SCHNAPF ENVIRONMENTAL NEWS REPORT

A Monthly Newsletter Covering Recent Environmental Developments and Caselaw

February 1999												Vol. 1, Issue 3

	The Schnapf Environmental News Report is a monthly newsletter which provides updates on regulatory developments in the major environmental programs and also highlights 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. 

We have made a number of changes to the layout and added new features to this issue. The newsletter now contains sections for air pollution, water pollution, hazardous waste, CERCLA/Brownfields and Toxic Substances. There is also a separate section for recent significant litigation.  We are interested in your feedback to our changes 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.  

AIR POLLUTION DEVELOPMENTS

EPA Considering Alternative to New Source Review (NSR) Rules

Under the new source review (NSR) program of the Clean Air Act, new or reconstructed major sources located in non-attainment areas must be equipped with either the best available control technology (BACT) or lowest achievable emission rate (LAER). EPA is now considering an alternative to NSR that would exempt many facilities from NSR requirements for a period of up to ten years. At the end of the 10 year period, the facilities would have to install BACT or LAER or be retired. 
The proposed approach would put an end to the “grandfathering” practice which allows facilities to exclude older sources that have little or no emission controls from NSR review through the use of “netting.” Under the “netting” practice,  a facility could reduce air emissions from one source to offset increased emissions from other sources. 
The EPA also hopes to eliminate individual BACT determinations by establishing “presumptive BACTs” for certain industries. In addition, the agency is considering factoring in efficiency improvements and pollution prevention measures for determining what constitutes BACT or LAER.  

Companies Beginning to Act on Greenhouse Gas Emissions

While international rules to implementing the Kyoto Protocol for reducing greenhouse gases will not be established until the end of the year 2000, many companies are already taking actions to reduce their emissions of these gases. One incentive driving these early reductions is legislation being considered by Congress that will give credit to companies who voluntarily reduce greenhouse gas emissions.
Under the Kyoto Protocol, the United States committed to reducing greenhouse gas emissions by seven percent from 1990 levels. The largest sources of greenhouse gases in the United States are burning coal for power generation and motor vehicle emissions. 
Measures being used by these companies to reduce greenhouse gas emissions include using renewable resources, efficiency measures, setting up emission trading programs, and divesting themselves of assets that generate greenhouse gases. Many companies are also using the Department of Energy’s voluntary reporting program for reducing greenhouse gases. Under section 1605(b) of the Energy Policy Act of 1992, emitters of greenhouse gases may document emission reductions or offsets of those gases. Measures that may be used to establish such reductions or offsets include fuel switching, tree planting and improvements in energy efficiency. However, a recent report issued by the General Accounting Office suggested that claims submitted under the DOE voluntary program might not qualify for more stringent programs that will be established to implement the Kyoto Protocol. 
The upcoming restrictions on greenhouse gases as well as forthcoming EPA rules for restricting emissions of nitrogen oxide, sulfur dioxide and possibly mercury emphasize the importance of performing comprehensive environmental due diligence when considering purchasing power generating facilities. With energy deregulation causing many utilities to divest themselves of generating facilities, buyers need to understand future regulatory costs that will have to be incurred for these facilities to continue to operate. The costs of complying with future requirements may be substantial. EPA as estimated that for a coal-fired plant generating 500 megawatts of electricity could face capital environmental costs of up to $154 million and annual operating costs of $10 million. However, these increased regulatory burdens may drive down the value of many generating plants and provide opportunities for savvy buyers who can manage environmental costs efficiently to acquire these plans at bargain prices.   

WATER POLLUTION DEVELOPMENTS

Deadline for Stormwater Rule Approaching

	The Clean Water Act prohibits the discharge of pollutants from a point source into the waters of the United States unless the discharge is authorized by a National Pollutant Discharge Elimination System (NPDES) permit. The initial focus of the NPDES program was to reduce pollution from industrial facilities and sewerage treatment plants. In 1987, Congress extended the NPDES program to storm water runoff from large surface areas. EPA issued regulations in 1990 governing stormwater discharges associated with industrial facilities and large municipal systems. This regulation also covered construction activities that disturbed five or more acres of land which are part of a common plan of development (e.g. lots in a subdivisions or industrial park). Owners and operators of facilities subject to storm water permits are generally required to prepare Stormwater Pollution Prevention Plans (SWPPP) and to select best management practices (BMPs) for controlling pollutants in stormwater. In 1992, EPA issued general permits for stormwater discharges associated with industrial activities and general construction permits to reduce the administrative burden of issuing individual permits. To obtain permit coverage for stormwater discharges, owners or operators of regulated facilities had to file a Notice of Intent with EPA. 

EPA proposed its Phase II stormwater regulations on January 9, 1998 which would extend the NPDES stormwater permit program to small cities and construction sites that disturb between 1 to 5 acres. The proposed rule contained three exemptions for owners or operators of construction sites that fall within the 1 to 5 acre threshold. Such owners or operators could be exempt from obtaining a NPDES stormwater permit if they could show that the construction activity would take place during periods of low rainfall, by showing a negligible soil loss or by showing that the discharge would have not cause or have a potential to cause water quality impacts based on a state’s wasteload allocations or comprehensive watershed plans. The EPA was under a deadline to issue the final Phase II stormwater regulations by March 1st. 

Army Corps of Engineers To Issue New Wetlands Rules  

	Section 404 of the Clean Water Act prohibits the discharge of dredged or fill material into wetlands without a permit. Because the statute defines a “discharge” as the “addition of a pollutant”, the Army Corps of Engineers (“Corps”) which has authority to issue wetlands permits initially took the position that dredging or excavation operations were not regulated by the wetlands program since this activity resulted in a removal of material from wetlands. In the 1980s, however, the Corps came under intense pressure to stop the draining of wetlands from excavation and dredging operations. As a result, the Corps issued the so-called Tulloch Rule in 1993 which provided that any material that happened to spill from excavating equipment back into wetlands (“incidental fallback”) during landclearing activities would be considered a “discharge” for which a wetlands permit was required. Industry groups challenged the rule arguing that the Corps had no authority to regulate the redeposition of material that was removed from a wetlands. In June 1998, a federal court of appeals upheld a district court ruling that the Corps did not have authority to require permits for incidental fallback. The court ruled that sediments which are excavated and then spilled back into the wetlands during the dredging operations do not fall within the regulatory definition of “discharges”. The court reasoned that sediments and soils that were already in a wetlands cannot be transformed into “pollutants” when they are inadvertently spilled by the dredging equipment back into the same spot from where they were dug. The EPA and Corps are in the process of drafting rules that will clarify what is “incidental fallback” and the circumstances under which a permit may be required.
	
The agencies are also working on a rule to address “isolated wetlands” which are depressions that are filled with water during portions of the year. Since the Clean Water Act applies to “navigable waters” of the United States” some courts have held that neither the EPA nor the Corps have jurisdiction to require permits for the filling of isolated wetlands because isolated wetlands are not hydrologically connected to any surface water. The government has argued, however, that it does have authority under the commerce clause of the U.S. Constitution to regulate isolated wetlands because they serve as important nesting and feeding sites for migratory birds. Since the birds may be harvested by hunters or viewed by bird watchers, the government contends that isolated wetlands have an impact on interstate commerce. A federal appeals court struck down a rule in December, 1997 that gave the Corps authority over isolated wetlands. In May, 1998, the Corps issued guidance that allowed it to assert jurisdiction over isolated wetlands in five states: Maryland, North Carolina, South Carolina, Virginia and West Virginia. The National Association of Homebuilders recently filed suit to challenge that guidance policy. Meanwhile, EPA and the Corps is in the process of drafting a new rule addressing the regulation of isolated wetlands.   

Under the wetlands program, the Corps has developed a series of nationwide permits for certain types of activities that are deemed to have minimal impacts on the environment. Activities that fall within the nationwide permit system may be conducted without having to apply for individual permits provided the activities comply with the conditions set forth in the nationwide permits. Nationwide permit 26 (NWP26) authorized discharges into headwaters and isolated wetlands for projects. In 1996, the Corps tightened the requirements of NWP26 so that only activities that do not cause a loss through excavation or filling of more than 3 acres of wetlands nor a loss of more than 500 linear feet of a stream bed would be authorized. Activities that would cause a loss of more than 1/3 acre must submit pre-construction notices to the Corps. Approximately 14,000 activities are authorized by NWP26 each year. The Corps has announced that it would phase out all NWP26 and replace it with six new “activity-based’ NWPs. The NWP26 was originally slated to expire on December 13, 1998. Because the Corps has not completed reviewing the 3,000 comments it has received on its proposed on the replacement NWPs, the Corp has extended the expiration date for NWP26 to September 15, 1999. 

HAZARDOUS WASTES

EPA Abandons Corrective Action Rule

	RCRA authorizes EPA to require RCRA-regulated facilities to perform corrective action to remediate soil and groundwater contamination. The cleanup procedures used in the RCRA corrective action program are similar to those used by EPA in the Superfund program. However, the RCRA corrective action program potentially covers a much larger universe of facilities. It has been estimated that 3700 sites are subject to the RCRA corrective action program.

	In 1990, EPA proposed regulations that would govern how cleanups would be performed under the RCRA corrective action program. However, the proposed rule which was to have been published as Subpart S of the RCRA regulations met with intense opposition. EPA tried to revive the rule in 1996 but could not reach consensus among various stakeholder groups. In addition, approximately 30 states have enacted their own corrective action programs that utilize more flexible approaches than originally proposed in Subpart S. 
	
	The RCRA corrective action has come under withering attack because it is perceived as too time-consuming and too-costly. According to a 1997 GAO report, only 5 percent of the 1300 high priority sites have been cleanup and only 8 percent of the total corrective action facilities had been cleaned up by 1997. Under the Government Performance and Results Act, EPA is required to eliminate exposure to contamination at 95% of the RCRA priority sites and control groundwater contamination at 70% of those sites by 2005.  

As a result, the EPA has announced a RCRA Cleanup Initiative which will introduce administrative reforms that will streamline the corrective action program. The EPA hopes that these reforms will be as successful as the Superfund reforms which were implemented in 1993. We reported on the results of the Superfund reforms and the initial RCRA reforms in our last issue.

	Last month, EPA recently announced that it would not be issuing Subpart S. Instead, EPA will be issuing guidance documents that will address different aspects of the corrective action rule. EPA hopes to use some of flexible approaches used by the states such as focusing on the cleanup standards instead of the procedures that must be used to achieve those standards. In addition, EPA may use a more risk-based approach to cleanups that takes into account the dangers posed by the contamination rather than relying on inflexible cleanup goals.

EPA Temporarily Suspends RCRA Toxicity Rule for Lead-based Paint Debris

	Under RCRA, a substance may be considered a hazardous waste if it is listed in the RCRA regulations or exhibits one of the four hazardous waste characteristics: ignitability, reactivity, corrosivity and toxicity. In 1990, EPA promulgated the Toxicity Characteristic Leaching Procedure (“TCLP”) for determining if a substance exhibits the toxicity characteristic (TC). Under the TC rule, generators of waste must use either their knowledge of the substance or perform the TCLP test on a representative sample of a waste to determine if it exhibits the toxicity characteristic.

	Because of difficulties associated with collecting representative samples of lead-based paint (LBP) debris and to eliminate regulatory obstacles that might be discouraging abatement of LBP, the EPA announced that it would temporarily suspend the application of the TC rule for LBP demolition debris and architectural component debris resulting from abatement or deleading activities which is subject to the new LBP debris management rule that EPA recently promulgated under the Toxic Substances Control Act (TSCA). The suspension applies to residential buildings as well as public and commercial structures. Certain types of LBP wastes such as paint chips and dust from sandblowing operations, sludge and solvents used to strip LBP will remain subject to the RCRA TC determination. However, even if these LBP wastes are determined to be hazardous wastes, they may still be exempt from the full range of RCRA hazardous waste management requirements if the waste is generated by owners or residents of a building or if the quantity of waste generated by the abatement activity is less than 220 pounds. (See the related discussion below for more information on the scope of the TSCA.)

SUPERFUND/BROWNFIELDS

GAO Survey of State Cleanup Practices Found to Be Faster and Cheaper than Superfund

	Approximately 40 states have established voluntary cleanup programs or brownfield statutes that are designed to enhance the reuse of industrial properties. In a report entitled “Hazardous Waste Sites: State Cleanup Practices” (GAO/RCED-99-39), the GAO analyzed the programs of seven of the largest states to compare the practices used by these states with those used by the federal Superfund program. Not surprisingly, the report concluded that the states use a number of practices that facilitate faster and less costly cleanups. 

One approach highlighted by the report was the use of pre-established remediation standards which save time and money because the party performing the cleanup does not have to undergo the complex investigation and remedy selection process used in the Superfund program. 

Another practice which state officials said facilitated cleanups was the use of risk-based remediation standards that take into account the actual dangers posed by sites. All of the states surveyed by the GAO allowed contaminants to be contained on-site instead of being removed or treated. The properties were then subject to institutional and engineering controls to minimize exposure human or environmental exposure. 

Finally, state officials also suggested that liability reforms for innocent purchasers of contaminated properties and replacing the strict liability framework with a causation standard has helped to expedite cleanups by eliminating litigation and reducing transaction costs. Often times, cleanups will be delayed because parties file contribution claims against other potentially responsible parties to share in the cleanup costs. Because plaintiffs have to prove that potential defendants actually caused the contamination under the causation test, state officials believe this reduces the incentives for litigation. 

Environmental groups surveyed by the GAO did not dispute that the state changes brought more efficiency to cleanups at non-Superfund sites, they cautioned that the use of risk-based cleanups and presumptive remedies may not be appropriate for complex Superfund sites with multiple contaminants. Moreover, they felt that there were often a lack of adequate means for monitoring and enforcing the land use controls that are the underpinning for the risk-based cleanups. In addition, the environmental organizations also noted that most of the state programs did not provide the community with adequate opportunity to participate in cleanup decisions. 

GAO Examines Risks Posed by Potential Superfund Sites

	There are currently about 1200 sites that are currently on the federal Superfund list. While these sites represent the most severely-contaminated sites in the country, there are another 3,036 sites that may be eligible for placement on the Superfund list. GAO reviewed preliminary evaluations of these sites and interviewed EPA and officials of 44 states to determine the risks posed by these sites. In a report entitled “Hazardous Waste: Unaddressed Risks at Many Potential Superfund Sites”(GAO/RCED-99-8), the GAO determined that 73 percent of the sites had caused groundwater contamination and another 22 percent had the potential of contaminating groundwater in the future. Moreover, 32 percent of the sites surveyed had contaminated drinking water supplies and another 56 percent were potential sources of drinking water contamination. Nearly 96 percent of the sites were within a half mile of residences or workplaces. Some level of cleanup action had been taken at only 686 of the sites and many of the sites had not had any cleanup activity performed in ten years. Seventy-three percent of the sites had been in the EPA inventory of potential Superfund sites for over a decade.

	The GAO concluded only 1,789 of the sites were potentially eligible for placement on the Superfund list and only 232 were likely to be candidates for the Superfund list. EPA and state officials estimated that 536 of the remaining sites would be cleanup up under state programs . However, state officials estimated that they could only begin cleanups at 121 of these sites. While private parties were expected to perform cleanups at another 172 of the 536 sites. For the remaining sites, state officials were uncertain when cleanups would be commenced. Officials from 20 percent of the states indicated that they lacked adequate enforcement resources to compel private parties to cleanup these sites and half the states reported that they lack the financial resources to carry out cleanups.

TOXIC SUBSTANCES

EPA Proposes Management and Disposal Rules for Lead-based Paint Debris

	Since the passage of the Residential Lead-Based Paint Hazard Reduction Act of 1992, the federal government and a number of states have taken steps to reduce the risks posed by lead-based paint (LBP). EPA estimates that between 64 million residential units contain LBP and that as many as 15 million of these units present risks to residents.

	LBP abatement work frequently generates waste that may be considered a hazardous waste under RCRA. Because EPA is concerned that the potential costs for complying with RCRA requirements may be reducing the number of residential LBP abatements, the agency recently proposed management and disposal standards for LBP debris which would supplant RCRA regulation of LBP debris. EPA believes that the new proposed rules would reduce LBP disposal costs from an average of $316 per ton to approximately $37.50 per ton. 

	The proposed rule would apply to any firm or individuals who generate, store, transport, reuse, reclaim or dispose of LBP Debris resulting from demolition, renovation, remodeling of residential housing covered by the 1996 Lead Paint Disclosure Rule as well as public and commercial buildings. Homeowners who generate LBP debris as a result of renovation or remodeling that they conduct themselves will not be required to comply with the rule. Likewise, if a homeowner hires a contractor to perform abatement, renovation or demolition activities, the contractor will be considered the generator of the LBP Debris and be responsible for complying with the requirements of the rule. 

LBP Debris includes solid materials resulting from demolition activities that are coated with LBP as well as architectural component debris such as windows, doors, molding, etc. The architectural component will become LBP debris as soon as it is separated from the building structure. However, the proposed rule would not apply to LBP wastes that are likely to have concentrated levels of lead such as LBP chips, dust, blast media, solvents, sludges and treatment residues when these wastes are generated from non-demolition activities (e.g. abatement or deleading). These wastes would continue to be subject to RCRA requirements unless they qualify for one of the RCRA exemptions. (See the discussion of the suspension of the RCRA toxicity rules for LBP in the RCRA section of this newsletter.)
 
	Under the proposed rule, parties handling LBP Debris must comply with certain management standards. LBP Debris may not be used as groundcover such as mulch or wood chips nor for any landscaping nor may it be used as fill material, roadbed material or site leveling purposes. If LBP Debris is applied in any of these ways, the parties will be considered to have engaged in the improper disposal of hazardous wastes. The management standards also require that LBP Debris may not be stored for more than three days unless the material is kept in a closed receptacle or area with limited access. In no event may LBP be stored for more than 180 days. Generators or transporters who accept LBP Debris may not transfer the LBP Debris without providing notice to the recipient that the material is LBP Debris. Copies of the notifications must be retained for three years. 

The LBP Debris may be disposed at a variety of facilities including construction and demolition landfills, non-municipal landfills which are allowed to accept waste from small quantity generators of hazardous waste, hazardous waste disposal facilities, including landfills and incinerators. The proposed rule allows the reuse of LBP Debris such as architectural components or decorative pieces for historic preservation or when homeowners are trying to find hard-to-find doors, windows, etc, provided the LBP Debris does not contain deteriorated LBP. If so, the LBP would first have to be removed or encapsulated before the LBP may be reused. Antique dealers or salvagers who sell LBP Debris with deteriorated LBP would be in violation of the proposed rule.

RECENT SIGNIFICANT ENVIRONMENTAL CASELAW

Oil Company Held Liable for Leaking USTs of Franchisee

Many service station dealers operate under leases with major oil corporations in which the dealer leases the premises and equipment, such as underground storage tanks (USTs), and also agrees to comply with a panoply of other operational requirements such as maintaining the premises in a certain manner, keeping minimum operating hours, and purchasing specified volumes of the oil company's products.  A number of service station owners who have sent used crankcase oil to an off-site disposal location and then been named as potentially responsible parties have tried to seek contribution from oil companies on the grounds that the degree of control exerted by the oil companies made them liable as generators of the crankcase waste oil. Thus far, courts have refused generator liability to the oil companies because the oil companies did not actively participate in the disposal of the waste oil.  While acknowledging that oil companies as lessors and suppliers had superior economic bargaining power compared to the individual dealers, the courts have uniformly held that mere ability to exert control or impose conditions because of such economic bargaining power is insufficient to create liability as a CERCLA generator. Furthermore, the courts usually point out the oil companies did not own the hazardous substances and that improper waste oil disposal was not an inherent feature of the relationship with the dealers.  

Service stations dealers have also tried to hold oil companies liable for contamination caused by leaking USTs at the service stations on the basis that the control exercised by the oil companies control of the business made them operators of the USTs. The oil companies had prevailed in these cases until the recent Indiana Supreme Court decision in Shell Oil Co. v. Meyers. In that case, the court held that the fuel supplier used by Shell was an operator of the USTs because he had filled and measured the contents of the tanks. The court found that operating USTs was an inherently dangerous activity and that the USTs had created a nuisance because the gasoline had contaminated drinking water wells of six families. As a result, Shell was held vicariously liable for the actions of the contractor it had hired to deliver the fuel. Unlike the RCRA citizen suit provision, the Indiana UST law allows plaintiffs not only obtain reimbursement of attorney fees but also monetary damages from owners and operators of USTs. Under the ruling, Shell may be ultimately have to pay up to $3 million in cleanup costs and attorneys fees .  

The precedential value of this case is unclear for a number of reasons. First, the court rejected the theory that oil refiners could be liable as operators because of their potential control or leverage over the station operations. In addition, the fuel distribution arrangement in this case was generally abandoned by the petroleum industry decades ago. Indeed, the other oil company defendant in the case, Unocal Oil, was not found vicarious liable because it had used a middleman or jobber. Finally, many states do not consider the operation of USTs to be an inherently dangerous activity for which vicarious liability should be imposed. 

Corporate Officer Receives Jail Term for Illegal Discharge of Hazardous Waste

The president and chairman of the board of a manufacturer of acid cleaners and alkaline compounds was sentence to one year in prison by the Court of Appeals for the Ninth Circuit because the officer had the authority to exercise control over the corporate activity causing the discharge. In U. S. v Iverson, residue from empty chemical drums was poured down floor drains in a warehouse that discharged into the local sewer system. The city code prohibited discharges of pollutants that impacted water quality but the discharges were prohibited by state or federal law. The court ruled that the corporate officer could be liable if the jury found beyond a reasonable doubt that the corporate officer knew that the waste water was being dumped into the sewer system, had the capacity to prevent the discharge and failed to prevent the discharge. 

This case illustrates a recent trend that corporate officers who may not have actually engaged in wrongful conduct may nevertheless be held liable if they had the ability to stop the wrongful conduct even if they only had minimal knowledge of the illegal act. While the government must normally show that the defendant knew it was discharging a pollutant to sustain a criminal conviction under the Clean Water Act, the case demonstrates how knowledge may often be imputed to a defendant. Generally, courts only require that a defendant knew that it was discharging a material and not that the discharge violated a permit or the Clean Water Act. Similarly, when charging defendants with criminal violations of RCRA, prosecutors generally only have to show that the defendant knowingly treated, stored or disposed of hazardous waste and do not have to prove that the defendant knew the substance was a hazardous waste or that a permit was required for the conduct. 

Here, the corporate officer claimed that the various federal, state and local standards made it difficult to determine when a substance was a pollutant. However, the court found that a reasonable person of ordinary intelligence would have understand that the discharge of waste water would be considered a pollutant. Finally, this case also shows the importance of not relying on the local sewer code for determining if it is appropriate to discharge waster water into a sewer system. 

Innocent Purchaser Defense Not Available to Condominium Partners

A group of artists who formed a partnership to acquire a building in Hoboken, New Jersey were held not to qualify for the CERCLA innocent purchaser defense by a federal district court in Grand Street Artists vs. General Electric. The building had been used to manufacture mercury lamps from 1910-1964. In 1993, the artists formed a partnership to acquire the building and convert it into individual condominium lofts. After the building was purchased, the building was discovered to be contaminated with mercury but most of the individual partners proceeded to close on their individual units. In 1997, the EPA determined the building was unfit for human occupation and ordered the building demolished. The artists then sued General Electric which, in turn, moved for a declaratory judgement that the artists were liable under CERCLA. The court ruled that the individual partners did not acquire title to the property when the partnership took title in 1993 but only after title to the individual units passed to the partners. Since the contamination was known to the partners at that time, the partners could not qualify for the innocent purchaser defense.

To qualify for the CERCLA innocent purchaser defense, a subsequent  owner must establish that it did not know and had no reason to know that any hazardous substances were disposed of at the facility. To establish that it had no reason to know of the contamination, a defendant must demonstrate that it took "all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial or customary practice in an effort to minimize liability.” In determining whether there was an "appropriate inquiry," CERCLA requires that any specialized knowledge or experience of the innocent owner must be taken into account as well as the relationship of the purchase price to the contaminated property and whether the presence of contamination was obvious or could be detected by an appropriate site inspection. 

This case illustrates how important it is to perform comprehensive site inspection when buying former industrial property. If, as in this case, an inspection is done prior to purchase and fails to uncover contamination, most courts are likely to find that the investigation was inadequate and find the defense unavailable. 

Tenant Required to Pay for Cleanup Under Lease “Improvements” Clause

A developer of a former railyard property successfully sued a former tenant for reimbursement of cleanup costs under a clause in the lease that required the tenant to remove “all buildings, structures, railroad tracks and equipment, foundations, footings, materials, signs or signboards, debris or other facilities which have been placed on the premises after the commencement of the Lease (‘Improvements’) located on, above or below the surface of the Premises.” In Hoyt Street Properties v. Burlington Northern & Santa Fe Railroad Co., the property had been contaminated with diesel fuel, lead and other hazardous substances which the landlord contended were improvements that had to be removed. The landlord proceeded under the lease because the property was located in a revitalization district that the city was redeveloping and the cleanup had to be performed quickly. The landlord sought reimbursement under the lease rather than filing a contribution action because of the expedited proceedings that were available for real estate disputes.

The landlord was fortunate in this case because it is usually very difficult to compel tenants to remediate cleanups under the traditional lease provisions of standard leases. As a result, most modern leases contain explicit environmental provisions.