SCHNAPF ENVIRONMENTAL NEWS REPORT

A Monthly Newsletter Covering Recent Environmental Developments and Caselaw

December 1998											Vol. 1, Issue 1
	
	Welcome to the premiere issue of the Schnapf Environmental News Report. Each month, the newsletter will provide updates on regulatory developments in the major environmental programs and also highlight significant federal and state environmental law decisions cases that were issued during the prior month. 

The newsletter is published free of charge by the Schnapf Environmental Law Center which provides regulatory guidance, legal research and writing resources, litigation support and assistance with environmental issues associated with corporate, financing and real estate transactions for businesses and law firms. 

This issue addresses recent regulatory developments for Hazardous Waste and Toxic Substances and contains a separate section covering recent environmental law decisions. We are interested in your feedback as well as suggestions for future features. Please feel free to send your comments to Larry Schnapf at: LSchnapf@environmental-law.net or contact him at 212-996-5395. More detailed information on the topics covered by the newsletter is available at our web site: http//: www.environmental-law.net. 

We also offer a 4-hour environmental law seminar which is taught by Larry Schnapf who is an adjunct professor of environmental law at New York Law School. The seminar focuses on the environmental issues associated with business transactions and will be conducted at your office. The seminar is eligible to be approved by the Continuing Legal Education Board as an Accredited Mandatory Continuing Legal Education (“MCLE”) Program so that attendees would receive credits towards the New York State MCLE requirements. If you are interested in this seminar, please contact Larry Schnapf at LSchnapf@environmental-law.net. 

Finally, if you would be interested in being added to our subscription list for our quarterly New York Brownfields Report, please let us know at LSchnapf@environmental-law.net. The New York Brownfield Report analyzes the agreement issued by the New York Department of Environmental Protection under its voluntary cleanup program and also discusses major policy changes for the program.  

HAZARDOUS WASTE 

EPA EXTENDS DEADLINE FOR COMPLYING WITH UST REGULATIONS

By December 22, 1998. owners and operators of existing underground storage tanks (“USTs”) were required upgrade or close USTs that did not comply with the performance standards established by the United States Environmental Protection Agency (“EPA”). To comply with the new standards, USTs must be equipped with spill containment, overfill protection, release detection and corrosion protection. Estimates are that nearly half of the 850,00 USTs currently in operation do not comply with the UST standards. 

	Throughout this year, EPA repeatedly said it would not extend the deadline for complying with this requirement. However, on December 10th, the agency announced that it while it would not bring enforcement actions against small businesses who owned or operated USTs for six months. This delay in enforcement will have no effect in the 20 state that EPA has authorized to administer USTs. Many of those states plan to take tough action against owners and operators of non-conforming tanks, including banning fuel deliveries. Petroleum marketers may be subject to penalties if they dispense fuel to substandard USTs.   

	Under the EPA UST regulations, substandard USTs may be temporarily for up to one year. During this time, the owner or operator may upgrade or remove the USTs but cannot use the tanks. EPA has estimate that it may cost between $50,000 to $100,000 to upgrade or close substandard tanks. Additional costs may be incurred if the USTs have leaked and contaminated the soil or groundwater. Readers should review our web site at www.environmental-law.net for more details on the UST requirements.

TOXIC SUBSTANCES

EPA Brings First Enforcement Actions Under Lead Paint Disclosure Rules

	In January, 1998, EPA issued an interim guidance document clarifying when it bring enforcement actions for violations of the Lead-Based Paint Regulations that became effective in September, 1996. Under the lead-based paint enforcement document, the EPA may seek a monetary penalty of $11,000 for each violation of the disclosure rule. The enforcement activities are aimed at protecting children and pregnant woman from the dangers of lead. Violations will be considered “egregious” if a seller, landlord or agent failed to make the required disclosure involving housing where young children or pregnant woman reside. The specific requirements of the lead-based paint rules are discussed in our web site at www.environmental-law.net. 

The EPA provided the regulated community with a one year grace period to comply with the lead-based paint enforcement policy. Since the expiration of the grace period, the EPA has issued 22 notices of non-compliance to brokers, real estate agents, sellers and landlords for alleged “non-egregious” violations. In addition, the agency has filed four administrative proceedings seeking $439, 725 in penalties. These actions were brought against two landlords in Philadelphia, a realty firm and the U.S. Navy.   

EPA has assembled an army of inspectors who have begun conducting site inspections of leases and purchase agreements at where such records are maintained such as real estate or rental offices and management offices. While the lead-based paint rules do not require sellers, landlords or agents to inspect regulated housing for lead paint, they may want to consider conducting inspections in order to take advantage of EPA’s auditing policy. Under this policy, violations that are voluntarily discovered and reported may be eligible for a 100% penalty reduction if certain criteria are met. Indeed, a Maryland management firm that uncovered violations of the lead-based paint disclosure rule and reported the violations within the required ten day period received a 100% reduction in penalties and saved hundreds of thousands of dollars in penalties.  In addition, building owners and managers may also be able to reduce penalty assessments by engaging in supplemental environmental projects (“SEPs”) which might include paying for abatement of lead-based paint or the cost of medical treatment for children suffering from lead poisoning.

The EPA feels that it has expended extensive efforts to educate the real estate community during the past two years and the aforementioned enforcement actions are a sign that the agency is now planning to take serious enforcement actions. 

SIGNIFICANT ENVIRONMENTAL LAW DECISIONS

United States Supreme Court Issues Opinion Narrowing the Scope of Liability for Parent Corporations

Under traditional corporate law, parent corporations could only be liable for the acts or omissions of their subsidiaries if the circumstances warranted “piercing the corporate veil.” Under most state laws, this test required evidence that the parent corporation so dominated the subsidiary that it had no will of its own. Some states even required that there must be a showing that the parent acted in a fraudulently manner. 
Recently, a line of cases emerged that allowed parent corporations to become liable for the environmental liabilities of their subsidiaries under a more relaxed standard. Under this approach, the parent would become liable as an “operator” if it became pervasively involved in the particular facility operated by a facility. Many commentators have criticized this approach because it could expose parent corporations to liability when they performed oversight functions that are typical of a parent-subsidiary relationship. 
 In United States vs. Best Foods, the United States Supreme Court ruled that a parent corporation may not be liable as an operator for the environmental liabilities of its subsidiary based on its relationship with the subsidiary if such relationship would not warrant piercing the corporate veil. Instead, the court said that the key the question is not whether a parent operates the subsidiary but whether the parent operates the facility. If the parent corporation exercises actual control over the facility, then it may be liable as an operator. However, as in this case,  the mere fact that the parent had placed its own key officials on the subsidiary’s board of directors, that parent officers’ occupied the president and chief executive positions and that these officials exercised day-to-day management of the facility would not expose the parent to operator liability. The court noted that there was a well-established principle of corporate law that directors and officers holding dual positions with a parent and subsidiary can and do “change hats” and that courts presume that directors are wearing their “subsidiary hats” and not their “parent hats” when acting on behalf of the subsidiary. It is up to the government, the court went on, to rebut this presumption and establish that a particular officer may have been acting as an agent of the parent and not the subsidiary. 
However, because there was some evidence that the parent’s environmental and regulatory affairs director may have exerted control over the environmental operations of the subsidiary’s plant, the court remanded the case to the district court with instructions to evaluate the role of the parent’s environmental officer and any of the parent’s other employees who might be said to have played a role in operating the subsidiary’s facility.