defendant to spend half of the time in jail and the remainder in home or community detention.       
Burden of Protecting Isolated Wetlands Will Now Fall on States
In our last issue, we discussed the United States Supreme Court ruling in Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers (No. 99-1178, 1/9/01) where the court said the federal government did not have jurisdiction to regulate isolated wetlands under the CWA. According to the Association of State Wetland Managers, 30 to 79 percent of the nation's wetlands may no longer be protected from development. The organization said that if wetlands were defined as traditionally navigable waters and their adjacent wetlands, then as little as 20% of the nation's wetlands would be regulated under section 404 of the CWA. Under this analysis, only wetlands on the fringes of larger rivers and streams, lakes as well as coastal and estuarine wetlands would be protected by the CWA. Wetlands fringing small, non-navigable rivers and lakes as well as prairie potholes, wet meadows, forested wetlands, playas, vernal pools, flats, bogs, and large amounts of Alaskan tundra would be excluded from federal regulation.
Commentary: Many states have relied on the federal wetlands program to protect isolated wetlands. As a result, many states will have to develop separate wetlands programs to prevent destruction of these areas. To date, 14 states have regulations that will partially protect isolated wetlands. The states are Florida, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont, and Virginia. While some of the 14 state programs are comprehensive others only protect wetlands that fit a certain size or are mapped. 
Some states have already taken action in the wake of the Supreme Court decision. The California Water Resources Board recently issued a memorandum indicating the Supreme Court decision did not impair the state agency’s authority to regulate isolated wetlands.  The Wisconsin Senate passed a bill on February 13th extending protection to isolated wetlands. Ohio is currently deciding whether to impose emergency rules requiring developers and farmers to require wetlands permits for isolated wetlands. Under the proposed rule, developers will be required to mitigate any wetlands eliminated by the project. According to one estimate, 40% of the wetlands in the state were affected by the Supreme Court decision. 
In the remaining 36 states, isolated wetlands may still be protected under the CWA since discharges are required to receive certification from state environmental authorities that the discharge will not impair water quality standards. Some states have used the certification process to impose conditions in permits which effectively protect wetlands without having to actually create a wetlands permit protection program. 
In addition to its enforcement authority under the wetlands program, EPA is also using its authority under the stormwater control program to regulate developments that might be causing the loss of wetlands through draining activities. Under the CWA, construction projects of five or more acres are required to obtain a permit to control and treat stormwater runoff. If the drainage from the sites impacts water quality, the EPA may use its stormwater permit authorities and other CWA authorities to restrain the development.
On January 11th, former President Clinton issued an executive order instructing federal agencies to enter into a memorandum of agreement within two years with the Fish and Wildlife Service to evaluate if their actions have a “measurable negative effect on migratory bird populations.” 
EPA Finalizes Revised Tulloch Rule
On January 17th, the Army Corps of Engineers (“Corps”) and EPA issued a rule that modifies the definition of “discharge of dredged material” (66 FR 4549). The rule creates a rebuttable presumption that mechanized landclearing, ditching, channelization, in-stream mining, or other mechanized excavation activity would result in regulated discharges of dredged material. The agencies stated that they believed these activities typically result in redeposit of dredged material that constitutes the “addition of pollutants” unless specialized techniques and equipment are used to ensure that only incidental fallback will result. 
The rule was supposed to take effect on February 17th. However, following the change in administrations, the agencies delayed the effective date to April 17th (66 FR 10367). The National Association of Homebuilders filed a lawsuit on Feb. 6 to overturn the new rule (National Association of Homebuilders v. U.S. Army Corps of Engineers, D.D.C., No. 1:01 CV 00-274)
NH Company Agrees to Pay $525,000 for Wastewater and Stormwater Violations
A manufacturer of metal castings used in the automotive, golf, military and aerospace industries agreed to pay $525,000 to settle allegations that it illegally discharged wastewater into the local sewer system at two facilities without appropriate pre-treatment. The company also failed to controlled stormwater runoff from all three facilities. One facility had a stormwater pollution prevention plan (“SPPP”) to control pollution from rainwater and snowmelt but had not implemented the plan. 
Commentary: The leading cause of impairment for nearly 40% of the nation’s surface waters is pollution caused by stormwater runoff. As a result, EPA has begun to focus on unpermitted discharges of stormwater associated with industrial activities. The EPA has been targeting industrial facilities discharging stormwater without a permit, large construction sites that did not obtain a stormwater permit, and industrial or construction stormwater dischargers that have acquired a permit but are not complying with their permit.
For example, EPA Region 3 office has launched an enforcement initiative against the scrap/auto salvage industry in impaired watersheds located in environmental justice areas. Last year, the office cited 81 facilities throughout the mid-Atlantic region (Virginia, Maryland, D.C., West Virginia and Pennsylvania) for stormwater violations. 
In Washington, DC, EPA filed administrative actions against 27 facilities including salvage yards, marinas, tour companies and trucking and transportation operations for discharging stormwater into storm sewers. Additional stormwater enforcement activities in West Virginia and Virginia resulted in enforcement actions against 15 salvage yards for failure to obtain a CWA permit or for not complying with their SPPPs. 
EPA Region 6 sent out settlement offers to more than 2,000 auto salvage yards in Texas and New Mexico offering to limit penalties to $1,000 plus $5 per vehicle in exchange for the commitment to return to compliance. One facility fail to respond to the offer and was ordered to comply. 
According to EPA, common stormwater compliance problems at construction sites include:
•	The site does not have a stormwater permit, SPPP or implemented best management practices such as erosion control.
•	The site has erosion control but no SPPP.
•	The site lacks qualified personnel to properly perform and document bi-weekly inspections (monthly in areas receiving less than 20 inches of rainfall annually) and inspections after 0.5” inch or more of rain.
•	Common problems with SPPP include not having upland controls, detention ponds for common drainage areas with 10 or more acres. These requirements can be replaced with equivalent or superior controls. The SPPP should indicate the alternative controls.
•	While erosion is the primary pollutant of concern at construction sites, the SPPP should also address other common construction site pollutants such as diesel tanks, paints, concrete hardeners, hydraulic oils, etc. 
•	Construction signs are not posted at the entrance of the site in an area accessible to the public.
•	Off-site vehicle tracking is a problem at many sites.  Sites should have a stabilized construction entrance or alternative methods of removing mud from vehicles exiting disturbed areas.
EPA Arsenic Standards for Drinking Water
In January, EPA established a new arsenic standard for drinking water at 10 parts per billion  (“ppb”). The prior arsenic standard of 50 ppb had been established in 1975 and based on a Public Health Service standard originally set in 1942. Arsenic can be introduced into groundwater as a result of discharges from industrial facilities but may also be naturally occurring as a result of erosion of rocks and minerals.
The new standard will apply to all 54,000 community water systems which serve 254 million people.  However, EPA estimates that only 3,000 community water systems serving l3 million people will need to take corrective action to lower current arsenic levels in their drinking water.  For the first time, the arsenic standard will also apply to 20,000 water systems that provide drinking water for only part of the year such as schools, churches, and factories.  EPA believes that approximately 1,100 of these systems serving two million people will need to take corrective action.  Most of the systems affected by the new standard serve fewer than 10,000 people.   Water systems in western states and parts of the Midwest and New England that depend on underground sources of drinking water will be affected most by the new standard.  
Some water systems will have to incur significant costs to comply with the new arsenic standard.  For example, 10 of 23 drinking water wells in Carson City, Nevada had arsenic levels over the 10 ppb with the highest reading at 35 ppb. The city will have to spend $6.7 million to correct the problem. Fallon, NV will have to build a $10 million arsenic treatment system that may cost nearly $5,000 per person.
EPA Brings Enforcement Action Against Public Water Systems
Under the Safe Drinking Water Act, public water drinking systems are required to prepare Consumer Confidence Reports. These reports identify the source of the drinking water, summarize the system's susceptibility to contamination, describe the level of any contaminant found in local drinking water, identify the likely source and potential health effects of the contaminant and describe how the contaminant was reduced back to safe levels.  Systems serving more than 10,000 people are required to mail their reports directly to consumers and must make the reports available through the Internet. Systems serving between 500 and 10,000 people must make the reports available on request and must publish the report in the local newspaper.  Those systems serving fewer than 500 people must inform consumers about the report and make it available upon request. The first reports were due in October 1999 and subsequent reports are due on July 1 of each year supply.
EPA has issued more than 1,700 of the administrative orders to local water suppliers for failing to file the Consumer Confidence Reports. EPA will continue to bring enforcement actions against water systems until a state receives authority to administer its program. 

HAZARDOUS WASTES/USTS

EPA Announces New RCRA Brownfield Pilots
For the first six years of the federal brownfield program, EPA had focused on inactive properties that have been contaminated with hazardous substances. Recently, though, EPA has begun to turn its attention to the thousands of properties of properties that currently have owners or operators.
 These sites may be subject to RCRA or may not currently be subject to RCRA but have areas that were used in the past to store, dispose or treat hazardous wastes. The site owners may want to upgrade the use of these properties, convert the property to more valuable uses or perhaps sell off portions of large site for potential redevelopment but are afraid that redevelopment on parts of the facilities that are not currently regulated by RCRA might trigger time-consuming and costly RCRA corrective action or closure requirements.
Last year, EPA announced its Brownfield Prevention Initiative and awarded ten pilots (See our Nov. 2000 issue). Earlier this year, the agency announced that it would award an additional 25 RCRA Brownfield Prevention pilots. Projects will be selected as pilots if they accomplish particular goals such as achieving effective cleanups at companies that have multiple contaminated facilities, improve community involvement, and expedite remediations at federally owned facilities. To increase community involvement, EPA will develop general principles and actions that owners should take to ensure public participation in cleanup decisions. EPA also said it will provide communities access to academic experts to help them understand the risks posed by the contaminants.  
EPA also intends to issue "comfort/status" letters like those issued under the CERCLA program. These letters will let facilities know whether EPA intends to exercise its enforcement authority at a cleanup site.
Commentary: Because the RCRA definition of a facility applies to all contiguous parcels under the same owner, an owner of a 100-acre site that leased a five-acre parcel to a RCRA-regulated operation or where a RCRA-regulated unit may have been operated in the past could find the entire site subject to corrective action. 
EPA has set ambitious goals for the RCRA corrective action program under the Government Performance and Results Act (“GPRA”). By 2005, EPA hopes to control human exposure to contamination at 95% of the 1712 RCRA priority sites and to control groundwater contamination at 70% of those sites. Some of the flexible tools that EPA will use include waivers of LDR minimum technology requirements to allow use of risk-based cleanups, relying on performance goals for investigations and cleanups such as creation of an institutional controls, issuing permits for discrete areas of contamination so that a corrective action in a particular area will not trigger a facility-wide corrective action cleanup or post-closure permit, encouraging the use of state VCP programs with their streamlines cleanup procedures and risk-based cleanups particularly for facilities classified as generators. To date, EPA has verified that 504 of the 1,714 priority facilities have met these goals. 
EPA Encouraging Innovative Corrective Action Agreements 
To help meet the its GPRA goals for the RCRA corrective action program, the EPA Region 3 office has developed a Facility Lead Agreement. The agreement requires a company to provide a site investigation schedule, a data quality assurance plan, time frames for achieving Environmental Indicators, and a plan for public participation. 
Companies must provide the same quality of data that would be generated under a permit or order but the streamlined approach can save significant time and resources when compared to the more lengthy process of preparing and negotiating traditional consent orders. Some Facility Lead Agreements have taken 2 months to months compared to the average 15 months to negotiate a 3008(h) order. Thus far, 12 facilities have signed Facility Lead Agreements in Region 3. The Region anticipates as many as 20 agreements to be underway by the end of the year.
The Facility Lead Agreement is available a responsible party that demonstrates a commitment to perform the entire investigation phase or clean-up activities to EPA and the State's satisfaction. Candidates for this agreement include facilities that do not have a large number of contaminated areas, investigation or cleanup is already underway, or little additional work is needed. 
In another innovative agreement, Chevron agreed to perform a voluntary corrective action in Hawaii where the plume was treated as one system rather addressing discrete management units on a piece-meal basis. Chevron was able to complete the remedy in three years and estimates that it saved between $7 and $10 million dollars by quickly implementing a remedial system, addressing all its contamination and reducing legal and consultant fees.
Not All Hazardous Constituents Are UHCs for the LDR Program
The RCRA land disposal restrictions (“LDR”) require characteristic hazardous wastes to meet the universal treatment standards (“UTS”) for all underlying hazardous constituents (“UHCs”) before the waste may be disposed in a land disposal unit. The definition of UHC includes all constituents listed in 40 CFR 268.48 which are reasonably expected to be present at the point of waste generation. Fluoride, selenium, sulfides, vanadium, and zinc are excluded from the definition of UHC because they are not found in the lists of Hazardous Constituents of Part 261, Appendix VIII. These lists contain “chemical constituents that have been shown to have toxic, carcinogenic, mutagenic, or teratogenic effects.  EPA uses the Appendix VII for identifying what wastes should be listed hazardous wastes (45 FR 74889; November 12, 1980 and 52 FR 25942; July 9, 1987).
Under section 3004(m) of RCRA, EPA may develop treatment standards to diminish the toxicity of the waste or reduce the likelihood of migration of hazardous constituents.  EPA is not limited to regulating only hazardous constituents which cause a waste to be listed but may also develop treatment standards for additional constituents to protect human health and the environment (54 FR 26603; June 23, 1989 and 61 FR 15585; April 8, 1996).  Because of this, zinc, vanadium, and fluoride appear in the UTS table. However, since they do not appear in Appendix VIII, these constituents are not included in the definition of UHC.
EPA Releases UST Enforcement Statistics
According to statistics compiled by EPA, there were 713,666 active USTs operating in the country while 1,459,626 USTs have been closed as of September 30th. Releases have been confirmed from 412,392 tanks and 367,603 cleanups have been initiated. California has the most leaking USTs at 36,636. The other states with the most leaking USTs are Florida (24,521), Texas (22,633), North Carolina (22,091), Ohio (21,647), Illinois (19,421), Wisconsin (17,982), New York (17,091), and Maryland (14,507).
Since the inception of the UST program, EPA has collected $9.6 million in fines. The agency issued 311 notices of violations in fiscal year 1999 and entered into 59 administrative penalty cases during the first two quarters of 2000. In 1999, the agency settled 24 administrative penalties and 20 in 1998. The EPA also referred a number of criminal cases to the DOJ involving consultants who falsified UST test data.
States Increasing UST Enforcement Actions
In past issues, we have discussed enforcement actions that EPA has been taking against owners and operators of USTs that do not comply with the December 1998 performance standards. Now, state environmental agencies are beginning to increase their UST enforcement efforts. 
For example, Koppers Industries Inc. agreed to pay $8,287 to the Pennsylvania DEP and remove 64 aboveground storage tanks. Fourteen of the tanks have a total capacity of 255,000 gallons and 50 tanks have a total capacity of 3.7 million gallons. Many of the tanks at the site had not been used by Koppers since it purchased the site in 1996 and contain solid residue that poses no environmental danger. However, the contents had to be disposed as hazardous waste. 
In Michigan, state officials have began using UST registration information to identify noncompliant tank owners. In Southeast Michigan, nearly 400 facilities were shut down for UST violations. By September 30th, the state had over 18,000 confirmed releases from USTs. The state recently appropriated $3.2 million in Clean Michigan Initiative funds to clean up 110 abandoned sites.
In Pennsylvania, Dominion has agreed to pay a $100,000 and fund $280,000 in community environmental projects in Beaver County to resolve penalties for a 1998 petroleum leak that impacted a creek. Dominion is the successor to Consolidated Natural Gas Transmission Corp. Consolidated purchased a tank farm in 1988 from Laurel Pipeline Co.. Laurel had taken the tank farm out of service in 1983. After Consolidated acquired the property, it removed all of the aboveground storage tanks.
Approximately 12,598 gallons of petroleum products leaked from a value that had failed on underground piping associated that Laurel had not been removed when the tank farm was closed. Dominion will pay a $100,000 penalty to the Pennsylvania Clean Water Fund, $80,000 to the Beaver County Conservation District for repairs and improvements to the creek and $200,000 to Penn’s Corner Conservancy Charitable Trust for various waterway improvement and environmental education projects in Beaver County. 
Commentary: These actions once again demonstrate the need to do comprehensive historical due diligence for sites that had USTs in the past. The fact that USTs were closed years ago does not preclude the possibility that contamination may remain at the site. In the past, regulatory agencies did not require UST owners or operators to collect post-excavation sampling. Many owners or operators simply removed USTs and backfilled the site with soil that could be contaminated. In addition, newer tanks may have replaced older tanks and contamination associated with those older tanks may not have been remediated. 
State UST Fund Denies Consultant’s Reimbursement Request
	An Indiana appellate court affirmed a decision by the state Department of Environment Management (“IDEM”) to deny a reimbursement request from a consultant who accepted an assignment of the client’s rights to be reimbursed from the state UST fund. The consultant had accepted the assignment of rights as compensation for removing abandoned USTs at an Indiana site. 
In Dennistarr Environmental, Inc v. IDEM (No. 33A04-0007-CV-306), a retired Florida couple retained the plaintiff to remove 4 USTs that had been used by a former tenant who abandoned the premises in 1988. As part of a proposed sale of the property, the owners agreed to remove the USTs. The agreement provided that the owners would assign to the plaintiff all claims they might have against the state UST fund for the costs of removing the tanks. The plaintiff notified IDEM of its intention to remove the four 550-gallon tanks and the agency approved the closure plan. 
The plaintiff incurred $784,000 to complete the cleanup and requested reimbursement from the UST fund known as the Indiana Excess Liability Fund (“ELF”).  The IDEM denied the plaintiff’s request for reimbursement because the owners had never registered the USTs and not had paid the UST registration fees. Under the IDEM UST regulations, tank owners were required to pay a $90 annual fee for USTs that had not been closed. 
The plaintiff appealed to the Financial Assurance Board. After a series of hearings, the administrative law judge ultimately upheld the denial of reimbursement. A state trial court upheld the IDEM denial and the plaintiff appealed the decision. The plaintiff argued that the owners did not have a duty to pay the annual fee because they had never received a demand from the IDEM. The court said the owners had the obligation to comply with the UST regulations and that there was no evidence that the owners had made any effort to learn about their obligations or duties regarding the tanks. The court did acknowledge that the IDEM typically mailed notices to out-of-state tank owners that fees were due but because the owners had not registered the tanks, the IDEM had no way of contacting them.
Commentary: Many states have established trust funds which can be used to help pay for the cleanup of contamination associated with releases of petroleum from UST. These trust funds are created from taxes levied on the sales of petroleum products.  The eligibility requirements and deductibles for these state trust funds vary. For example, most state UST trust funds require that the USTs are in compliance with the UST design and operating standards. Many UST trust funds do not apply to inactive USTs. Usually, the owner of the USTs must incur first incur response costs and then apply for reimbursement although some states have taken over direct responsibility of UST cleanups because of fraudulent claims. Most states limit reimbursements to owners or operators of the USTs at the time the leak is detected. It should be noted that some state UST funds have become insolvent during the past few years.
Sometimes, a prospective purchaser may accept assignments of rights of reimbursement from a seller as part of a contractual allocation of environmental risks. As this case demonstrates, a prospective purchaser or a consultant accepting an assignment of rights to those proceeds should confirm that the tanks are in compliance with the state UST fund requirements and that the fund is solvent. 
Building Reuse Centers May be Used to Recycle Construction Debris
Construction debris comprises a large portion of the solid waste that is buried in landfills. To reduce the volume of solid waste, over 50 non-profit material reuse centers have been established which accept materials from construction and renovation projects and then make them available to people of low and moderate income
Contractors, businesses and homeowners donate reusable construction materials to the resource center which then resells the materials for as much as 90% below retail prices to low income individuals or nonprofit groups. Homeowners whose contractors use material reuse centers can save on disposal costs and reduce the need for new materials. In addition, contractors, distributors and retailers who donate to these centers can take tax deductions. 
For example, the Building Materials Resource Center in Boston's Roxbury neighborhood has a warehouse full of supplies including doors, windows, bathroom, kitchen fixtures, paint and carpet. Some of the material came from renovation projects but other materials are new fixtures in their original packaging that were donated by retailers with excess inventory. Families of four must earn less than $59,600 annually to be eligible to shop at the center which asks for a copy of a customer's latest tax return for verification.  Last year, the center sold material to more than 650 people and 28 nonprofit groups. The estimated value of the material if bought at retail was $1.2 million. The center sold the materials for just 15% of that figure. 

TOXIC SUBSTANCES

EPA To Focus On Older PCB Transformers 
In 1979, EPA issued its PCB Ban Rule which prohibited manufacturing, using, processing (e.g., placing of manufactured PCBs into items such as capacitors or transformers) and distributing PCBs or substances containing more than 50 ppm of PCBs after July 1, 1979. Under its PCB Electrical Equipment Rule, EPA allowed certain electrical equipment containing PCBs to continue being used for their useful life because the agency conclude that such uses would not present an unreasonable risk of injury to human health or the environment. 
As electrical equipment containing PCBs has aged, there has been an increase in spills of dielectrical fluids containing PCBs. Indeed, EPA has reported that PCB spills from transformers have more than doubled during the past few years. As a result, the agency has launched an enforcement initiative to encourage owners of PCB transformers to register and properly handle their equipment. Last year, EPA fined Pacific Tube of City in California for failing to register a PCB transformer. Recently, EPA imposed an $11,000 penalty on a Nevada cement company for failing to comply with the PCB labeling and marking requirements. 
Commentary: EPA has estimated that there are 121,000 PCB-transformers across the country and another 20 million transformers containing mineral oil contaminated with PCBs in quantities ranging from 50-500 ppm.  The vast majority of these mineral oil transformers are located in residential neighborhoods.  The EPA also believes that there are over 2.8 million capacitors located in substations, on utility poles and inside buildings.
Obviously, a critical question is how does one measure the useful life of a transformer or other electrical equipment?  Like any mechanical device, transformers will require maintenance which may extend the useful life of the equipment.  The PCB Ban Rule contains restrictions on the kinds of servicing and repair work that may be performed on transformers depending on the transformer classification.
Under the PCB Ban, servicing refers to routine maintenance and rebuilding.  Routine maintenance includes testing dielectric fluid, filtering the fluid and replacing the gaskets.  This routine servicing often requires removing some of the dielectric fluid and then returning or replacing of the fluid.  Rebuilding of transformers usually occurs after a transformer has failed or after an inspection indicates that it will soon fail.  This process involves draining the transformer, removing and disassembling the core, reworking the coil or rewinding a new coil reassembling the core and refilling the transformer with new fluid.  Unless extraordinary precautions are take, the maintenance personnel may be exposed to PCBs since the inner parts of the transformer may be saturated with PCBs.  In addition, PCBs may volatilize during the process.
The PCB Ban Rule allows PCB-Contaminated Transformers (containing between 50-499 ppm of PCBs) which EPA estimated comprised 99% of all large electrical transformers to be serviced and rebuilt so long as the dielectric fluid used in the servicing contains less than 500 ppm of PCBs equipment. PCB Transformers (which contain more than 500 ppm of PCBs) may not be rebuilt but may be serviced. However, the servicing may not include removal of the transformer coil since this would extend the useful life of the PCB Transformers.
Under the approved servicing activity, it is permissible to remove PCB fluid or PCB-Contaminated fluid from a customer’s transformer and then to return that same fluid to the transformer once the servicing is completed.  Moreover, a person who owns PCB fluid may introduce that fluid into a PCB Transformer that person owns or may introduce PCB-Contaminated fluids into their own PCB Transformer or PCB-Contaminated Transformer.  Finally, the PCB Ban Rule also allows introducing placing non-PCB fluid (containing less than 50 ppm) into any transformer being serviced.
To ease the economic burden on transformer owners, the EPA established a reclassification procedure for owners of PCB Transformers who desire to rebuild their PCB Transformers.  This procedure allows PCB transformers to be reclassified to a lower regulatory status (i.e., PCB-Contaminated Transformer or non-PCB Transformer).  Once the transformers are classified to the lower regulatory status, the owner may rebuild the transformer. After a PCB-Contaminated Electrical Equipment has been reclassified to a non-PCB Electrical Equipment, it may be salvaged for parts.  However, if a component from PCB-Contaminated Electrical Equipment is used to repair non-PCB equipment, that repaired equipment must be considered as PCB-Contaminated Electrical Equipment. For more information about PCBs, please visit our web site at www.environmental-law.net.

EPA Fines Utility for Violation of PCB Spill Policy
In another example of its PCB enforcement initiative, EPA levied a $5,500 fine against an electrical utility serving 81 communities in Boston. EPA found that a PCB transformer at the substation had leaked onto a concrete platform. Although absorbent pads had been placed underneath the leaking equipment, the leak had not been remediated within the 48-hour period required under the EPA PCB Spill Policy. In addition, while the substation was protected from unauthorized entry, the substation is located in a residential area next to a playground and there was a possibility that the PCBs could spread to surrounding soils.
Commentary: The EPA estimates that about 620.000 pounds of PCBs are leaked or spilled from transformers and capacitors annually, 62 percent of which occurs in residential neighborhoods or commercial areas.  Most leaks from transformers occur in gaskets and valves and generally do not migrate from the source.  However, the vast majority of PCB capacitor spills is the result of explosive ruptures that may spray PCBs as far as a dozen feet.
In 1987, EPA promulgated its PCB Spill Policy which is contained in Subpart G of the PCB Regulations.  The 1987 PCB Spill Policy established uniform reporting obligations and cleanup standards for spills of PCBs exceeding 50 ppm or greater that occur after May 4, 1987. Spills that occurred prior to the effective date of the PCB Spill Policy are to be cleaned up pursuant to requirements established by the regional offices of the EPA. The cleanup and reporting obligations under the PCB Spill Policy do not affect cleanup or reporting standards that may be imposed under other environmental statutes
Under the PCB Spill Policy, a spill includes intentional as well as an accidental spill, leak and other uncontrolled discharge of PCBs which is may run off the external surface of any equipment containing PCBs.  The 50-ppm threshold concentration requirement refers to the quantity of PCB in the material spilled as opposed to the volume of fluid containing PCBs is spilled. A “responsible party” includes the owner of the PCB equipment, facility or source of the PCBs or the owner’s designee (e.g., facility manager or foreman).
The PCB Spill Policy establishes numerical cleanup levels for post-1987 spills depending on the location of the spill, the concentration spilled, and the potential risk to the population. EPA has established two sets of PCB cleanup standards:  One standard is for spills of less than one pound involving low-concentration PCBs by weight (less than 270 gallons of untested mineral oil). The second standard is for spills of more than one pound of high-concentration or low-concentration PCBs by weight. However, the EPA regional offices may impose more stringent cleanup levels depending on site-specific conditions such as depth to groundwater, soil type and the presence of shallow wells that might pose exceptionally high risk of groundwater contamination.
The numerical cleanup standards do not apply to six categories of post-1987 spills.  For these excluded spills, the EPA regional office will establish cleanup levels on a site-by-site basis.  However, if the EPA determines that a more stringent standard is required, the EPA regional administrator is required to make site-specific findings that justify the more stringent standard.
Under the PCB spill policy, all spills involving ten pounds of PCB material (generally one gallon of PCB dielectric fluid) must be reported by the responsible party to the EPA Regional Office. This reporting requirement is in addition to any notification that might be required under the CWA or CERCLA. When an Excluded Spill is involved, the responsible party must contact the Office of Prevention, Pesticides and Toxic Substances Branch of the EPA regional office within 24 hours.  A PCB spill that is less than ten pounds does not have to be reported although the spill must be remediated in accordance with the PCB Spill Policy. For purposes of the reporting requirements, the quantity of PCBs is measured by the weight of the PCB-containing material that is spilled rather than by the weight of PCB itself that is spilled. For more information about PCBs, please visit our web site at www.environmental-law.net.

SUPERFUND/BROWNFIELDS

GAO Study Finds Brownfield Program Data Incomplete
According to the General Accounting Office (“GAO”), EPA is unable to document the effectiveness of its brownfield financial assistance programs because of incomplete and inaccurate information. GAO said that for fiscal years 1995 through 2000, EPA provided a total of $246.9 million in brownfields financial assistance. This figure includes $123 million for assessments, $64.8 million for the revolving loan fund and $58.5 million for brownfields-related job training. 
The GAO report said EPA’s Brownfields Management System is incomplete because most recipients of brownfield financial assistance are not required to report the results of the program. While EPA's September 1999 guidance to assistance recipients encourages the reporting of results such as cleanups completed and dollars leveraged, the agency did want to Impose reporting burdens on recipients. 
In developing its report, GAO selected five states that EPA identified as having the largest or most innovative brownfields programs. The states in the study were Massachusetts, Michigan, New Jersey, Pennsylvania, and Wisconsin. Two of the five states do not track economic benefits of their brownfields loan and grant programs. The data collected by the other three states represent forecasted rather than actual results. 
The report did find some notable differences between EPA and state brownfield financing programs. GAO found that the federal program provided generalized support for brownfield programs but did not target particular properties for cleanup assistance. In contrast, the states generally provide direct assistance to private parties for particular properties. 
BCRLF Loan Will Be Used to Develop Athletic Fields
The City of Englewood, Colorado recently received the sixth loan under the Brownfield Cleanup Revolving Loan Fund (“BCRLF”) program. The $709,000 will be part of a $2.2 million project to develop 9.4 acres portion of a former landfill with three lighted ball fields, restrooms, trail connections and kayak access to the South Platte River. 
Englewood filed a condemnation action to obtain 7.6 acres of the site from the former owner who had won approval from local officials to build a waste transfer station. The BCRLF loan will be used to vent methane gas and place a clay cap on the former landfill.  Englewood expects the cleanup to be finished in March and park construction is scheduled to begin in April. 
PA Announces More Brownfield Cleanup Completions
The Pennsylvania DEP announced that the Potter County Redevelopment Authority has completed the cleanup of a three-acre brownfield site. The 267-acre property had been used as a tannery from 1883 to 1980. The property was purchased by the Potter County Redevelopment Authority in 1986 and developed into the Coudersport Industrial Park. The authority conducted an environmental assessment and began cleaning up the site with funds from the state Department of Community and Economic Development Industrial Sites Reuse Program and technical guidance from DEP. 
In Philadelphia, a cleanup was completed at an abandoned industrial facility former that will be used as the new headquarters of Congreso de Latinos Unidos, the leading provider of social, economic and educational programs in the Latino community of North Philadelphia. More than 116 tons of contaminated soil was removed and will be landscaped and transformed into a recreational area featuring public art, benches, built-in backgammon tables and a lighted glass house. The 5-story warehouse will be renovated into an office that will house 100 people. 
Meanwhile, the York County Redevelopment Authority completed the cleanup of a textile mill. Following a fire in 1994, the property was donated to the redevelopment authority which removed underground storage tanks, contaminated soil and treated contaminated groundwater.
PA Upgrades Internet Brownfield Directory
The Pennsylvania DEP announced the creation of its PA SiteFinder, a new Internet directory to help businesses and economic-development agencies locate property appropriate for development. 
Previously called the Pennsylvania Brownfields Directory, PA SiteFinder is an updated, full-service website where property owners can post brownfields for sale. After owners post detailed information about their sites, developers and others can use PA SiteFinder to search for a suitable location. Financial and technical assistance also are available. Users can search for sites by county or region. They also can indicate how much space they need and whether they want to buy or lease property. Users also can search for state, federal and non-governmental grants and loans, in addition to getting technical assistance. If they have a site to sell, they can fill out a form with all the details, including a “sales pitch,” and post it. If some of the details change, the information can be edited.
PA Awards Grants To EDAs to Develop  Brownfield Inventories
The Pennsylvania DEP has awarded Brownfield Inventory Grants (“BIG”) to economic development agencies serving three counties. The grants were awarded to the Lehigh Valley Economic Development Corp. and the Fay-Penn Economic Development Council. Each grant provides $1,000 for every brownfield site that the agencies identify in their area up to a total of 50 sites. The BIG program was developed to assist economic development agencies and municipalities to identify and inventory brownfields sites. The information is posted on the PA SiteFinder. In four rounds of Brownfield Inventory Grants, 36 economic development agencies and municipalities have identified and inventoried 251 sites across the state.
The Luzerne-Lackawanna County Brownfields Development Opportunities Task Force Inventory launched in July 2000 currently contains approximately 50 listed sites. The task force has been concerned over the slow pace of private development of these sites. Of the 17 properties cleaned up in Luzerne County and 28 in Lackawanna County most were owned by the regional electricity utility. Only three of the Luzerne sites and seven of the Lackawanna sites were not owned by the utility. The task force is now reaching out to landowners of contaminated properties.
Florida Freezes Funds for Dry Cleaning Program
Under the Florida Dry Cleaning Contamination Cleanup Program, eligible owners and operators may not be subject to administrative or judicial action brought the government or a third party for the cleanup of discharges of dry-cleaning solvents. The Florida Department of Environmental Protection (“DEP”) currently has a list of 1,207 current and former dry cleaners sites that are eligible to receive financial assistance from the state Drycleaning Facility Restoration Fund to help with the costs of investigating and remediating contamination from dry cleaners. The fund is financed from license fees on gross receipts from dry cleaners and a quarterly fee on solvents sold from solvent suppliers However, the DEP has had to freeze funding for these activities because of insufficient money in the fund. 
Commentary: Dry Cleaners are one of the principal sources of contamination at shopping centers, particularly from dry cleaners who operated prior to 1990. The commodity-style Phase I ESAs which are becoming increasingly popular for acquisitions of non-industrial properties such as shopping centers often fail to identify prior dry cleaning operations because these facilities often were not required to register with state environmental authorities and because the average dry cleaner only operates for three years. Thus, purchasers of shopping centers and their investors should make sure that they perform comprehensive historical environmental due diligence on these properties which may require interviewing local officials and reviewing old telephone directories or leases. 
State dry cleaning funds like Florida can significantly minimize the potential liability associated with ownership of shopping centers. By eliminating cleanup liability, these sate programs may also allow REITs to avoid having to make environmental disclosures in their SEC filings.  
In addition to the Florida fund, Georgia, Kansas, Illinois, Maine, Minnesota, North Carolina, Oregon, South Carolina, Tennessee and Wisconsin have enacted funds which can be used to help pay for the remediation costs associated with releases of solvents from dry cleaning operations. The scope of the programs vary in terms of the parties who are eligible to participate, the amount of the deductibles and the eligibility requirements. Some programs apply only to operators of existing dry cleaning establishments while others also extend to prospective owners of properties like shopping centers which may have been contaminated by inactive dry cleaning operations. Some programs require the operators to comply with certain dry cleaning operating standards before they may be eligible for the program. A number of programs insulate participants from liability for property damage and personal injury resulting from exposure of solvents migrating off the property.
Ohio Proposes Changes to VCP
To enable the state to enter into a memorandum of agreement with EPA, the Ohio Environmental Protection Agency (“OEPA”) is proposing changes to its voluntary cleanup program (“VCP”). The OEPA is proposing a two-track VCP depending on whether property owners want to receive assurance that EPA will not require additional cleanup. 
Volunteers who are not concerned about federal EPA approval would be able perform cleanups under the first track. The cleanups would have to be performed by licensed professionals and submittal of final reports to OEPA for approval when the remediation is completed.  Volunteers who want EPA approval would have to use the MOA track which would involve enhanced public participation and would require OEPA oversight and approval of plans throughout the cleanup process.
OEPA hopes that the proposed changes will expedite the number of cleanups performed under the VCP. According to a study by the Green Environmental Coalition, only 111 of the estimated 1800 state brownfield sites have gone through the VCP in four years. The study also indicated that cleanups have been completed at only 57 of those sites. The organization also claimed that the flawed investigations and cleanups took place at the rest of the sites because of inadequate staffing. 
Ohio voters recently approved a $200 million fund to investigate and cleanup the state’s brownfield sites. However, the OEPA has come under attack because it does not plan to make its internal list of brownfield sites available to the public. The dispute is part of a larger debate on how to spend the $200 million. Governor Taft has proposed a plan that would loan funds to the Ohio Department of Development which would direct the money to cities and villages for sites that have the greatest potential for redevelopment. Environmental organizations want some of the money to be used to conduct a more thorough inventory of contaminated sites and to make sure that the most contaminated sites are remediation priority. 
The decision to not maintain a public list of brownfield sites comes in the wake of an order issued by the state Environmental Review Appeals Commission instructing the OEPA to stop publishing its list of contaminated sites. The commission took the action after Dayton Power & Light filed a complaint publication of the OEPA list violated its private-property rights. The utility argued that it would be difficult for the company to sell utility plants and other property that appear on the list. Although OEPA has procedures for adding and removing sites from the list, the utility claimed that the agency did not provide property owners with notice or an opportunity to challenge a site listing. 
NC Brownfield Site To Be Redeveloped
MECA Properties has announced that it will redevelop a 7-acre brownfield site in Charlotte, NC. The redevelopment project will include a $10 million office building, a $7 million parking deck and a $10 million project referred to as Village West that will target emerging businesses and entrepreneurs. MECA purchased the property for approximately $2.5 million and spent 15 months performing an environmental site assessment as well as getting the property rezoned to permit commercial development. The developer intends to complete a site cleanup under the state brownfield program. 
NJ Announces First Innovative Technology For Brownfield Program  
Under the New Jersey brownfield program, projects using approved innovative technology are eligible for matching grants of up to 25% of “project costs” associated with the innovative technology. The maximum matching grant is $100,000. 
The New Jersey DEP recently approved the first technology that is eligible for the matching grant. The new technology was developed by Regenesis Bioremediation Products and is called Hydrogen Release Compound (“HRC”). This technology uses a polylactate ester which is injected into groundwater. The compound reacts with water to release lactic acid from six months to one year. The lactic acid serves as nutrients to indigenous anaerobic bacteria. As the bacteria metabolize the lactic acid, they give off hydrogen which is then used by other microorganisms known as reductive dehalogenators who remove chlorine molecules and reduce the total mass of chlorinated solvents. The degraded product can then be further remediated using aerobic bacteria such as Oxygen Release Compounds (“ORCs”) such as hydrogen peroxide.
This passive form of remediation can reduce capital costs and since the delivery system of lactic acid remains in place over time, it can also reduce O & M costs. HRC is most effective for dissolved contamination and contaminants that have been adsorbed or attached to soil particles. However, it is been effective for contamination that is in a free phase such as floating product. It can be used at the perimeter of contaminant plumes to prevent the further migration of contaminants or can be injected into the saturated zones to accelerate natural degradation of chlorinated solvents. Another benefit of the technology is that it can be used when construction is taking place above ground. The US Army recently used this technology to successfully clean up a four-acre portion of a landfill at Fort Monmouth that was contaminated with degreasing solvents.
Sales Of Marin Subdivision Not Affected By MTBE Contamination
Sales of upscale homes in a Marin, California subdivision have been unaffected by the discovery of MTBE in the groundwater beneath the development. Nearly all of the first 80 homes in the subdivision which range $579,000 to $640,000 have been sold despite the fact that the developer provided buyers with a disclosure statement about the MTBE and deed restrictions prevent home owners from planting fruit trees or digging more than four feet down. 
The plume migrated from a gas station located a quarter of a mile from the development at a Naval airfield that had been decommissioned in 1992. Samples collected by the Navy within a few hundred feet of the subdivision detected MTBE at 12, 000 parts ppb in the groundwater. The state's drinking water standard for MTBE is 35 ppb. However, little or no MTBE vapors were detected in samples taken from the first four feet of soil at the home sites.
In addition to the subdivision, the half-mile long plume has been detected in groundwater within 50 feet of a day-care facility with an outdoor playground. The plume has also been found within 100 feet of a parcel where a charter school plans to build a new campus for 220 children. The contamination has also reached a creek which flows through a wildlife preserve toward San Pablo Bay. The contamination has delayed the transfer of Navy land near the gas station which is slated to be redeveloped into a planned shopping center. 
The Navy conducted remedial actions that removed 23,000 pounds of gasoline but discontinued the cleanup in 1999 because of the cost. The Navy wanted to allow the contamination to naturally degrade but computer modeling showed that the plume could take as long as 40 years to degrade to acceptable levels. As a result, the Regional Water Quality Control Board (“RWQCB”) ordered the Navy last summer to conduct additional remediation efforts.  
The sales brochures for the development did not contain any mention of the contamination but property owners in two-thirds of the lots are required to sign a disclosure statement that warns them about the presence of MTBE and benzene as well as the high levels of methane gas and other contaminants from a nearby landfill. The disclosure informs buyers that "there may be a risk to construction workers from potential exposure to soil and groundwater and to residents who ingest fruits and vegetables grown in areas situated above the MTBE plume." It also advises them not to plant deep-rooted fruit trees because the root systems of the fruit trees might extend to the depths where MTBE is present in a significant concentration. The disclosure further states that  MTBE  could be ingested if the fruit is eaten. Homebuyers are also required to execute a covenant that prohibits them from digging wells and trenches. They must also promise to notify subsequent property owners that hazardous materials are located on or beneath the property.  The homeowners also had to agree to provide access to the federal government for continued monitoring and any additional cleanup that may be required. The disclosures and covenants were required by the RWQCB. 
Commentary: MTBE was first used in the late 1970s as an octane enhancer for premium- grade fuel. In 1991, EPA required that oxygenates such as MTBE be used in gasoline in areas that do not meet state and federal clean-air standards. After a state-sponsored study in 1999 found that there were serious health and environmental risks associated with MTBE the chemical, Gov. Gray Davis issued an executive order calling for a complete ban on MTBE by the end of 2002. 
Contaminated Trailer Park Will Cost $16 Million To Cleanup
Goodyear Tire & Rubber Company has agreed to remediate an abandoned trailer park in western New York in a settlement with EPA.  Under the settlement, Goodyear will pay an estimated $16 million to cleanup and redevelop the former landfill, and will reimburse the federal government $8.6 million in cleanup costs. The company will also pay $445,000 in natural resources damages. 
	EPA alleged that Goodyear used the Forest Glen Subdivision Superfund Site as an informal landfill for chemical and other waste before part of the land was subdivided and developed. Under the settlement, Goodyear will build a treatment plant at the site to remove hazardous chemicals from contaminated groundwater and build a cap over contaminated soil at the site so that the site may be redeveloped. 
Property Owner to Pay $7.1 Million for Contamination Caused by Tenant
The Burlington Northern Railroad Co. has agreed to reimburse $6.8 million to the federal government and $350,000 to Colorado for past response costs incurred at the Broderick Wood Products Co. Superfund site. Broderick Investment Co., the successor to Broderick Wood Products, paid the state of Colorado $630,000 in 1995 as part of a settlement with EPA. Because Burlington Northern owned the property when Broderick Wood Products built unlined ponds and discarded wood-treating wastes that leaked into the group, the company was liable for the response costs that were not paid by Broderick.
Commentary: Although the courts have held that PRPs may be jointly liable under CERCLA there has been a recent trend in contribution actions and settlements to allocate liability depending on the classification of the PRP.  Under this approach, owners or operators of a facility will be assessed a higher share of the remedial costs than generators.  However, the courts tend to be split on allocating liability between owners and operators, with some courts imposing greater liability on owners while other jurisdictions hold that the tenant should have greater responsibility than an absentee landlord.  Still other courts require owners and operators to equally split the remedial costs, while some decisions allocate greater liability to former owners than to current owners. 
Generator Liable When Transporter Takes Waste to Unauthorized Site
Marisol, Inc has agreed to pay $10 million to the federal government and $1.1 million to New Jersey for reimbursement of past response costs at the Lang Property federal Superfund site located in the New Jersey Pinelands National Reserve. 
In 1974, Marisol hired a licensed transporter to remove waste drums and take them to an approved New Jersey landfill. However, the transporter took the drums to an unauthorized site. In June 1975, approximately 1,500 drums of unidentified chemical waste were discovered in a clearing at the end of the unpaved road leading to the Lang Property site. Under a state order, the site owners paid for the removal of the drums and contaminated soils from the site in 1976. However, the contents of the drums were emptied into unlined pits on the site or spilled on the ground during the removal process which caused soil and groundwater contamination. In 1979, Burlington County and the state confirmed the site was contaminated groundwater and the site was placed on NPL in 1983. According to EPA, the company was the primary user of the Burlington County landfill. To date, the total cost of the federal cleanup at the Lang Property site is approximately $21 million. The proposed settlement amount is based on the company’s limited ability to pay.
Commentary: A generator will remain liable under CERCLA even if a transporter takes wastes to a site not authorized by the generator.  In the event of a so‑called transshipment case where wastes are commingled at a collection point and are subsequently taken to a second location where the release occurs, the generator has the burden of showing that its waste was not part of the mixture.  Thus, each generator with wastes at the collection point will also be liable for the response costs at the second location unless the generator can produce evidence to exculpate itself.
	Because of the rather minimal nexus required under CERCLA, the government has often adopted the so‑called "bad transporter" theory in which the government will link a generator to a site simply if the generator used a transporter that was known to haul wastes to a site.  This can place defendants in the untenable position of having to prove their wastes did not end up at the site, especially if the waste activity took place before 1980 when waste manifests were not routinely used.  Courts generally require more than a bare assertion that a generator placed the wastes into the hands of a transporter. Instead, the plaintiff will usually be required to show some evidence such as documents, direct testimony, or circumstantial evidence that the defendant's waste reached the site.
	Federal courts have consistently ruled that transporters must have selected the ultimate disposal site in order to be liable under CERCLA. While EPA will not pursue a transporter until it has evidence that the transporter selected the final destination of the hazardous substances, PRPs frequently name transporters are defendants in contribution actions.  
BASF Will Remediate Former Industrial Site
BASF has submitted a cleanup plan to remediate a former chemical disposal operation in Michigan that has reportedly been leaking mercury and other contaminants into groundwater and the Detroit River for more than two years. BASF Corp. acquired the 30-acre property in the late 1960s. The property has been unused for decades and a clay cap was placed over the site in the mid-1980s. After BASF detected contaminated groundwater during post-closure monitoring, the company submitted a cleanup plan. If approved, the cleanup could cost as much as $8 million in the cleanup.
Commentary: Cleanup standards and procedures have varied during the past three decades, particularly for contaminants like lead and mercury. Parties purchasing property that had USTs or hazardous waste management units that were closed and remediated in the late 1970s or early 1980s should carefully review the quality of the cleanup that was performed during their due diligence period to determine the likelihood that an additional cleanup might be required. 

ENVIRONMENTAL CASES INVOLVING CORPORATE AND REAL ESTATE TRANSACTIONS

Bank Trustee Recovers Cleanup Costs From Tenant
A bank that held title to a commercial building as a trustee of a land trust was allowed to recover its cleanup costs from an electronic circuit board manufacturer who had leased the building. 
In in Amalgamated Bank Of Chicago v. Kalmus and Associates, Inc. (Ill. Ct App., No. 1-99-3888), the defendant moved out of the premises in 1996 and discovered a hole in the concrete floor that was caused by copper chloride that had leaked from an etching machine. The solution ate through the floor and contaminated gravel stone, soil and groundwater beneath the building. The parties entered into an agreement where the defendant agreed to remediate the contamination and obtain a no further remediation (“NFR”) letter from the state for an industrial/commercial use cleanup standard. The agreement also expressly provided that the Bank would not release its claim for holdover rent until receipt of the NFR letter. 
	The defendant excavated a total of 247 square yards of concrete. Soil contaminant levels were still above the lookup table established for industrial/commercial use under the Illinois Tiered Approach to Corrective Action Objectives (“TACO”). Instead of excavating additional soil, the defendant proposed to use an engineered barrier consisting of a six-inch concrete floor and a safety plan to ensure that workers were not exposed to unhealthy levels of contaminants. The bank objected to the proposed cleanup plan and refused to sign the remediation report for eight months but eventually agreed to execute the report. The state required additional analysis and then issued a draft NFR letter 18 months after the report was originally prepared. The bank complained to the state about the quality of the cleanup and then took over the cleanup. The bank remediated the site to the most stringent residential cleanup standard. 
	The plaintiff then sought recovery of its cleanup costs, back taxes and rent under the holdover clause of the agreement. The defendant argued that it had obtained a draft NFR and would have satisfied its obligations had the bank not taken over the cleanup. The defendant also claimed that the plaintiff had failed to mitigate its damages by refusing to sign the remediation report for 8 months. A state trial court found the bank had been reasonably concerned about the quality of the cleanup and had acted reasonably when it took over the cleanup. A state appellate court affirmed the decision. 
Commentary: It was surprising that the court did not seem to focus on the fact that the bank performed a cleanup far more stringent than the defendant was required under the agreement and required the defendant to pay for the extra costs associated with the residential cleanup standard. In this era of risk-based cleanups, parties have considerable leeway in choosing a cleanup remedy. This case illustrates the importance for parties to specifically state the level of cleanup that will be acceptable in their contracts and how that level is to be achieved. Had the bank not taken over the cleanup, the defendant could have obtained a NFR letter with engineering barriers which would have satisfied the industrial/commercial use standard.    
Landowner Who Knowingly Acquired Contaminated Site May Qualifies as Innocent Purchaser
A landowner who purchased property knowing it was contaminated was allowed to pursue a CERCLA cost recovery action for the cost of remediating the contamination that was unknown at the time it acquired the property. 
In Thomson Precision Ball Co. v. PSB Associated Liquidating Trust (D. Conn., No. 00CV-1000), the corporate predecessor of the plaintiff purchased a ball bearing plant in 1988. During due diligence, the plaintiff’s environmental consultant was informed that wastes had been deposited in metals sludge pits and wastewater lagoons. The consultant’s report concentrated on these areas and the disclosure statement filed under the state transfer act was limited to the conditions identified in the consultant’s report. The defendant represented in the agreement that it was not aware of any other environmental conditions. Based on the disclosure statement and the representations in the contract, the plaintiff agreed to be responsible for remediating the identified environmental conditions. 
After discovering widespread soil contamination throughout the site, the plaintiff sought recovery of its cleanup costs under CERCLA, claims for breach of contract and common law fraud as well as rescission of the contract. The defendant filed a motion to dismiss, arguing that the plaintiff was not entitled to cost recovery because it knowingly acquired a contaminated site was therefore not an innocent purchaser. The court acknowledged that a non-innocent landowner could not pursue a cost recovery action. However, the court said that the plaintiff had no reason to know about the contamination that the defendant had actively had concealed from the plaintiff and was therefore entitled to innocent purchaser status for that contamination. 
Commentary: In a contribution action, a plaintiff may only recover cleanup costs that exceed its share of the cleanup liability of the site. In contrast, a defendant in a private cost recovery action is jointly and severally liable. Thus, a plaintiff in a cost recovery action may be able to recover the full cost of the cleanup from a defendant.
	In a motion to dismiss, a court may dismiss the complaint only if the defendant establishes beyond any doubt that the plaintiff could not establish any facts to support its claim for relief. When this case is decided on its merits, the plaintiff may have a much harder time establishing that it is an innocent purchaser. The innocent purchaser’s defense requires the owner to establish that it had no reason to know about the release. To establish this threshold, the plaintiff must establish that it undertook an “appropriate inquiry” into the past uses of the property consistent with “good commercial or customary practice.” Many courts have taken the position that if a plaintiff fails to discover contamination, it did not perform an appropriate inquiry. While the defendant did place soil over contaminated areas to conceal evidence of the release and placed cement over a disposal location, there is some question whether the consultant placed too much reliance on the representations of the seller’s employees and failed to independently verify the information or investigate other areas of the site.  
Property Owner May not Use Divisibility To Claim Innocent Purchaser Status
Another interesting innocent purchaser case was presented in Durham Mfg Co. v. Merriam Mfg Co. (99 CV 2583, D. Conn.). In this case, two metal box manufacturers owned and operated adjacent parcels that were part of a larger superfund site. The plaintiff entered into an administrative order with EPA to conduct a remedial investigation and feasibility study. After determining that contamination from the defendant’s facility had migrated onto its property, the plaintiff filed a CERCLA cost recovery and contribution action. The plaintiff acknowledged that releases from its operations had impacted its property but claimed that the defendant’s operations had caused discrete contamination for which the plaintiff should not be held liable. 
The court said that the plaintiff was not actually asserting that it was an innocent purchaser but instead asking the court to divide the superfund site into separate parcels. . The court said a PRP may not assert an innocent purchaser’s defense for a different portion of a single superfund site. Moreover, the court found that the plaintiff failed to prove any facts to establish its divisibility claim. The court noted that the two companies manufactured the same products, produced similar waste streams, were located next to each other and were part of the same superfund site. The said the action was nothing more than contribution action. 
Commentary: Sites are placed on the National Priorities List (“NPL”) through informal rulemaking procedures established under the Administrative Procedures Act. EPA will propose to place a site on the NPL by publishing a notice of proposed listing in the federal register. After a 60-day public comment period, the agency will publish a final decision in the federal register. Once the final listing is published, site owners must file a petition challenging the listing with the Court of Appeals for the District of Columbia within 90 days of the publication of the listing decision. Once the 90-day period expires, parties are precluded from challenging the listing. 
If a site owner learns that the EPA is considering listing its site, the owner should seek to informally participate in the process. The owner should retain a consultant to shadow the government team investigating the site, take split samples and provide its own evaluation to the agency so that it is included in the administrative record. Issues that the owner could object include the manner and procedures used to collect the data, the accuracy of the data analysis, the risks posed by the contaminants as well as the site boundaries.   
Owner Who Allows Waste To Migrate is Not Innocent Owner
A government agency that allowed contaminants on property it was leasing to migrate for almost a year was precluded from asserting the innocent purchaser defense in Franklin County CFA v. American Premium Underwriters, Inc. (6th Cir., No. 99-4095). 
In 1973, the City of Columbus, Ohio ("City") exercised its eminent domain authority over a parcel of property that had been owned by American Premium Underwriters, Inc (“APU”) which is the surviving corporate successor of several railroad companies. In October 1989, Franklin County Convention Facilities Authority ("CFA") conducted Phase I and Phase II environmental site assessments of the property, and then subleased the property from the City to construct a new convention facility. 
In October 1990, a contractor hired by CFA was digging a storm sewer line with a backhoe accidentally split open a buried wooden box that had been used as a tank for soaking wooden railroad ties, bridge timbers, and other materials. Some of the creosote and benzene mixture in the box seeped into the ground. CFA then retained an environmental consultant who notified the Ohio Environmental Protection Agency ("OEPA"). In September 1991, CFA sent a demand letter to APU requesting that it accept financial responsibility for remediation of the contamination. APU declined and CFA commenced a cleanup. CFA then filed a private cost recovery action and contribution under CERCLA. 
	After a bench trial, the district court for the southern district of Ohio entered a judgment for CFA in the amount of $239,280.07. The court found that CFA was an innocent purchaser and was entitled to recover 100% of its response costs. On appeal, the Sixth Circuit acknowledged that CFA played no role in placing the hazardous substance at the site nor had any reason to be aware of the box's presence. However, the court concluded that CFA failed to exercise due care after discovering the box. The court noted that after discovering the wooden box, CFA immediately ceased work and hired an environmental consultant but did not take any action. During this time, the creosote migrated approximately forty-five feet through an open sewer trench. CFA claimed a natural barrier in the trench dam prevented the contamination from reaching a concrete sewer line and eventually erected a barrier to avoid further migration. However, the court said CFA did not take this action until a year after the box was discovered and more than eight months after OEPA had notified CFA that the creosote may have migrated into a seam of the sewer pipe and might migrate down the channel of the sewer. Under these circumstances, the court concluded, CFA could not be said to have acted with due care with respect to the contamination. 
This turned out to be a hollow victory for APU because on the contribution claim the court allocated 100% of the response costs to APU. The court pointed to APU's refusal to participate in cleanup efforts despite notice from CFA and that APU's predecessor had agreed to remain responsible to the city for any claims involving any portion of the premises. Based on these facts and the broad discretion afforded the district court, the Sixth Circuit concluded it could not find that the court abused its discretion by allocating total liability to APU.
Commentary: The court appeared to confuse the innocent purchaser’s defense with the third party defense. Under the third party defense, a defendant must establish by a preponderance of the evidence that the release or threatened release of the hazardous substance and the resulting damage was (1) SOLELY to the acts or omissions of a third party who was not an agent or employee of the defendant; (2) the defendant did not have a direct or indirect contractual relationship with the third party; (3) the defendant exercised due care in dealing with the hazardous substances and (4) the defendant took precautions against foreseeable acts or omissions of any third party and the foreseeable consequences of those acts or omissions.
	  Congress enacted the innocent purchaser’s defense because the third party defense was not available to most property owners since a sales agreement or lease ordinarily qualifies as a "contractual relationship". The innocent purchaser defense does not require a defendant to exercise due care regarding the substances but that it have no reason to know of the release of hazardous substances. What the court seemed to be saying was that CFA was an innocent purchaser and therefore could assert the third party defense since it had no contractual relationship with APU but because CFA had failed to exercise due care it could assert the third party defense.
Sixth Circuit Rules Sole Shareholder Liable Under CERCLA
The Court of Appeals for the Sixth Circuit used state veil-piercing analysis to hold a sole shareholder liable under CERCLA. In Carter-Jones Lumber Co. v. LTV Steel Co. (No. 99-4241), Harry C. Denune the former sole shareholder, president, and chief executive officer of Dixie Distributing Co. had arranged to dispose of used transformers at property owned by the plaintiff. In 1999, a federal district court found Dixie liable for 50% of the cleanup costs and Denune 30% responsible for the cleanup costs. However the Sixth Circuit reversed the lower court’s ruling that Denune could not be jointly liable with Dixie and remanded the matter to take into account the U.S. Supreme Courts decision in United States vs. Bestfoods (524 U.S. 51 1998). 
On remand, the district court conducted an evidentiary hearing and ruled that under Ohio law, Denune was jointly liable for the award against Dixie. Denune appealed arguing that he did not exercise such complete control over the corporation that it had no separate mind, will, or existence of its own.  He also claimed the district court had failed to consider all of the factors courts it was required to consider when determining if the corporation was an alter ego of the shareholder. 
The circuit court said that the veil-piercing doctrine was an equitable remedy and that the list was of factors was not exhaustive. The court also observed that the Ohio Supreme Court had endorsed the notion that the corporate veil could be pierced if an injustice would result. The Sixth Circuit then said the Denune was liable under Ohio law because he clearly controlled the particular transactions that created the CERCLA liability for Dixie. The court noted that the invoice for the ten transformers was sent to Denune at Dixie. Denune wrote the check on Dixie's account to pay for the transformers. Denune signed an affidavit indicating he had been advised that the transformers contained PCBs. There was also evidence that Denune was personally involved in the scheme to hide the transformers from EPA and illegally transport them to site. Finally, there was testimony that Denune had personally checked the trailers containing the PCB-laden transformers at least twice and personally arranged for the removal of the transformers to a third site. 
Environmental Inspection Clause Prevents Buyer from Enforcing Contract
A buyer who negotiated a right to perform an environmental investigation, was unable to enforce the contract when it failed to reach agreement with the seller on how to allocate the environmental liability for the site.   
In Allen v. Cedar Real Estate Group, LLP (No. 99-4090, 6th Cir), the plaintiff entered into a contract 1998 to purchase property that had been used as a fueling terminal for a trucking company prior to 1990. The parties used a pre-printed form that provided that the property was being sold “as-is”. There was also a typewritten addendum that stated the seller would provide the plaintiff with a disclosure statement pursuant to the Indiana Real Property Transfer Law and that the could plaintiff could perform its own environmental due diligence if it was not satisfied with the disclosure. The plaintiff’s investigation revealed that soil and groundwater where USTs had been located was contaminated with diesel fuel. The plaintiff suggested that the parties share the costs of additional remediation costs. After the seller informed the plaintiff that it wanted to sell the property “as is”, the brokers for the two parties exchanged correspondence discussing various cost sharing arrangements. After the seller informed the plaintiff that it had other offers for the property, the plaintiff offered to purchase the property for the original purchase price provided the property would go through the state VCP and that the seller would be responsible for the costs. The defendant then terminated the contract and the plaintiff sought specific performance. 
A federal district court granted summary judgment to the defendant on the grounds that the condition precedent had not been satisfied. Therefore, there was no enforceable contract. The Court of Appeals affirmed, concluding that all of the communications that occurred between the parties following the plaintiff’s environmental report were simply offers and counteroffers that never resulted in a new contract.  

Copyright (c) 2001 by Lawrence Schnapf. The Schnapf Environmental Report is a bi-monthly newsletter which provides updates on regulatory developments and highlights significant federal and state environmental law decisions affecting corporate and real estate transactions, and brownfield redevelopment. The newsletter is published by Law Professor Lawrence P. Schnapf, 55 E.87th Street, #8B, New York, New York 10128. Telephone: (212) 996-5395. Fax: (503) 213-9314. E-Mail: LSchnapf@environmental-law.net. Subscription rate for the Schnapf Environmental Report is $95 for one year (six issues) or $25 per issue. 
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