EPA Recognizes E1527-13 But Preamble Raises Specter of Retroactive LIability For Past Phase 1 Reports that Did Not Assess Vapor Intrusion

On December 30th, the  federal Environmental Protection Agency (EPA) published a final rule in the Federal Register  (78 FR 79319) recognizing the new ASTM E1527-13 phase 1 standard practice as an approved method for complying with the All Appropriate Inquires (AAI) rule. As explained below, while the preamble to the final rule is an improvement to the text that accompanied the August rulemaking since it attempts to address some of the concerns raised in the adverse comments, this action amounts to Band-Aid where surgery was needed to repair the ill-conceived rulemaking exercise.

Despite receiving adverse comments to the botched August rulemaking, EPA declined to delete the reference to the now obsolete E1527-05 from the AAI rule. Instead, agency included language in the explanatory text (the “preamble”) encouraging property owners and consultants to use ASTM E1527-13. In responding to some of the adverse comments it received,  EPA may have opened the door to retroactive liability to consultants and their clients for previously completed phase 1 reports that did not evaluate the vapor intrusion pathway.

In response to concerns that the continuing reference to E1527-05 could cause confusion in the marketplace, EPA first said-unconvincingly to this observer-that because it did not propose to remove the reference to E1527-05 in the August rulemaking, such action was “well beyond the scope of today’s action”. However, to address the concerns that the parties may be confused about the level of due diligence required because of the continuing reference to a historic ASTM standard, EPA said it planned on issuing a future proposal to delete the obsolete ASTM standard from the AAI rule. The agency said it felt that these concerns would be best done through a separate rulemaking process to give the public an opportunity to review and comment on that proposed action. EPA did go on to say that it intends “to monitor the uptake of the new ASTM E1527-13 across the commercial and industrial real estate sector to see if these expectations are borne out.”

In announcing this decision, EPA reminded the regulated community that while E1527 may be used to comply with AAI, “ASTM standards do not comprise a federal regulation or standard, nor are they incorporated by reference into the federal regulation. Parties may use industry standards to comply with Part 312, but the standard for compliance is the AAI rule itself.”  In its specific responses to comments the agency reviewed key due diligence case law that EPA said stood for the proposition that courts look to the “quality of the investigation and reasonableness of the conclusions reached as a result of the investigation” in determining the adequacy of a particular phase 1 report. EPA said it believed “that site-specific circumstances and conditions would continue to inform the courts’ review of the strength and satisfactoriness of parties’ conduct of all appropriate inquiries, under both the ASTM standard and the all appropriate inquiries rule.”

Because of the caselaw and  the fact that parties seeking to asset one of the CERCLA landowner liability protections have the burden of establishing that they qualify for those defenses,  EPA said it believed that parties conducting AAI for this purpose have a strong incentive to ensure that the investigation is done thoroughly and properly. As a result, the agency indicated that it “anticipates that those conducting or relying on the ASTM International standard for the conduct of All Appropriate Inquiries will generally adjust to using the updated standard, particularly in light of the fact that ASTM International will label the ASTM E1527-05 Standard a historical standard and establish that the revised standard, the E1527-13 standard, is the only standard reflecting the current consensus of the responsible ASTM International technical committee.” EPA’s responses to the comments  are set forth in a new document that has been added to the regulatory docket and is available here:

In recognizing the new ASTM standard, EPA said it believed that ASTM E1527-13 “improved upon the previous standard” and “reflected the evolving best practices” that would provide prospective purchasers with the necessary and essential information that is required to satisfy AAI as well as meet their “continuing obligations” under the CERCLA liability protections.  This statement is another indication of how even though phase 1 reports are usually ordered to satisfy AAI, the reports may have implications for satisfying post-acquisition appropriate care/continuing obligations (think Ashley and Voggenthaler).

From a purely legal standpoint, all a consultant needs to do to complete its contractual obligations to its clients under an E1527-13 phase 1 assignment is to determine if there are RECs, CRECs or HRECs at a property. To satisfy AAI and therefore qualify for the bona fide prospective purchaser liability protection, a property owner simply has to identify current and prior releases of hazardous substances at a site using an investigation that complies with AAI. While no further investigation is generally required to comply with AAI and therefore qualify for the BFPP, a property owner/ purchaser may need to do further investigation about the releases (or RECs/CRECs using ASTM parlance) to be able to comply with its appropriate care/continuing obligations. Depending on specific site factors, such an investigation may be more comprehensive than a phase 1 investigation. Users should discuss with their environmental consultants and lawyers if it makes sense to do this more comprehensive all at once prior to acquisition so the user can develop an appropriate care/continuing obligations plan or to do additional investigation soon after acquisition to be able satisfy those obligations.

In touting the virtues of ASTM E1527-13, EPA focused on one of the hottest issues in environmental law-vapor intrusion.  The agency said that one of the important revisions contained in ASTM E1527-13 was clarifying that “all appropriate inquires and phase I environmental site assessments must include, within the scope of the investigation, an assessment of the real or potential occurrence of vapor migration and vapor releases on, at, in or to the subject property.” The more potentially troubling statement for consultants and property owners was the statement that  “In the case of vapor releases, or the potential presence or migration of vapors associated with hazardous substances or petroleum products, EPA notes that both the All Appropriate Inquiries Rule and the ASTM E1527-05 standard already call for the identification of potential vapor releases or vapor migration at a property, to the extent they are indicative of a release or threatened release of hazardous substances.”[Emphasis added]

In the response document that is in the regulatory docket, EPA said that “Some users of the ASTM E1527-05 standard and some who submitted comments in response to EPA’s August 15, 2013, proposed rule raised concerns that potential vapor releases on, at, in or to a property are often not considered or may be overlooked by many practitioners when conducting all appropriate inquiries. EPA wishes to be clear that, in its view, vapor migration has always been a relevant potential source of release or threatened release that, depending on site-specific conditions, may warrant identification when conducting all appropriate inquiries.…” [Emphasis added]

The agency then went on to say “ In the case of the ASTM E1527-05 standard, users and environmental professionals are required to identify recognized environmental conditions that include the presence or likely presence of hazardous substances or petroleum products under conditions that indicate an existing release, a past release, or a material threat of a release. Neither the All Appropriate Inquiries Rule nor the ASTM E 1527-05 standard excludes the identification of vapor releases as a possible type of release.”

These statements seem to reinforce the fears that many lawyers expressed to me as chair of the legal sub-committee that was working on the ASTM revision process. There was consensus that the role of vapor intrusion had to be clarified in the E1527 revisions but not in a way that could call into question the adequacy of phase 1 reports prepared prior to the ASTM revisions. The principal concerns were if such evaluation required sampling and if the evaluation of the vapor pathway would be a prospective obligation so that it only applied to transactions that closed after the publication of E1527.

The ASTM task force satisfactorily addressed the first concern by explaining that vapor intrusion was like any other exposure pathway and that sampling to confirm that the pathway was completed was typically outside the scope of a phase 1 and more properly addressed as part of a phase 2 investigation.

Unfortunately, EPA’s statements that the vapor pathway should have been considered all along raises the very risk that many lawyers and property owners feared-namely that parties who thought they had qualified for the CERCLA landowner liability protections because they had performed an AAI-compliant investigation may now suddenly not qualify as a BFPP because they did not consider the vapor intrusion pathway. Of course, this concern would only be for sites where vapor intrusion is or becomes a problem. However, the uncertainty created by EPA’s statements in the preamble and response document is going to be unsettling to some property owners. It will also provide ammunition to plaintiffs’ counsel who could use these statements as evidence that the defendant property owner breach a duty it owned to plaintiffs and was therefore negligent by failing to comply with a regulatory requirement. In some states, failure to comply with a regulatory standard is considered negligence per se while in others can be used as evidence of a duty.

Moreover, EPA’s statements in the preamble and response document could be used by clients in malpractice or breach of contract against consultants who failed to evaluate the vapor pathway in a prior phase 1. Of course, each situation will be highly fact dependent. Vapor intrusion will have to be a concern at the site and the plaintiff will have to show some nexus between the consultant’s failure to flag the vapor pathway and the damages the client has incurred to be successful. Nevertheless, these statement do potentially expose consultants to the retroactive liability through a backwards looking lens where hindsight is always 20-20 or a classic “Monday Morning Quarterbacking”  scenario (or whatever other aphorism you prefer).  EPA may not have been the Grinch that stole Christmas but this certainly was not a good New Year’s Eve present for property owners and environmental professionals. .