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

Editor’s Note

Contents
Page 2  Total Number of ESAs Drop 6% in 2000
Page 3  Banks Have Varying Standards for Lead, Radon and Asbestos
Page 3  EPA Issues New SEC Disclosure Guidance
Page 4  ASTM Issues New Standards For Conducting Compliance Audits and SEC Disclosure
Page 4  New Jersey Requires Well Testing for Residential Transactions
Page 5  Malpractice Claim Filed Against Consultant For Failing to Comply With ASTM 1527E Standard
Page 6  Circuit Court Reverse Negligent Remediation Ruling	
Page 6  EPA Agrees to 100% Penalty Reductions Under Audit Policy
Page 7  Universities Settle More Enforcement Actions
Page 8  Wisconsin Approves Insurance Program For Voluntary Cleanup Program
Page 8  Using Environmental Insurance Effectively: The Secured Creditor Policy
Page 9  New Hampshire Supreme Court Bars GCL Coverage for MGP Plant Site
Page10 U.S. Supreme Court Declines To Hear Challenge to NOx Rule
Page10 Los Angeles Air Board Adopts Rules to Boost NOx Credits
Page11 Spot Prices of SO2 Allowances Soar
Page11 New Hampshire and EPA Approve Innovative Air Pollution Agreement
Page11 Massachusetts to Regulate CO2
Page12 Semiconductor Industry Agrees to Reduce GHG Emissions
Page12 EPA Enforcement Initiative Focuses on Metal Finishing Industry
Page12 Two Refiners to Pay $9.5 Million and Will Undergo NSR
Page13 Building Demolition Projects Result In Asbestos Violations
Page13 Elementary School and University Fined for Improper Removal of Asbestos Tiles
Page14 Contractors Face Criminal Liability For Improper Asbestos Removals
Page14 Maryland May Become First State To Lose Authority to Administer Title V Program
Page14 Logan Airport To Implement Air Quality Initiative
Page15 Appliance Recycler Fined $202,270 for Ozone Violations
Page15 Seventh Circuit Court Remands Isolated Wetlands Case to District Court
Page16 EPA Orders Developers To Restore Damaged Wetlands
Page16States Beginning to Tighten Rules for Septic Tanks
Page17 States Using CWSRF Grants to Address Non-Point Discharges
Page17 Criminal Charges Brought for Illegal Discharges Into Sewer Systems
Page18 BP AMOCO Enter Into Multi-Site Agreement
Page18 Owner of 200 Gas Stations in Central New York Fined $400,000
Page19 Convenience Store Tenant Liable as UST Operator
Page19 Home Owner Liable for Leaking Heating Oil Tank
Page20 New Jersey Amends UST Fund  
Page20 Some State UST Funds Running Out of Resources
Page21 Maine UST Contractor Ineligible for Reimbursement from UST Fund
Page21 Broker Liable For Treble Damages For Failing to Disclose LBP
Page22 Jury Awards $6 Million in Lead Case
Page23 Governments File Lawsuits Against LBP Manufacturers
Page23 Landlords Indicted For Falsifying LBP Documents
Page23 Study Purports to Discover 600 Lead Contaminated Sites
Page24 EPA Will Investigate Residential Properties for Lead Contamination
Page25 GE To Remediate Former Facility
Page25 States Seek Additional Regulation of Mercury
Page25 EPA Begins to Focus on Improper Disposal of Fluorescent Light Bulbs
Page26 Enforcement Actions Brought Against Dry Cleaners
Page26 EPA Announces New Brownfield Grants
Page26 State Brownfield Programs Announce Grants
Page27 Kentucky Governor Signs Brownfield Legislation
Page27 Pennsylvania Announces Completed Brownfield Cleanups
Page28 West Virginia Announces Second Completed Brownfield Cleanup
Page28 Cleanup at First Florida Brownfield Site Is Completed
Page28 NJ Landfills To Be Converted to Golf Course Complex
Page29 Colorado Approves Cleanup for Brownfield Site
Page29 EPA Agrees to Remove Part Of RCRA Facility Under RCRA Brownfield Initiative
Page29 Controversy Continues Over Use of Brownfield Sites for Schools
Page30 Farm Land Donated To Pennsylvania Hospital To Be Remediated Under Brownfield Program
Page30 EPA To Remediate Arsenic Contamination in DC Neighborhood
Page31 EPA Enters Into Additional Prospective Purchaser Agreements
Page32 California Enters Into First PPA
Page32 Fifth Circuit Reverses Ruling to Surcharge Lender’s Collateral
Page34 City Acquiring Title Under Eminent Domain Not Liable Under CERCLA
Page35 Eighth Circuit Expands CERCLA “Divisibility” Defense
Page35 SREA Bars Contribution Action Consolidated With Government Lawsuit			
Page36 District Court Declines To Dismiss Claims Against Restaurant and Franchisor for Pre-Exisiting Contamination

DUE DILIGENCE/ AUDITING/ DISCLOSURE/ ENFORCEMENT

Total Number of ESAs Drop 6% in 2000
According to the ESA Report, 221,000 Phase I environmental site assessments (“ESAs”) were conducted in 2000 which represented a decrease of 6% from 1999. The report which is published monthly by EDR Business Information Services estimated that the total value of Phase I ESAs performed in 2000 was $464 million. The publication also indicated that the average price of Phase I ESAs was $2,100 which was a 5% increase over 1999. However, early indications are that the changes mandated by the ASTM E1527-00 have increased the average price of a Phase I ESA to $2,700 during the first quarter of 2001. 
Operating businesses accounted for approximately $350 million or 75% of the Phase I ESAs that were performed in 2000. The next largest sector was transportation infrastructure projects which represented $35 million or 8% of the total ESAs. These projects included highway construction, roadway relocation and transportation-related facilities which were authorized under TEA-21. The next largest source of ESAs was the telecommunications industry which accounted for $30 million or 7% of the total ESAs. This market was driven by FCC regulations that require new towers to undergo some form of ESA to comply with the National Environmental Policy Act of 1969. Acquisitions of apartment buildings, shopping centers, warehouse and office buildings by REITs resulted in approximately $25 million or 5% of ESAs. Mergers and Acquisitions produced $15 million or 3% of the total ESAs while Brownfields and CMBS transaction accounted for $5 million or approximately 1% of the ESAs performed in 2000.
ESA Report estimated that 40,000 transaction screens were performed in 2000 and that the average price of a transaction screen was between $700-$750. Transaction screens are usually performed on so-called small cap loans under $1 million. It appeared that transaction screens were performed on slightly less than 10% of all the small cap loans that were issued in 2000. 
Banks Have Varying Standards for Lead, Radon and Asbestos
The ASTM E1527-00 identifies 13 issues that are not normally addressed in an ESA but which may be included within the scope of an ESA if requested by the client. Indeed, many lenders now routinely request consultants to address asbestos, lead-based paint, radon and lead in drinking water when conducting ESAs. 
We have reviewed the practices of some of the larger money center banks and conduit lenders and have discovered a surprising variation in standards established by lenders for these issues. For example, some lenders only require radon samples if a property is located in an EPA Radon Zone 1. Even then, the lenders vary in the number of samples that must be taken with some requiring a certain percentage of all units to be sampled while others establish a numerical limit such as 5 out of 100 units. For lead in drinking water, most lenders require the consultant to verify that the public water supplier is in compliance with the EPA Lead and Copper Rule requirements. Some go beyond this step and require varying amounts of samples to be collected from individual residences. Nearly all require samples for private drinking water wells. 
However, the greatest variation we observed was the sampling protocols for lead-based paint. Some banks only ask the consultant to visually observe the condition of the paint and will require samples only when damaged paint is present.  Other lenders require residences to be sampled if they were built before 1979 while others use 1978 as the threshold. Once that threshold is triggered, the lenders vary in the number of samples that must be collected. Some establish a certain minimum number of lead swabs, usually from 20-35 per property. Others, meanwhile, require that samples be collected from a certain percentage of units, usually between 5-10%. 
EPA Issues New SEC Disclosure Guidance
In 1998, a study by the EPA Office of Enforcement and Compliance Assurance (“OECA”) found that 74 percent of publicly-traded companies had failed to adequately disclose the existence of environmental legal proceedings in their 10-K registration requirements as mandated by Securities and Exchange Commission (“SEC”) Regulation S-K, Item 103. As a result, OECA recently issued a guidance document advising regional offices when they should inform targets of EPA enforcement actions that enforcement proceeding may be a reportable legal proceeding under Item 103 of Regulation S-K. 
The document entitled “Guidance on Distributing the Notice of SEC Registrants’ Duty to Disclose Environmental Legal Proceedings in EPA Enforcement Actions” indicated that any enforcement action initiated by EPA is potentially a “legal proceeding” that is subject to SEC’s environmental disclosure requirements. The guidance states that a “Notice of SEC Registrants’ Duty to Disclose Environmental Legal Proceedings” should be distributed to parties that are subject to an EPA initiated enforcement action or where the agency has the lead for prosecuting the case. The notice is to be distributed to the agent of the company upon the commencement of a formal proceeding which the guidance defines as the filing of an administrative complaint, issuance of an administrative order or sending of a letter demanding payment of stipulated penalties. The administrative legal proceeding must have been taken in response to a violation of a federal, state or local law or regulation with the primary purpose of environmental protection. The notice should not be distributed if the target of the enforcement action is a federal, state or local government entity, or if the case has been or is expected to be referred to the Department of Justice. Moreover, if the lead enforcement personnel reasonably believe that Item 103 would not apply based on the facts or circumstances of the case, the notice need not be distributed. For example, an administrative order for access or a PRP information request would not likely have to be distributed.   
ASTM Issues New Standards For Conducting Compliance Audits and SEC Disclosure
The American Society for Testing and Materials (“ASTM”) has issued a new standard on environmental auditing that focuses on regulatory compliance in the United States. The “Standard Practice for Environmental Regulatory Compliance Audits” (ASTM E2107-00) discusses the roles and responsibilities of audited and auditing entities, audit team staffing and auditor qualifications, the compliance audit process, evaluation and report preparations, and major legal issues. 
Meanwhile, two ASTM standards addressing compliance with SEC environmental disclosure requirements will be issued shortly. The “Standard Practice for Estimating Environmental Liabilities” provides guidance on estimating the costs and liabilities of environmental matters. The “Standard Practice for Disclosure of Environmental Liabilities” established the conditions warranting disclosure under SEC Regulation S-K and what constitutes an appropriate disclosure.  We will review the standards in an upcoming issue.
New Jersey Requires Well Testing for Residential Transactions 
In many parts of the country, purchasers of homes routinely test for radon, asbestos and leaking fuel oil tanks. In New Jersey, it will soon be necessary to add well testing for sales or leases of residential property.
Under the “Private Well Testing Act” that was signed into law in March, private drinking water wells on residential property or residential property using a well that has less than 15 service connections or that does not regularly serve an average of at least 25 individuals daily at least 60 days out of the year will have to be tested when the property is sold on or after September 14, 2002. It is estimated that the new law will affect 300,000 residences.
Private wells on leased property will have to be tested every five years beginning March 14, 2003. Within 30 days after receipt of the test results, the lessor shall provide a written copy thereof to each rental unit on the property. The lessor shall also provide a written copy of the most recent test results to a new lessee of a rental unit on the property.
The tests must analyze for bacteria (total coliform), nitrates, iron, manganese, pH, and volatile organic compounds (“VOCs”) for which maximum contaminant levels have been established. The test should also include a short-term 48-hour gross alpha test to screen for the presence of radium when the state Department of Environmental Protection (“DEP”) determines there are sufficient laboratories to perform the radon test. The water tests must be performed by a certified lab which must send the results to the DEP within five days of the completion of the test. The law sets forth stringent requirements for how the test results are to be reported by the laboratories. The test results may only be disclosed to the parties involved in the transaction and the DEP.
The law provides that a closing cannot take place until both the buyer and the seller have received and reviewed a copy of the test results. At the closing, the buyer and seller both shall certify in writing that they have received and reviewed the test. 
The law does not require corrective action if the test detects contaminants above the levels established under the Safe Drinking Water Act. However, the state DEP is required to provide the test results to the county health departments with 5 days. The law allows the health departments to provide a general notice to residences served by wells in the vicinity of the affected property when a well fails the test suggesting that they may want to have their wells tested but the health departments may not reveal the exact address of the affected well. The DEP is required to establish the level of exceedance recommended for notification, and the distance or location of the properties in the vicinity of the contaminated well for which testing is recommended. The health departments may exercise their own authority to conduct inspections or require corrective action. The health departments are to keep the actual test results confidential and the results will not be available for public examination, inspection or copying. 
Commentary: The tests required by the new law will cost from $600 to $800. If corrective action is required, it could cost as little as $50 to add a water softener or from $500 to $2,000 to install a well filtration system.  A more expensive option would be to connect into municipal water suppliers. One result of the law may be that many private wells may have to be drilled deeper or shutdown. Many existing private drinking wells are not as deep as required under current construction codes. These codes usually require wells to be drilled down at least 50 feet below the surface while many wells serving residential properties are now just 20 or 30 feet deep. 
	This legislation follows the 1995 "New Residential Construction Off-Site Conditions Disclosure Act" that requires that lists of certain "off-site conditions" in the municipality which may materially affect the value of newly constructed residential real estate be available at each Municipal Clerk's office. Every person who owns, leases, or maintains any off-site condition located in the state are required to provide the municipal clerk of the municipality with the location of the off-site conditions within the boundaries of the municipality.  This requirement applies regardless if the person provides any service within a municipality in which an off-site condition exists. 
At the time of entering into a contract for the sale of newly constructed residential real estate, the seller including a real estate broker, real estate salesperson or a builder is required to disclose the existence of the “off-site conditions” within the boundaries of the municipality in which the residential real estate development is located as well as for any other municipality located within one-half mile of the residential real estate. The seller’s obligation shall be satisfied by providing the buyer with a notice of the availability of the list of the off-site conditions. The purchaser has five (5) business days from the date the contract is executed by the purchaser and the seller to cancell the contract.  
Malpractice Claim Filed Against Consultant For Failing to Comply With ASTM 1527E Standard
A consultant in the Midwest was retained by a client to perform a Phase I ESA on an abandoned commercial property in a neighboring state where the consultant did not have an office. The client was planning to purchase the property and requested that the ESA be performed in accordance with the requirements of ASTM E1527. The consultant concluded the site had no recognized environmental conditions (“RECs”). After the client purchased the property, it commenced construction of an office building and discovered contaminated soil. Apparently, a UST had been located on the property in the past but had been removed by the previous owner who had not registered the tank. The consultant’s client then filed a malpractice suit, claiming the consultant had failed to identify the contaminated soil as a REC as defined by the ASTM E1527. The lawsuit also alleged that the consultant should have advised the client to collect samples of the contaminated areas. 
Paragraph 1.1 of the ASTM- E1527 specifically provides that the purpose of the standard is to define what is “good commercial and customary practice” so that the user can satisfy one of the requirements of the CERCLA innocent purchaser’s defense. Likewise, paragraph 1.2 states that the objectives of the standard are, inter alia, to “clarify an industry standard for appropriate inquiry in an effort to guide legal interpretation of CERCLA’s innocent purchaser defense.” 
In this case, there was no allegation that the client failed to satisfy the Innocent Purchaser’s defense, only that it had incurred unanticipated cleanup costs related to a REC that was not identified in the ESA. Thus, since there is no CERCLA liability at issue, it would seem that ASTM standard would not apply in this situation. The plaintiff simply alleged that there was a past release that the consultant did not identify as a REC. It is unclear if the contamination posed a material risk or if the client simply incurred increased construction costs to properly handle the contaminated soil. There was no allegation that the consultant had failed to review the required standard historical sources or the requisite databases. There was no claim that the consultant failed to detect any “obvious threat.”  Instead, the plaintiff alleged that the consultant should have known that there was a likelihood that a UST might have been at the site. However, there was no information found in the consultant’s investigation suggesting a possible UST on the site.
The real claim here is a breach of contract claim that the defendant failed to exercise the due care required of a professional consultant when performing its investigation. The plaintiff was attempting to use the terms contained in the ASTM standard to evaluate if the investigation satisfied the standard of care that should be exercised by a professional consultant. This use of ASTM terms to establish the professional standard of care would seem to be precluded by paragraph 1.6 of the ASTM Standard.
Commentary: Many consultants unwittingly expand the scope of ASTM E1527 by inserting language in their reports and scopes of work that the purpose of the assignment is “to identify existing or potential recognized environmental conditions as defined under ASTM E1527-00” or “this methodology is designed to represent good commercial and customary practice for conducting environmental site assessments of the property for the purpose of identifying recognized environmental conditions as defined in ASTM E1527-00.” Under this language, the consultant is not limiting itself to performing an investigation to establish an innocent purchaser’s defense but is affirmatively taking on the obligation of discovering actual or potential recognized environmental conditions. Instead, a consultant should use language indicating that the purpose of the investigation is to conduct an “appropriate inquiry” into the ownership and uses of the property. If the client expects a more comprehensive investigation, the scope of work and the report should discuss these additional conditions as set forth in section 5.5 of ASTM E1527-00. 
Circuit Court Reverse Negligent Remediation Ruling
The federal Court of Appeals for the District of Columbia vacated a federal jury verdict that had found that Exxon negligently remediated contamination that migrated from leaking underground storage tanks at a service station in Washington, D.C. 
In National Telephone Cooperative Ass'n v. Exxon Mobil Corp. (D.C. Cir., No. 99-7124, 4/3/01), the jury awarded  $2.49 million to the plaintiff. Exxon appealed, arguing that the plaintiff had not established the standard of care which was necessary to support the judgment in its favor. Under the law of the District of Columbia, if the applicable standard of care in a negligence action is "beyond the ken of the average layperson," then the plaintiff must establish that standard through the testimony of an expert. The court found that the standard of care in this case was beyond the ken of the average layperson. As a result, the plaintiff had to introduce expert testimony which clearly referred to a standard of care by which the defendant's actions can be measured. 
However, the court found that the expert’s testimony only related to the ultimate goal of the remediation and did not establish that the defendant failed to meet any "practices in fact generally followed" or "to some standard that is nationally recognized”. The court said that the personal opinion of the testifying expert as to what he or she would do in a particular case, without referring to a standard of care, was insufficient to prove the applicable standard of care.
EPA Agrees to 100% Penalty Reductions Under Audit Policy 
EPA recently agreed to forgive $547,150 in potential penalties against seven companies that voluntarily disclosed violations under the Emergency Planning and Right To Know Act (“EPCRA”). All of the companies failed to file Toxic Release Inventory (“TRIs”) for several toxic chemicals used or stored at their plants. The violations involved reports for calendar years 1993 through 1999. 
Four of the companies received complete penalty waivers because the violations did not result in any serious actual harm to human health or the environment and the companies did not benefit economically from these reporting violations. Three companies agreed to participate in the National Nitrate Initiative. Last year, EPA allowed companies which may have inadvertently failed to report past nitrate compound releases to pay reduced penalties if they agreed to commit self-audits and correct any violations. The penalties ranged from $5,000 for companies with 100 or more employees and $1,000 for companies with less than 100 employees.
Commentary:  EPA has initiated a number of Compliance Incentive Programs (“CIP”) for various industrial sectors including pork production, oil refining, telecommunications and electric coal-fired generating facilities. The CIPs employ many of the same concepts of the Audit Policy such as penalty reductions for violations that are voluntarily discovered and corrected. However, unlike the Audit Policy, these programs usually have a firm deadline for all facilities within the industrial sector to disclose and correct the violations. Facilities that did not commit to the program could be subject to increased enforcement by EPA. 
EPA has increasing relied on CIPs for other industry sectors and regulatory programs. However, many regulated entities have argued that EPA's voluntary compliance programs are fundamentally coercive since companies face enhanced enforcement if they do not participate in the programs. Indeed, EPA’s reliance on voluntary initiatives might be susceptible to judicial challenges as the result of a 1999 decision by the Court of Appeals for the District of Columbia Circuit in Chamber of Commerce vs. U.S. Department of Labor, 174 F.3d 206 (D.C. Cir. 1999). In that case, the court struck down an OSHA Cooperative Compliance Program (“CCP”). Under this initiative, OSHA had issued a directive stating that approximately 12,500 workplaces would be placed on a so-called "primary inspection list" and then subjected to a comprehensive inspection before the end of 1999. The directive stated that if the employer participated in OSHA's CCP, the agency would remove the workplace from the primary inspection list, and reduce its chances of inspection by as much as 90 percent. However, the directive indicated that employers participating in the program must not only comply with workplace safety laws, but also comply with applicable voluntary industry standards and practices. 
In striking down the OSHA CCP, the court said the practical effect of the rule was to oblige an employer to comply or to suffer the consequences. In addition, because employers were required to comply with voluntary industry standards to avoid OSHA inspections, the court concluded the directive was a "substantive rule" rather than a "procedural rule" or a policy statement and was therefore subject to the federal Administrative Procedure Act's ("APA"). Because OSHA had failed to comply with the APA notice-and-comment rulemaking requirements when it adopted the program, the court concluded it was in violation of the APA. 
The court's ruling might be applicable to the EPA CIPs that require voluntary compliance at the risk of being singled out for special enforcement treatment or other negative consequences or that rely on voluntary industry standards that have not undergone formal comment and notice rulemaking procedures. The decision might also be applicable to other informal regulatory vehicles such as guidance documents, policy statements or compliance manuals. 
Universities Settle More Enforcement Actions
In the latest example of the EPA university enforcement initiative, the University of Rhode Island agreed to pay a $250,000 fine and spend $550,000 on environmental improvement projects to resolve 19 violations of the various environmental statues. Some of the projects will include the replacement of a containment storage area built atop a key "sole source" drinking water aquifer and a new hazardous waste storage area.
In addition, the Massachusetts Institute of Technology (“MIT”) agreed to pay a civil penalty of $150,000 and fund more than $400,000 in innovative environmental projects. The settlement resolves 18 violations discovered in 1998 involving 56 labs, a medical waste incinerator and a power plant.   MIT will develop a computer-based 'virtual campus' compliance assistance tool to help universities and colleges nationwide comply with environmental laws. The university will also construct a state-of-the art facility using biofiltration which will reduce the volume of stormwater runoff in the Cambridge community by 50 percent and the amount of solids in the runoff by 80 percent.  In addition, three environmental education projects will be developed and implemented in the community public school system.
Commentary: We understand that EPA is considering launching an enforcement initiative for medical facilities similar to the college and university enforcement program.

ENVIRONMENTAL INSURANCE

 Wisconsin Approves Insurance Program For Voluntary Cleanup Program
Wisconsin became the second state to create a subsidized environmental insurance program for contaminated sites. The insurance program went into effect on March 6th. 
The program applies to cleanups performed under the state voluntary cleanup program that provide for natural attenuation of contaminants. To be eligible for the program, a volunteer must implement an investigation and cleanup plan that is approved by the state Department of Natural Resources. If the cleanup plan demonstrates that natural attenuation will successfully reduce contaminants to groundwater standards, the party will pay a fee for the insurance coverage and receive a Voluntary Party Liability Exemption ("VPLE")   
Using Environmental Insurance Effectively: The Secured Creditor Policy 
	In our last issue, we suggested that the secured creditor policy should not be used as a substitute for environmental due diligence. In this installment of our series on how to effectively use environmental insurance, we discuss how a secured creditor policy can be used to help facilitate acquisitions of property or for refinancings. 
	A number of insurers now offer secured creditor policies which generally provide that the insurer will either reimburse a lender for cleanup costs or payoff the balance of the loan, whichever amount is less. Some policies are so-called “loan balance” policies that simply provide that the insurer will payoff the loan balance. These policies typically are triggered when there is an event of a default and the existence of environmental conditions which is usually defined as contamination at concentrations that require remediation. Most insurers do not require the lender to foreclose on the property to trigger the policy. 
	We have seen numerous situations where the availability of a secured policy was the key factor in making a money center bank or conduit lender comfortable to finance a transaction. In these cases, a bank usually required a Phase I ESA which either disclosed environmental conditions such as contamination from a dry cleaner at a shopping center or perhaps indicated there might be a potential leaking underground storage tank. In the past, the bank would request that the borrower perform a Phase II so that the environmental costs could be estimated and would then hold back an amount equal to the estimated cleanup costs or perhaps require that the borrower establish an escrow to cover the estimated cleanup costs. 
Now, though, we are seeing many lenders approve the loan without requiring additional investigation, any holdbacks or escrow if the borrower obtains a secured creditor policy. We have seen this trend most commonly in refinancings where the borrower as the current landowner of the site presumably already potentially liable for the contamination. A few lenders are also waiving the requirement that the borrower execute an environmental indemnity when the borrower purchases a secured creditor policy.
In these transactions, the insurance carrier has requested a copy of the ESA and financial information on the borrower. The policy is then issued basically on the creditworthiness of the borrower. The bank is satisfied because it has an insurance policy which essentially guarantees the loan balance and the borrower is pleased because it has access to the full loan proceeds.
 Commentary: There are important considerations to remember about the two loan triggers. First, environmental conditions at the time of coverage are usually not covered unless the pollution condition is disclosed to the carrier. Thus, it is important to have a thorough Phase I ESA and to provide the insurance company with all information that is known about the site. 
On the issue of defaults, many policies define this term as a non-payment. At first glance, it would appear that a policy with this definition would not be triggered if the borrower failed to implement a cleanup plan or otherwise comply with environmental law since this would not be a financial default. However, a lender can work around this limitation by inserting specific environmental covenants in the loan documentation. If the borrower fails to comply with the environmental covenant, the lender could declare a default and then accelerate the loan. If the borrower cannot pay the accelerated payment, the lender could then trigger the policy. To avoid having to go through this process, it would be better for the lender to modify the definition of a default so that it applies to any set of circumstances that would qualify as an event of a default in the loan documentation. In this way, the lender could draft specific environmental loan covenants and if the borrower fails to comply with the environmental covenant, the lender could then rely on the insurance policy.
New Hampshire Supreme Court Bars GCL Coverage for MGP Plant Site 
The New Hampshire Supreme Court ruled that a discharge of hazardous waste from a manufactured gas plant (“MGP”) was not covered under a comprehensive general liability policy. In Energynorth Natural Gas Inc. v. Continental Insurance Co., (No. 98-735, 3/21/01), the plaintiff operated an MGP from approximately 1852 to 1952. The defendant issued a series of comprehensive general liability insurance policies to the plaintiff from 1965 through 1985. The policies issued prior to 1967 were "accident-based" policies while the policies issued after 1967 were "occurrence-based" policies. 
After the plaintiff spent over $3.5 million to comply with an order of the state DES to investigate and remediate contamination at the site, the plaintiff brought a declaratory judgment action to obtain coverage for the costs of cleaning up the site. Ruling on cross-motions for summary judgment, the trial court held that none of the policies in question were triggered because the contamination was not accidental and granted summary judgment in favor of the defendant. On appeal, the state Supreme Court said that the policies insured against the consequences of accidents and that it was well established under state law that an "accident" did not include inherently injurious acts. 
The court also upheld the trial court’s ruling to use an objective test when determining if an act was “inherently injurious". The court said an act could be inherently injurious even if the insured did not subjectively intend or know about the consequences of those acts. The court ruled that an act could be inherently injurious even if the insured had not contemplated the precise injury so long as it was certain to result in some injury. Thus, the court concluded that that a reasonable company in the position of the plaintiff at the time in question would have known that its intentional discharge of toxic waste into a body of water was certain to contaminate the water since the industry knew about the harmful nature of MGP waste.

AIR POLLUTION DEVELOPMENTS

U.S. Supreme Court Declines To Hear Challenge to NOx Rule
The U.S. Supreme Court denied petitions filed by 50 utilities, several trade groups and eight states to review an federal appeals court ruling that upheld EPA’s so-called NOx SIP Call (Appalachian Power Co. v. EPA, No. 00-445; Michigan v. EPA, No.00-632; Ohio v. EPA, No. 00-633, 3/5/01). This rule will require emission sources in 22 states and the District of Columbia to reduce NOx emissions.
Under its NOx SIP Call, EPA developed maximum NOx limits known as budgets for the state ozone seasons which range from May 1 through September 30 of each year. The states were then required to submit State Implementation Plans (“SIPs”) to show how they planned to reduce emissions to meet the NOX budgets. Most of the emission reductions will likely come from electrical generating units (“EGUs”). For example, 94 percent of the total NOX emissions reduction in New Jersey will come from EGUs. In contrast, 54 percent of NOX reductions will come from EGUs in New York. As a result, many non-EGU NOX-emitting sources must be included in New York's SIP. 
Commentary: In addition to the NOx SIP call, EPA also created an emission cap and trade program on a subset of EGUs in 12 states and the District of Columbia to control interstate transport of NOx. This NOx cap-and-trade program is modeled after the sulfur dioxide (“SO2”) allowance system implemented under the Acid Rain Program. 
The EGU trading program generally applies to EGUs having a maximum sustained output of greater than 25 MW and non-EGUs having a maximum design heat input greater than 250 mmBtu/hr. In deciding the level of control to be applied, EPA applied "highly cost-effective measures". For EGUs, the control is 0.15 lb NOX/mmBtu and for non-EGUs as 0.17 lb NOX/mmBtu. 
In general, each regulated EGU will be issued a NOX allowance allocation based on its baseline emissions and the applicable control standard. The source will be allowed to use its allowances to emit NOX, buy additional allowances if it needs to emit more NOX, or sell or bank excess allowances. NOX sources subject both to the federal cap-and-trade program and Title V or another federally enforceable permit program must submit a permit application or revision that lists certain NOX program compliance details at least 18 months prior to the date they become subject to the program. For most existing sources, the application deadline will be Nov. 1, 2001. The emission sources must begin complying with the program by May 1, 2003. 
	Industry representatives have argued that the NOx caps may prevent utilities from meeting electrical demand in the middle of this decade. The industry representatives contend that EPA did not adequately take growth into account when developing the budgets. As a result, bills have been introduced in Congress that would allow gas-fired power plants and on-site diesel generators to exceed NOx limitations during electricity emergency days to prevent blackouts. The legislation would also allow governors to request one-year waivers for new source review on new power sources.   
Los Angeles Air Board Adopts Rules to Boost NOx Credits
In our previous issues, we discussed how the California energy crisis has resulted in a shortage of NOx emissions allowances under the regional trading emission program known as the Regional Clean Air Incentives Market (“RECLAIM”). The shortage has caused the price of NOx credits to soar to as much as $100,000 per ton. 
To increase the amount of NOx allowances, the South Coast Air Quality Management District (“SCAQMD”) approved rule 1612.1 that will allow stationary sources to generate NOx credits by replacing mobile sources such as heavy-duty diesel trucks, warehouse truck hostlers or refuse trucks with low emission vehicles. Nine percent of the credits generated under the Mobile Source Credit Generation Pilot Program will have to be permanently retired and will not be able to be used by stationary sources to comply with the RECLAIM program. The SCAQMD hopes to expand the program to in-port marine vessels, truck and trailer refrigeration units, and diesel-powered agricultural pumps.   
Spot Prices of SO2 Allowances Soar 
During the ninth annual auction of SO2 allowances, spot prices were approximately $65 higher than the prices for the seven-year advance auction. Spot market allowances may be used in 2001 while the advance auctions cannot be used until 2008. Since the annual auction began, the average price disparity between the spot market and long-term allowances was only $5. Last year, it increased to $25. Traders have attributed the price disparity to concerns that utilities will need more SO2 allowances to meet increased energy demands. 
For the spot market auction, 480, 995 spot allowances were bid and 127,788 spot allowances were sold at an average weighted average of $174.97. 14 of the 85 total bids were successful. For the seven-year advance market, 355,500 allowances were bid and 127,388 advance allowances were sold. The average price of the advance auction was $110.75. Six of the 20 bids were successful. 
New Hampshire and EPA Approve Innovative Air Pollution Agreement
In the first agreement reached under an expedited review process established by EPA Region I office, a New Hampshire paper mill agreed to install alternative pollution controls that will reduce air pollution four times more than required under the CAA. 
The Groveton Paper Board Mill would have been required to install a $1 million system to capture and incinerate methanol emissions by April 2002. However, the company realized that it could significantly reduce emissions by treating process water to remove methanol. This alternative treatment will reduce emissions by an estimated 42 tons per year while the incineration approach would have only resulted in a reduction of 11 tons. The company also expects to reduce emissions of other hazardous air pollutants by 20 tons. Meanwhile, the process water treatment technology will only cost $175,000. 
Massachusetts to Regulate CO2 
Massachusetts will become the first state to regulate carbon dioxide emissions from power plants under a regulation that will become effective in June. The six oldest power plants in the states will be required to reduce CO2 emissions by 10%, NOx emissions by 50%, SO2 emissions by 75% and also limit mercury emissions. The affected power plants produce 40% of the electricity used in Massachusetts. To meet the emissions limits, the plants may either install pollution control equipment or convert to cleaner-burning fuel. Companies electing to install pollution control equipment must have the controls in place by 2004. All six power plants are required to submit an Emission Control Plan to the state DEP by January 1, 2002. 
The plants choosing to use pollution control equipment will have to reduce NOx emissions to 1.5 pounds per megawatt hour and their SO2 emissions to 6.0 pounds per megawatt hour by October 1, 2004.SO2 emissions would have to be further reduced to 3.0 pounds per megawatt hour by October 1, 2006. CO2 emissions would be limited to 1,800 pounds per megawatt hour by October 1, 2006.
Utilities opting to change fuels will be required to reduce NOx emissions by 1.5 pounds per megawatt hour and SO2 to 6.0 pounds per megawatt hour by October 1, 2006. SO2 levels would have to drop to 3.0 pounds per megawatt hour by October 1, 2008. CO2 emissions would be limited to 1,800 pounds per megawatt hour by October 1, 2008. 
For mercury emissions, the DEP is required to propose emissions standards by December 1, 2002. All six plants would have to attain the mercury emissions limits by October 1, 2006.
Commentary:  Some companies are not waiting for governments to regulate CO2 emissions. Recently, Entergy Corporation announced that it would cap its CO2 emissions for the next five years at 2000 levels. The company operates power plants in six states and plans to increase its capcity by appromixately 30% during the period the cap will be in effect. The company expects to achieve 80% of the CO2 emissions from operational changes and 20% from emissions trading. 
The company also became the first American-based utility to join the Partnership for Climate Action. Participating companies hope to reduce CO2 emissions by 80 million metric tons annually by 2010. Meanwhile, utilities that have participated in the Department of Energy’s Climate Challenge program reduced greenhouse gas gases (“GHG”) emissions by 47.6 million metric tons last year. 
Semiconductor Industry Agrees to Reduce GHG Emissions
EPA and 21 semiconductor manufacturers have entered into a memorandum of agreement to reduce emissions of perfluorocarbons, hydrofluorocarbons and sulfur hexafluoride by 10 percent below 1995 levels by the end of 2010. The agreement complements efforts by the World Semiconductor Council and other semiconductor trade associations to reduce GHG emissions worldwide.
Perfluorocompounds which are used to clean semiconductor manufacturing equipment and to etch silicon wafers to create circuitry patterns are the most potent and persistent of the GHGs. Perfluorocompounds have 10,000 times the global warming potential of CO2 over 100 years. They can persist in the atmosphere from 2,000 to 50,000 years. 
EPA Enforcement Initiative Focuses on Metal Finishing Industry
As part of its effort to control air emissions from the metal industry, EPA brought enforcement actions against two New England metal plating operations who have the same corporate ownership. 
Springfield Electroplating agreed to pay a $4,500 fine and to spend $72,465 in environmental improvements.  EPA charged that the company failed to control emissions from its chromium electroplating tanks and did not conduct required monitoring and testing for chromium emissions. The company will upgrade its wastewater treatment system so that it will be able to reuse treated wastewater, thereby decreasing emissions of nickel, chromium and copper. Meanwhile, Central Plating agreed to pay a $13,750 fine to spend $94,080 over five years on environmental improvements at its facility.
Three years ago, EPA developed a Metal Finishing Strategic Goals Program to encourage metal finishers to meet aggressive pollution reduction goals by 2002. Companies that agree to enter the program receive compliance and pollution prevention assistance as well as more flexible regulatory oversight from EPA and state regulators.
Two Refiners to Pay $9.5 Million and Will Undergo NSR 
 	Two of the nation's largest petroleum refiners and a refinery partnership between Shell and Petroleos Mexicanos (“Pemex”) have agreed to pay $9.5 million in civil penalties and to reduce SO2, NOx, and VOC emissions by as much as 57,000 tons of pollutants a year. The consent decree resolves claims that the refiners failed to comply with New Source Review (“NSR”) when they expanded operations. 
 	Under the agreement, Equilon Enterprises LLC, Motiva Enterprises LLC and Deer Park Refining Limited Partnership will invest approximately $400 million to develop new technology and upgrade existing pollution-control measures and work practices nationwide to reduce emissions from various sources at each of their refineries, including flares, wastewater vents, valves and stacks. Additionally, the companies will spend $5.5 million on supplemental environmental projects in the communities surrounding the refineries. 
Building Demolition Projects Result In Asbestos Violations 
The National Emission Standard For Hazardous Air Pollutants (“NESHAP”) for asbestos requires owners and operators of a building with regulated asbestos-containing materials (“RACM”) that is to be demolished to provide EPA with ten days advance notice of the activity. In addition, they must remove friable asbestos prior to demolition, comply with the asbestos workpractices to control asbestos fibers and to properly dispose of the asbestos waste materials. 
Despite the fact that these requirements have been in effect for 28 years, many building owners and contractors continue to find themselves subject to civil or criminal penalties for failing to comply with the asbestos NESHAPs. For example, EPA fined the Council Rock School District, its asbestos removal contractor, and an environmental consultant $23,120 for alleged asbestos violations during the demolition of three houses and other storage structures. The buildings were demolished to construct a high school. The EPA charged that the parties failed to provide the required ten day advance notice, failed to adequately wet RACM during stripping operations, allowed visible releases of asbestos material prior to placing the material in leak-tight containers, did not properly mark vehicles used to transport asbestos wastes, and failed to comply with reporting and record keeping requirements. 
In another demolition project, a real estate developer, demolition contractor and an environmental contractor agreed to pay $130,000 to settle alleged violations of the asbestos NESHAP during the demolition of the former Downingtown Farmers Market and nearby former residential buildings. The structures were demolished to construct a new shopping center. EPA alleged that the parties have failed to adequately inspect the premises for ACM prior to demolition and had not submitted the required ten-day advance notice. EPA also note that asbestos-containing transite wall panels, vinyl asbestos floor tile, mastic and floor leveler had been broken, crumbled and reduced to powder during demolition activities. The local fire department had also been allowed to conduct a training exercise on a portion of the old market which resulted in the burning of approximately 25,000 square feet of vinyl asbestos floor tile, mastic and leveler. The parties also failed to adequately wet all RACM, seal all RACM waste in leak-tight containers or wrapping while wet and failed to dispose the RACM in a asbestos-licensed landfill. 
Commentary: For demolition projects involving residences, one might charitably believe that the parties were confused over the scope of the residential building exemption. Under this rule, the asbestos NESHAP does not apply to renovations or demolitions of small residences which are defined as individual residential buildings with four or fewer buildings. However, in 1990 and again in 1995, EPA clarified that the residential building exemption does not apply to residences that are demolished as part of larger demolition projects such as shopping centers or urban renewal project where the residences are located on the same site under the control of the same owner or operator.
Elementary School and University Fined for Improper Removal of Asbestos Tiles
Ricks College in Rexburg, Idaho agreed to pay $18,500 for improperly removing and disposing of ceiling tiles containing asbestos. The tiles were removed during a renovation of a library. Originally, EPA had sought $92,400 but agreed to reduce the penalty by 75 percent because Ricks officials immediately notified the EPA of the problems after a consultant advised the school of the violations.
Similarly, the Vermont Center for the Deaf and Hard of Hearing of Brattleboro, Vt. and its contractor agreed to pay $20,000 for failing to comply with asbestos NESHAP and the Asbestos Hazard Emergency Response Act (“AHERA”). In August 1998, the center retained the contractor to remove 1,900 square feet of asbestos-containing ceiling tile.  The contractor failed to provide the required 10-ten notice, did not comply with asbestos work practices, had failed to use licenses personnel to remove the tiles and improperly disposed of the tiles in a landfill that was not licensed to accept asbestos wastes. At the time of the violations, the Vermont Center had an asbestos management plan in place which indicated that the ceiling tile contained asbestos but that information was not considered before the 1998 removal. 
Commentary: Ceiling tiles often contain asbestos and may be a regulated asbestos-containing material.  
Contractors Face Criminal Liability For Improper Asbestos Removals 
Two individuals face a maximum of up to fifteen years in prison and/or a $1 million fine for knowingly endangering students and faculty at a local high school in Fort Morgan, Col. EPA alleged that a contractor and an environmental consultant who was supposed to supervise the project improperly removed asbestos from the school and then allowed students and faculty to return to the building even though asbestos dust and debris remained. 
Criminal sentences were also imposed on a Houston contractor and an employee for failing to comply with the asbestos NESHAP. The contractor hired undocumented workers from Mexico to scrape asbestos-containing fireproofing from metal beams in an abandoned Houston hospital.  The workers were directed to work at night in order to avoid detection but an explosion at the work site alerted investigators. One individual was ordered to pay a $20,000 criminal fine, to serve between two months of community confinement and six months home confinement as part of two year probation. In the related civil case, he was ordered to pay over $1 million in penalties for improper removal of asbestos. The other individual will have to serve four months home confinement as part of one-year probation and pay a $1,000 fine for making a false statement while testifying during the civil trial. 
Meanwhile, a Baltimore man was sentenced to one year and one day in jail and pay a $20,000 fine for obstructing justice during the investigation of a scheme to sell fraudulent asbestos training certificates. The individual admitted that he had advised a certified asbestos trainer to lose "all your paperwork" and "make sure it gets done" when he learned that that EPA Special Agents and the FBI were conducting an investigation involving the unlawful sale of asbestos training certificates.
Maryland May Become First State To Lose Authority to Administer Title V Program
In our January issue, we discussed the settlement between EPA and the Sierra Club which prohibited EPA from extending interim approvals to states to administer the Title V permit program. EPA was required to notify states by December 1, 2000 that they would lose their interim approval if EPA has not approved a revised title V permit program by December 1, 2001. 
EPA notified Maryland that its Title V program was not acceptable because of restrictions on the ability of citizens to file suits to challenge proposed permits. The state air program currently only confers standing to sue to block a permit for an industrial site to owners of nearby properties. The Maryland legislature failed to enact changes to the state clean air program. As a result, the state will likely be unable to obtain EPA approval by December 1st deadline. 
Logan Airport To Implement Air Quality Initiative
Last year, we reported that states were beginning to focus on airports in order to satisfy tightening air quality standards. Recently, Logan International Airport announced a $15 million Air Quality Initiative (“AQI”) to cap NOx and VOC emissions at 1999 levels. The Massachusetts Port Authority  hopes to fund a part of the program from increased landing and rental fees for the airlines using the airport. In the meantime, many airlines are already discussing voluntary emissions efforts with EPA and the Federal Aviation Administration. The airlines would prefer to establish a uniform federal agreement on emissions reductions rather than face a hodgepodge of differing requirements and fees that may result if other airports implement programs similar to the AQI.
Appliance Recycler Fined $202,270 for Ozone Violations 
The EPA Region 5 Office fined Consumers Recycling, Inc. $202,270 for allowing ozone depleting substances to escape from refrigerators and other small appliance that were processed at the company's scrap metal processing plant in Detroit, Michigan. 
Commentary: CFC refrigerants have long been used in refrigeration and air-conditioners for automobiles and large buildings. The production and importation of new CFCs has been banned in the United States after Jan. 1, 1996 though stockpiled and recycled CFCs can be used to service and maintain existing air-conditioning and refrigeration equipment and vehicles. Air-conditioning systems in cars or trucks older than 1994 require CFC-12 refrigerant. HFC-134a is used in new vehicles and may be used a replacement for CFC-12. However, small amount of CFCs may be produced for export to developing countries to fulfill their needs during their transition to zero use of CFCs, and for essential uses approved under the Montreal Protocol. 
As the supply of CFC-12 has diminished, its price on the black market as soared. Since 1994, a federal task force has been focusing on uncovering illegal imports of CFCs. Last May, Allied Refrigeration Inc. of Long Beach, California, paid a $1 million fine for smuggling 18,000 30-pound cylinders of CFCs into the country. One of the individuals received a six-month jail term. 
The United Nations Environmental Program recently established an Internet-based exchange to facilitate the recycling of ozone-depleting halons. While the Montreal Protocol generally banned the manufacture of ozone-depleting substances such as halons, certain essential uses were allowed to be continued in developing countries. These nations were supposed to freeze consumption of Halons in 2002 and gradually phase-out their use by 2010.
Approximately 33,000 tons of halons are used each year. The principal users of the online Halon trading exchange is expected to be   owners, managers and operators of fire protection systems, fire control services and other organizations involved in fire protection.   

WATER POLLUTION/ENDANGERED SPECIES

Seventh Circuit Court Remands Isolated Wetlands Case to District Court 
Following the United States Supreme Court decision in Solid Waste Agency of Northern Cook County v. United States Army Corps of Engineers (No. 99-1178, 1/9/01), the Seventh Circuit remanded the case to the district court to determine if the only basis the Corps used to assert jurisdiction over the wetlands was the so-called Migratory Bird Rule. If the district court determines that there is another basis for jurisdiction, then the court is directed to conduct further proceeding consistent with the Supreme Court opinion.
Commentary: As we mentioned in our last issue, many states are taking steps to protect isolated wetlands following the SWANCC decision. For example, the North Carolina Environmental Management Commission unanimously ruled that isolated wetlands are covered by the state wetlands program. In Ohio, Governor Bob Taft issued an executive order requiring developers to apply for a dredge-and-fill permit before beginning any construction that could potentially affect isolated wetlands. The permits which are issued by the Ohio Environmental Protection Agency will require the developers to perform compensatory mitigation to replace isolated wetlands that are destroyed by dredging or other activities. 
In Indiana, the Department of Environmental Management (“IDEM”) issued a policy to protect wetlands. The agency said that 30% of Indiana's 800,864 acres of wetlands might be isolated wetlands. IDEM determined that 25% of the 400 water quality certifications it reviews each year involve isolated waters. The agency also estimated that 43% of the projects that involve impacts to wetlands or small open water bodies involve isolated waters.
Both house of the Wisconsin legislature have approved legislation that would provide the state DNR with authority to regulate isolated wetlands. The Governor is expected to sign the legislation.
In California, EPA overruled a Corps determination that some adjacent wetlands in a development project were isolated wetlands. The San Francisco Army District had initially ruled that all the wetlands at the project were adjacent to waters of the United States and thus jurisdictional wetlands. However, the Corp headquarters overruled the district office. EPA then exercised its authority under the 1989 memorandum of agreement authority with the Corps and designated the matter as a "special case".
EPA Orders Developers To Restore Damaged Wetlands
EPA has ordered a developer and home construction company to immediately cease illegal earthmoving activities on the site of a residential development near Windsor, Colorado. The companies had used heavy construction equipment to push dirt and earthen materials into a nearby river and its adjacent wetlands and tributaries in violation of its wetland permit.  EPA ordered the parties to identify and assess all areas impacted by the illegal activities within 90 days and comply with the existing permit. They must also submit a wetlands restoration and mitigation plan as well as a plan to monitor to evaluate the success of their efforts. The plan must provide for completion of restoration and revegetation by September 2001. 
In another wetland case, a Montana homebuilder was indicted for draining wetlands to build several lots in a subdivision and depositing soil excavated from the wetlands in a nearby creek. If convicted, the developer faces 30 years in prison and maximum fines of $750,000.  
States Beginning to Tighten Rules for Septic Tanks
During the past ten years, an estimated 60% of developments in New Jersey utilized septic systems. The state Department of Environmental Protection (“DEP”) estimates that over 320,000 households and hundreds of commercial developments dispose wastewater into onsite septic systems. 
As a result, the DEP has promulgated new septic system regulations lowering the size of developments that must undergo environmental impact statements to determine if the development would adversely impact groundwater quality. Under the old rule, proposed subdivisions with more than 50 residential units were required to obtain water pollution permits. The new rule will require residential developments of six or more units and commercial developments discharging over 2,000 gallons of wastewater per day from septic systems per day to undergo DEP review. 
Meanwhile, Gwinnett County in Georgia will be using an EPA grant to determine if an estimated 90,000 septic tanks are impacting surface and groundwater quality. An estimated 120 to 144 miles of the county's streams currently exceed federal and state fecal coliform standards due to leaking septic tanks. The county plans to use infrared photographs to obtain information on moisture or contaminant plume patterns. In addition, a dozen monitoring systems are expected to be installed to study fecal coliform levels throughout the county. The county hopes to cut the number of septic systems in half by 2050. The investigation will be used to prioritize where the county should convert neighborhoods from septic to sewer systems. 
Commentary: Septic tanks are designed to discharge water into soil. As a result, septic systems that serve commercial operations can be a source of groundwater contamination even if a business does not discharge large quantities of wastewater or use significant volumes of hazardous materials. Over the course of years, groundwater quality can be impacted from workers washing chemicals from their hands or pouring small volumes of chemicals into sinks or drains. Thus, it is advisable to collect samples from a septic leach field during due diligence to determine if the septic system has impacted the groundwater.
States Using CWSRF Grants to Address Non-Point Discharges
	The Clean Water State Revolving Fund (“CWSRF”) has traditionally been used by states to finance the construction of sewage treatment plants. Recently, EPA has encouraged the states to start using CWSRF for non-traditional projects that improve water quality such as non-point source (“NPS”) runoff and restoring wetlands. Other projects eligible for funding include watershed projects, aquatic habitat restorations, NPS watershed surveys, development of watershed management plans, wetlands mitigation projects, capping of wells, tunnel demolition, well abandonment, environmental site assessments, and brownfield redevelopment that improve water quality by excavating and disposing underground storage tanks or contaminated soils and remediating groundwater contamination. Organizations eligible to receive funding include state agencies, soil and water conservation districts, regional planning agencies, watershed districts, municipalities, and non-profit organizations
Recently, the Maine DEP received $965,000 from EPA which will be issued to eligible recipients in the form of low-interest loans. In New York, $84.5 million in low-interest loans have been awarded to 24 communities. The loans include $50 million from the Drinking Water State Revolving Fund ("DWSRF") and $34.4 million from the CWSRF. The long-term DWSRF financing will be used to refinance costs associated with projects such as improvements to water filtration plants and other projects to provide safe, clean drinking water supplies. The state has two CWSRF loans. Pre-construction three-year loans are available for no interest. At the end of the three-year term of the loan or when construction is completed, the loan may be converted into a long-term loan with an interest rate 50%-75% below market rates. 
Criminal Charges Brought for Illegal Discharges Into Sewer Systems 
Enforcement actions have been brought against a number of companies who discharge wastewater into the local sewer systems. In California, the owner of an electroplating business was sentenced to 18 months in prison for discharging cyanide, nickel and corrosives into the San Luis Obispo sewer system at levels that exceeded its discharge permit. The owner apparently tried to conceal the discharges by trying to circumvent the monitoring equipment installed in the sewer by the city.  
The owner of a Kentucky electroplating was indicted discharging wastewater with excessive pH level into the Louisville sewer system. The owner allegedly hosed spilled chromic acid mixed with lime and water into a storm drain. The discharge occurred after chemicals were mixed with approximately 40 gallons of chromic acid in a drum. The owner faces a maximum fine of up to $250,000 and three years imprisonment if convicted.  
In Pennsylvania, the former general manager of a machine shop manufacturing steel and aluminum machine parts pleaded guilty to charges of one count of making false statements and two counts of discharging pollutants into the public sewer system between Dec. 1, 1998 and May, 1999. The general manager was charged with falsely stating on a permit application that no chemical compounds containing metals or inorganics would be discharged into the local sewer system when he knew that these pollutants would be discharged. The general manager could receive a maximum sentence of 11 years in prison, a fine of $750,000, three years probation and $300 in court costs. The company could receive a maximum sentence of five years probation, a $1.5 million fine and $1,200 in court costs.
Commentary: Many businesses do not discharge wastewater directly into rivers or other water bodies but instead into the local sewer system. Discharges from commercial or industrial operations often contain toxic substances that may disrupt the treatment process of the sewer plants and also contaminate the sludge generated as a byproduct of the treatment. As a result, while these so-called indirect dischargers may not required to obtain a permit under the CWA, they may have to obtain permits from the local sewer authority and may have to comply with the industrial pretreatment standards established by EPA. 
Under section 307 of the CWA, the local sewer authority is required to develop local pretreatment programs which require indirect dischargers to install pollution control equipment to prevent industrial pollutants from interfering with the treatment process, from passing through the sewer system untreated or that are otherwise incompatible with the sewer plant.  In addition, indirect dischargers may not discharge pollutants that create a risk of fire or explosion will cause corrosive structural damage to the sewer system, solid or viscous pollutants in amounts that will obstruct flow into the sewer system or heated pollutants that inhibit biological activity.
When performing due diligence on a business that discharges into the sewer system such as a medical laboratory that develops x-rays, it is advisable to determine if the discharge requires a local permit and meets the local pre-treatment program. It is also important to determine if the business is regularly maintaining the treatment system. 

HAZARDOUS WASTES/USTS

BP AMOCO Enter Into Multi-Site Agreement 
The Pennsylvania Department of Environmental Protection (“DEP”) and BP Amoco have signed a multi-site agreement (“MSA”) to clean up petroleum releases at 177 sites across Pennsylvania. The MSA covers 166 retail gasoline stations and 11 petroleum-storage terminal sites with aboveground tanks. Under the agreement, BP Amoco and DEP will prioritize the sites, and BP Amoco will remediate the most heavily contaminated sites first. The MSA provides that all work will be completed by the end of 2008. 
Owner of 200 Gas Stations in Central New York Fined $400,000
EPA imposed a $400,000 fine against the owner of 200 gas stations located in central New York State. EPA charged that 60 gas stations from failed to conduct leak detection and did not comply with the 1998 UST standards.  Tanks at several of the gas stations released petroleum that had resulted in soil or groundwater contamination. These releases will be addressed under the oversight by the state Department of Environmental Conservation (“DEC”). If the company fails to upgrade the tanks by July 1st, it will incur stipulated penalties. The company also recently reached a $120,000 settlement with the DEC on related charges and has agreed to implement an environmental management system.
Meanwhile, a Maryland gas station was fined $5,400 for failing to maintain leak detection equipment on a 4,000-gallon tank currently used to store kerosene, two 8,000 gallon gasoline USTs and the a 10,000 gallon gasoline tank.
Commentary: A recent study found the leak detection equipment required to be installed under the 1998 UST performance standard failed to properly detect leaks in 5% of tanks surveyed. 
Convenience Store Tenant Liable as UST Operator
	The lessee of a convenience store who was not listed as an operator of USTs on the UST registration certificate was held liable for failing to have leak detection equipment installed on one of the USTs located on the property. 
	In the Matter of Jerry C. Carter, Inc. and Michael K, Joseph (No. RCRA-UST-99-004), an administrative law judge found that Michael Joseph was an operator of the USTs based on the duties and responsibilities he agreed to perform under his lease. Joseph claimed he had only “non-operational” duties under the lease. He said he was just “manning the station” on behalf of the owner and was essentially simply acting as a cashier. He pointed out provisions of the lease that required him to keep the station open for 18 hours, to account for fuel delivered to the station at prices established by the owner, and to post and change gasoline prices when notified by the owner. While he acknowledged that he was obligated to take fuel inventory, he noted that he was required to notify the owner of any unexplainable product discrepancies and asserted he was not responsible for release detection. Joseph also pointed out that the lease never specifically referred to release detection, that he was not responsible for conducting annual tightness testing and that the owner had entered into a consent decree with EPA for several stations that he owned but did not inform Joseph about the existence or terms of the consent decree. Moreover, he pointed out that the owner was responsible under the lease for all significant repairs to the station including the USTs and all equipment under the ground as well as maintaining all kerosene and fuel equipment.      
	EPA charged that the responsibilities that Joseph was required to perform under the lease such as performing inventory control, accounting for volumes delivered, recording product measurements on a daily basis, and reconciling deliveries with sales constituted release detection were consistent with the definition of a UST operator. The federal UST regulations define a UST operator as “any person in control of, or having responsibility for, the daily operation of the UST system.” 	
The administrative law judge first found that the owner had ownership and title to the USTs. Some of the factors relied upon by the judge included the lease provisions requiring Joseph to notify the owner of product discrepancies and equipment malfunctions, the lease provisions providing the owner with the right to dictate fuel handling procedures, to inspect the premises to make sure that the tenant was complying with the requirements, to select the books, magazines sold at the premises as well as the vending machines, signs an d advertising displayed at the site, the owner retain title to fuel proceeds, paid real estate and fuel taxes, the owner secured all licenses and permits for the USTs and the repairs were to be performed by the owner’s contractors. 
Turning to Joseph, the judge compared Joseph’s responsibilities under the lease against the definition of UST operator. The judge found that Joseph’s duty to take daily fuel measurements along with his lease obligations to comply with laws and regulations covering product inventory controls showed he had sufficient control and responsibility over the daily operation of the USTs to confer operator status upon him. 
Home Owner Liable for Leaking Heating Oil Tank
A homeowner who purchased a home with a leaking underground storage tank was precluded from bringing a cost recovery claim against the seller under the New York Navigation law. 
In Hjerpe v. Globerman (App. Div., 2nd Dept., 2000-04367), the plaintiffs purchased residential property from the defendant in May 1996. At the time of the sale, the property contained an underground storage tank for storing fuel oil to heat the home. During the next two years, the plaintiffs filled the UST several times.   In March 1998, the plaintiffs encountered a problem with the oil burner in the house and decided to have an aboveground oil tank installed. While excavating the UST, the plaintiffs discovered that the UST had large holes and had been leaking for a period of time. 
After the defendant refused to pay for the costs of remediating the contamination associated with the UST, the plaintiffs filed a contribution action under the state Navigation Law. The statute provides that an owner of the property where there has been a release of petroleum may seek to recover its cleanup costs from the person responsible for the discharge provided the owner did not cause or contribute to the contamination. 
The court denied the plaintiffs’ motion for summary judgment and granted the defendant’s cross motion. The court said that it while it was unclear exactly when the leaking began, there was no question that the leak existed during the time that the plaintiffs were filling the tank. As a result, the court ruled that the plaintiffs were "dischargers" under the Navigation law and were therefore precluded from recovery damages under that law.
Commentary: The federal UST program does not regulate heating oil USTs used to heat the premises where the UST is located. However, California, Delaware, Kansas, Maine, Maryland, Massachusetts, Montana, New Mexico and Rhode Island regulate heating oil USTs used for heating commercial premises regardless of size under their state UST programs. Some states regulate home heating oil USTs below a certain size. For example, Virginia exempts home heating oil USTs below 5,000 gallons, Pennsylvania does not regulate those USTs with a capacity below 3,000 gallons and New Jersey exempts heating oil USTs used for on-site consumptive use at commercial premises with a capacity below 2,000 gallons. The cutoff for Minnesota, Nebraska, New Hampshire, New York and Washington is 1,100 gallons. While property owners in those states may not have to register their heating oil tanks nor comply with the UST design standards, the UST owners could still find themselves liable for notifying local authorities for releases of petroleum from leaking home fuel oil USTs and for cleaning up the spills.
New Jersey Amends UST Fund  
The New Jersey Underground Storage Tank Closure, Upgrade and Remediation Fund (the “UST Fund”) was created 1997 to provide grants and low-interest loans to the owners and operators of regulated USTs as well as homeowners with heating oil USTs. 
Initially, the DEP was only allowed to disburse 10% of the UST Fund in the form of grants in any one year. However, because many tank owners who met the financial hardship test requirements could not receive grants, the legislature temporarily raised the cap so that one-third of the fund could be used for grants. The extended ceiling was to expire on February 2, 2001 but the recent amendment allows grants to be awarded without limitation until March 31, 2004. 
The recent amendment also allows applicants to be reimbursed for costs that are incurred prior to submitting an application for funding. In the past, applicants could only seek reimbursement for costs incurred after the application was submitted. This created a problem for homeowners with leaking underground storage tanks who may not have known about the Fund until after a substantial amount of work was completed. 
Some State UST Funds Running Out of Resources 
The Virginia Petroleum Storage Tank Fund is reportedly facing a $20 million shortfall. As a result, many contractors have not yet been reimbursed by the state for UST corrective actions that they have performed. Instead of being paid by their clients, many contractors have taken an assignment of their clients’ right to seek reimbursement from the fund. Some of these firms have gone deep into debt while they wait to be reimbursed by the state. The Virginia Department of Environmental Quality (“DEQ”) recently announced that it will raise the minimum deductible to $10,000 starting in April to help cover the shortage, and the DEQ will reimburse companies as cash becomes available. 
Meanwhile in North Carolina, only approximately one-third of the 15,404 known sites with leaking USTs have been remediated because of limited funds remaining in the state Leaking Underground Storage Tank Trust Fund.
Commentary: In some states, UST trust funds can be an important source of funding to help reduce the costs of cleanup and stimulate brownfield sites that have been contaminated by releases of petroleum from USTs. Contracting parties often require an indemnitee to seek reimbursement from these funds before making a claim under an indemnification. 
Maine UST Contractor Ineligible for Reimbursement from UST Fund
	The Maine Supreme Court ruled in Maritime Energy v. Fund Ins. Review Board (Wal-00-416) that an applicant was not entitled to reimbursement under the Maine UST fund for a petroleum discharge that occurred before the state UST statute was enacted but was discovered post-enactment.  
	The plaintiff installed three USTs in November 1986. After a gasoline leak from one of the tanks caused by a cracked seam weld was discovered in March 1987, the plaintiff replaced the damaged tank and removed the contaminated soil. While performing additional repairs in September 1998, the plaintiff discovered gasoline contamination at the same location as the 1987 leak. Soil analysis showed that this contamination was caused by a pre-1990 blend of gasoline. After remediating the contamination, the plaintiff submitted an application for reimbursment from the Ground Water Oil Clean-up Fund 
	The DEP denied the application because the source of the contamination was the 1987 discharge. The plaintiff then appealed to the Fund Insurance Review Board arguing the key factor was date of discovery of the contamination, not the source of the contamination. The Board affirmed the decision of the Department, finding that the contamination discovered in 1998 was related to 1987 discharge. After the Superior Court affirmed the decision of the Board, the plaintiff appealed to the state Supreme Court. The court ruled that there was no evidence to suggest that the 1998 contamination was from any source other than the cracked tank that was removed in 1987.  Because that discharge occurred three years prior to Fund coverage eligibility, the plaintiff was not entitled to reimbursement.  

TOXIC SUBSTANCES

Broker Liable For Treble Damages For Failing to Disclose LBP
	In the first reported decision to interpret the standard for complying with the Lead-Based Paint (“LBP”) Disclosure Rule, a federal district court for the District of Connecticut ruled that a real estate broker was liable for treble damages for failing to a purchaser with a copy of a lead paint report.
	In Smith v. Coldwell Banker Real Estate Services, 122 F.Supp.2d 267 (D. Conn. 2000), the executors of an estate gave Coldwell Banker an exclusive right to sell a house in Milford, Connecticut that had been built in 1860. The broker suggested that the sellers conduct a LBP test based on the age of the building and the fact that the house had the original windowsills. The test revealed extensive LBP and a report describing the results of the test was forwarded to the owners. They completed the required disclosure form and returned it to the broker. The form referenced the test report and indicated that it was attached but the sellers failed to forward the report to the broker.
	The broker provided the purchasers with the disclosure form but did not initial the form because she did not have the copy of the report. The broker also orally informed the purchasers of the presence of the LBP, the existence of the report and a copy of the EPA LBP Hazards pamphlet. However, the plaintiffs did not receive a copy of the report until the closing and never signed the acknowledgement form. The plaintiffs then file a complaint seeking statutory treble damages from the broker and the sellers of the house.
	The defendants claimed that they satisfied the disclosure requirements by advising the plaintiffs of the presence of LBP and providing the report at the closing. The defendants first argued that the language of the Residential Lead-Based Paint Hazard Reduction Act (“Title X”) required disclosure must occur prior to the time the purchaser become obligated to purchase housing. Since the contract contained a condition precedent that each party sign a completed LBP disclosure and this pre-condition was not satisfied, the defendants argued that the plaintiff never became obligated under the contract to purchase the house. 
	However, the court said this interpretation would defeat the purpose of Title X. The court found that the signing of the contract, not the closing of the transaction, triggered the disclosure duty. The court also rejected the notion that orally disclosing the presence of LBP and providing the report at closing satisfied the defendants’ disclosure obligations. The court said Title X did not provide for “substantial compliance” with the disclosure requirements.
	Analogizing the treble damages provision to the punitive damages provisions of other statutes, the defendants also argued that they had not “knowingly” violated Title X because they had not acted in bad faith. However, the court ruled the higher standard of knowledge required for imposing punitive damages was not applicable to LBP cases. The court noted that punitive damages might be awarded when there is a showing of some wrongful motives or callous indifference. In contrast, there was no discretion under Title X for imposing treble damages. The court said that if there are actual damages, all a plaintiff needs to show for treble damages is a knowing violation. The test for measuring a knowing violation, the court explained, was whether the defendants were aware of their conduct. The court said that inadvertence or inattention could not be a defense to liability. Indeed, the broker testified in her deposition that she was aware of the disclosure requirements and did not have the plaintiffs sign the disclosure form because she knew they had not received a copy of the report. 
	As a result, the court granted the summary judgment motion against the broker but denied the motion for summary judgment against the owners of the house. Apparently, the plaintiffs had introduced evidence that the owners had executed the disclosure statement but failed to produce any evidence that the owners knowingly violated the statute. 
Commentary: Many landlords and sellers of housing subject to Title X are not aware that they have to provide the underlying LBP reports as well as the disclosure form and LBP Hazard Pamphlet. Section 1018(a)(1)(B) requires sellers or lessors to provide to purchasers or lessees any lead hazard evaluation report that is available to the seller or lessor.  EPA has interpreted this requirement to mean reports which are in the possession of the seller or lessor or that are reasonable obtainable by them must be given to purchasers or lessees.  	 
Jury Awards $6 Million in Lead Case
An Albany County jury found three property owners liable for $6.2 million for lead poisoning of two children from LBP. In Graves v. Chen, the jury awarded $4 million to an 8-year-old boy and $2.2 million to his 7-year-old sister. In this case, the children were living with their mother in a 60-year-old home in Albany in 1994. After a 14-month-old child was tested and found to have lead blood levels nearly triple the level that New York State Health Department considers safe, Albany County inspected and found numerous LBP hazards.
The county ordered the three property owners to perform a lead abatement and the owners hired a painter. After the abatement was concluded, Albany County certified that the work had been properly completed. However, two weeks later, the child’s blood levels rose from 27 micrograms per deciliter (“mg/dl”) to 38 mg/dl and had to be hospitalized.  The county reinspected the premises and required the owners to perform another abatement project. Two year later, blood tests of the plaintiffs found elevated lead levels and the county inspector found LBP hazards many in the same areas cited in the 1994 inspection.  Once again, the owners were ordered to abate the LBP hazards. Several months later, the family moved out of the home. 
At trial, the plaintiffs introduced evidence that that at least four children in other properties owned by the property owners had suffered from lead poisoning prior to the 1994 incident. The owners admitted that they normally refrained from undertaking abatement until the county ordered a remedy. The plaintiffs also alleged that the painter had never performed a lead abatement before, did not disclose his lack of experience and failed to use proper cleanup techniques.  
The jury found the owners 98% liable and the painter 2% responsible. It awarded: $138,000 for the boy and $105,000 for the girl for past pain and suffering, $1.55 million for the boy and $883,000 for the girl for future economic loss, and $2.32 million for the boy and $1.21 million for the girl for future pain and suffering. 
The case followed a $925,00 award last fall against Albany County. In Van Epps v. County of Albany, the defendants were required to pay $600,000 to an 11-year-old girl and $325,000 to her 12-year-old brother. Albany County was also required to pay $50,000 to the boy and $200,000 to the girl. 
Commentary: To minimize potential liability for LBP, owners of housing built before 1978 should routinely inspect and maintain their properties to prevent lead poisoning of children.  Licensed contractors must perform the inspection and abatement activity. 
Governments File Lawsuits Against LBP Manufacturers
Milwaukee filed a lawsuit in Milwaukee County Circuit Court against two paint manufacturers arguing that they continued to manufacture paint with lead after the companies became aware of its hazards and continued to advertised that the paint was safe to use. More than 5,700 children in Milwaukee have elevated levels of lead in their blood. City officials estimated that 44,000 homes or rental units located mainly in the central city have lead paint hazards that could cost as much as $100 million to clean up. The city claims it could take 73 years to abate the paint at all of these residences. Last month, the Wisconsin Legislature approved a bill providing legal incentives to landlords to clean up any LBP hazards in their buildings.
Meanwhile, a Rhode Island Superior Court recently ruled that the state Attorney General can proceed with a lawsuit against eight LBP manufactures and a trade association in an effort to recover costs incurred by the state for removal of LBP from all public and private buildings. 
Commentary: Although these recent lead-paint lawsuits are in some ways similar to those brought against asbestos manufacturers, it will be much more difficult to pinpoint lead paint as the cause of illnesses since there may be multiple sources of lead poisoning in the home such as from water pipes and food utensils. Likewise, children may be exposed to lead at school or from industrial sources in their neighborhood or near their schools. 
Landlords Indicted For Falsifying LBP Documents
A federal grand jury returned a 15-count indictment against the owner of 15 low-income rental properties in the District of Columbia and Maryland, charging him with obstruction of justice and submitting false documents. The landlord was required to notify tenants of actual or potential hazards of LBP prior to the signing of a lease. When HUD contacted him in September 1998, the owner was unable to produce the required records. He subsequently presented HUD with backdated forms containing false statements and also directed his building managers to have tenants sign and backdate the lead paint disclosure form. If convicted, the landlord could be sentenced to a maximum of five years in prison on each count and a $250,000 criminal fine.
Study Purports to Discover 600 Lead Contaminated Sites 
A doctoral student at George Mason University claims to have found 640 former lead smelting factories that have dangerous levels of lead in the soil. Many of the sites are near residential areas in major cities. 
The study which appeared in the April issue of the American Journal of Public Health claimed that regulators were unaware of at least 430 of the sites. All of the sites in the study were former secondary lead smelting plants which produced usable lead from recycled object such as automobile batteries, wheel weights, and cable covers. 
According to the study, soils at nearly half of the sites exceeded the EPA definition of soil lead hazard. About half of these sites are concentrated in eight states: California, Illinois, Massachusetts, Michigan, New Jersey, New York, Pennsylvania, and Texas. Sites with lower lead levels were found in Alaska, Iowa, Maine, Nevada, New Hampshire, New Mexico, North Dakota, South Carolina, South Dakota, Vermont, and Wyoming. Some of the large cities where the sites were discovered include Boston, Buffalo, Chicago, Dallas, Detroit, Houston, Jersey City, Los Angeles, Newark, New York, Philadelphia, Pittsburgh, and San Francisco.
EPA Will Investigate Residential Properties for Lead Contamination
EPA Region 5 will investigate two dozen homes in Delta, Ohio to determine if they contain lead-contaminated foundry sand from a former Eagle Picher Industries facility. The agency believes that fill material from the foundry may have been placed on the properties where the homes are located from the 1940s to 1980s. During excavation activities at the former foundry last year, foundry sand was found to extend under pavement and buildings at the site. 
If any of the properties are found to contain elevated lead, EPA will consider cleanup alternatives including excavating the material. While blood-lead screening tests conducted in 1986 and 1988 did not find elevated lead levels among children, officials are concerned that the children could become exposed if they dig or come in contact with the fill material.
Meanwhile, the EPA will shortly beginning removing lead-contaminated soil from an auto radiator site in Norwood, Ohio. The business routinely disposed of small amounts of liquid and solid waste in a yard behind the shop. Over time, runoff from the site has contaminated some neighboring properties.
EPA is expected to propose a residential development in Eureka, Utah on the National Priority List (“NPL”) because of elevated levels of lead and arsenic in house dust and soil. At the 504 residential lots that were sampled, lead dust concentrations averaged 739 ppm with the highest reading of 5,330 ppm. 100 homes had lead levels over 3,000 ppm. EPA plans to commence a removal action in June which will involve excavating the top twelve inches of soil from every site with lead levels over 3,000 ppm.
Commentary: If the classic real estate mantra is location, location, location; then the environmental mantra is information, information and information. These cases once again illustrate the importance of doing comprehensive historical due diligence on properties that may not appear to currently pose significant environmental concerns. The investigation should not only include reviewing aerial photographs, city directors, local land records and government regulatory records but also interviewing local officials who may have institutional memories of prior uses that are not readily obtainable from the customary historical sources.
Connecticut Company Fined for PCB Violations
EPA recently filed an administrative complaint seeking $192,000 from a Canaan, Connecticut company for improperly storing and disposing PCBs. The company processes lime and other mineral products. The company was fined $22,000 for the unauthorized use of PCBs,  $138,600 for improper disposal of PCBs, $11,000 for failing to date PCB containers, $1,100 for failing to remove PCB containers within one year, $5,500; for not obtaining an EPA identification number for PCB storage containers, and $14,300 for not properly marking a PCB storage area. 
GE To Remediate Former Facility
Elevated levels of PCBs were recently detected in storm sewers and soil at a former GE Black & Decker facility in Brockport, NY. GE owned and operated the 28.6-acre site from 1949 to 1984. Black & Decker then purchased the property and used it until 1988. The site is now owned by JMT Properties Inc. A group of Brockport families are also planning to file toxic tort and property damage claims actions against GE and a subsidiary of the 3M Corp.
Commentary: When performing due diligence for stock or asset acquisition, it is important not only to investigate facilities currently owned or operated by the target company but also facilities that may have been sold or closed in the past. The seller may have retained liability for these sites either contractually or by operation of law. The purchaser could find itself saddled with these liabilities as well if it expressly assumes the liabilities or can be construed as a successor corporation. 
States Seek Additional Regulation of Mercury 
In the wake of reports of mercury spills in homes in the Midwest (see our January and November issues), states are announcing programs to collect products containing mercury. 
 Pennsylvania recently announced a collection program for thermometers, thermostats, barometers, and switches containing mercury that are located in homes and schools. The state believes the collection program will help keep mercury out of the waste stream and protect drinking water supplies. 
In Wisconsin, the Mercury Recycling Program is focused on schools, medical and dental facilities, and households. To encourage participation, the program has offered cash rewards to schools of $5 for each thermometer, $20 per blood pressure gauge and $50 for each atmospheric barometer. Farmers are also given $200 to replace mercury manometers with non-mercury digital manometers. The manometers are used to measure and monitor the vacuum in a dairy farm's milking system. Since 1999, the program has collected about 2,000 pounds of mercury in the form of thermometers, barometers, and other items.
In Connecticut, the state DEP has requested the legislature ban the sale of mercury thermometers. The proposed law would require labeling of certain products containing mercury, prohibit schools from buying or using mercury in bulk quantities and ban the sale of novelty items that contain mercury such as older versions of sneakers that light up. The action follows several spills last year in Connecticut high schools. At one high school, a weather barometer broke when it was accidentally thrown away and caused several floors to be contaminated with mercury. A pressure gauge at another high school released mercury when a custodian accidentally broke it while cleaning a chemistry room.
Commentary: Mercury is increasingly drawing the attention of environmental authorities. In December, EPA proposed to regulate mercury emissions from coal-fired plants. The Environmental Council of the States (“ECOS”) recently asked Congress and the Bush Administrative to expand regulatory programs for managing mercury. The action follows EPA’s decision to regulate mercury emissions from coal-fired power plants beginning in 2004. The agency has not yet identified the control technology that would have to be installed to meet the new standards. Two electric utility trade groups recently filed suit challenging the proposed rule.
EPA Begins to Focus on Improper Disposal of Fluorescent Light Bulbs
With the increased attention on Mercury, EPA is beginning to focus on the improper disposal of products containing mercury such as fluorescent light bulbs. Before companies dispose fluorescent light bulbs, they should determine if the lights exhibit a hazardous waste characteristic. 
In the past few months, EPA has brought enforcement actions against a number of companies for failing to comply with RCRA when disposing fluorescent light bulbs. For example, EPA recently charged IBM and a subcontractor with failing to make a hazardous waste determination before disposing 4,400 fluorescent light bulbs as part of a renovation project at the IBM facility in Armonk, New York. The contractor paid a $7,500 penalty to settle the violation. 
Enforcement Actions Brought Against Dry Cleaners 
The owner of a dry cleaner in Avon, CT has agreed to pay $200,000 to cleanup two sites where he illegally disposed tetrachloroethylene (“PCE”) and will pay up to $20,000 each to two home owners whose wells have been contaminated with PCE. When sentenced, the owner faces a maximum of up to five years imprisonment and/or a fine of up to $250,000 for each violations as well as restitution for the costs associated with the contaminated drinking water. 
Meanwhile, a dry cleaning and laundering facility located in Long Island City, New York, and its owner face $134,988 in penalties for mismanagement of hazardous wastes containing PCE. EPA charged that the company  improperly allowed a significant amount of wastewater to evaporate into the air every month, stored PCE waste in improperly label drums, stored the wastes longer than beyond the allowable period, failing to keep the waste drums closed, improperly stored lint contaminated with PCE in a cardboard box, failed to minimize releases of PCE into the air, did not respond to EPA information requests and did not file a RCRA notification for managing hazardous wastes at its current location.
 In addition to seeking the $134,988 penalty, EPA has ordered the company to immediately comply with regulations concerning the labeling, storage and treatment of solvent wastes, and to ensure that routine spills or leaks of wastes do not occur.  The agency has also ordered the company to make additional changes in its operations to fully comply with all hazardous waste management regulations. 
Commentary: Since January 2000, the agency has issued complaints seeking a total of $452,113 from violating dry cleaners in New York and New Jersey.
SUPERFUND/BROWNFIELDS

EPA Announces New Brownfield Grants
EPA recently approved 36 new Brownfields Assessment Demonstration Pilot (“BADP”) grants totaling over $7 million. The agency also awarded 32 supplemental BADP grants which ranged in size from $100,000 to $150,000. Several of the BADP and supplement grants included $50,000 to preserve green space. EPA also approved 46 Brownfields Cleanup Revolving Loan Fund (“BCRLF”) pilots which ranged from $500,000 to $2 million, with the average grant at $1 million. The latest round of BCRLF pilots brought the total number of BCRLF pilots to 127.  
State Brownfield Programs Announce Grants 
The Michigan Department of Environmental Quality (“DEQ”) has issued a $259,000 grant to assist with the cleanup and redevelopment of the 12-acre site of the former Sharon Steel Corp in Dearborn. Housing will be built on the site which has been vacant since the 1980s. The grant follows $740,000 in state cleanup funds provided last summer.
Wisconsin recently announced $4.4 million in brownfields grants to investigate and redevelopment brownfield sites in Madison and Middleton and the counties of Milwaukee, Racine, Sauk, Walworth, Kenosha, Dodge and Rock. The state estimates that the projects will create up to 939 new jobs, bring $49.1 million in new investment, restore more than 355 acres to productivity and spur a $72.7 million increase in property values. For example, the City of Burlington will use a $300,000 grant for remediation and infrastructure improvements or a downtown project that will include a 188-unit residential complex, city park, and new four-lane boulevard. The City of Cudahy and Gateway Real Estate LLC will receive a $ 1 million grant to remediate and redevelop a 38-acre site for retail, commercial and industrial uses, including expansion of a local manufacturing facility expansion. The value of the property will increase from $451,200 to $18 million. Rainmaker Enterprises, Inc. was awarded $100,000 to investigate, remediate the site of a six-story former shoe manufacturing facility and warehouse. The site will be renovated into 59 condominiums. The value of the property will increase from $331,000 to $9 million. The project will leverage $3.6 million in additional investment. The City of West Allis plans to use a $500,000 grant to remediate 9.78 acres of the Pressed Steel Tank Company site. The site will be redeveloped into a shopping center. The property value will increase from $2 million to $15.9 million. Wispar, LLP plans to use its $900,000 grant to rehabilitate a vacant building on a 34acre site. The property will be used to house a new high-tech plastic manufacturing operation. The value of the property will increase from $500,000 to $2.9 million and will leverage $6.4 million in additional investment. 
Thus far, the state brownfield program has awarded $16 million in grants to 39 entities. The grants have resulted in 500 acres being redeveloped, created over 3,300 jobs, and increased taxable property values by over $230M. The state Legislature budgeted $6.5 million for brownfields grants this fiscal year, and Governor McCallum is proposing $8.5 million for next year.
The New Jersey Economic Development Authority (“EDA”) and the DEP have approved seven new grants for municipal brownfields redevelopment projects. The towns can use the funds for preliminary assessments, site characterization and remediation. The grants were awarded to Jersey City ($185,699), Kearny ($43,818), Lower Township ($56,570), Perth Amboy ($367,954 for two separate projects), and Rahway (two grants of $54,995 each).
Since 1993, the state's Hazardous Discharge Site Remediation (“HDSR”) program has assisted over 500 projects and provided over $40 million to enable municipalities to restore contaminated sites. Municipalities may receive up to $2 million in grants or loans from the HDSR for sites that they own, have acquired through foreclosure or hold tax sale certificates. 
Kentucky Governor Signs Brownfield Legislation
Last issue, we reported that the Kentucky legislature had passed a brownfield statue. The bill which was recently signed into law will require brownfield developers to enter into an agreement with the state. Under the agreement, the state will inspect and characterize the site contamination.  The developer will, in turn, submit a remediation plan and agree to pay state oversight costs unless waived by the state.  The legislation allows cleanups to take land use into account when determining cleanup levels. The law also directs the state's Economic Development and Finance Authority to study the feasibility of using tax increment financing to spur brownfield redevelopment.
Pennsylvania Announces Completed Brownfield Cleanups 
The Pennsylvania Department of Environmental Protection (“DEP”) announced that a cleanup had been completed at the former National Precision Casting (“NPC”) site in Chester County. The 6-acre site housed a foundry between 1957 and 1990 when NPC filed for bankruptcy and abandoned the site. In 1996, DEP removed a waste pile and excavated soil contaminated with heavy metals and TCE. The current landowner conducted an additional cleanup inside the building. The redevelopment of the site incorporated salvaged materials from the dilapidated foundry and from other construction jobs including steel and block from the foundry, recycled sprinkler and air conditioning systems, doors, cabinets, lighting, carpet and even office furniture. 
Another cleanup was completed at the site of the new University of Pittsburgh Medical Center Health System Sports Performance Center. The 22-acre site was once part of the 123-acre LTV Steel South Side Works and had been contaminated with PCBs and heavy metals. Other parcels at the site are being cleaned up by the authority and sold to other developers. 
Another cleanup was completed at an abandoned building and a two-acre parcel of land in Franklin, Pennsylvania. The site was formerly used to build metal tanks and boilers for more than 100 years. The site had been vacant since the business declared bankruptcy in 1991 A site investigation revealed that the soil and groundwater was contaminated. The Franklin Industrial and Commercial Development Authority took title to the land. After developing a cleanup plan, the agency sold the site to Harrington Machine for $80,000. Harrington also pledged to pay $165,000 in back taxes. Because the property was abandoned and is located in the Oil Region Enterprise Zone, the site was a candidate for the Land Recycling Program Special Industrial Area cleanup standard. Under this standard, all immediate, direct, or imminent threats to public health and the environment must be addressed. The groundwater may not be used and only industrial activity can take place at the site. 
West Virginia Announces Second Completed Brownfield Cleanup
Since West Virginia launched its brownfield program in 1996, 24 sites have enrolled in the program and one cleanup has been completed. Recently, the state Division of Environmental Protection (“DEP”) announced it would issue its second certificate of completion under the program for a five-acre site in South Charleston. The letter will pave the way for the site to be redeveloped into a doctor's office and automotive repair shop. The site is part of a larger 25-acre site had been vacant site 1985 when FMC demolished a chlorine and caustic soda plant. In 1997, FMC agreed to remediate the site under the state VCP. The remainder of the parcel will be used light industrial development. 
Cleanup at First Florida Brownfield Site Is Completed 
A cleanup was recently completed at a former dry cleaning and laundry facility in the City of Miami. The site was acquired by a brownfield developer who took title to the site through a bankruptcy proceeding. The developer then entered into the first "Brownfields Site Rehabilitation Agreement" under the Florida Brownfields Redevelopment Act. The cleanup took two years and was funded by a $200,000 BADP grant and $500,000 from the state UST fund. The IRS also agreed to waive a lien on the property. The site will be used as concrete batch plant.
NJ Landfills To Be Converted to Golf Course Complex
One of the more popular uses of large brownfield and superfund sites is golf course. During the past few years over 60 golf courses have been constructed on former landfill sites. 
Recently, the Army Corps of Engineers approved the construction of a golf course project on three former landfills located in the Township of Lyndhurst, and the Boroughs of North Arlington and Rutherford in Bergen County, New Jersey. The 1,200-acre project will be developed into a resort with 72 holes of golf, two hotels, office buildings, a marina and timeshare condominiums. A 36-hole public golf course will be part of the complex. 
EnCap Golf Holdings LLC (“EnCap”) will be entering into a 99-year lease with the Hackensack Meadowlands Development Commission (“HMDC”) for $1,000 annually. The company expects the environmental cleanup to cost $100 million, maintenance of the site may be up to $250,000 annually, construction of the golf courses will be $60 million, and the cost of the hotels, office buildings, marina, and condos is expected to total $810 million. EnCap hopes to open the first golf course open by 2004 and the second course a year later.
The landfills were closed in the early 1980s but continued to be a source of contamination because adequate closure requirements were not yet in effect. As part of the project, the landfills will undergo closure that satisfies current requirements. A state-of-the-art methane gas collection system will be used to prevent vapors from escaping through the golf course and an advanced leachate collection system with a specially designed liner will be used to prevent contaminated leachate from mixing with groundwater below the sites. In addition, sediments will be dredged from the harbor and beneficially reused as a cap for the landfills.
Approximately 8.9 acres of tidal waters and wetlands will be affected. These wetlands have been degraded due to contamination from the landfills. To compensate for these impacts, HMDC and EnCap will perform approximately 30 acres of wetland enhancement and restoration. 
Colorado Approves Cleanup for Brownfield Site 
The Colorado Department of Public Health and Environment has approved a voluntary cleanup plan for a former gold and silver mill in Colorado Springs. The site contains approximately 11 million tons of tailings containing gold, silver, arsenic, and lead. Because removing all of the tailings would be prohibitively expensive, most of the tailings will be capped with concrete and asphalt. Tailings will be removed from a 100-year flood plain along Fountain Creek and moved onto the site for placement under the cap, The current landowner, ERS Holdings LLC will have to complete the cleanup within two years. 
EPA Agrees to Remove Part Of RCRA Facility Under RCRA Brownfield Initiative 
Under its RCRA brownfield initiative, EPA recently agreed to remove a 104-acre parcel of the Bethlehem Steel Corporation site in Lackawanna, New York from the RCRA corrective action program. Under RCRA, Bethlehem Steel had been required to investigate its entire facility. Though the 102-acre parcel was not believed to be significantly contaminated, it could not be remediated under the state VCP because the parcel was subject to the site-wide corrective action order. The EPA action will allow the parcel to be investigated and remediated under the state VCP which will expedite redevelopment of the site. After the necessary remediation work, the parcel will be redeveloped into an industrial park. If the project is a success, this redevelopment process may be applied to other portions of the Bethlehem Steel facility.
Controversy Continues Over Use of Brownfield Sites for Schools  
In our August 2000 issue, we discussed how brownfields were becoming an increasingly attractive use for urban brownfields. Indeed, a recent study indicated that school districts will have to build 2,400 new schools by 2003.  
According to the Center for Health, Environment and Justice, 15 schools have been built on abandoned dumps or close to chemical factories or other areas with hazardous material which pose a risk to students. The center said that the guidelines that school districts use for siting new schools are often inadequate to ensure that schools are not built on polluted land or near industrial sites. 
For example,  River Valley High School near Marion, Ohio was built on the site of an Army depot where solvents and automotive lubricants were disposed. A recent study has revealed nine cases of leukemia among the more than 5,500 students who had attended the school since it opened in 1963. Soil samples have revealed elevated levels of benzo(a)pyrene and trichloroethylene in the soil around the school. Nearly half of the school's 78 acres have been fenced off, including several ball fields as a precaution. 
In Elmira, New York, 22 cases of cancer, including testicular cancer, have been detected among 7,500 people who attended the high school during the last two decades. The land on which the school was built had been used for industrial purposes as far back as the Civil War. 
The poster child for the controversy is the Belmont Learning Center in Los Angeles which was built on an abandoned oil field. Last year, after spending more than $125 million on the project, the district scrapped the project because of methane vapors seeping out of the groundl. An inspector hired by the city had approved the project even though he could not get into the site because of a chain-link fence. The company that sold the land to the city hired the firm that performed the environmental assessment. The school district later found that the Belmont site is contaminated with crude oil, acetone and other dangerous compounds. In the wake of this experience, California now requires school sites to undergo environmental site assessments. 
Indeed, the Pomona Unified School District recently voted to spend $120,000 to have a consulting firm assess the feasibility of building a food and nutrition center at a former Naval weapons plant. The former weapons plant was previously cleaned up by the Navy and declared surplus property. Under a federal policy, the government can sell surplus property for 20% of its market value if it is used for educational purposes. The district estimates that the 10 acres have a fair market value of $1.2 million to $1.3 million 
 Meanwhile, the Santa Ana Unified School District (“SAUSD”), the Rancho Santiago Community College District (“RSCCD”) and the Mexican American Legal Defense & Education Fund (“MALDEF”) have filed a Title VI discrimination lawsuit against the City of Tustin charging that the City of Tustin had selected contaminated site to build a school. In 1994, the federal Department of Education (“DOE”) agreed to convey 100 acres of a Marine Air Base that had been closed to the RSCCD, SAUSD, Orange County Department of Education (“OCDE”) and South Orange County Community College District (“SOCCCD”). The site was to be used for an innovative learning environment known as the ``Learning Village.'' The City of Tustin acted as the Local Reuse Authority and ignored the DOE grant. Instead, the city designated the entire 100 acres for the community college. With the SAUSD facing some of the worst overcrowding issues in the state, the city allocated another portion of the base which was found to be contaminated with TCE. 
At another California school site, the Novato Charter School is pressing ahead with plans to relocate to the controversial Exchange Triangle property at Hamilton Field. Because the Hamilton Elementary School needs the site currently used by the charter school, the school district told the charter school that it had to leave the current site by June 30th. The school district also promised to give the charter school a 7.2-acre site that was being transferred to the district by the Navy. However, a MTBE plume from a former gas station was discovered adjacent to the site and methane gas is leaking from a landfill about 1,700 feet from the site.
Farm Land Donated To Pennsylvania Hospital To Be Remediated Under Brownfield Program
In 1998, the Charles Cole Memorial Hospital near Coudersport, Pennsylvania accepted a donation of farmland. The hospital planned to sell the property to a developer. However, an environmental investigation performed by the developer found that the farm was contaminated with a variety of industrial waste, including chlorinated solvents. Apparently, a portion of the farm had been used to dispose sludges and industrial wastes. Once the property is properly cleaned up, DEP will issue a covenant not to sue to the purchaser.
Commentary: This example illustrates the importance of doing due diligence on farmland. Many of the pesticides and other chemicals that were used in the past do not breakdown as quickly as those in use today. Also, farmers tended to apply pesticides in higher concentrations than currently used now. In addition, farmers sometimes generate extra income by allowing portions of their land to be treated with industrial or residential sludges that are not regulated as hazardous wastes but which may contain hazardous substances. While sludges that are applied to land generally must now be approved, this practice was not well regulated in the past. A developer who is considering purchasing farmland should inquire into the past uses of the land. As part of this effort, local officials who may be familiar with local land uses should be interviewed and aerial photography which could show disturbed or excavated soil that may be indicative of past landfilling activities.
EPA To Remediate Arsenic Contamination in DC Neighborhood
The Army Corps of Engineers has spent $50 million excavating arsenic-contaminated soil from the upscale Spring Valley neighborhood of Washington, DC. In March 1999, the Corps excavated the first four feet of soil from the yard of the home of the South Korean ambassador and also excavated a 200-square-foot area from the American University campus last year. The contamination is associated with a former chemical weapons research plant that was located in the area from 1917 to 1919. The agency plans to sample soil in other areas of the neighborhood. In addition to the Spring Valley neighborhood, the 35-acre Diamond Ordnance Fuze Laboratories in Northwest Washington, and the 169-acre Camp Simms in Washington’s southeastern quadrant are being targeted for inspection and cleanup.
Commentary: This action once again emphasizes the importance of doing historical due diligence on properties that may not appear to currently pose significant environmental concerns. Many properties that now have residential structures or retail businesses may have been impacted from prior industrial operations or may have contaminated fill in place.
EPA Enters Into Additional Prospective Purchaser Agreements
EPA recently entered into an interesting prospective purchaser agreement (“PPA”) where the identity of the purchaser was not known. The PPA involves a foreclosure auction to be conducted by the First Commercial Bank for the 5.1-acre Center Star Manufacturing site in Oxford, Alabama. The site was formerly leased by a fabric processor which ceased operations in 1996 and is currently owned by the local Industrial Development Board. EPA conducted a removal action in 1999 and identified elevated levels of VOCs in the soil and groundwater. EPA will perform an additional groundwater investigation. In exchange for a covenant not to sue, the successful bidder will have to execute the PPA and pay EPA $87,500. The PPA also provides that the purchaser acknowledge that the remedy may interfere with its operations and may require closure of some or all of its operations.
EPA also agreed to enter into prospective purchaser agreement for a portion of the Master Metals Superfund site in Cleveland, Ohio. The Master Metals Superfund site consists of two separate areas. Smelting operations released lead into existing slag and soil at the site. Between 1997 and 1999, PRPs removed waste, demolished or decontaminated buildings, and consolidated and treated contaminated soils at the site under a soil cover cap. In September 2000, EPA modified the remedy to allow for the placement of an asphalt cap to accommodate redevelopment. The purchaser plans to develop the site and lease it to a company that will use the site for lumber and timber storage and cutting. The volunteer agreed to pay EPA $2,000, fund a 30 year operation and maintenance program to ensure the integrity of an asphalt cap and fencing, and record a deed notice. The purchaser also agreed that the non-time critical removal activities to be conducted at the site would take precedence over redevelopment of the property and might interfere with the purchaser’s use and redevelopment of the site until the cleanup activities are completed.
The Metropolitan Council for the Minneapolis-St. Paul metropolitan area entered into a PPA to acquire a former auto salvage yard to construct a transit control center. The state of Minnesota through Hennepin County took title to the land because of non-payment of taxes. Both EPA and the county conducted cleanup activities at the site. In exchange for the covenant not to sue, the purchaser has agreed to pay EPA $1,000. EPA also covenanted not to file a lien on the property.
Master-Helco, Inc. also entered into a PPA to purchase 15.6 acres of the Reeves Southeastern Wire (“SEW”) portion of the Reeves Southeastern Superfund Site in Hillsborough, Florida. The purchaser manufacturers and sales fencing products and has agreed to acquire the all of the assets of Reeves Southeastern Corporation. In exchange for a covenant not to sue, the purchaser agreed to pay EPA $12,000 and to record restrictive covenants for the site that are necessary to ensure the effectiveness of the remedy to be implemented by the PRPs. The PPA will take effect only if the sale of the assets proceeds to closing. 
The City of Hopewell Virginia and H.D.C., LLC entered into a PPA to enable the redevelopment of the 42-acre Exeter Superfund site. Between 1992-93, EPA incurred $1.7 million to remove abandoned transformers containing PCBs, piles of asbestos-containing materials and over 200 drums containing hazardous substances. EPA recovered $980,000 from two PRPs and after obtaining a default judgment against the property owner, filed a judgment lien against the property. The city also filed tax liens against the property for non-payment of over $600,000 in property taxes. The city agreed to sell its tax liens and convey an adjacent parcel to H.D.C., LLC who will develop the site into a retail shopping center. The purchaser will also convey a portion of the site to the city in exchange for the adjacent parcel. In exchange for a covenant not to sue, the purchaser has agreed to reimburse EPA for $50,000 in response costs and to spend between $1 million to $1.5 million to complete the asbestos removal. After the purchaser reimburses EPA and completes the asbestos removal, EPA will remove its lien on the site.
California Enters Into First PPA
The California Department of Toxic Substances Control (“DTSC”) entered into a PPA with Federal Realty Investment Trust for the Town and Country Village Shopping Center Site located in San Jose. The volunteer is an equity real estate investment trust specializing in the ownership, management, development and redevelopment of retail properties. 
The PPA was the first entered pursuant to DTSC's July 1, 1996 PPA policy. The shopping center is contaminated with dry cleaning solvents as well as pesticides, arsenic, lead from prior agricultural uses. In exchange for the PPA, Federal Realty has agreed to remediate contaminated soils at the site, will renovate the shopping center and add up to 30,000 square feet of new retail space. In addition, 500 to 600 new apartments will be constructed on part of the property. The DTSC estimated that the project would result in approximately 2,205 temporary construction jobs and 75 additional permanent retail and maintenance jobs.

ENVIRONMENTAL CASES INVOLVING CORPORATE AND REAL ESTATE TRANSACTIONS

Fifth Circuit Reverses Ruling to Surcharge Lender’s Collateral
The United States Court of Appeals for the Fifth Circuit reversed a ruling by a bankruptcy court that would have allowed a landlord to surcharge the collateral of a lender to pay for the costs of removing waste oil drums from the leased premises of the borrower. 
In In The Matter Of  GRIMLAND, INC, the borrower had operated an automotive transmission and engine rebuilding business in Austin, Texas. After filed a petition for bankruptcy under Chapter 7, trustee of Grimland's estate moved to abandon all of Grimland's personal property, including over a hundred barrels of waste oil that Grimland had been storing on the leased premises. The landlord, James F. Parker Interests ("Parker"), objected to the abandonment, and as part of an agreed order settling the abandonment dispute, Parker was granted an administrative expense claim of up to $45,000 to cover the costs of removing the waste oil and as a reasonable rental for storing the estate's personal property on its premises pending liquidation. 
During these proceedings, the trustee auctioned off all the personal property of Grimland. TNB Financial, Inc. ("TNB") which had held a perfected purchase money security interest in all of Grimland's personal property securing a debt of approximately $20,000 did not object to the sale based on assurances from the trustee that its position would be protected. The sale generated proceeds of approximately $70,000, which left the estate with funds of about $75,000 to distribute to creditors. Thus, after the sale TNB was substantially oversecured and, except for the surcharge at issue, would have been repaid in full. 
By July 1999, the total costs for the waste oil remediation and the rental of the premises were almost twice what Parker had previously been allowed as an administrative expense. As a result, Parker moved to have the collateral securing TNB's lien surcharged for the remediation and rental costs. Parker claimed it had incurred the costs pursuant to § 506(c) of the Bankruptcy Code but did not specify the amount of the surcharge. In accordance with Local Bankruptcy Rule 9014 of the Western District of Texas, Parker notified all the creditors who had been served with the motion that they had 20 days to request a hearing to object to the motion. Parker then filed a supplemental surcharge motion to cover additional rental and remediation expenses and estimated a surcharge exceeding $70,000. 
TNB did not object to Parker's first motion within the 20-day period and the bankruptcy court granted Parker's first open-ended surcharge motion. On the next day, TNB filed an objection to Parker's first motion. The clerk of the bankruptcy court treated the objection as a response to Parker's supplemental surcharge motion. At a hearing, the bankruptcy court stated that surcharging TNB's collateral for the rental and remediation costs were clearly contrary to Fifth Circuit precedent but found that that TNB had not objected to Parker's first surcharge motion. Accordingly, the bankruptcy court granted the second surcharge motion which when combined with the first surcharge motion, had the effect of completely stripping TNB of its lien. 
TNB then filed motions for rehearing on both of Parker's surcharge motions. The bankruptcy court refused to reconsider the two previous orders since they had been unopposed. The court said it was the responsibility of creditors to protect their own interests. As for the second motion, the bankruptcy court concluded that its disposition of the first surcharge motion was dispositive. TNB appealed to the district court but that court affirmed both the entry of the first surcharge order and the bankruptcy court's refusal to reconsider its actions. 
On appeal, the Fifth Circuit noted that §506(c) required a quantifiable and direct benefit to the secured creditor and that a surcharge was not appropriate for indirect or speculative benefits, or for expenses that benefitted the debtor or other creditors. The court said that removing of the waste oil drums did not benefit TNB since the waste oil was stored in drums on the Grimland premises and did not apparently contaminate any of Grimland's personal property. 
In addition, the court found that the storage of the personal property on Grimland's premises did not benefit TNB because TNB was entitled to repossess and auction off its collateral. The court said the fact that the auction was conducted by the trustee afforded TNB no real benefit beyond what it could have recovered on its own. 
The court also noted that TNB had not objected to the sale based on the representations of the trustee that the bank’s position would be protected, that it was Parker's motion that had failed to quantify the surcharge, and that there was no time pressures that prevented hearing TNB’s motion. The court said given the lack of equitable factors favoring Parker favor and the extreme deprivation of TNB's legal rights, the bankruptcy court abused its discretion in not hearing appellant's claim on the merits on the second motion to finalize the surcharge. It also abused its discretion in failing to reconsider its denial of appellant's objection to the surcharge.
Commentary: The government and other creditors have occasionally tried to obtain super-priority status for their claims under section 506(c).  This section provides that a trustee will be given a super-priority lien over previously perfected security interests in order to recover reasonable costs that are necessary to preserve the secured property to the extent the money spent benefits the holder of the secured claim.  Under this approach, the claimant would ask that proceeds from the sale of collateral subject to the security interest be turned over for reimbursement of cleanup costs. Most of the cases that have been decided under this section involved the sale of personal property. In each case, the court denied the government's request on the basis that the cleanup of real property did not confer a benefit on the holder of a security interest in personal property.
Many businesses enter into financing arrangements where the lender is granted a security interest in the accounts receivable, inventory, and equipment of the borrower as well as cash equivalents such as securities, deposit accounts, and negotiable instruments. When the unencumbered assets of the debtor are insufficient to cover the environmental claims, the debtor may try to rely on section 363(f) to use the proceeds from the sale of collateral to finance a cleanup rather than turning the proceeds the lender.
Section 363(f) allows the debtor to use the cash collateral of the lender if the lender consents or is provided with "adequate protection.” What constitutes such protection is unclear, but it may be in the form of guarantees or additional liens. The use of cash collateral is an extraordinary remedy and should be used only in situations that pose an imminent danger to human health or the environment. In such circumstances, a court may not be concerned with the adequacy of the protection given to a lender.  Some courts have held that 28 U.S.C. 959(b) requires Debtors in Possession to use all of their available funds and that section 363(c)(2) permitted the use of the cash collateral of the lender to abate an imminent hazard.
City Acquiring Title Under Eminent Domain Not Liable Under CERCLA
In a case that may help stimulate the development of brownfields, the federal district court for the Northern District of California ruled in City of Emeryville v. Elementis Pigments Inc. (No. C 99-03719, WHA, 3/6/01) that a city which acquired contaminated property under its eminent domain authority for redevelopment is not liable for cleanup costs of the property under CERCLA.
In this case, the city hoped to redevelop a 20-acre site comprised of 4 parcels into a 300,000 square feet of retail and entertainment center with 350 residential units and a 300-room hotel. The site had formerly been occupied by a pesticide plant, an iron-oxide manufacturing plant and a drum- recycling operation. After the city and the current owners of two parcels comprising the property could not agree on purchase terms, the city invoked its authority under the Polanco Redevelopment Act which allows redevelopment agencies to acquired sites and remediate them under state supervision. On the same day that the city filed its eminent domain action, one of the property owners entered into a voluntary cleanup agreement (“VCA”) with the state Department of Toxic Substances (“DTSC”). The city object to the VCA claiming that the owners had proposed a cleanup that was less comprehensive than the one proposed by the city and the DTSC terminated the VCA. The city then spent approximately $13 million remediating the site under the supervision of the DTSC.
After the DTSC certified that the cleanup was completed, the city filed a cost recovery and contribution action under CERCLA and state law against the former operators of the site. The city settled the action against four of the defendants but the remaining defendants filed a motion for summary judgment, arguing that the city was liable under CERCLA site and was barred from bringing a cost recovery action.  The defendants claimed that because the city had acquired two of the parcels without exercising its power of eminent domain, the city did not qualify for the innocent purchaser defense. The court rejected this argument and ruled that because state law encouraged municipalities to purchase property by negotiation to avoid eminent domain litigation, the clause of the CERCLA innocent purchaser defense applying to eminent domain authority applied. 
However, the court ruled that the city was not entitled to the presumption that its response actions complied with the NCP because the presumption was only available to a federal or state plaintiff and a city did not qualify as a state. Nonetheless, the city was entitled to the presumption of NCP consistency under the Polanco Redevelopment Act because the remediation was performed under DTSC oversight.
Eighth Circuit Expands CERCLA “Divisibility” Defense
In United States v. Hercules Inc., (No. 99-3684, 4/10/01), the Court of Appeals for the Eighth Circuit lowered the threshold for defendants trying to show that harm is divisible at a site.  Under CERCLA, if a defendant can show that the harm caused by its waste was divisible from other contamination at the site, the defendant will not be jointly liable for the response costs at the site but, instead, only for the costs associated with the hazardous substances it sent to the site. 
The court said that a defendant is not required to show that the harm was "clearly divisible," but simply that there is "either distinct harms or a 'reasonable basis' for apportioning causation for a single harm." Since the district court had ruled that the defendant had to show that the harm was clearly divisible or that its waste did not or could not contribute to the release causing the response costs, the appeals reversed the summary judgment ruling, and remanded the case to the trial court for a hearing using the appropriate standard. 
SREA Bars Contribution Action Consolidated With Government Lawsuit
On November 29, 1999, Congress enacted the Superfund Recycling Equity Act (“SREA”) which exempts parties recycling certain materials containing hazardous materials from generator liability. In prior issues we have reported that while SREA expressly provides that the exemption would not affect any judicial proceedings instituted by the United States prior to the enactment of the amendments, there has been some confusion whether SREA applies to pending private actions. Recently, the District Court for the Northern District of Alabama ruled In United States v. Mountain Metal Co. (No. 98-C-2562-S, 4/5/01) that SREA barred a private contribution action that had been consolidated with government cost recovery case prior to the enactment of SREA.
In this case, EPA performed a response action at the Interstate Lead Co. (“ILCO”) site in Leeds, Alabama and then filed a cost recovery action in 1998 against parties who had sent spent batteries and lead battery plates to the site. Two of the PRPs filed their own contribution actions against these battery recyclers. The actions were consolidated in February 1999, 9 months before SREA was enacted.
The court said the contribution claims were part of a “separate and independent private party action” and therefore were not entitled to the protection afforded government actions. The court also said that the plaintiffs had no reasonable basis to believe that the operator of the ILCO site was not complying with environmental laws because some battery shipments were sent in 1980 and 1984 while ILCO site was not proposed to be listed on the NPL until 1985. For the plaintiff who made battery shipments after 1985, the court said ILCO had sent the plaintiff a 100 page report which included a news article entitled “Leeds Firm Meets Anti-Pollution Deadline” and an article entitled “Children in Leeds Free of Unsafe Lead Levels.” 
Commentary: SREA exempts parties recycling certain materials containing hazardous materials from generator liability. In prior issues we have reported that while SREA expressly provides that the exemption would not affect any judicial proceedings instituted by the United States prior to the enactment of the amendments, there has been some confusion whether SREA applies to pending private actions. 
However, even if defendants in a private cost recovery or contribution action could assert the defense, these defendants would still have to overcome a significant hurdle that has received little attention since SREA was enacted. To qualify for the SREA liability exemption, recyclers must show that they had no “objectively reasonable bases to believe” that the recycling facility was not in compliance with environmental laws. To make this showing, the defendants would have to show that they took “reasonable care” to determine if the companies they sold recycled materials to were in “substantive (not procedural or administrative) compliance with applicable federal, state or local environmental requirements”. 
SREA does not define “reasonable care” nor has EPA issued guidance interpreting the phrase. Thus, commercial recyclers, municipalities that run recycling centers and even non-profits that collect and sell recycled materials are unclear what level of inquiry they must perform in order to qualify for the liability exemption. Since SREA uses the “reasonable care” and not the phrase “appropriate inquiry” which appears in the CERCLA innocent purchaser’s defense, it is unclear if the kind investigation that would satisfy the innocent purchasers defense would be sufficient or is even necessary to assert the SREA defense. Thus, a party seeking to take advantage of the exemption does not currently know if it should perform a site inspection of the purchaser’s facility, have the buyer complete a questionnaire, conduct a data base search or simply have the buyer certify that it is compliance. 
Moreover, it is unclear if scrap dealers would have to review all of the environmental laws affecting the buyer’s entire facility or simply determine if the buyer properly handled the scrap material. For example, should a company that sells scrap metal have to evaluate what the buyer did with the metal after it was melted or should a supplier of recycled paper have to determine if its customer is in compliance with the Clean Water Act after the used paper is broken down into a slurry?  While EPA is considering issuing formal guidance to address these issues, it will probably only be helpful for future recycling transactions since it is quite doubtful that scarp recyclers performed any customer compliance inquiries in the past. Thus, it is quite possible that the defendants who are allowed to assert the defense will not be able to successfully establish the elements of the defense. In any event, contrary to the Mountain Metal decision, it would seem that something more than reliance on newspaper articles would be required for a party to show that it exercised “reasonable care” in determining the environmental compliance of the facility. 
District Declines To Dismiss Claims Against Restaurant and Franchisor for Pre-Exisiting Contamination
A federal district court for the eastern district of Lousiana denied a motion to dismiss claims brought against a fast food restaurant and a franchisor of a dry cleaning operation by an adjacent landowner. The plaintiff claimed that solvents from dry cleaning operations that had operated on the adjacent property from 1981 to 1994 had migrated onto its property. The plaintiff alleged that Kentucky Fried Kitchen purchased the property after the dry cleaning operation had ceased but that contaminants had migrated from the building and property during its ownership. The plaintiff also claimed that the franchisor had provided the dry cleaners with their equipment, training and supplies and could be liable under a master-servant or agency principles. 
Commentary: Since this case involed a motion to dismiss under rule 12(b)(6) of the federal rules of civil procedure, the ruling was not on the merits. In such a motion, a court may not dismiss a complaint unless it appears that there are no facts that a plaintiff can prove that will entitle it to relief. Here, the court simply held that the plaintiff was entitled to introduce evidence to support its claim. 
Nevertheless, the case is another example that it is important to investigate the history of a site even if it is currently being used as a restaurant or other use that might not seem to pose significant environmental problems. If there are contaminants migrating from the property from a previous release, the current landowner or tenant could be held to be liable for the release if the property is located in a state where the mere movement of previously-deposited contaminants is considered a disposal. Such migration might be an exception to a state innocent purchaser defense. In addition, the landowner or current tenant could also forfeit their third party defense since allowing contaminants to migrate might be viewed as not exercising due care regarding the hazardous substances. 

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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