SCHNAPF ENVIRONMENTAL  REPORT
A Newsletter Covering Recent Environmental Developments and Caselaw
September 2001						Vol. 3, Issue 5	

Editor’s Note
We wish to extend our deepest condolences to those who lost family members and friends on September 11th. We pray that God will provide comfort to them and help the survivors heal from their physical and emotional wounds. We also pray that God will provide the leaders of the world with the preserverance, strength and wisdom to bring an end to terrorism.        

Contents
Page 2  EPA Asbestos Investigations at World Trade Center Site
Page 2  Phase I ESA Increased in Second Quarter
Page 3  California Senate Passes Mold Disclosure Legislation
Page 3  Exterior Stucco Products Can Cause Mold Problems
Page 3  ASTM Approves Standard for Estimating Environmental Liabilities
Page 4  Former Military Sites Can Pose Risks to Developers and Homeowners
Page 6  College To Spend $30 Million To Remediate Campus Contamination
Page 6  EU Counties Begin to Implement Extended Producer Responsibility to Car Manufacturers
Page 6  Standards Tightening for Secured Creditor Policies
Page 7  Rating Agencies Often Prefer Secured Creditor Policies Over PLL or Cost Cap Policies
Page 7  Connecticut DECD to Offer Environmental insurance Assistance	
Page 7  EPA Announces Additional NSR Settlements
Page 8  District Court Rules Refinery Violated NSR Requirements
Page 8  Federal and State Governments Continue to Bring Asbestos Enforcement Actions
Page 9  EPA Proposing Additional Allowance System for Ozone Depleting Substances
Page 9  Another Corporation Voluntarily Agrees To Reduce GHG Emissions
Page10 GAO Report Identifies Enforcement Gaps for CWA
Page10 Wetlands Enforcement Actions
Page11 Ninth Circuit Upholds Wetlands Violation of Ranch Owner
Page12 Federal District Courts Allows Filling of Wetlands Until New State Law Takes Effect
Page12 States Take Action on Isolated Wetlands
Page12 New Jersey Adopts New Wetlands Rules
Page13 Trading Phosphorus Credits May Help To Clean Idaho River
Page13 Pennsylvania Tightens Stormwater Rules For Development
Page14 EPA UST Enforcement Actions
Page14 Gasoline Service Stations Cropping Up at Grocery Retailers
Page15 Companies Face Liability for MTBE Contamination
Page15 Study Finds RCRA Financial Assurances Inadequate
Page17 EPA and DOT Propose Revisions To Uniform Manifest Rules
Page17 Criminal Charges Brought for Failing to Comply With Lead Paint Disclosure Rules
Page17 EPA Brings Additional LBP Civil Enforcement Action 
Page18 EPA Orders LBP Abatement at Commercial Building
Page18 EPA Fines Company For Improper Storage of PCB Waste
Page18 PCB Guidance Document for PCBs in Drugs and Biological Products
Page19 Maine Hospitals Agree to Reduce Mercury Use
Page19 EPA Issues O & M Guidance
Page19 EPA Announces Additional Prospective Purchaser Agreements 
Page20 Innovative Cost Recovery Settlement Uses Escrow Account to Fund Payment 
Page20 Asbestos Cleanup Underway at Minnesota Homes 
Page20 Study Estimates Volatilization of VOCs in Indoor Air 
Page21 EPA Announces New USTfields Grants
Page21 EPA Announces 5 New RCRA Brownfield Pilots
Page21 Ohio Enacts Brownfield Financing Law  
Page22 Tennessee Amends Brownfield Program 
Page22 New Jersey Announces Additional Brownfield Grants 
Page23 Georgia to Use $40 Million In CDBG For Environmental Purposes 
Page23 Studies Find Many Landfill Caps and Liners Ineffective 
Page24 Pennsylvania Brownfield Sites to Be Redeveloped 
Page24 District Court Rules Banks Trustee Not Liable Under CERCLA
Page25 Bankruptcy Code Does Not Preclude Enforcement of State Superlien Law
Page26 First Circuit Rules State Law Should Be Used to Determine Successor Liability Under CERCLA
Page26 Fifth Circuit Restricts CERCLA Right of Contribution

DUE DILIGENCE/ AUDITING/ DISCLOSURE/ ENFORCEMENT

EPA Asbestos Investigations at World Trade Center Site
Air samples taken at the site of the World Trade Center site have shown that asbestos concentrations meet OSHA standards.  Indoor air samples taken from surrounding buildings also met OSHA asbestos standards. Debris samples collected outside buildings on cars and other surfaces contained small percentages of asbestos, ranging from 2.1% to 3.3 %. An asbestos-containing material contains 1% or more of asbestos.  EPA has six continuous air monitoring stations into the area. 
Note: The CERCLA definition of release does not include products that are part of a building structure such as asbestos. However, some courts have ruled that the building product exception does not apply when a building has been demolished and the substances has escaped or may escape from debris piles into the environment. As a result, EPA is considering providing superfund money to NYC to help pay for the costs of removing asbestos-containing materials,  the costs of air monitoring and other steps designed to ensure that unhealthy levels of asbestos are not released into the air.   
Phase I ESA Increased in Second Quarter
According to the July 2001 issue of Environmental Site Assessment Report, 66,200 phase I environmental site assessments (“ESAs”) were performed in the second quarter which represents a 7% increase over the first quarter. The average maximum price for a Phase I ESA rose to $2,800. The increase is attributed to changes required by the new ASTM standard for ESAs that was published last year. The average minimum price for a ESA remained at $1,700. 
Commercial mortgage-backed securities (“CMBS”) now represent approximately 4% of all ESAs performed. It appears that the 2001 CMBS market may surpass the $78 million record set in1998. However, there also seems to be a rising default rate for these transactions. At the end of the second quarter, conduit lenders reported that loans that were delinquent by 30 or more days loan rose from 0.7% to 0.94%. Retail loans which are usually a leading indicator of the health of the real estate market had a delinquency rate of 0.20%.  

California Senate Passes Mold Disclosure Legislation
The California Senate passed legislation that would require sellers or landlords of residential property to notify new owners or tenants of the presence of mold contamination. The bill authorizes the Department of Health Services (“DHS”) to appoint a task force to establish safe limits for mold exposure in homes and other buildings with significant numbers of sensitive individuals such as hospitals, child-care facilities and nursing homes.  
Commentary: The Independent Insurance Agents of America recently estimated that the cost of mold inspections could cost between $1,500 and $3,500 in homes and as much as $30,000 for commercial buildings. 
There are several methods that may be used to test for the presence of mold including surface samples, collecting spores in petri dishes and air sampling devices. These testing protocols have various limitations and can produce different results. For example, surface samples can identify the species growing on a wall or other material but will not identify spores that may be present in the air. In addition, different molds may grow better on different types of media and most labs do not use multiple media. Thus, a particular type of mold may not grow in the media used by a lab but could still be present in a home. The gravity dishes will only collect the heaviest spores and will not detect mold that is not producing spores. The air monitoring devices provide the best approximation of spore density in air but since the samples are not cultured before being identified utilizing microscopic techniques, the individual species can be more difficult to identify. In addition, mold species may sporulate (produce spores) at different same time. Individuals may also respond differently to different mold exposures depending on the type of mold or differ in their sensitivity to mold metabolic byproducts or mycotoxins that some species produce.
Exterior Stucco Products Can Cause Mold Problems
We have previously reported on the common design or construction defects within a building that could lead to mold infestations. A recent spate of lawsuits primarily from southeastern states illustrate that mold damage can also develop from exterior insulation and finish systems (“EIFS”) such as synthetic stucco coverings. This material consists of extremely thin layers of Styrofoam-like material that is attached to insulation material and installed on exterior walls of homes. If the stucco finishing is improperly designed or installed, water can seep around windows, doors and wall edges and become trapped where it will eventually cause wood to rot and could lead to mold problems. 
Commentary: Synthetic stucco mold cases are not limited to residential structures. Indeed, a number of fast food restaurants have sustained mold damage because of improperly installed synthetic stucco finishing. As a result, owners and lenders of shopping centers, restaurants, stores and other buildings open to the public that have exterior stucco finishing may want to have mold tests performed to minimize exposure to people patronizing those establishments. 
ASTM Approves Standard for Estimating Environmental Liabilities
In our May 2001 issue, we reported that the American Society for Testing and Materials (“ASTM”) was about to approve two standards that would help companies estimate environmental liabilities. Last month, ASTM announced the release of the Standard Guide for Estimating Monetary Costs and Liabilities for Environmental Matters (“ASTM E2137”). The standard provides a framework for estimating environmental liabilities that can be used in business transactions, third-party lawsuits, insurance premium calculation and claims settlements, evaluation of remedial alternatives, and strategic planning. While the standard does not supplant SEC, accounting or actuarial industry standards, it can be used to help comply with SEC disclosure obligations. 
The standard identifies the types of environmental liabilities that should be considered when estimating environmental costs such as fines, investigation or remedial actions, natural resources damages, bodily injury or property damage claims, and reimbursements from trust funds. To help formalize the process of estimating environmental liabilities, the standard identifies the kinds of information that should be considered such as the number and location of affected facilities, nature and extent of contamination or violation, the number of operable units or waste management units, the available technology, relevant state and federal regulatory requirements or alternatives, previous studies, prior and future site uses as well as surrounding land use, planned or completed remedial actions, extent of public participation or involvement of other parties, litigation activity, and prior experience with similar events.
The standard then provides that the information should apply corporate, accounting or regulatory policies to assess their impact on cost estimates. For example, accounting standards have guidance on when to recognize contingent liabilities. Regulatory agencies may have issued technical guidance on what will be required to achieve compliance or what are the acceptable levels of risk when developing risk-based cleanup standards. In addition, corporations may have environmental policies committing the organization to achieving certain minimum environmental performance. 
After this information is developed, the standard provides that users should use one or more of estimating methods. These include Expected Value (“EV”), Most Likely Value (“MLV”), Range of Values, and Known Minimum Value. The standard provides detailed explanations on what these estimating methods are, how they may be used and application examples. 
Former Military Sites Can Pose Risks to Developers and Homeowners
During the course of this year, we have been providing updates on the discovery of World War I chemical weapons at American University (“AU”) and a residential neighborhood in Washington, D.C. The Army had used a portion of the campus to test chemical weapons including mustard gas, lewisite, cyanide phosgene and arsenic.
Recently, AU filed an administrative claim under the Federal Tort Claims Act seeking damages of $86.6 million from the United States Army. AU estimates that it will incur $8.6 million for past and future cleanup, $58 million for disruption of normal operations and potential damage to reputation, and $20 million for construction delays.
In 1986, the university began constructing a new sports center. A preconstruction review of the site history found a 1921 university publication that referred to a chemical weapons burial pit on campus. A study by the university's history department also concluded that there was a very good possibility that chemical weapons were buried on campus. The study found a March 1919 Army memo that had directed the chemical weapons research division to ship the chemical weapons to another site but evidence turned up showing that some chemicals were disposed on-site. Also, a 1918 photograph showed a soldier leaning over a Spring Valley pit near approximately 20 five-gallon glass or ceramic containers.
AU then contacted EPA in April 1986. EPA studied aerial photographs from 1918 and 1927 and gave the Army a report identifying the location of two possible burial pits. The report also described suspect areas on the AU campus including an athletic field and fraternity houses. An Army explosives team surveyed the site but no soil tests were taken. The Army Corps of Engineers (“Corps”) concluded that there was no evidence of the burial of munitions and that no further action was necessary. 
In 1993, a construction crew building homes in the nearby Spring Valley area discovered unexploded buried World War I-era munitions. The Corps conducted a three-week emergency cleanup and removed 43 chemical rounds. Dozens of residents were evacuated from their homes during the cleanup. A draft report by the Army Audit Agency in June 1995 concluded that the Army did not notify local authorities and third parties in accordance with laws and regulations in effect in 1986. However, a final report issued a month later found that the Army had no duty to notify local authorities or third parties in 1986. The final report said that because the Army did not identify "definite" burial sites in 1986, no notification was necessary. The Corps then issued a Record of Decision concluding that there were no chemical warfare material, breakdown products or soil contamination that required further action within the site covered by the Record of Decision. However, soil samples were not taken at the bottom of the former trench.
In 1994, EPA collected seven soil samples from a residence in the Spring Valley area. One sample detected found 241 parts per million (“ppm”) of arsenic in the backyard. While this was more than three times the cleanup level, EPA considered the sample an anomaly since the other six samples did not contain elevated Arsenic levels. However, in evaluating the risk, the agency applied the higher cleanup level that did not consider the cancer dangers associated with arsenic. As a result, the agency took no steps to remove the soil or warn the family living at the property. 
The Corps did not consult with the city's Environmental Regulation Administration but sent its findings to the city's Office of Emergency Preparedness that lacked expertise to evaluate the data and did not pass along the information. In 1996, the city notified the Corps that an immediate threat existed in the Spring Valley area and requested that soil samples be taken throughout the 600-acre area as well as surveys using magnetometers and ground-penetrating radar. However, in January 1998, the Corps rejected the notion that any threat existed. This conclusion was supported by a federal Agency for Toxic Substances and Disease Registry report. 
After buried chemical munitions were discovered on property owned by the Republic of Korea in 1999, the Corps performed another round of soil sampling which revealed elevated levels of arsenic at several sites at AU. The Corps is continuing to test for arsenic and other chemical agents on campus. The homeowners exercised a buyback clause and moved out. The house which is next to the Korean ambassador's residence is now empty and the yard is sealed off. A team of Army chemical workers began excavating the front yard in May, and the pit now extends onto the property of the Korean ambassador's home next door. This summer, seven small bottles containing lewisite or mustard agent were excavated from the site of the former experimental test station at the AU campus. Six 75mm mortar rounds were also uncovered. 
Commentary: According to a recent report from the General Accounting Office (“GAO”), the discovery of these old  chemical weapons may just be the tip of the iceberg. Across the country, there may be hundreds of old test and training ranges that are now suburban developments or shopping malls. However, according to the GAO, the Department of Defense (“DOD”) lacks sufficient funds to identity and cleanup these old weapons which are known as unexploded ordnance (“UXO”). 
The GAO report "Environmental Contamination:  Cleanup Activities at Formerly Used Defense Sites" (GAO-01-557) found that cleanup had been completed at about 32%. However, the report said it would cost more than $13 billion and take more than 70 years to complete the remaining sites. While the DOD spends about $1.5 billion a year to clean up contaminated sites on active and closing military bases, only $200 million a year is spent to clean up formerly used defense sites (“FUDS”). Until recently, most of the money went to remediating superfund sites and not old bombing areas.
In most cases, little documentation exists on the types of ordnance used or precisely where the weapons were disposed. The risks range from exposure to highly toxic chemicals to the possibility that people will stumble onto live ordnance. 
The process of locating old munitions, determining the type of munitions and then removing the ordnance is a different process from that used to remove other hazardous substances from soil and groundwater. Until recently, the military has relied on World War II-era magnetometry to locate buried munitions. This method produces a high number of false positives. Highly trained personnel must carefully excavate each item because it is impossible to tell if a piece of UXO that could explode. While more advanced technologies such as radars and advanced sensors may now be available for this process, the Corps which does most of the investigatory and cleanup work on these sites tends not to use these newer technologies. 
The possibility that developers and citizens may inadvertently stumbling onto former UXO or FUD sites once again reaffirms the importance of performing comprehensive historical due diligence on properties before they are developed. Had the Washington, D.C. developer retained a consultant to review historical aerial photographs instead of relying on information provided by the Army, the developer could have learned that the site had a former use that required further investigation.
College To Spend $30 Million To Remediate Campus Contamination
Further illustrating the need to examine historical liabilities associated with former industrial sites, Wellesley College will spend approximately $30 million to remediate an abandoned paint factory that contaminated part of its campus as well as a nearby lake.  Wellesley College purchased property in 1932 that had been used to manufacture pigments from metal ores from 1848 to 1927. The former factory site as well as nearby wetlands and lake are contaminated with various hazardous materials, including chromium and lead sediment deposits. The college and the state of Massachusetts will pay for the costs to dredge contaminated sediments from the northern shoreline and western cove sections of Lake Waban. 
EU Counties Begin to Implement Extended Producer Responsibility to Car Manufacturers
In our last issue, we discussed how many European countries were adopting Extended Producer Responsibility (“EPR”) laws that require manufacturers to take back certain types of products at the end of their useful life. Last year, the European Union issued an end-of-life vehicle (“ELV”) directive that was designed to ensure that at least 85% of old cars by weight would be recycled by 2006 and 95% from 2015. England, Germany and Spain recently took actions to begin implementing the ELV.  For example, the Spanish government approved a five-year national plan that will require car manufacturers to bear most or all the costs of taking back and recycling vehicles from 2007. A range of hazardous substances will be banned in new cars from July 2003. Germany has also issued proposals that will require car manufacturers to incur the full costs of achieving the directive's scrap vehicle recycling targets. However, to soften the impact of the ELV requirements, the Germany is proposing substantial tax breaks for vehicle manufacturers who use recyclable materials in their cars. England is considering three alternative systems to control collection, treatment and recycling of scrap cars while leaving the key issue of financing to a later stage. The control options include tonnage recycling targets for each producer and a possible tradable permit scheme. 

ENVIRONMENTAL INSURANCE

Standards Tightening for Secured Creditor Policies
In the last few issues, we have been discussing how to effectively use secured creditor to facilitate transactions. Earlier this year, it appeared that insurers were issuing policies on the creditworthiness of the borrower and not focusing on the environmental conditions of the property.
However, as the economy has weakend and loans have started to go into default, we have begun to see a tightening of underwriting standards for secured creditor policies, particularly for convenience store loans that seem to having a higher default rate This tightening of underwriting standards has occurred following an increase of claims being filed under these policies. While the secured creditor policies have a “double trigger” requiring a pollution condition and a loan default, many of these policies are approved with known environmental conditions. Thus, when the loans go into default, the lender simply files a claim under the policy for the loan balance which may far exceed the environmental costs at the property. 
As a result, the insurers seem to be once again focusing on the environmental issues of the properties as a way of reducing their exposure. Properties that once may have easily been approved for a secured creditor policy on the basis of the financial strength of the borrower or a guarantor are now being rejected because of the site conditions. It is now more important to have a the site contamination characterized or a cleanup plan approved by the state regulators.  
Rating Agencies Often Prefer Secured Creditor Policies Over PLL or Cost Cap Policies
Property owners often secure a cost cap or pollution legal liability policy prior to refinancing a loan. Since it has already purchased insurance, the owner usually assumes that it may just need to add the lender added as an additional insured and does not anticipate it will have to pay for a secured creditor policy. However, if the loan is to be securitized, the lender will usually require a secured creditor policy because the rating agencies generally do not provide credit enhancement for the cost cap or PLL policies. This is because those policies do not have the loan balance payout provision and also because the rating agencies are not as familiar with those policies and do not want to expend resources evaluating the coverage. 
In some instances, lenders have agreed to defer the requirement of a secured creditor policy until after the closing. Occasionally, a lender has agreed to split the costs of the policy with the borrower.  Some lenders have also waived the requirement that a borrower execute an environmental indemnity if the borrower obtains a secured creditor policy. 
Commentary: A number of major conduit lenders and money center banks have established secured creditor programs for their loans. Usually, the lender will establish three or four different policy portfolios for different size loans known as tranches. The bank would then have a property added to one of the tranches. Because of the volume of business that the bank generates, the premium for these policies can be significantly lower than a free standing policy obtained by a borrower for a bank. For example, a client recently was able to have a policy added to a conduit lender’s secured creditor program for a $12,000 premium. The premium for the stand alone policy was $80,000.  
Connecticut DECD to Offer Environmental insurance Assistance
The Connecticut Department of Economic and Community Development (“DECD”) is launching a pilot program to provide incentives for brownfield redevelopment. Under the program, the DECD will work with insurance underwriters and clients to determine whether environmental insurance is appropriate, determine the scope of the coverage required,  negotiate costs and coverage; and assist with the policy premium. The DECD began accepting applications for brownfields liability assistance on July 16, 2001.
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AIR POLLUTION DEVELOPMENTS

EPA Announces Additional NSR Settlements
 While the Bush Administration is studying the EPA New Source Review (“NSR”) enforcement initiative, companies are continuing to settle existing NSR legal proceedings. For example, Premcor (formerly Clark Refining and Marketing) agreed to pay a $2 million fine and install new pollution control equipment that will cost up to $20 million to decrease emissions of sulfur dioxide and particulate matter. EPA and Illinois alleged that Premcor made major modifications to its Hartford refinery failed to obtain a New Source Review permit for modifications made to its fluid catalytic converter unit in 1994. Premcor's Hartford refinery processes heavy crude oil which has high sulfur content. Under the settlement, the refinery will reduce emissions of sulfur dioxide (“SO2”) by more than 4,700 tons, emissions of particulate matter by 630 tons, and emissions of nitrogen oxides (“NOx”) by 270 tons each year. Premcor also agreed to undertake several supplemental environmental projects and pollution reduction measures such as discontinuing the use of fuel oil in heaters and boilers, and reducing flaring from the refinery's coke process.  
Meanwhile, the EPA Region 5 office has issued a notice of violation to a CITGO Petroleum Corp. facility in Lemont, Illinois for making major modifications to the refinery's sulfur recovery plant that significantly increased in SO2 emissions without complying with various testing and monitoring requirements. In addition, CITGO failed to submit excess emissions reports and failed to show compliance with emission limitations.
Commentary: The Bush Administration is reportedly considering replacing the NSR program with a cap and trading program modeled after the SO2 Acid Rain program. Under this approach, emissions limits would be established for four types of pollutants and the various facilities would then have the option of installing pollution control equipment to reduce emissions or to purchase allowances to comply with those limits.      
District Court Rules Refinery Violated NSR Requirements
A federal judge has ruled that a refinery failed to comply with the NSR program when it made modifications to a Wisconsin refinery during the 1980s and early 1990s. In United States v. Murphy Oil USA, Inc., No. 00-C-0409-C (W.D. Wisc. 8/1/01) EPA alleged that the defendant had failed to comply with NSR for the Prevention of Significant Deterioration (“PSD”) program regulations when it constructed and operated a sulfur recovery unit. Murphy Oil claimed that the EPA claims for failing to obtain a pre-construction permit were time barred, that a settlement with the state barred the EPA action, should be dismissed because it was in compliance with the terms of its state-issued PSD air permit and was therefore entitled to the protection of the “permit shield.” As a result of the non-compliance, the refinery emitted more than 20 times the allowable level of sulfur dioxide over the past ten years.
However, the court ruled that the federal government was not time-barred from bringing an action because the federal enforcement authority went beyond the authority granted to Wisconsin under the CAA. The court also said that the Harmon Industries, Inc. v. Browner, 191 F.3d 894 (8th Cir. 1999) case did not apply because the CAA did not contain the same language as the Resource Conservation and Recovery Act (“RCRA”) which was the statute involved in that litigation. Because the court found that Murphy Oil intentionally withheld knowledge of these plant modifications from regulators, the court ruled that the statute of limitations had not expired on the EPA claim and the defendant was not entitled to the permit shield. 
Federal and State Governments Continue to Bring Asbestos Enforcement Actions
The Virginia Department of Environmental Quality (“DEQ”) has commenced an administrative proceeding against a school district that inadvertently disposed building debris containing asbestos from an elementary school in a landfill that was not licensed to accept asbestos wastes. 
The elementary school was built in 1960 and an asbestos inspection in the 1980s did not identify any asbestos-containing materials. After a renovation project had commenced, school officials discovered the existence of asbestos and notified the DEQ. As a result, the landfill had to haul about 60 truckloads of material containing ACM to a certified asbestos landfill. The school district has incurred approximately $600,000 in asbestos abatement costs and is now conducting asbestos inspections at other buildings in the school district. 
In Pennsylvania, the Department of Environmental Protection seized a tractor-trailer that hauled asbestos and then allegedly picked up wheat that was to be delivered to a mill. The driver faces a fine of up to $10,000. The contaminated wheat was disposed in a Pennsylvania landfill. 
In Missouri, the corporate owner and a former general manager of an automobile assembly plant were indicted by a federal grand jury for allegedly improperly removing asbestos from the plant. According to the indictment, an inspector with the Kansas City Department of Health ordered the corporation to abate asbestos-pipe wrapping  that had been cut and allowed to drop to the floor. However, the former general manager hired employees to remove the asbestos-containing materials. The employees spent two days sweeping, shoveling and manually collecting piping insulation and asbestos containing materials from the plant. If convicted, the former general manager could be sentenced to five years in prison and fined up to $250,000. The corporation could be subject to five years of corporate probation and fined up to $500,000. 
A Virginia real estate broker and his employee were indicted by a federal grand jury in Charlottesville for conspiring to illegally remove asbestos from several buildings. The indictment charged that between 1996 and 1998 the two defendants recruited untrained homeless men to remove asbestos from commercial buildings owned by a real estate partnership operated by the broker. The defendants allegedly directed workers to put the asbestos waste into plastic trash bags and place the bags in dumpsters and other locations around Staunton, Virginia. The indictment also charged the defendants with illegally removing and disposing of asbestos, failing to notify federal and state regulators of the asbestos work, and conspiracy to commit those offenses. 
The state of Virginia is cracking down on hundreds of asbestos removal contractors who received false asbestos certifications from F&M Environmental Technology, Inc. of Virginia Beach, VA.  The owner of F&M has been imprisoned for selling false training certificates to as many as 1,000 individuals from 1995 to 2000.  It is believed that contractors that employed F&M-trained workers performed 671 of 1,016 of the asbestos-removal jobs in Norfolk, Virginia Beach, Chesapeake and Portsmouth from Jan. 1, 1998 to April 30, 2001. 
In Salt Lake City, the president of an asphalt manufacturer pleaded guilty to negligent endangerment for exposing his employees to asbestos. The defendant ordered employees to remove insulation removed from tanks at the facility which was buried at another site. After sampling revealed that the insulation contained asbestos, the president directed company employees to remove the buried materials.
EPA Proposing Additional Allowance System for Ozone Depleting Substances
EPA has proposed to establish an allowance system to control the production and consumption of class II controlled substances known as hydrochlorofluorocarbons (“HCFCs”). The proposed rule is designed to comply with the U.S. obligations under the “Montreal Protocol on Substances that Deplete the Ozone Layer”. The Montreal Protocol established a cap on HCFC consumption which went into effect on January 1, 1996 and created a schedule for the phaseout of HCFCs by 2030. The Copenhagen Amendments to the Montreal Protocol require a 35% reduction of the cap in 2004, followed by a 65% reduction in 2010, a 90% reduction in 2015, a 99.5% reduction in 2020, and a total phaseout in 2030. 
Another Corporation Voluntarily Agrees To Reduce GHG Emissions
In our last issue, we reported that a number of United States-based corporations were proceeding with plans to reduce greenhouse gas (“GHG”) emissions even though the federal government has declined to ratify the Kyoto Protocols. 
Recently, Mirant of Atlanta, Georgia announced a ten year $50 million climate change action plan. The program will include GHG source reductions, energy efficiency improvements and carbon sequestration projects as well as various research projects.  Mirant also plans to develop a CO2 emissions rate reduction goal by the end of the year.  Mirant also intends to implement a number of additional actions improve its environmental performance including developing a corporate environmental policy, implementing an environmental management system, establishing environmental performance indicators to set improvement targets and measure performance and linking employee compensation to environmental performance. 

WATER POLLUTION/ENDANGERED SPECIES

  GAO Report Identifies Enforcement Gaps for CWA
A GAO report has found numerous deficiencies in the enforcement of the Clean Water Act (“CWA”). The report "Better Data and Evaluation of Urban Runoff Programs Needed to Assess Effectiveness” concludes that EPA has not evaluated the effectiveness of this program in reducing storm water pollution or to determine its cost.
The report found that many state enforcement programs were overwhelmed by the volume of water pollution violations and lacked information on hundreds of thousands of smaller pollution sources. GAO reported that states often issued enforcement actions a year or more after the violations occurred, The report said that state enforcement actions were inhibited by inadequate water-quality data, incomplete permit data, insufficient staffing, poor relations with EPA and concerns over regulating small and economically vital businesses and industries. GAO said that electronic transmission of self-monitoring reports would lessen the workload of state enforcement programs. Without electronic reporting by dischargers, GAO said it was virtually impossible for states to monitor compliance with all permits. 
The report also said that states could also do a better job of recovering the costs of enforcement by charging reasonable fines based on the magnitude of the violations. GAO recommended that EPA collaborate with states to develop new, risk-based enforcement priorities. The report suggested that new enforcement guidance needs to better define significant violations for toxicity test failures, minor facilities, and storm-water dischargers. 
Wetlands Enforcement Actions
North Carolina environmental officials estimate that at least 9,400 acres of wetlands have been drained to create build commercial office parks, golf courses and residences since the 1998 landmark Tulloch decision. As a result, state and federal authorities have been using other CWA authorities to combat draining of wetlands. For example, EPA fined two real estate developers from Wilmington and demanded the filling of hundreds of acres of ditches in two areas under its stormwater permit program.  Some developers and landowners have already agreed to restore wetlands and fill in the ditches.  One developer has agreed fill 20 miles of ditches while another landowner will restore 800 acres of wetlands that are impacted with ditches.
The New England EPA Region Office has recently been directing enforcement actions against cranberry farmers who may have filled wetlands to create their bogs. Recently, a farmer was charged with destroying wetlands to create a 160 acre cranberry bog. There are currently about 14,000 acres of cranberry bogs in southeastern Massachusetts. EPA estimates that 38% of bogs dug from 1977 to 1986 were built in wetlands. While cranberry bogs contain substantial amounts of water, EPA has found that the bogs do not contain the diversity of species or provide the same habitat and filtration functions as natural wetlands. In addition, farmers often add pesticides and other chemicals to the water. 
The New England EPA office also announced a settlement with a Taunton business owner filling of acre wetlands on his four-acre property. Under the consent decree, owner of the Taunton Expo Center will pay a total of $58,478 in penalties, restore wetlands on his property and create additional wetlands. EPA originally ordered the owner to restore the wetland in July 1997 and pay a $12,500 fine. However, the fine was not paid and the wetlands restoration was never undertaken.
EPA and Montana have issued a compliance order to developers and landowners of an exclusive residential development in Big Sky, Montana directing them to immediately stop releasing sediment into tributaries of the Gallatin River and stop filling nearby wetlands. The violations are related to the construction of a golf course, ski runs and roads at a privately owned, exclusive residential development. The order requires the respondents to implement erosion control measures, delineate the wetlands, perform corrective measures on the ski hill, roads and golf course, and submit a long-term site restoration and monitoring plan. They must also obtain prior written authorization from the Corps for any activity requiring a Corps permit, and comply with all requirements of the stormwater general permit.
A trucking company was indicted for dumping debris into wetlands located in Palm Beach County. In U.S. v. Perez, (No. 01-8100-CR-RYSKAMP, S.D.Fla., 8/6/01), the company dumped cut plants and other vegetation, wood products, and horse manure mixed with straw into unused pits on property it leased from a local government. 
Ninth Circuit Upholds Wetlands Violation of Ranch Owner
The U.S. Court of Appeals for the Ninth Circuit upheld most of a $1.5 million fine assessed against a Sacramento area real estate developer for destroying wetlands on a cattle ranch.  In Borden Ranch Partnership v. U.S. Army Corps of Engineers, No. 00-15700 (9th Cir. 8/15/01), a developer purchased an 8,400-acre ranch in California's Central Valley in 1993. Prior to the purchase, the ranch had been used primarily for cattle grazing, and contained vernal pools, swales and intermittent streams. 
The developer wanted to convert the ranch into vineyards and orchards and subdivide it into smaller parcels. Because vineyards and orchards require deep root systems, the developer initiated deep ripping activities which involved repeated dragging of long metal shanks through the wetland areas without a permit in the fall of 1993. The Corps granted him a retrospective permit in the spring of 1994 after the developer agreed to various mitigation requirements. In the fall of 1994, the Corps and the EPA informed the developer that he could deep rip in certain uplands areas and swales but could not conduct any deep ripping activity in vernal pools. The next spring the Corps discovered that deep ripping had occurred in protected wetlands and issued a cease and desist order. From July 1995 through November 1995, the developer again initiated deep ripping on various parcels of land without a permit. The Corps again issued a cease and desist order. 
The Corps and the EPA entered into an Administrative Order on Consent with the developer in May 1996 where the developer agreed to set aside a 1,368-acre preserve and refrain from further violations.  However, in April 1997, EPA investigators observed deep ripping activity in jurisdictional wetlands and issued another Administrative Order. The developer then filed a lawsuit, challenging the authority of the Corps and the EPA to regulate deep ripping activities. The federal government filed a counterclaim seeking injunctive relief and civil penalties.  
The district court ruled that the Corps has jurisdiction over deep ripping in jurisdictional waters. However, the court found disputed facts as to whether such deep ripping had actually occurred. After a bench trial, the court found that the developer had engaged in 348 separate deep ripping violations in 29 drainages, and 10 violations in a single vernal pool. The district court gave the developer the option of paying a $1.5 million penalty or paying  $500,000 and restoring four acres of wetlands. The developer chose the latter option and then appealed the ruling to the Ninth Circuit. 
The developer argued that under National Mining Association v. U.S. Army Corps of Engineers, 330 U.S. App. D.C. 329, 145 F.3d 1399 (D.C. Cir. 1998), the deep ripping activities did not constitute a discharge of pollutants into the waters of the United States because the action simply ripped up the bottom layer of soil and allowed water to drain through the soil. However, the court said that the deep ripping did not involve mere incidental fallback but constituted a regulated "redeposit". The court noted that while no new material has been "added," the wrenching, moving around, and redepositing of soil constituted an “addition of a pollutant”. 
The developer also contended that even if deep ripping constituted a discharge of pollutants, it was exempt under the "normal farming” exemption which includes and ranching activities. In 1996, the Corps and the EPA had issued a regulatory guidance letter that stated that deep ripping in wetlands destroyed the hydrological integrity of wetlands and requires a wetlands permit. 
The court noted that there was a recapture provision under the normal farming exemption that negated the exemption for any discharge of dredged or fill material into navigable waters that had the purpose of bringing an area of the navigable waters into a use to which it was not previously subject and that impaired the flow. Because the developer’s actions were intended to radically alter the hydrological regime of the wetlands, the court said it was entirely proper for the Corps and the EPA to exercise jurisdiction over the deep ripping activities. However, in the wake of the U.S. Supreme Court ruling in Solid Waste Agency of N.Cook County v. Army Corps of Eng’rs, 531 U.S. 159 (U.S. 2001), the court dismissed 10 violations involving isolated wetlands or vernal pools on the property. As a result, the court remanded the penalty assessment to the district court for recalculation.
Federal District Courts Allows Filling of Wetlands Until New State Law Takes Effect
A federal judge allowed a developer to continue to fill in 38 acres of wetlands on a 43-acre tract in Virginia until a federal lawsuit is resolved. The developer was rushing to complete filling activities before a state law takes effect in October that authorizes the Virginia Department of Environmental Quality (“DEQ”) to assert jurisdiction over isolated wetlands.
The developer argued that delays in filling the wetlands could make the land development project impossible and cost the developer more than $4 million. If the property could be drained or filled before Oct. 1, the developer said the land would be worth $100,000 an acre.
The US Department of Justice (“DOJ”) had filed a lawsuit against the developer alleging that the company refused to comply with a cease and desist orders from the Corps and the DEQ. The federal government asserted that the wetlands drained into a creek which is a tributary of a navigable river. However, the developer claimed that because the water from the property flows to the creek only through a manmade culvert under interstate 64 and a ditch beside the highway, the agencies did not have jurisdiction over the property. The DOJ said the culvert connects two halves of a wetland that was cut in two by the construction of I-64 and always formed the headwaters of the creek’s western branch.
The district court initially granted a temporary restraining order but then allowed the filling to continue. However, the court warned the developer that if it loses the lawsuit, the company might be forced to pay to have the wetlands restored. In the meantime, the judge ordered the developer to maintain a line of trees in the middle of the property and dig a system of ditches to help control sedimentation, runoff and maintain the property’s ability to absorb floodwater. 
States Take Action on Isolated Wetlands
Ohio Governor Bob Taft recently signed legislation to providing the state EPA with authority to review development projects that could impair isolated wetlands in the state. While developers will still be required to replace lost wetlands, the new legislation provides Ohio EPA with more flexibility in choosing where to create replacement wetlands and requires the agency to provide quicker review of permits for isolated wetland projects
Meanwhile, the Iowa Department of Transportation (“DOT”) has revised its wetlands Policy No. 500.03. Under the new policy, the state DOT will evaluate and address all potential wetland impacts. 
New Jersey Adopts New Wetlands Rules
The New Jersey Department of Environmental Protection (“NJDEP”) adopted revised freshwater wetlands regulations last month. New Jersey is only one of two states that has been delegated authority to administer the CAA wetlands program in lieu of EPA enforcement. 
The new rules place limits on building new homes near buffer areas to avoid creating backyards that cannot be used, provide special protection for small wetland vernal habitats that are crucial to the breeding of several amphibian species and enhanced penalties for failing to promptly perform required mitigation. 
NJDEP also established streamlined application and permitting procedures including combined general permits and transition area waivers, and combined freshwater wetlands and floodplain permits for some activities that occur in wetlands located in floodplains. The NJDEP is also create standard operating procedures to protect wetlands during dam removal, brownfield redevelopment and landfill closure, for issuing land use permits to control and direct the filling, construction, paving, destruction of vegetation in freshwater wetlands or transition areas, and the placement of fill in open waters. 
In addition, the rules establish new general permits for landfill closures, stream cleaning by local governments, tree cutting for airport safety, livestock watering troughs, and brownfields redevelopment. The purpose of these changes is to impose stricter limits on the use of the general permits for isolated wetlands in certain areas.
To ensure no net loss of wetlands in the near future, NJDEP will enhance land use compliance and enforcement actions by implementing a priority-driven system to increase monitoring of regulated activities within critical wetlands areas based on their habitat and functional value. NJDEP will also expand the implementation of best management practices for stormwater control through the development of watershed-based stormwater management plans.  
Trading Phosphorus Credits May Help To Clean Idaho River
Emission trading programs are being used to attain compliance with air pollution programs. Now, effluent trading is becoming a tool for achieving water quality standards in watersheds, particularly for phosphorous discharges. For example, effluent credits are now being used for phosphorous in the Snake River in Idaho and the Boise River.
Commentary: EPA has identified the following five types of effluent trading that can be conducted in a watershed to help achieve water quality goals cost-effectively: 
•	Point/point source trading- In this trade, a point source will purchase effluent credits for a specific pollutant instead of upgrading its own treatment beyond the minimum technology-based discharge standards. 
•	Point/non-point source trading- In this type of trade, a point source will arrange to control pollutants from a non-point source such as agriculture or construction site instead of upgrading its own treatment equipment beyond the minimum technology-based discharge standards. 
•	Non-point/non-point trading- This type of trading takes place when a non-point source arranges for more cost-effective control of another non-point source instead of installing or upgrading its own non-point source controls or implementing pollution prevention practices. 
•	Intraplant trading- This trade occurs when a point source allocates pollutant discharges among its own discharge points or outfalls. However, the combined discharges must not exceed the combined discharge limitations for all of the outfalls, and the discharge from each outfall must comply with applicable water quality standards.
•	Pretreatment trading- This type of trade involves indirect industrial source that discharges to a treatment plant. One indirect discharger will purchase pretreatment credits from other indirect discharger instead of upgrading its pretreatment to comply with local pretreatment standards. Although EPA encourages trading of local limits, it prohibits trading of federal categorical pre-treatment limits.
Pennsylvania Tightens Stormwater Rules For Development
During the past two years, we have discussed how stormwater runoff rules may affect development, particularly in areas that are part of important watershed. In response to a lawsuit filed by a citizens group, the Pennsylvania Department of Environmental Protection has agreed to impose tighter standards on runoff permits in Chester County. The citizen group had filed a lawsuit in March 2000 objecting to a state-issued storm water permit to the Vanguard Group to expand a corporate campus in Tredyffrin, Chester County.  While the expansion project is now complete, future development projects that potentially affect the watershed will become subject to the tighter requirements. The new rules could change the way storm-water detention basins are designed and could prompt statewide policy on storm-water management in certain watersheds.

HAZARDOUS WASTES/USTS

EPA UST Enforcement Actions
Nearly three years after the deadline for upgrading underground storage tanks (“USTs”), many UST owners and operators have failed to bring their tanks into compliance with the UST regulations.
For example, Raceway Petroleum Inc. and 15 related companies have agreed to pay $30,000, properly close out-of-service tanks and assess the soil around USTs that have been out for service for over 12 months. In addition to the fine, Raceway has agreed to undertake a supplemental environmental project (‘SEP”) involving installing and properly maintaining automated leak detection systems at service stations where less-reliable methods are currently used. The enhanced systems will continually monitor product levels in the tanks and automatically inform Raceway's central office by fax if any leaks are detected. Raceway will also install modems at eight other Raceway stations that already have automated leak detection systems. EPA estimates the SEP will cost $111,350.  
Under the terms of a consent order, a Tennessee office manufacturer has agreed to pay a $63,000 for failing to comply with the UST requirements. EPA also alleged that the company failed to submit notification of the release of petroleum from the UST systems as well as failing to characterize and remediate the release from the tanks.  
Richards Fuel Oil of Somerville, New Jersey has agreed to pay $94,000 to settle alleged UST violations. The company will also investigate the scope of any contamination and remediate contamination that is found.  After EPA inspected the Richards facility in 1999, the agency sent a number of letters to the company requesting information about USTs that were used to store kerosene, gasoline and diesel fuel.  The company failed to respond to the first letter and submitted incomplete responses to two others.  Based on information in the responses and the inspection, the agency charged the company with leaving three unused USTs in the ground for eight months after they were required to be removed, failing to assess the existence of soil contamination around the tanks, failing to comply with the inventory control requirements, and failing to maintain UST liability coverage from October 1998 to June 2000.
Gasoline Service Stations Cropping Up at Grocery Retailers
While many retail service stations have closed because of the expense of upgrading their USTs, major wholesale clubs are adding gasoline service stations. According to the National Petroleum News, there are now 1,400 “grocery-gas” facilities across the country operated by companies like Costco Wholesale Corp., Wal-Mart, Sam’s Club, and BJ’s Wholesale Club. Costco operates 135 stations while Stop & Shop operates gasoline stations at 24 sites throughout the Northeast. Wal-Mart and Sam’s Club run 500 gasoline stations throughout the US and hope to operate gasoline stations at every store location. BJ’s Wholesale Club has gasoline stations at 34 locations. Because these retailers sell high volumes of fuel and do not offer other services, they can sell gasoline at prices significantly lower than competing gasoline service stations. For example, Costco service stations in California sell gasoline for about 40 cents below the average local price per gallon. 
Companies Face Liability for MTBE Contamination 
There have been a number of developments in the many MTBE-related lawsuits that have been filed across the country for contamination of drinking water supplies. 
For example, the South Tahoe Public Utility District in California approved a $12 million settlement with ExxonMobil Corp. related to contamination of drinking water wells from leaks form gasoline stations. This was the first MTBE settlement where a major oil company has agreed to pay for contamination caused by gasoline stations that it did not operate or own. Earlier this year, a state court had granted a summary judgment motion in South Tahoe Public Utility District v. Atlantic Richfield Co., No. 999128, (Cal. Super. Ct. 8/9/00) that ExxonMobil was not liable as an owner or operator of the USTs. As a result, the only claim remaining against the company was a product liability claim for failing to warn. Other companies that have settled claims include Arco, British Petroleum, Chevron, Citco,Tesoro and Unocal Corp. The total value of settlements is now approximately $31 million. The funds from the settlement will be used by the South Tahoe Public Utility District to locate new drinking water wells. Approximately one-third of the wells had to be shut down because of the presence of MTBE. 
In another California action, a Superior Court judge approved a settlement committing five major oil companies to address MTBE contamination at their sites. Under the settlement, Shell, Chevron, Texaco, Equilon Enterprises and Unocal will remediate soil contamination at approximately 700 sites. It is estimated that the cost of the settlement will be approximately $150,000 to $275,000 per site but the estimate does not include any costs to address groundwater contamination.  Litigation began in 1998 when a local San Francisco environmental group, Communities for a Better Environment ("CBE") filed the lawsuit in 1998 against the five settlors as well as Arco, Tosco, and ExxonMobil alleging that the oil companies violated the state’s Unfair Competition Act by using MTBE in a way that caused groundwater contamination.  
Commentary: Approximately 2,500 public drinking water systems serve 30.5 million or 90% of the state’s population. Of the 8,311 groundwater sources that have been sampled, 48 were found to be contaminated with MTBE. However, 1,189 underground tank sites leaking MTBE are within 300 feet of public supply wells or on vulnerable drinking water aquifers. An additional 1,729 leaking tank sites that are farther away from drinking water wells may also be a threat to drinking water supplies. The data does not include the tens of thousands of private wells in California.  
Commentary: It was widely believed that any MTBE contamination would be limited in states that have adopted reformulated gasoline programs.  However, new research has detected MTBE in midwestern states that did not require the sale of reformulated gasoline.  Although ethanol is the predominant reformulating agent in many midwestern states, MTBE was found in 70% of gasoline samples taken from more than 200 sites in Indiana, Illinois and Michigan. The most likely sources of the contamination are tankers, storage tanks and pipelines that carried reformulated gasoline in other states requiring reformulated gasoline. 
Study Finds RCRA Financial Assurances Inadequate
An audit report by the EPA Office of Inspector General as concluded that many RCRA-regulated facilities have not established adequate financial assurance mechanisms to cover the closure and post-closure costs of those facilities. The report also found that 19% of the facilities did not have any financial assurances.  
Owners and operators of facilities that treat, store or dispose (“TSDFs”) hazardous wastes as well as municipal solid waste landfills (“MSWLF”) are required to assure that funds will be available to cover the closure costs of their facilities as well as a 30 year post-closure period. TSDF are also required to post financial assurances for corrective action costs when a facility is contaminated and also for bodily injury or property damage liabilities. The TSDF may demonstrate that adequate funds are available through a trust fund, surety bond, letter of credit, insurance, a corporate guarantee or by satisfying a corporate financial test. The study which was limited to evaluating the effectiveness of the closing and post-closing financial assurance mechanisms indicated that there were serious flaws with each of the financial mechanisms. 
For trust funds, the report indicated that 75% of the facilities that used trust funds to comply with the RCRA financial assurance requirements were underfunded. Indeed, a study by EPA Region IV revealed that 89 of the 100 TSDFs surveyed were underfunded by $450 million. Further complicating the problem is that many states do not require TSDFs to fully finance the trust fund when a permit is issued but allow the TSDFs to partially fund the trust funds over the operating life of the facility or the term of the permit. Another problem identified is that banks often did not release the funds to states without approval of the facility owners. A similar problem had been encountered by some states when they tried to draw on a letter of credit.
The study indicated that states had difficulties evaluating if insurance policies satisfied the RCRA financial assurance requirements because of a lack of a standardized form of insurance policy. The report found that the states usually simply relied on insurance certificates but differing policy terms and exclusions may make it difficult for the states to recover closure and post-closure costs. Sometimes policy cancellations are not reported to the states and in other instances the insurance was written by carriers that were not qualified to write insurance in the state. Another problem was the use of “fronting” insurance arrangements which require the insured facility to reimburse the carrier for any claims paid by the insurer. 
The report found that the most common form of financial assurance was the corporate financial test where a facility owner meets its financial assurance simply on its financial strength. The most common method is the net worth test but facilities may also demonstrate certain financial ratios or bond ratings. The report indicated that states have had problems monitoring corporate acquisitions, may not be notified of mergers or acquisitions and have encountered inaccuracies for closing cost estimates for out-of-state facilities. According to the report, states may find that a company that acted as the corporate guarantee of the financial assurance may be acquired by a company that might not qualify or be unwilling to provide a corporate guarantee. Although a national database might help with the verifying the cost estimates for out-of-state facilities, the report found that most would not have the resources to maintain their own state databases. Further complicating the problem is that the corporate financial test is usually used for the facilities that have the largest potential closing and post-closing costs. 
For MSWLF, the report found that 30% of the facilities use a local government financial test and 25% used a state-approved mechanism. Similar to the corporate financial test, the local government test may be used when a municipality does not own or operate the MSWLF and satisfies certain minimum bond rating or financial ratio tests. Because the landfills with the highest estimated closure costs often relied on the local government test, the report indicated that states needed to effectively monitor the financial conditions of local governments.  	 The report concluded that a 30-year post-closure obligation period might not be sufficient to prevent TSDFs from impacting the environment. The report said this limit was established without using any scientific criteria and that it was inevitable that liners, leachate collection systems and caps will ultimately fail due to natural deterioration. The report said that a 1990 GAO report had identified the risk of future releases but that EPA has not established a strategy to address this issue.
Commentary: If a TSDF also has petroleum USTs and wants to use the corporate financial test to satisfy its UST financial assurance requirements, the company would have to show that it could meet all of its financial assurance obligations under 40 Parts 264 or 265 for TSDFs and Part 280 for the UST financial test criteria. Thus, facility owner or operator would have to demonstrate that it could satisfy the amount of UST aggregate assurance required and the estimated costs of closure, post-closure care, liability coverage, and/or corrective action.  If these costs were not added together in the UST financial test, UST owners or operators would be able to "double pledge" their financial resources, thereby reducing the likelihood that UST obligations could be met if they were also faced with other environmental costs (53 FR 43322, October 26, 1988).
EPA and DOT Propose Revisions To Uniform Manifest Rules
EPA recently proposed to revise its uniform manifest regulations (66 FR 28239, May 22, 2001). One of the proposed changes would allow the uniform manifest to be prepared and transmitted electronically from the generator to the disposal facility rather than requiring it to accompany the shipment. On the electronic manifest, the required signatures would be done electronically. However, EPA proposed that a paper copy of the manifest or other shipping paper must accompany the shipment.
To parallel EPA's proposal for an electronic manifest, the Department of Transportation (“DOT”) has proposed to modify the Uniform Hazardous Waste Manifest regulations to provide that when an electronic manifest is used, the hazardous waste must be accompanied by a physical shipping paper that can be either paper copy of the electronic manifest or a separate shipping paper that meets all of the shipping paper requirements of 49 CFR 172.  In addition, to prevent confusion by enforcement officials, if an electronic manifest is being used in the transportation of a hazardous waste, the shipping paper or copy of the electronic manifest must indicate on the document that an electronic manifest is being used.
Commentary: In 1984, EPA and DOT amended their regulations to adopt the current uniform manifest form in order to address the problems resulting from a proliferation of manifests as States decided to develop and print their own forms. (49 FR 10490, March 20, 1984). Under the current regulations, a generator may use the uniform manifest form for wastes regulated solely by a State, but a State may not impose enforcement sanctions on a transporter during transportation of the shipment for failure of the form to include preprinted information or optional State information items.

TOXIC SUBSTANCES

 Criminal Charges Brought for Failing to Comply With Lead Paint Disclosure Rules
In the first criminal prosecution for failing to comply with the lead-based paint (“LBP”) disclosure rule, an owner of 15 low-income rental properties in the District of Columbia and Maryland will serve two years in prison. The owner faces a maximum criminal fine of $250,000 for each of the six felony counts and has agreed to provide all tenants with LBP notices. He also will retain an independent contractor to assess LBP hazards and develop a LBP abatement plan for his properties. 
The owner had attended classes on the LBP Disclosure Requirements in 1997 and 1998 as part of his continuing education requirement for being a licensed real estate broker in Maryland and Virginia. In September 1998, the Department of Housing and Urban Development (“HUD”) notified the owner that he had failed to comply with the LBP disclosure rules. At a subsequent meeting with HUD officials, he presented disclosure forms backdated with his signature and the tenant’s signatures. On other forms, he had directed tenants to backdate forms by entering the date they moved into their apartments rather than the date they were actually warned about health risks. For other forms, the resident property managers forged tenant signatures. 
EPA Brings Additional LBP Civil Enforcement Action
EPA filed complaints against three New York real estate management companies for failing to comply with the LBP disclosure requirements. EPA fined 236 Cannon Realty, LLC. $90,640 for LBP violations at four buildings it owns in the Bronx which consist of a 236 units. EPA charged that 236 Cannon Realty did not provide necessary LBP information to tenants with children at 11 apartments when they signed leases. Webb & Brooker, Inc., the manager of eight properties in northern Manhattan was fined $66,000 for failing to providing LBP disclosure to tenants in at least three apartments at 200 West 147th Street in Manhattan.  EPA also assessed a $5,500 penalty against C.S.P. Management, an agent for the owner of 214 South Geneva Street in Ithaca, New York.  
EPA Orders LBP Abatement at Commercial Building
The LBP disclosure rule applies to residential properties but EPA is concerned about the presence of LBP at commercial buildings where children may spend significant amounts of time. For example, the agency ordered a cleanup of contamination at a commercial property in Fall River, Mass. The three-story building was formerly a mill and how houses several businesses, including a dance studio for children and adults. During recent renovation work, a contractor sandblasted lead paint without taking proper precautions, allowing lead-contaminated dust to spread throughout the building. The property owner agreed to immediately commence lead abatement activities and the dance school will remain closed until the work is completed. 
Commentary: Just as improperly performed asbestos abatement activity can spread asbestos contamination throughout a building, the same applies with lead abatement activities. When performing environmental due diligence on older buildings, residences or apartment complexes, it is important to determine if soil around the building could be contaminated with LBP chips or lead-contaminated dust. 
EPA Fines Company For Improper Storage of PCB Waste
A Kearney, New Jersey metal recycler has agreed to pay a fine of $19,000 to resolve an allegation that it incorrectly stored and failed to properly label drums of waste oil containing polychlorinated biphenyls (“PCBs”). According to the company, it received PCB-contaminated electrical transformers for dismantling and metal recovery that had been drained of most of their fluid but still contained PCB-contaminated oil.  The company removed the oil and stored it in a 500-gallon plastic tank.  However, the PCB-storage regulations require that PCBs be stored in steel tanks.  The polyethylene tank had replaced another plastic tank used to store the PCB waste oil that had melted in a fire. EPA also charged that the company had failed to properly mark six drums of PCB-contaminated waste oil with the date the material was placed in the drums.
PCB Guidance Document for PCBs in Drugs and Biological Products
The Food and Drug Administration (“FDA”) has issued guidance regarding possible dioxin/PCB contamination of drugs and other biological products derived from animal in certain European countries who may have consumed PCB-contaminated feed. 
From January through June 1999, some poultry, swine, cattle, sheep, and goats in several countries belonging to the European Union were fed feed contaminated with dioxins and PCBs. Under the guidance, manufacturers who use materials from such animal sources to manufacture their products should verify that the materials they are using are not from animals affected during the contamination incident, or conduct suitable testing of the materials. 
If animal source materials are found to be derived from poultry, swine, or ruminants, manufacturers should obtain certification from their suppliers that the animal derived materials used in drugs or biological product manufacturing do not come from animals raised in the three countries during the period when the contamination occurred. If the animal source of manufacturing materials cannot be certified, the material should not be used to manufacture human or animal drugs or biological products. Alternatively, the materials should be tested for the presence of dioxins or PCBs prior to use. If products have already been produced using materials that cannot be certified, PCB or dioxin testing of the final product should be performed. If the presence of PCBs or dioxins is detected, manufacturers should contact the FDA to discuss whether the release of the product is acceptable.  
Maine Hospitals Agree to Reduce Mercury Use 
39 hospitals in Maine became the first group of hospitals to jointly agree to reduce the use of mercury in hospitals. Participating hospitals have committed to eliminate mercury used in hospital equipment and laboratories by 2005.  The hospitals have also promised to cut back 50% of the total medical and municipal waste generated by 2010.  Additionally, the hospitals will continue to reduce the use of plastics used in IV tubing and blood bags that create a dioxin byproduct.  The hospitals will also pursue “environmentally preferable pricing” in order to meet the stated goals.  One-third of the hospitals in Maine have already greatly reduced their use of mercury.  

SUPERFUND/BROWNFIELDS

EPA Issues O & M Guidance
According to EPA, construction work had been completed at 766 of the 1,300 sites listed on the National Priorities List (“NPL”). As cleanups move into the post-construction phase for Superfund sites, focus has begun shifting to performing operation and maintenance (“O&M”) activities. Often when the construction of the remedy is completed, contaminant levels in soil and groundwater may remain above cleanup goals. O & M measures are intended to ensure the effectiveness of the remedy and also to ensure that the remedy remains protective of human health and the environment. 
EPA recently issued a fact sheet entitled "Operation and Maintenance in the Superfund Program". According to the document, O&M may be required for remedies that require five-year reviews such as landfill caps (i.e., mowing, reseeding, ensuring appropriate runoff controls, repairing cracks and eroded areas), gas or leachate collection and treatment systems, maintaining and enforcement of institutional controls, maintaining security and access restrictions, etc). The O & M measures may be implemented during all phases of the remedial process. The fact sheet indicated that O & M measures would generally be required until cleanup goals are achieved. However, when the remedy involves institutional controls, O & M may be required for an indefinite period. 
The fact sheet indicates that O &M components of a remedy should be taken into account when developing costs during the feasibility study and when evaluating remedial alternatives. For example, using waste containment may make a remedy initially less expensive but the long-term management of the containment system may actually make the remedy more costly than a treatment alternative. 
The document also provides that an O &M Plan should be developed prior to developing the remedial action (“RA”) so that it can be reviewed for cost-effectiveness and administrative practicality. For cleanups being financed from the Superfund, the approval of a viable O & M Plan is an essential step for obtaining assurances of the state assumption of O & M responsibilities. The report also said that O & M Plan should be reviewed during the RA to accommodate any changes or revisions to the remedy. 
For transfers or redevelopment of superfund sites, EPA indicated that PRPs have the responsibility for ensuring that all institutional controls and O & M requirements are met and will be maintained after a change in ownership. 
EPA Announces Additional Prospective Purchaser Agreements
EPA proposed to enter a prospective purchaser agreement (“PPA”) for a 40-acre portion of the North Penn Area 7 Superfund Site in Lansdale Borough and Upper Gwynedd Township, Montgomery County, Pennsylvania. The site is contaminated with chlorinated solvents. The Purchaser will reimburse EPA $90,000.00 for response costs incurred and to be incurred at the Site. The purchasers intend to develop the Property for commercial office space and associated warehouse space. The purchaser is required to record a notice of the agreement and ensure that a copy of PPA current or future lessees, sublessees or assignees. Any tenant or successor who wishes to receive the protections provided by the PPA must agree in writing to be bound by the terms of the PPA. If a lessee who has obtained any rights or benefits under the PPA, the owner shall provide EPA written notice within thirty days of vacancy. EPA also agreed to remove any lien it may have filed on the property. 
The Housing and Redevelopment Authority of the city of St. Paul and a private partnership have entered into a PPA to facilitate the purchase of the Twin City Casting Superfund site in St. Paul. The partnership will pay EPA $7,500 and the state between $106,000 and $116,000 to complete cleanup work at the former metal casting foundry. The purchaser intends to develop the site into a parking lot.
Under a proposed PPA, the City of Vineland, New Jersey will purchase a 151-acre site that will be redeveloped into an industrial park. In exchange for a covenant not to sue, the city will pay EPA $30,000, agree to impose use restrictions on the property, record a notice of the agreement and provide a copy of the agreement to any subsequent lessee, assignees or successors in interest.  Any tenant or successor who wishes to receive the protections provided by the PPA must agree in writing to be bound by the terms of the PPA. 
At the former Elizabeth Mine site in Vermont, EPA has proposed to enter into a PPA with a purchaser who plans to acquire 6.33 acres of the property that may be contaminated by leach heaps and tailings piles. The proposed agreement will allow the purchaser to proceed with its plan to establish the Elizabeth Mine historical mining site and preserving community access to the site. In return, the purchaser agrees to provide an irrevocable right of access to representatives of EPA and DOI and to comply with any Institutional Controls that EPA may require as part of the remediation. In addition, the purchaser agreed to fully cooperate with any natural resource damage assessment and/or restoration activities conducted by or on behalf of the DOI.
Innovative Cost Recovery Settlement Uses Escrow Account to Fund Payment
Although not technically a PPA, EPA has proposed to enter into an agreement with the city of New Bedford to recover $165,500 in cleanup costs incurred at the New Bedford Industrial Park Superfund Site. The payment will be disbursed from an escrow account that was established earlier this year with money paid by EPA to the city to acquire certain interests in city-owned real estate to facilitate the cleanup of the New Bedford Harbor Superfund Site. The escrow fund was established to hold the money for this agreement and settlement involving another contaminated site elsewhere in the city. The escrow account mechanism enables the city to eliminate its liability for the Industrial Park site without having to secure cash to fund the cleanup while allowing EPA to recover its cleanup costs and compensate the city for property needed for the harbor cleanup. EPA had performed a removal action at the site after learning that a PCB transformer had been vandalized on an unoccupied portion of the site. The agency removed the transformer, excavated and disposed PCB-contaminated soil, and restored the site with clean material.  
Asbestos Cleanup Underway at Minnesota Homes
EPA will spend an estimated $1 million to remove asbestos-contaminated soil and gravel at 32 residential properties in Minneapolis, Minnesota. Last year, EPA spent $430,000 to clean alleys and 21 residential properties and additional cleanup may be required at 124 properties that awaiting inspections. 
The source of the asbestos contamination appears to be asbestos waste materials generated from a defunct vermiculite ore mine. The mining operation apparently piled asbestos waste material near the mine and then gave the rocky waste material away for free to local residents who used it to fill driveways and for other home projects. 
Study Estimates Volatilization of VOCs in Indoor Air
Water contaminated with volatile organic compounds (“VOCs”) obviously poses risks to people drinking the water. However, another concern is volatilization of chemicals used for non-drinking water purposes such as for washing machines, dishwashers, showers and bathtubs. 
To date, reliable exposure models were only available for volatilization from showers. A recent study has tried to estimate treatment technology efficiencies for showers, bathtubs, washing machines, and dishwashers. 
The study indicated that the treatment or stripping efficiencies ranged from 6.3% to 80% for showers, 2.6% to 69% for bathtubs, 18% to 100% for dishwashers, and 3.8% to 100% for washing machines. Thus, according to the study, dishwashers could be a significant source of indoor VOCs. Dishwashers were found to be highly effective at removing and VOCs from water at low but continuous emissions during operation. The VOC concentrations could then build up within the dishwasher until it is opened when the VOCs would be released into the indoor air. Washing machines were also observed to be capable of removing VOCs but the amount of VOCs removed was highly dependant on operating conditions such as the water temperature. The study also found that bathtubs might be a more significant source of exposure than showers. 
The results of this study may be useful for determining risk-based corrective action, human exposure to disinfection by-products and other water contaminants, or the general issue of human exposure to toxic chemicals through routine daily activities.
EPA Announces New USTfields Grants
In August, EPA announced that it would be awarding 40 more pilots under its USTfields initiative. Each pilot will receive up to $100,000 from the Leaking Underground Storage Tank (LUST) Trust Fund. The deadline for submitting proposals for the USTfields Pilots is October 22, 2001. 
EPA estimates that up to half of the estimated 450,000 brownfields sites may contain abandoned underground storage tanks or be impacted by petroleum leaks from such tanks. However, since petroleum is excluded from the definition of CERCLA Hazardous Substances, these sites have not been eligible for any of the funding programs available under the EPA brownfield program. The USTfields initiative is intended to bridge this gap by providing funds that can be used to help clean up sites that are impacted by abandoned or underused underground storage tank sites.
EPA Announces 5 New RCRA Brownfield Pilots
In our March issue, we reported that EPA planned to award an additional 25 RCRA Brownfield Prevention pilots. Last month, EPA awarded a second round of pilots to a Pharmacia & Upjohn Company facility in Connecticut, a Union Carbide Caribe Inc. site in Puerto Rico, a Safety-Kleen facility in Michigan, a BP Refinery in Illinois and the Milt Adams, Inc. site in Colorado. 
The Safety-Kleen facility will provide an opportunity to implement a Memorandum of Understanding (“MOU”) between Region 5 and the State of Michigan, and to create a model for other owners and operators of RCRA facilities for voluntarily pursuing corrective action. A developer is interested in purchasing the property and constructing residential homes with a recreation area. 
One of the goals of the BP Refinery pilot is cleanup and redevelop of two areas encompassing more than 50 acres. In addition, the pilot will provide enhanced community involvement for determining cleanup goals and future-use planning.
The Milt Adams, Inc. facility in Commerce City, Colorado is owned by a bankrupt used oil recycler. One goal of this pilot is to initiate an Alternative Dispute Resolution (“ADR”) process to establish RCRA and CERCLA environmental cleanup goals in light of redevelopment plans, and identify the financial sources to support the site cleanup. Another proposed goal is to develop an approach that can serve as a model for other RCRA cleanups with bankrupt owners. 
The proposed goal of the Pharmacia pilot is to enhance community involvement in local zoning requirements, wetlands designation, habitat, and public access and input in the Corrective Measures Study  phase much earlier in the corrective action process.
Ohio Enacts Brownfield Financing Law
Ohio Governor Bob Taft signed into law a bill that will provide funding for brownfield redevelopment. The legislation authorizes $200 million to be deposited into the Clean Ohio Revitalization Fund. The fund can be used to provide grants or loans of up to $3 million although public health projects may be eligible for up to $25 million. Applicants for brownfield funds must sign affidavits confirming that they are in no way responsible for the contamination. The bill also provides that parties who remediate sites under the Ohio Voluntary Action Program (“VAP”) may receive a covenant not to sue. 
Meanwhile, EPA Region 5 announced that it had entered into a Memorandum of Agreement (“MOA”) with the Ohio EPA. The MOA provides that EPA will not seek additional cleanups that are performed under the MOA Track of the Ohio VAP. The primary difference between the existing VAP and the MOA Track is that the MOA Track will provide for enhanced public participation. In addition, investigation and cleanup activities of MOA Track projects will be performed under oversight by Ohio EPA personnel.  
Tennessee Amends Brownfield Program
Tennessee Governor Sundquist signed legislation that provides site redevelopers with additional liability relief and expands the types of sites that are eligible for the program. The law amends the state voluntary cleanup program and allows parties that were not responsible for contamination at a site may enter into a voluntary cleanup agreement with the state DEC. In return, the party will be protected from liability for investigation or cleanup activities. The new law allows the state to take land use into account when developing cleanup standards and to rely on land use restrictions to enforce those standards. Local governments may also be eligible for more funding for conducting cleanup activities at contaminated sites under their authority.    
New Jersey Announces Additional Brownfield Grants
The New Jersey Economic Development Authority (“NJEDA”) recently announced 17 new brownfield grants to municipalities to investigate and redevelop contaminated sites. The NJEDA has approved nearly 50 grants totaling approximately $4.7 million in 2001. Since the creation of the state's Hazardous Discharge Site Remediation Fund (“HDSR”), NJEDA has awarded or approved over 500 HDSR municipal grants worth almost $45 million.
HDSR funding is available to New Jersey municipalities for sites they have acquired through foreclosure or purchase or on which they hold tax sale certificates. Municipalities can apply for grants or loans for preliminary assessments/site investigations, remedial investigation and to implement remedial action to design site cleanups. The awards can be disbursed to businesses and other private entities. The NJDEP reviews applications to determine eligibility and the work needed to investigate and remediate each site. The NJEDA manages the HDSR and awards the grants or loans for NJDEP-approved projects. 
A grant of $286,856 was awarded to Camden to complete a site investigation at a portion of the city's South Waterfront Development Area and also to perform a preliminary assessment/site investigation at an abandoned residential and commercial location that will be redeveloped into a new public library.
Franklin Township received three grants totaling about $260,000. They include a grant of $148,865 for a preliminary assessment an abandoned poultry processing plant that the township intends to redevelop as an industrial park, a grant of $81,770 to perform a preliminary assessment and site investigation at an abandoned residential site used as an auto repair shop that will be converted into a residential redevelopment, and $20,256 for a preliminary assessment and investigation of an eight-acre site containing a small building formerly used as an auto repair facility and vacant house that will be used for new commercial development.
Irvington received two grants totaling over $71,350. A grant of $33,575 will be used for a site investigation at a property earmarked for future commercial use including retail stores. The second grant of $37,775 grant will be used for site investigation that is also slated for commercial and retail use.
Vineland received two grants totaling almost $114,000. One grant of $56,885 will be used for preliminary assessment and site investigation of a vacant factory building located that will be redeveloped as an industrial location. Another $56,885 will be used for preliminary assessment and investigation of a vacant block formerly occupied by a bakery. Located in the Cumberland Empowerment Zone, the city plans to redevelop the location for commercial or industrial use and has already demolished several existing structures located on the site. 
Barrington received $15,960 for a remedial investigation of an abandoned site that the borough intends to redevelop for commercial use. 
Harrison will use $30,582 for a remedial investigation of the site of an abandoned service station that is part of the town's redevelopment plan and will be used for new commercial development. 
Newark will receive $97,100 to conduct a remedial investigation of a former General Electric lamp manufacturing plant that may be sold to the local school district or redeveloped for commercial use.
Northvale was awarded $376,372 for a remedial investigation at a two-acre site that the borough intends to redevelop for light industrial or commercial use. 
Perth Amboy will use a $60,875 grant for a preliminary assessment and site investigation at a site was formerly a lumber yard until the mid-1950s and is the home of an ornamental metals company, a marine engine repair garage, and a auto repair shop. 
Quinton received $310,335 for preliminary assessment and site investigation a 90-acre former solid waste disposal facility. The township has targeted the site for possible residential and commercial redevelopment.
Wall Township will use a $133,871 grant for a preliminary assessment and investigation of a former dry cleaner site that is a major source of groundwater contamination. 
Wildwood will receive $75,050 for a preliminary assessment and site investigation of the former self-storage location that the will use for commercial and light industrial redevelopment. 
Georgia to Use $40 Million In CDBG For Environmental Purposes
HUD recently awarded more than $40 million in Community Development Block Grants to 87 Georgia communities. The grants will be used to replace contaminated water wells and malfunctioning septic tanks.
Studies Find Many Landfill Caps and Liners Ineffective
EPA design standards for landfills allow clay to be used as a liner to prevent leachate from migrating into groundwater. However, according to the California Solid Waste Assessment Test Report, approximately 86% of the 544 clay-lined solid waste disposal sites reviewed in California were leaking. The report called for a restriction on the disposal of hazardous materials at unlined or clay-lined solid waste landfills and for using improved covers at closed landfill sites. 
Another study by the University of Nevada’s Desert Research Institute (“DRI”) has reported that clay caps used at closed solid waste disposal sites are inadequate. According to DRI, clay dries out quickly and can leaks within hours after rainfall. DRI researchers have suggested designing site-specific landfill covers specific rather than a “one-size-fits-all” approach. In addition, DRI found that some conventional landfill capping processes should be modified. For example, current practice discourages the use of plants with deep roots because the roots could puncture the clay barrier. However, the DRI report said that plants with deep roots that bloom year round would be beneficial to a landfill capping system because the plants could capture water that leaks through the cap and release the water back to the atmosphere through transpiration. 
Commentary: Illustrating the problem with leaking caps was the news that chlorinated solvents were discovered in groundwater monitoring wells at the perimeter of the Lowry Landfill at the Arapahoe County Superfund site during a standard five-year review. In 1994, EPA had approved construction of a slurry wall to force contaminated water toward the other end of the site and into a treatment system. Workers at the site are now drilling several additional wells to track the flow of contaminants. The cleanup effort initially began in 1996, and EPA is just completing its standard 5-year review.  The long-term cleanup of the landfill is expected to cost more than $100M.
	In New Jersey, two monitoring wells at the former Industrial Excess Landfill Superfund site have begun detecting dramatically rising levels of benzene at the site. In one well, benzene levels doubled from 12,000 to 25,000 parts per billion.  Additional testing will be necessary to determine the source of the contamination and whether any changes may be required to the selected remedy.
Pennsylvania Brownfield Sites to Be Redeveloped
A former bicycle manufacturing plant near Allentown, PA that has been vacant since the early 1980s will be remediated under the state brownfield program.  A developer purchased the 42-acre property in 1998 and will build a warehouse facility that will more than double the former building's capacity. The new owners will use the foundation was a cap for contaminated soil and will be required to monitor groundwater several years. 
A new $15 million FedEx service and distribution facility will be built in Grays Ferry, PA on a contaminated site. Airis Corporation which develops air cargo and distribution facilities and leases them back to transportation providers purchased the property from the Philadelphia Industrial Development Corporation in May 2001. When construction is completed in March 2002, it will be the first brownfields redevelopment in the Philadelphia area to create jobs for residents. The property received approximately $1 million from state and city government for the site cleanup. 

ENVIRONMENTAL CASES INVOLVING CORPORATE AND REAL ESTATE TRANSACTIONS

District Court Rules Bank Trustee Not Liable Under CERCLA
The Asset Conservation, Lender Liability, and Deposit Insurance Act of 1996 expanded the scope of the CERCLA secured creditor’s exemption to include financial institutions acting as fiduciaries. Under the amendments, a fiduciary who is liable as a CERCLA owner can only be liable to the extent of the assets held in a fiduciary capacity and may not be personally liable. However, there is a negligence exception which provides that the limitation on fiduciary liability will not apply if the fiduciary negligently caused or contributed to the release or threatened release of a hazardous substance. 
In August, the District Court for the Middle District Court of Georgia ruled in Canadyne-Georgia Corporation v. Bank of American (No. 5:96-CV-114-1) that a plaintiff had not shown that the bank had acted negligently and  “caused or contributed” to the release of hazardous substances.
In this case, a predecessor of the defendant served as a co-executor and co-trustee of the J.W. Woolfolk Trust from 1945-1972. The assets of the trust included a general partnership that owned in the Woolfolk Chemical Works, Ltd, a pesticide manufacturer. Between 1990 and 1995, the plaintiff was ordered to remediate contamination at the pesticide plant and to pay for the relocation of residents living near the site. 
The plaintiff then filed a suit to recover its response costs under CERCLA, the Georgia superfund law and common law. The plaintiff brought its claims against the bank in its individual capacity as the trustee and executor of the trust but not as a representative of the trust. The plaintiff alleged that the bank served as trustee during the time that hazardous substances had been released at the site. The defendant bank filed a motion to dismiss on the grounds that it was not a liable person under both CERCLA and the state superfund law. The district court granted the motion but the Court of Appeals for the Eleventh Circuit reversed the district court ruling in August 1999. Since the complaint alleged that the bank had negligently caused the release of hazardous substances, the court found that the complaint satisfied the very low threshold that is required for surviving motions to dismiss. In so holding, the court made it clear that it was not suggesting that the bank was liable under CERCLA. The court added that the bank would be free to bring a motion for summary judgment once discovery had been conducted on whether the bank took particular negligent acts that caused or contributed to the release of hazardous substances. The court noted that the negligence exemption required some action because the bank had no duty to prevent someone else from releasing hazardous substances. 
Following limited discovery, the bank filed a motion for summary judgment with the district court. Once again, the plaintiff argued that the defendant bank should be liable under CERCLA because it breached its affirmative duties under Georgia statutory and common law to prevent pollution at the site. However, the court ruled that the appeals court had implicitly rejected this argument when it held that the plaintiff would have to present evidence that the bank had acted negligently. The district court found that the bank had presented evidence showing it did not take any negligent actions that caused or contributed to a release. In contrast, the court noted that the plaintiff had not presented any affirmative evidence rebutting the bank’s evidence. Even if the bank could be viewed as an indirect owner of the site through its fiduciary capacity, the court ruled that the secured creditor exemption would insulate the bank from liability because the plaintiff had not presented any evidence showing that the negligence exemption applied. Accordingly, the district court granted that bank’s motion for summary judgment. 
Commentary: This case shows how easy it may be for a plaintiff to keep a bank in a CERCLA case. While the bank ultimately prevailed in this case, it was forced to incur litigation costs to demonstrate that it is entitled to the fiduciary exemption. Moreover, because many state superfund laws may have different tests for determining fiduciary liability, banks may also have to defend state superfund claims even if it survives a CERCLA claim.  The trust and estate departments of financial institutions should review the standards for fiduciary liability in states where they administer estates that contain operating businesses.
Bankruptcy Code Does Not Preclude Enforcement of State Superlien Law
The Court of Appeals for the First Circuit ruled in In re: 229 Main Street Limited Partnership (No. 00-2236,8/22/01) that the automatic stay provision of the Bankruptcy Code did not preclude Massachusetts from perfecting a "superlien" on land after the owner had filed for bankruptcy.  A “superlien” allows a state to place a lien on property that has priority over previously recorded security interests or liens on the property
In this case, contamination from property owned by 229 Main Street Ltd. Partnership migrated into drinking water wells, causing the state to incur emergency cleanup costs. In November 1998, the state notified the partnership that the state intended to file a superlien on the property. The partnership initially denied responsibility for the contamination, objected to the dollar amount of the cleanup, and demanded an administrative hearing on the proposed lien. 
After an administrative law judge (“ALJ”) denied the owner’s request for a stay of the proceeding, the partnership filed a chapter 11 petition for bankruptcy in June 1999 along with a Notice of Automatic Stay. The state opposed the request for stay and the ALJ once again declined to stay the proceeding.
The debtor asked the bankruptcy court to hold the state in contempt for continuing to try to enforce the superlien. The bankruptcy court refused the debtor's request and the debtor appealed. However, the district court ruled that the automatic stay did not preclude continuation of the proceedings necessary to perfect the Commonwealth's environmental superlien.
The automatic stay prohibits the commencement or continuation of proceedings, or enforcement of judgments based on claims that arose prior to the bankruptcy proceeding. The purpose of the automatic stay is to provide the debtor with breathing room so that it can reorganize and develop a plan for equitably distributing its assets. However, there is an exception to the automatic stay for enforcement actions or proceedings brought by the government to enforce police or regulatory powers. Another exception allows acts to perfect, or to maintain or continue the perfection of an interest in property  
The debtor argued that the state had not filed a lien when the bankruptcy petition was filed, it did not have an interest in the property and therefore could not avail itself of the exception.  The court found that "interest in property" was not synonymous with the filing of a lien. Relying on a New Jersey case interpreting a virtually identical superlien law, the court said the state obtained an interest in the debtor's property on the date the state notified the debtor. The court also said the act of simultaneously creating and perfecting a property interest under the Massachusetts superlien statute qualified as an "act to perfect". Although the state did not perfect its lien prior to the filing of the petition, the court held that because the state’s expenditure funds and pursuit of the lien established an interest in the property, the simultaneous postpetition creation and perfection of the lien under the superlien statute fell within the exception to the automatic stay. 
First Circuit Rules State Law Should Be Used to Determine Successor Liability Under CERCLA
In the 1990s, many federal courts applied an emerging federal common law for determining successor liability under CERCLA. These courts reasoned that the CERCLA’s broad remedial purpose and the importance of national uniformity warranted application of a federal law test known as the “substantial continuity test”. However, during the past few years, a number of federal appeals court have refused to go along with this trend and have ruled that state law must should be used to determine the liability of purchasers of corporate assets. 
In United States v. Davis (No. 00-1234, 8/17/01), the Court of Appeals for First Circuit became the latest court to reject the federal common law approach. Applying the Connecticut "mere continuation test," the court ruled said a party that bought a company's assets in an arms-length deal was not liable as a successor-in-interest.
Fifth Circuit Restricts CERCLA Right of Contribution
The Fifth Circuit Court of Appeals ruled in Aviall Services Inc. v. Cooper Industries Inc. (00-10197, 8/15/01) that a plaintiff may not bring a contribution action under section 113 of CERCLA unless the plaintiff has been subject to a federal enforcement action or private party litigation. 
In this case, the defendant operated an aircraft engine maintenance business at several facilities. In 1981, the defendant sold its aircraft engine maintenance business and its facilities to the plaintiff. Several years later, the plaintiff began discovering contamination at the facilities. The plaintiff was notified that it was in violation of state environmental laws. In 1984, plaintiff began a decade-long environmental cleanup. After the defendant refused to share in the cleanup costs, the plaintiff filed a CERCLA contribution action in 1997. Relying on the plain language of the CERCLA, a federal district court held that the plaintiff could not assert a contribution claim unless it was subject to a prior or pending CERCLA action under either sections 106 or 107(a). 
The appeals court agreed that section 113(f)(1) requires a party seeking contribution to be, or have been, a defendant in a § 106 or § 107(a) action. The court also found that the legislative history overwhelmingly supported the holding that a person seeking contribution must have first incurred (or at least must face potential) cleanup costs pursuant to either sections 107(a) or 106. As a result, the court found it unlikely that Congress intended to enact a contribution to cover situations where neither the federal government nor any private party has filed a CERCLA action against the plaintiff, and the subject site has not been placed on the federal superfund list. Furthermore, the court said it did not believe that Congress wanted to provide a federally-based contribution right to a party merely because a state agency determined there was a violation of state environmental law. If cleanup costs are voluntarily incurred or incurred in response to a state directive, the court said, a plaintiff may not bring a contribution provisions.
The plaintiff pointed to the general savings clause of section 113 which states that nothing in that subsection would diminish the right of any person to bring an action for contribution in the absence of a civil action under sections 106 or 107. However, the court said this the savings clause may not nullify the substantive portion of the section was likely intended to preserve state law-based claims of contribution.

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. 
We also offer a seminar  “Environmental Problems in Business Transactions” which has been approved by the New York Continuing Legal Education Board as an Accredited Mandatory Continuing Legal Education (“MCLE”) Program. A course book with transactional forms is included with the seminar. The course book may be purchased separately. The seminar can be conducted at your office or at periodic department meetings that you might organize over the course of the year. If you are interested in this seminar or purchasing the course book, please contact Lawrence Schnapf. 
The information contained in this newsletter is not offered for the purposes of providing legal advice or establishing a client/attorney relationship. Environmental issues are highly complex and fact-specific and you should consult an environmental attorney for assistance with your environmental issues.