SCHNAPF ENVIRONMENTAL  REPORT
A Newsletter Covering Recent Environmental Developments and Caselaw
March 2002						Vol. 4, Issue 2	

Contents
Page   2	The Impact of the CERCLA 2002 Amendments on Due Diligence-Part 1
Page   2	California Broker Not Liable for Failing to Identify Former Landfill on Disclosure Form
Page   3	State Enforcement Actions Dwarf EPA Activity
Page   3	Two more Universities Enter Into Settlements
Page   4	CFC Self-Audit Settlement
Page   4	EPA Announces Compliance Incentive for Bakeries
Page   4	EPA Announces Hospital Compliance Incentive
Page   5	Companies Seeking Damages for Environmental Regulations Under NAFTA
Page   5	EPA Establishes “E-cycling” Program for Mid-Atlantic States
Page   6	ASTM Historical Gaps May Pose Problems for Shopping Centers Owners
Page   6	Whither the Transaction Screen?
Page   7	CMBS “B” Buyers Causing Changes to Secured Creditor Policy Market
Page   7	Importance of Identifying Documents Provided to Insurer
Page   7	Secured Creditor Policies to Include Mold Exclusion
Page   7	Property Owner Who Knew About Contamination Not Entitled to Coverage
Page   8	Pennsylvania Supreme Court Rules Pollution Exclusion Does Not Apply to LBP
Page   9	EPA Announces Additional NSR Settlements
Page   9	Company Settle NSR Claims for Discontinued Operation
Page 10	EPA Creates Online Allowance Trading System
Page 10	Federal and State Asbestos Enforcement Actions
Page 11 EPA Brings CFC Enforcement Actions
Page 11	Study Reports on Greenhouse Gas (“GHG”) Trades
Page 11	Indoor Air Often Poses Greater Hazards than Outdoor Air
Page 12	EPA Wetland Settlements
Page 12	Corps Reissues Nationwide Permits
Page 13	Pennsylvania Increases Reimbursements from State UST Fund
Page 14	State UST Trust Fund Denies Reimbursement for Costs of Excavation Soil
Page 14	EPA Proposes Supplemental Corrective Action Rule
Page 15	ExxonMobil Settles RCRA Action for $11.2 Million
Page 16	EPA Clarifies LDR Paperwork Requirements for Subtitle D Facilities
Page 16	Current Landfill Owner Pays Fine for Improper Disposal by Prior Owner
Page 16	Criminal Enforcement Actions Against Landlords for LBP Violation
Page 17	Landlord Can be Liable for Lead Poisoning Despite Absence of State Statute
Page 17	Painter Pleads Guilty for Improper Disposal of LBP Waste
Page 17	Broker Not Liable for LBP Violations
Page 18	EPA Announces PCB Settlements
Page 18	Recyclers Facing Imprisonment for Improper Disposal of Mercury-Containing Equipment
Page 19	Non-Profit Plays Key Role in Pennsylvania Brownfield
Page 20	Questions Raised About EPA Model for Residences Near Contaminated Sites
Page 20	Last Round of PPAs?
Page 21	CERCLA Settlements Utilizes Trust
Page 22 	Bankruptcy Sale Resolves Liability of Debtor’s Estate
Page 22	Courts Interpret Supreme Court Bestfoods Decision

DUE DILIGENCE/ AUDITING/ DISCLOSURE/ ENFORCEMENT

The Impact of the CERCLA 2002 Amendments on Due Diligence-Part 1
	In our January issue, we examined the principal provisions of the Small Business Liability Relief and Brownfields Revitalization Act. Beginning with this issue, we introduce a new feature that will discuss how the amendments to CERCLA may change how due diligence is performed.
	In this installment, we look at an obscure provision in section 128 of the legislation that establishes the elements a state voluntary cleanup or brownfield program must have in order to qualify as a “state response program.” States have an incentive to have their cleanup programs qualify as a state response program since they will be entitled to share in the $50 million available to support state programs. Another benefit of qualifying as a state response program is that the federal government will be barred from pursuing enforcement actions against owners of contaminated property that have remediated the site under the state program.
	One of the requirements of a state response is that it have a mechanism enabling persons working or living near a brownfield site who are affected or may be affected by a release or threatened release of hazardous substances, pollutants or contaminants to request that a site assessment be performed. It is unclear if this is simply a Phase I ESA or a risk assessment. It is also unclear who must pay for this assessment. Moreover, because this provision applies to pollutants or contaminants, it can apply to sites that might not be covered by a state superfund program such as those contaminated with petroleum, asbestos or lead-based paint. In addition, the trigger for requiring a site investigation is a “threatened release” which is a very low threshold such as the mere presence of abandoned drums in the backyard of a facility or where an institutional control may no longer be operating properly. 
During due diligence, prospective purchasers and their lenders take solace in knowing that a site is not on a state contaminated site list. While a survey of neighboring properties is part of the standard ASTM E1527-00 Phase I ESA, prospective owners and lenders usually only focus on whether there are any contaminated properties that could possibly impact the site.
Property owners will be understandably reluctant to have state inspectors visit a facility out of fear that the state may determine the sites poses a risk to neighboring residents or workers and decide to place the site on a state superfund list. This provision may give community groups powerful leverage in determining the outcome of a proposed development. 
As a result, property owners may want to pay greater attention during due diligence to identifying sensitive populations occupying properties near the site being acquired or leased. They may also want to expand the inquiry to substances that do not qualify as hazardous substance such as lead-based paint, asbestos and other irritants that may be emitted or discharged from a facility and could impair the health of sensitive populations living or working near the site. 
California Broker Not Liable for Failing to Identify Former Landfill on Disclosure Form
	A California appellate court found that a broker was not liable for failing to disclose that a former landfill had been located next to a ranch in Larner v. Cline (2001 Cal. App. LEXIS 3226). 
In this case, the plaintiffs bought a 133-acre cattle ranch and planned to convert it to a vineyard and winery. A year before, the seller had unsuccessfully tried to sell the property and had filed a disclosure statement with its listing agent that identified the existence of the abandoned landfill. However, in the sale to the plaintiffs, the seller had provided the real estate agent with an illegible copy of the prior disclosure statement. The agent provided the seller with a new document who completed it without referring to the landfill. 
The existence of the landfill could not be determined by visual inspection because it was covered with grass. The real estate purchase agreement signed by the parties specified that the realtors would not investigate the existence of environmental hazards and nuisances, including water and soil contamination but gave the buyers the right to perform their own investigation. After soil and groundwater tests did not indicate any contamination, the buyers waived the contingency and proceeded with the closing. One month after the closing, the local newspaper ran a story suggesting that the abandoned landfill might be impacting groundwater in the area.
  Following the newspaper story, the buyers sued the real estate agent, claiming that they should have discovered the existence of the landfill in the course of the performance of their fiduciary duties. The plaintiffs also argued that the realtors should have known about the landfill because of their familarity with the area. Indeed, the plaintiffs pointed out that the realtors used their knowledge of the area in their marketing point. 
The trial court granted summary judgment in favor of the real estate agents, ruling that it was undisputed they were aware of the existence of the landfill. Thus, the court held, they had no duty to investigate its existence or obtain the prior disclosure statement.
On appeal, Court of Appeals for the Second Appellate District said that a real estate broker was under a duty to conduct a reasonably competent and diligent inspection of the property and must disclose to the purchasers any facts revealed by the investigation that materially affect the value or desirability of the property. However, the court said there is no duty of disclosure, where a realtor lacks knowledge of a defect or of facts giving rise to a duty to inquire. The court then held that the realtors had no fiduciary duty to investigate the circumstances surrounding the previous disclosure statement and were not required to obtain a prior disclosure statement from a different agent relating to a separate transaction. Because the appellants failed to raise a triable issue of fact that the realtors knew of the existence of the landfill, the court affirmed the lower court ruling.   
State Enforcement Actions Dwarf EPA Activity
State environmental agencies accounted for 70% of all formal administrative enforcement actions brought between 1995 and 1999 according to a study conducted by the Environmental Council of States (“ECOS”). If informal notices of violations and warning letters are included, ECOS said state agencies accounted for 90% of all administrative actions. For example, states brought 8,188 formal administrative actions in 1999 compared to 3,532 EPA administrative proceedings. If informal administrative actions are included, the EPA commenced 8,743 of the 84,185 enforcement actions brought in 1999. 
ECOS reported that states now administer nearly 80% of the federal environmental programs that may be delegated compared to 40% in 1993. In fiscal year 2000, ECOS said states budgeted $13.5 billion for environmental programs. In contrast, EPA’s fiscal year 2000 budget was $7.4 billion.    
Two more Universities Enter Into Settlements
Rutgers University has agreed to conduct a comprehensive environmental audit of its five major campuses and off-campus facilities. The university will disclose any violations discovered to EPA, develop plans to correct each violation and identify measures to be taken to prevent future occurrences of the violations.  In exchange for this commitment, EPA agreed not to assess Rutgers for any gravity-based penalties for violations that are voluntarily disclosed. However, the university may have to pay penalties for economic benefits derived from the violations.
	Meanwhile, Brown University agreed to fund $285,000 in Supplement Environmental Projects (“SEPs”) and pay a civil penalty of $80,000 to resolve violations discovered by EPA during a 1999 inspection. Almost all the violations involved laboratories and waste storage facilities at the Providence, RI. Campus. The SEPs will include implementing a pollution prevention program known as “micro-scaling” at Brown’s labs and four Providence area high schools to reduce the amount of chemicals used in experiments. The university will also implement purchasing and inventory tracking systems for its facilities and the four high schools to minimize the volume of chemicals purchased and improper storage of chemicals. Finally, Brown will fund a one-time cleanout of the schools to properly dispose of chemical or hazardous wastes 
CFC Self-Audit Settlement
Honeywell International Inc has agreed pay $110,000 and implement SEPs valued at $772,000. The SEPS include converting a refrigeration unit from chlorofluorocarbons (“CFCs”) to hydrofluorocarbons (“HCFC”), installing an air emissions control system to reduce the release of ammonia, purchasing a  “`reverse 911’’ interactive notification system for the Local Emergency Planning Committee, purchasing a skirted boom and trailer and associated training services for the local Regional Hazardous Incident Team, and purchasing mass decontamination equipment and associated training for emergency response teams at two local medical  centers.
Commentary: Recent statistics released by EPA indicate that 364 companies representing 1754 facilities reached settlements under the EPA audit policy in fiscal year 2001. The statistics also showed that SEPs are playing an increasingly important role in EPA’s enforcement strategy. In fiscal year 2001, EPA entered into settlements that included $95 million in SEPs, which was 60% higher than the previous year. 
EPA Announces Compliance Incentive for Bakeries
As an outgrowth of its audit policy, EPA has been establishing voluntary compliance incentive programs for various industrial sectors. The agency recently invited bakeries to enter into a compliance incentive program to reduce emissions of ozone-depleting substances (“ODS”). 
Under the proposed compliance incentive program, bakeries that have refrigeration appliances containing 50 pounds or more of refrigerants and are not already subject to a national enforcement investigation will conduct audits of refrigeration processes and phase out certain refrigeration appliances in exchange for reduced penalties. Participants must agree to phase out use of the more hazardous ODS by July 15, 2003.  Bakeries that have installed non-ODS systems before April 26, 2002 can avoid all penalties while bakeries that install non-ODS systems between April 26, 2002 and July 15, 2004 will be subject to penalties of up to $10,000 per appliance.  For all other appliances, EPA will assess a per pound penalty for any leaks of ODS exceeding a certain threshold. The bakeries have until April 26 to notify EPA of their intent to participate in the voluntary program and to identify the number of appliances to be audited thereafter.
Commentary: Owners of equipment with more than 50 pounds of refrigerant are required to repair equipment with leak rates of 35% (for the commercial and industrial refrigeration sectors) or 15% (for all other sectors) during a 12 month period within 30 days of discovery unless the owner develops a one-year retrofit program for the equipment. To track leaks, owners of air conditioning and refrigeration units with more than 50 pounds must maintain records of the quantity of refrigerant added to the equipment during servicing and maintenance. 
EPA’s regulations permit the sale of equipment containing refrigerants and do not require any representations or warranties. However, purchasers of businesses with equipment containing refrigerants should review these servicing records during due diligence to determine if the equipment will likely need to be repaired or replaced after the closing. 
EPA Announces Hospital Compliance Incentive
EPA also recently announced the formation of the Hospitals for a Healthy Environment (“H2E”) program to improve the environmental performance of hospitals. The partnership hopes to minimize the production of persistent, bioaccumulative and toxic (“PBT”) pollutants and to reduce the volume of waste generated. Specifically, H2E has committed to eliminating mercury-containing waste from hospital waste streams by 2005. In addition, H2E also hopes to reduce the volume of regulated and non-regulated waste generated by hospitals by 33% by 2005 and by 50% by 2010. To help hospitals achieve these goals, H2E recently launched a website that provides tools for hospitals seeking to improve environmental performance, including a comprehensive list of mercury reduction resources and a step-by-step guide to minimizing waste. A new H2E listserve will provide a forum for health care professionals to discuss technical information and strategies for pollution prevention. 
Companies Seeking Damages for Environmental Regulations Under NAFTA
Chapter 11 of the North American Free Trade Agreement (“NAFTA”) prohibits signatory nations from directly or indirectly taking actions that nationalize or expropriate assets of investors (“multinational corporations”). This provision was modeled after the Fifth Amendment of the United States Constitution prohibiting takings of property. However, this NAFTA chapter is increasingly being used by companies to seek compensation for increased costs and lost profits attributable environmental regulations.  At least one country, Canada, initially withdrew an environmental regulation when confronted with a large damage claim from a multi-national corporation.
For example, Ethyl Corporation brought a suit under Chapter 11 in 1997 against Canada because of a ban on a gasoline additive, MMT. The company was awarded $13 million in damages and Canada subsequently withdrew its ban of MMT.
In another Canadian case, S.D. Myers filed a $20 million claim against Canada for banning exports of PCBs. The Ohio-based company manages PCB wastes and argued that Canada’s ban violated NAFTA. In November 2000, a NAFTA arbitration panel found that Canada breached its obligations under sections 1102 (National Treatment) and 1105 (Minimum Standard of Treatment) but did not violate sections 1106 (Performance Requirements) and 1110 (Expropriation). Canada initially agreed to pay the penalty but then reversed course and has now asked the Federal Court of Canada to set aside the NAFTA tribunal ruling.
Recently, a Canadian company that manufacturers an important ingredient of methyl tertiary butyl ether (“MTBE”) filed a $970 million claim against California for banning MTBE as a fuel additive. Methanex has demanded that California reimburse it for lost revenue associated with the MTBE ban. The company has also alleged that the California ban favored Archer-Daniels-Midland Co. which produces ethanol, a replacement fuel additive.
Commentary: Congress is considering adding a similar provision to the proposed Free Trade Area of the Americas (“FTAA”) that would expand NAFTA to 31 other nations in the Western Hemisphere. 
EPA Establishes “E-cycling” Program for Mid-Atlantic States
We have reported in prior issues about recycling programs established by retailers and manufacturers of personal computers. Now, EPA has established a pilot program in Pennsylvania, Delaware, Maryland, Virginia, West Virginia and the District of Columbia to help residents recycle old electronic equipment. Manufacturers of electronic computer and retailers will help counties and local governments pay for transportation and recycling efforts.
The equipment covered by the program includes computers, televisions, radios, VCRs, microwaves, fax machines and telephones. In addition, under the PCs For Schools Program, schools will take donations of old Pentium computers, refurbish the equipment and then give it to schools and nonprofit organizations for free.
To date, 2,743 computer monitors, 1,881 televisions, 945 printers have been collected as well as other electronic equipment such as telephones, cell phones, scanners and copy machines. Approximately 398 tons of electronic equipment has been collected that would have probably been disposed in landfills. 
Commentary: A recent report by the Basel Action Network and Silicon Valley Toxics Coalition entitled “Exporting Harm: The High-Tech Trashing of Asia” claims that as much as 50 to 80% of the electronic waste collected for recycling in the United States is being exported to China, Pakistan and India where the equipment is salvaged using methods that are dangerous to workers and results in massive pollution. The report said the salvaging operations included open burning of plastics and wires, riverbank acid works to extract gold, melting and burning of soldered circuit boards and the cracking and dumping of cathode ray tubes. The report said that tons of electronic waste are being dumped along rivers, in open fields and irrigation canals used to grow rice. 
ASTM Historical Gaps May Pose Problems for Shopping Centers Owners
	Section 7.2.3.1 of ASTM E1527-00 provides that historical sources only need to be reviewed at five-year intervals. However, this interval may not be sufficiently protective for purchasers of older shopping centers and their lenders since the five-year interval may not identify all dry cleaners that have operated at a site in the past.
	There are approximately 8,000 shopping center transactions in any given year and Industry data suggests that about 70% of these sites have or had dry cleaner tenants. It is commonly believed that 90% of the dry cleaners that operated before the mid-1990s discharged Perchloroethylene (‘PERC”) either from leaking equipment, spillage from drums storing waste solvent, deliberate dumping of waste solvent at the rear of the facility or discharges of solvent-laden wastewater into leaking sewer systems. 
	Because statistics indicate that the average dry cleaner only operates for three years, prospective purchasers or lenders who rely on the standard ASTM five-year interval for historical searches may not identify a former dry cleaner tenant. Accordingly, when performing due diligence on older shopping centers, it would be advisable to have the consultant check city directories for each year that the shopping center was in business. If the directories do not identify the tenants at the property but simply list the name of the shopping center, then the consultant should review the shopping center directory databases that are now available.    
Whither the Transaction Screen?
	According to a study in the February issue of the ESA Report published by EDR Business Information Services, 247,800 Phase I ESAs were conducted in 2001, the highest total since 1998.  In contrast, the number of Transaction Screens was 34,000, which was 13% decline from 2000 and a 31% decline from 1998. The ESA Report indicated that the average minimum price for an ASTM-quality  Phase I ESA was $1,700 while the average price of a Transaction Screen was $700-$750.  
	The decrease in Transaction Screens may be tied to the growing popularity in so-called “commodity-style” Phase I ESAs. Because the Transaction Screen does not constitute adequate due diligence to satisfy the CERCLA innocent purchaser’s defense, many property owners and lenders are ordering commodity-style ESAs. While these bottom end Phase I  ESAs, at best, only marginally meet the “appropriate inquiry” requirements of Innocent Purchaser Defense, lenders and lawyers prefer to have a report titled “Phase I ESA” so that they may not be second-guessed if environmental problems are subsequently discovered after a transaction has closed. 
	The recent CERCLA amendments provides that a property owner may satisfy the “appropriate care” requirement of the Bona Fide Purchaser and Contiguous Owner defense by complying with the procedures of the ASTM including E1527. While the new amendments do not specifically rule out a Transaction Screen, it is clear when reviewing the criteria that a ASTM-quality  Phase I ESAs must be performed to take advantage of the new liability exemptions. The statutory requirements combined with the fact that lenders are becoming more sensitive about business risks and insurers are tightening underwriting, suggests that the volume of Transaction Screens will continue to plummet. The Transaction Screens are simply halfway measures that do not provide sufficient information about a site nor qualify clients for the new defenses. There appears little justification remaining for these minimal investigations except perhaps as a preliminary screening tool for low-risk portfolios of properties.  

ENVIRONMENTAL INSURANCE

  CMBS “B” Buyers Forcing Changes to Secured Creditor Policy Market
In our November issue, we discussed how insurers were tightening underwriting and increasing pricing for securded creditor policies. Now, one of the key purchasers of “B” pieces of Commercial Mortgage Backed Securities have implemented guidelines that are causing changes in the secured creditor market. 
When the secured creditor policies were introduced several years ago, many conduit lenders established insurance pools or warehouse policies where the policies would apply to different sized loans. For example, a lender might have established a policy for loans under $10 million, another for loans between $10-$20, etc. The premiums for these categories were often based on 35% of the value of the loans and were most cost-effective than stand alone policies. 
Now, however, a major “B” buyer is requring that all loans above $3.5 million must have standalone policies that cover 125% of the loan balance. Pool insurance is acceptable for loans less than $3.5 million if the maximum payout is at least 125% of the largest loan balance and the minimum aggregate claims under a pool policy is 35% of the aggregate original loan balance of the pool. The guidelines also indicate that a standalone policy for 125% of the original loan balance may be used in lieu of an environmental indemnity or carveout. The policy must extend for a minimum of five years past the maturity date of the loan.
According to the “B” buyer’s guidelines, a stand alone policy will be required for each secured note for each property. Thus, a policy covering individual cross-collateralized loans or on individual properties within a portofolio of mortgages that are cross collateralized and secured by one mortgage loan will not be acceptable.
A phase I is required for each stand alone policy and reports older than one year may  be accepted on a case-by-case basis. The B Buyer has also indicate it will not accept a mold  exclusion for residential and nursing home type loans even where due diligence shows there is no problem.
Importance of Identifying Documents Provided to Insurer
	The secured creditor policies and other environmental insurance policies generally provide coverage for known conditions that are disclosed when the approved. Many times, borrowers have provided documents to brokers or insurers under a cover letter that does not specify what documents are being supplied to the insurer. Then, when a claim arises, there is often a dispute as to what conditions were disclosed to the insurer and that the insurer has an obligation to provide indemnity.
	To avoid this problem, the borrower should have an endorsement to the policy that  identifies all of the documents that have been disclosed to the insurer including the dates of the report, the name of the consultant preparing the report and the title of the document. The cover letter enclosing providing these documents to either the broker or insurer should also include this information as well. 
Secured Creditor Policies to Include Mold Exclusions
According to some insurers, secured policies will now be have a mold and terrorism exclusions. The terrorism will apply only if the property was targeted for terrorism. Thus, if an insured’s building becomes contaminated with asbestos from an attack on a neighboring property and the insured defaults because the contamination causes the building to become vacant, the secured creditor policy will provide coverage to the insured. 
Meanwhile, the Alabama became the 21st state to approve a home insurance policy endorsement that cap liability for property damage and liability claims for microbial damage. A homeowner can choose limits of $10,000, $25,000, or $50,000 per year for mold-related property damage and liability coverage limits of either $50,000 or $100,000. 
Property Owner Who Knew About Contamination Not Entitled to Coverage
The Washington Supreme Court recently ruled that a property owner who was informed by state environmental authorities that that site was contaminated before it purchased an insurance policy was not entitled to coverage to defend a superfund contribution action filed by a subsequent owner of the property (Overton v. Consolidated Insurance Co., Wash., Case No. 70562-3, 1/17/02). The court said it was not necessary for the state to identify an insured as a PRP but simply that the insured knew of the risk. As a result, there was no covered "occurrence" as defined under the policy. 
Pennsylvania Supreme Court Rules Pollution Exclusion Does Not Apply to LBP
In a unanimous decision, the Pennsylvania Supreme Court ruled that the pollution exclusion clause in a commercial general liability (“CGL”) policy does not preclude coverage for injuries caused by ingestion or inhalation of the LBP (Lititz Mutual Ins. Co. v. Steely). 
In this case, Steven Brown and his mother lived in one rental property from 1988 to 1993 and another home from mid-1993 to 1995. Brown's mother claimed that her son inhaled or ingested of LBP dust or chips while living at the residences and filed a lawsuit against both landlords, alleging negligence, breach of implied warranty of habitability and misrepresentation. 
Both landlords had a GCL policy with Lititz Mutual that contained a pollution exclusion excluding coverage for any injury arising "out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants at or from premises owned, rented or occupied by the named insured." The insurer sought a declaratory judgment that it did not have any duty to defend in light of the pollution exclusion provision.
Finding the policy ambiguous, the Common Pleas court of Lancaster County granted summary judgment to the landlords on the coverage and duty-to-defend issues. Lititz appealed to the Superior Court which reversed the trial court ruling. After this decision, an en banc panel of the appellate court ruled in another case  that LBP was a pollutant and fell within the pollution exclusion
However, the state Supreme Court overruled the Superior Court decision. Following an analysis in Madison Construction v. Harleysville Mutual Ins. Co, the high court first determined that LBP was a pollutant. Turning to whether there had been a “discharge, dispersal, release or escape" of pollutants, the court focused on how LBP becomes available for human ingestion/inhalation. The court found that the process of surface degradation occurred at a slow but continuous rate. While the court acknowledged that the manner in which LBP deteriorated could constitute  'dispersal,' the policy did not clearly include or exclude the gradual process involved with deterioration of LBP. Because of such ambiguity, the court said the policy language should be interpreted in favor of the insured. 
Commentary: In another recent indoor air pollution case, the Supreme Court of Ohio ruled in Anderson v. Highland House (757 N.E.2d 329 2001) that that an insurer had a duty a duty to defend and indemnify the owner of a building where carbon monoxide emitted from a malfunctioning residential heater caused the death of a tenant. The court found that the pollution exclusion in the CGL policy did not clearly and unambiguously state that coverage for residential carbon monoxide poisoning was excluded. Based on the history and purpose for the pollution exclusion, the court said it was reasonable for the building owner to believe that the policies purchased for their multiunit complex would not exclude claims for injuries due to carbon monoxide leaks. The court found persuasive a 1994 decision by the Court of Appeals for the Tenth Circuit that held that while a reasonable person of ordinary intelligence might well understand carbon monoxide is a pollutant when it is emitted in an industrial or environmental setting, an ordinary policyholder would not reasonably characterize carbon monoxide emitted from a residential heater which malfunctioned as a pollutant. Moreover, the court noted that a major concern of building owners and managers was injuries or death from carbon monoxide poisoning and that they purchased insurance coverage to guard against this potential liability.  

AIR POLLUTION DEVELOPMENTS

EPA Announces Additional NSR Settlements
The federal government recently announced its second-judicially approved settlement under its New Source Review (“NSR”) initiative. PSEG Fossil LLC agreed to pay $1.4 million and to install $337 million in air pollution control equipment to resolve allegations that the two of the company’s coal-fired power plants had engaged in modifications without undergoing New Source Review ("NSR”). The company will also spend at least $6 million on three additional projects to partially offset the impact of past emissions. 
The emission controls will reduce total sulfur dioxide (“SO2”) emissions from both plants by 90% and nitrogen oxide (“NOx”) emissions by more than 80%. In addition, the company agreed to upgrade existing emissions controls for particulate matter (“PM”) and will install an additional controls to further reduce PM emissions by 1,000 tons per year. The company will retire pollution emission allowances. The agreement required the company to phase in the installation of pollution controls and to complete all of the work by 2012. The other projects will reduce the company’s carbon dioxide (“CO2”) emissions by 15%, contribute to New Jersey's effort to recover and use methane gas from landfills, and develop technology to reduce and monitor mercury emissions from its plants.
Meanwhile, Murphy Oil USA, Inc. agreed to pay a $5.5 million civil penalty, and spend $7.5 million to reduce emissions of SO2 and Volatile Organic Compounds (“VOCs”) at its Superior, Wisconsin refinery. Last year, a federal district court found that the company had knowingly withheld information when it applied for an exemption from the Prevention of Significant Deterioration ("PSD") permit program which is part of the EPA NSR program. Under the consent decree, Murphy Oil will install new control technology that will substantially reduce SO2 and VOC emissions. The settlement does not preclude EPA or Wisconsin from investigating and bringing enforcement actions for other NSR violations.
Conoco Inc., Navajo Refining Company and Montana Refining Company have agreed to reduce emissions of SO2, NOx, PM and VOCs at plants located in Colorado, Louisiana, Montana, New Mexico and Oklahoma. Conoco will pay a $1.5 million civil penalty, install emission controls estimated to cost $95-$110 million and spend about $5 million in SEPs. Navajo and Montana Refining will pay a $750,000 civil penalty, spend an estimated $16-$21 million on pollution control technology and undertake SEPs valued at approximately $1.5 million.
Boise Cascade Corporation agreed to pay $4.35 million in civil penalties and spend approximately $15 million to resolve claims that the company did not undergo NSR and failed to comply with the PSD program. Under the settlement, the company will reduce VOC emissions from eight plywood and particleboard plants located in Oregon, Washington, Louisiana and Idaho. The company has also agreed to spend another $2.9 million in SEPs at plants located in Washington and Oregon. The settlement is the fifth that EPA has reached with the wood products industry.
The state of New York filed a lawsuit against Niagara Mohawk Holdings, Inc. and NRG Energy, Inc. alleging that two coal-burning power plants located in Chautauqua and Erie counties to reduce SO2 and NOx emissions. Niagara Mohawk sold the plants to NRG in 1999. 
Commentary: Earlier this year, the Department of Justice completed its review of the NSR enforcement initiative and determined that initiative was not inconsistent with the CAA or prior EPA policy. 
Company Settle NSR Claims for Discontinued Operation
Ferro Corporation entered into a $3 million settlement to resolve claims that it failed to undergo NSR at its Hammond, Indiana plant. The company manufactured a flame retardant at the facility from 1980 until June 2000 when it shut down the flame retardant operation but has continued the remainder of its chemical manufacturing business. The company also agreed to implement an innovative SEP where it will finance the cleanup of a former oil refinery and asphalt plant that is now a vacant 30-acre brownfield site. The cleanup is estimate to cost $844,000.  
Commentary: This settlement illustrates the importance of reviewing prior environmental compliance when performing due diligence for a corporation acquisition. Under its NSR enforcement initiative, EPA is reviewing modifications that took place in the 1970s. It is important for a purchaser acquiring a company to not only review compliance at existing plants but also understand how environmental liabilities were allocated for facilities or operations that may have been sold.  
EPA Creates Online Allowance Trading System
Participants involved in SO2 and NOx cap and trade programs may now trade allowances for those pollutants on the Internet instead of submitting paper forms to EPA under the agency’s Online Allowance Transfer System (“OATS”).  EPA hopes OATS will streamline and accelerate emission trading.  EPA estimates that the total value of allowances in its SO2 and NOx cap and trade programs is approximately $20 billion. An allowance is the right to emit one ton of a particular pollutant.
The first cap and trade was the acid rain program adopted by EPA to reduce SO2. Northeastern states have also adopted a cap and trading program for NOx while California has developed a cap and trading program for SO2 and NOx. A similar program based in Chicago has been established for VOCs.
Commentary: EPA statistics indicate that SO2 emissions have dropped by six thousand since 1980 and that the cost of the allowances have been 75% below original estimates.  The Northeast NOx program has reduced NOx emissions by more than 50% below 1990 levels.  A NOx trading program will extend to 19 eastern states in 2004. 
Federal and State Asbestos Enforcement Actions
Contractors, building owners and managers continue to violate the requirements of the 20-year old asbestos regulations. For example, EPA is seeking $108,900 from Allegheny County for failing to implement asbestos workpractice rules during the demolition of the old terminal building at the Pittsburgh International Airport in 1997. After the building was closed to the public, contractors for Allegheny County were permitted to conduct salvage activities. During an investigation, an EPA inspector observed asbestos-containing debris from the salvage operations including pipe insulation, fireproofing materials, ceiling tiles and caulking scattered in various areas of the building. This material was not wetted or enclosed in airtight bags as required by the asbestos regulations. The county was ordered to cease work and cleanup the asbestos-containing debris.
A Latham, New York contractor and 9 individuals were indicted for improperly removing asbestos at numerous school buildings, hospitals as well as public and privately owned buildings in upstate New York. 
In another case, two individuals were arrested for illegally removing asbestos from the Hilton Industrial Park in Rensselaer, N.Y., and then dumping the waste at various locations near the New York-Massachusetts border. Each defendant faces a maximum sentence of up to five years in prison and/or a fine of up to $250,000 for each count.
A contractor was sentenced to five months in prison, seven months home detention and fined $9,270 for unlawfully removing asbestos during the demolition and renovation of the Delta Sugar Plant in Clarksburg, California. The contractor failed to provide EPA with the required 10-day advance notice, did not comply with workpractice rules and did not dispose the asbestos waste in a disposal facility licensed to receive asbestos. 
The owner of a refuse hauling company was sentenced to 13 months imprisonment, ordered to pay $22,600 in restitution to the city of Cleveland and will have to perform 208 hours of community service. The company disposed 469 bags of asbestos-containing waste at an empty field owned by the city of Cleveland.    
Another contractor was fined $9,000 for failing to provide required asbestos demolition notification prior to demolishing six buildings in located in Towamencin Township, Pennsylvania. State inspectors conducted a site visit after observing demolition work.
Commentary: Owners and managers of buildings can be held liable for violations of the asbestos regulations by their contractors. Property owners and managers are required to retain licensed contractors and should verify the ultimate disposal location of the ACM to ensure that the material is appropriately handled and disposed.   
EPA Brings CFC Enforcement Actions
EPA reached a $100,000 settlement with the current and former owners of the Airport Inn and Suites in Salt Lake City, Utah for failing to comply with CFC regulations during the replacement of 20 room air conditioner units and seven small refrigerators from the hotel. EPA charged that the hotel failed to use certified technicians, its employees cut refrigerant lines on the appliances when they removed the equipment which allowed CFCs to vent into the atmosphere and improperly disposed the appliances. 
Two Fort Lauderdale businessmen pleaded guilty to illegally importing approximately 300 cylinders of the CFC refrigerant R-12.  Some of this contraband R-12 was then sold to Florida businesses. When sentenced each defendant faces a maximum sentence of up to five years in prison and/or a fine of up to $250,000. 
Commentary: EPA routinely conducts unannounced inspections to verify compliance with the CFC regulations. Facilities that have previously removed refrigerants should maintain documentation demonstrating that the removal and recovery of the refrigerant was done properly.  Owners and managers of buildings and facilities are required to retain certified technicians. Generally, when repairing small appliances (containing less than 5 pounds of a refrigerant as well as room or window air conditioners and freezers for home use), a technician must recover 80% of the refrigerant when the compressor is not operating or 90% of the refrigerant when the compressor is operating. 
Study Reports on Greenhouse Gas (“GHG”) Trades
According to a report issued by The Pew Center, 65 GHG emission trades have occurred during the past five years that have involved 55 million to 77 million tons of GHG. The cost of the trades has ranged from 60 cents and to $3.50 per ton of CO2 equivalent. The data did not include trades within BP Plc and Royal Dutch Shell, which launched their own internal cap-and-trade programs in 1998 to cut emissions
One recent noteworthy GHG trade was the donation of 120,000 metric tons of CO2 by Waste Management, Inc. (“WMI”) to offset CO2 emissions from the 2002 Olympic Winter Games due to increased transportation and energy use in Salt Lake City. The donations came from reductions in GHG emissions at four landfills operated by WMI in Illinois, Kentucky, Pennsylvania, and Montreal, Canada. 
Commentary: A report issued by NASA's Goddard Institute for Space Studies ("GISS") indicated that the declining production of CFCs might be having a beneficial effect on global warming. The GISS report said that ODS trap heat thousands of times as effectively as CO2. As a result, the report suggested that reducing emissions in methane, black carbon soot and ozone may have comparable benefits to the cuts in CO2 mandated by the Kyoto Protocol during its first commitment period from 2008 to 2012. 
Indoor Air Often Poses Greater Hazards than Outdoor Air
EPA studies indicate that indoor air levels of many pollutants may be two to five times and occasionally more than 100 times higher than outdoor levels. Because the agency estimates that most people spend as much as 90% of their time indoors, the air within homes, schools, and workplace may pose greater risks to human health than outdoor air pollution.  Further exacerbating the problem is energy efficient buildings that limit exchange of outdoor air, thereby allowing concentrations of indoor pollutants to increase to unhealthy levels. High temperature and humidity levels also can increase concentrations of some pollutants. 
Short-term exposure to high concentrations of pollutants can cause headaches, dizziness, and allergies. Prolonged exposure to certain common indoor pollutants can result in respiratory disease, heart disease, and possibly cancer.
The most common form of indoor air pollutants are VOCs that readily volatilize or evaporate at room temperature. Sources of VOCs include dry-cleaned clothing, chloroform from chlorinated water; benzene from tobacco smoke, formaldehyde from pressed wood products and insulation, methylene chloride from paint strippers, carbon tetrachloride from paint removers and styrene in adhesives, foam, lubricants, plastics carpets and insulation. Other potential sources of indoor air pollution include central HVAC systems, fuel-burning appliances (fireplaces, water heaters, furnaces, stoves, etc.), household cleaning and maintenance products, pesticides, biological contaminants such as animal dander, mold, and cockroaches. 
Commentary: To minimize the risks of indoor air pollutants, building owners and occupants should identify and control sources of pollution. They should make sure fuel-burning appliances are properly working and that there is adequate ventilation so that there can be sufficient mixing of indoor and outdoor air. Adequately sized exhaust fans should be used wherever moisture and combustion are present in the bathroom, laundry, and kitchen. A bath fan, for example, will help to dissipate chloroform gas, which is a byproduct of chlorinated water. It also will remove excessive moisture that can lead to mold, which can produce yet more health hazards.  
Building surfaces should not be scraped or sanded until they are tested for asbestos or lead-based paint. If asbestos or lead surfaces are present, a licensed profession must be retained. On the other hand, homeowners may be able to address excessive radon concentrations by sealing cracks with a caulking or patching compound. If these measures do not work, installation of an exhaust system may be necessary to draw out the radon from the indoor environment. 

WATER POLLUTION/ENDANGERED SPECIES

EPA Wetland Settlements
An amusement park operator in Monticello, Ind. agreed to pay $70,000 penalty for placing 12,000 cubic yards of soil and 650 tons of rock in a wetlands between September and November 1995. Indiana Beach Inc. must obtain an after-the-fact permit from the Army Corps of Engineers (“Corps”)
The owner of a Florida hauling company was convicted of illegally filling dumping mixed solid wastes into wetlands in Palm Beach County.  The owner faces a maximum sentence of up to three years in prison and a fine of approximately $250,000. Because the Corps owned the wetlands, the owner also faces up to 10 years in prison for damaging federal property. 
Meanwhile, a Mississippi truck repair firm, its president, and manager, pleaded guilty to dumping of hazardous waste, including spent solvents, grease, oil and other wastes into a wetland and a tributary of  a river that bordered the company’s facility.  When sentenced, the individuals will face maximum sentences of up to five years in prison and fines of up to $250,000.  
Corps Reissues Nationwide Permits
The Corps recently reissued all existing 43 nationwide permits (“NWP”) with some modifications. All of the NWPs except NWPs 7, 12, 14, 27, 31, 40, 41, 42, 43, and 44 expired on February 11, 2002 while existing NWPs 7, 12, 14, 27, 31, 40, 41, 42, 43, and 44 expired on March 18th.To avoid confusion, the Corps decided to reissue all NWPs so that they would become effective on March 18th and expire on March 19, 2007.  
	Because of the differing expiration dates, the Corps had to establish different grandfather dates for activities authorized by those NWPs. For example, activities authorized by the NWPs issued on December 13, 1996, (except NWPs 7, 12, 14, 27, 31, 40, 41, 42, 43, and 44) that commenced or were under contract to commence by February 11, 2002 have until February 11, 2003 to be completed.  Activities authorized by NWPs 7, 12, 14, 27, 31, 40, 41, 42, 43, and 44 that were issued on March 9, 2000 and that were commenced or under contract to commence by March 18, 2002 would have until March 18, 2003 to be completed. 
	Under NWPs 39 (Residential, Commercial, and Institutional Developments), 40 (Agricultural Activities.), 42 (Recreational Facilities), the Corps may issue waivers for activities that result in a loss of more than 300 linear feet of intermittent stream beds and that have no more than minimal adverse effects on the aquatic environment. However, district engineers may not waive the restriction for perennial streams.  The waiver process for the 300 linear foot limit for NWPs 39, 40, 42, and 43 can be used to authorize the construction of certain improvements to ski facilities. 
	General Condition 19 was modified to provide that the Corps may waive the one-to-one acreage requirement for compensatory mitigation of adverse impacts to wetlands. The Corps indicated that the agency will probably use one-for-one replacement or restoration in the majority of cases, and may require greater than one-for-one acreage of wetland mitigation to account for differences in function and values, temporal losses and potential failure of mitigation. However, the agency indicated that it needed the flexibility to not require one-for-one on-site mitigation where there will be little environmental benefit such as for developments involving a small moderate value wetland that will be surrounded by paved parking areas and may lose its hydrology because of overall site development. 
The agency also indicated that onsite mitigation was typically best for water quality measures including vegetated buffers and stormwater management but that the use of off-site mitigation banks or in-lieu fee arrangements might make more sense to restore loss of habitat since these projects are usually more successful than rebuilding isolated wetlands near developments. 	
	The corps also said it will allow certain NWPs for developments in floodplains provided the activities comply with FEMA-approved state or local floodplain management requirements. However, NWPS 39, 40, 42, 43, and 44 are not authorized for such areas.

HAZARDOUS WASTES/USTS

Pennsylvania Increases Reimbursements from State UST Fund
Pennsylvania recently increased the maximum allowable payments that owners or operators of USTs may receive from the state UST trust fund. Under the new law, eligible gas station owners may now receive up to $1.5 million from the Underground Storage Tank Indemnification Fund to help pay for the cleanup of leaks from USTs. The previous cap was set at $1 million. The higher cap will apply to all claims that are deemed to be eligible after December 13, 2001.
Commentary: Most states have established financial assurance programs that may be used to reimburse UST owners and operators for corrective action costs. These UST trust funds have certain eligibility requirements and deductible that can limit the reimbursement. In many cases, purchasers of properties with abandoned USTs may not be eligible for reimbursement since that purchasers may not be owners of the tanks or the tanks may not have been closed in accordance with UST regulations. The right to reimbursement may be assignable so it is important for purchasers of properties with USTs to confirm that the tanks meet the eligibility requirements and also obtain an express assignment of any rights that the seller may have to seek reimbursement from the trust fund.
In addition to the UST trust funds, approximately 18 states provide loans either under a state UST or brownfield program to owners of property impacted by leaking USTs programs.
State UST Trust Fund Denies Reimbursement for Costs of Excavation Soil
In 1996, the owner of a site that had formerly been a gasoline station excavated five USTs and removed over 3,100 tons of contaminated soil. After obtaining a NFA letter from the Ohio Bureau of Underground Storage Tank Regulation (“BUSTR”), the owner sold the property to a national drug chain who conducted a phase II investigation. The test resulted in 24 different piles of soil which the owner removed and sought reimbursement for the costs of disposing of the soil. However, because only one pile had contaminants exceeding state cleanup levels, BUSTR determined that the owner was only entitled to be reimbursed for the costs of disposing of the one pile. A trial court upheld the denial which was affirmed by a state appellate court  (Taylor vs. Petroleum Underground Storage Tank, 2001 Ohio App. LEXIS 4778)
Commentary:  In this era of risk-based cleanups, there is a tension between buyers and lenders who may want contaminaed remediated  and sellers who may reduce cleanup costs by leaving residual contaminants in soil or groundwater and imposing land use controls on a site. This case is a reminder that the costs that may be incurred for cleanups that go beyond state cleanup standards may not be reimbursable.  
EPA Proposes Supplemental Corrective Action Rule
EPA recently announced a change to the proposed corrective action management rule that had been originally proposed back in August 2000 (66 FR 58085 November 20, 2001). The supplement proposal would allow hazardous remediation waste resulting from the treatment of hazardous wastes in corrective action management units (“CAMUs”) to be placed in hazardous waste landfills that meet RCRA standards for new landfills and has a RCRA permit. The new landfill standards are more stringent that the minimum CAMU standards which are based on EPA's standards for municipal solid waste landfills. The proposal would not allow CAMU-eligible wastes to be placed in “interim status'' hazardous waste landfills
	The CAMU rule currently limits wastes that might be placed in CAMUs to those found on or originating from the facility where the cleanup occurred (40 CFR 260.10 and 264.552(a)). Hazardous remediation wastes sent to other locations generally must be managed in accordance with full RCRA Subtitle C standards for “as-generated'' hazardous waste (i.e., hazardous waste derived from on-going industrial processes). EPA subsequently promulgated a treatability variance from the land disposal restrictions (“LDR”) for remediation waste to promote more aggressive cleanups (62 FR 64504-64506, December 5, 1997). EPA also developed special treatment standards for soils contaminated with hazardous waste (63 FR 28556, May 26, 1998).  EPA's proposed revisions to the CAMU rule in August 2000 did not address the issue of CAMU-eligible wastes shipped off-site. In the August 2000 proposal, EPA limited wastes that could be placed in a CAMU to a subset of remediation wastes identified as “CAMU-eligible'' wastes. 
	In the supplement proposal, EPA said it believed that allowing for management of CAMU-eligible wastes in hazardous waste landfills will promote more aggressive remediation such as where on-site redisposal of wastes will not be viable or will not be a preferred option because the cleanup is located in or near a residential neighborhood. Without providing for more flexibility, EPA said it was concerned that cleanups might be delayed or might be conducted using less-than-optimal containment remedies. In other cases, EPA said the cost of complying with the LDR treatment standards for wastes sent off-site might be prohibitive.  EPA also said it believed making off-site disposal more feasible might encourage cleanups that would permit unrestricted uses, thereby increasing the potential for redevelopment
	The proposal would also allow the CAMU- eligible waste to be disposed at an on-site landfill so long as the landfill satisfied the standards for new landfills and had a RCRA permit. EPA said this approach would promote consolidation of cleanup wastes in protective landfills and could free up portions of a facility for redevelopment. 
    	In all cases, principal hazardous constituents (“PHCs”) in the CAMU-eligible waste would have to be treated to the proposed minimum national treatment standards for CAMUs (i.e. waste concentration reduced by 90%, but not required to below 10 times the universal treatment standard). 
The proposal would restrict existing remediation waste management options such as the LDR variances. Furthermore, non-hazardous wastes would be unaffected by the proposal since their management and disposal are generally not regulated under the federal RCRA program.
ExxonMobil Settles RCRA Action for $11.2 Million 
On the eve of a trial, ExxonMobil agreed to settle claims that the company mismanaged benzene-contaminated wastes at its Port Mobil storage and distribution terminal on the Arthur Kill in Staten Island. Under the consent decree, the company will pay a civil penalty of $8.5 million and spend $3 million to purchase or restore environmentally sensitive lands along the Arthur Kill that runs between Staten Island and New Jersey. The settlement also bars EXXONMOBIL from contesting the application of RCRA in certain circumstances in other cases elsewhere in the country.
The case involved claims that MOBIL discharged hazardous wastes into two large artificial ponds on the site without a permit from 1991 to1993. As part of its operation, Port Mobil ran a barge cleaning and vacuuming operation to remove residue petroleum and sediment from the barges after they were unloaded.  This process created a petroleum/water mix that was then further processed to draw off as much petroleum as possible. MOBIL added to this mixture petroleum storage tank bottom waters and oil-containing waters that had leached into the surrounding ground area. This mixture was then routed to two large open-air ponds at the site for further processing, including mixing with rainwater, before being discharged into the Arthur Kill. 
In 1992, MOBIL had indicated that benzene concentrations in the mixture were below the threshold for classifying a waste as hazardous. However, EPA's National Environmental Investigations Center (“NEIC”) analyzed EPA's 1993 samples from Port Mobil, and found levels of benzene as much as twenty times the limit for hazardous waste classification. The government concluded that MOBIL engineers had manipulated the test results because the company feared it would be forced to either close down the barge cleaning business close the entire facility. Based on the 1993 test results, EPA directed MOBIL to cease discharging wastes to the open-air ponds.  Several months later, NEIC concluded that MOBIL unlawfully discharged the hazardous waste waters directly into the Arthur Kill.
Commentary: EPA recently announced that it planned to exclude seven to 10 million tons of hazardous byproducts from RCRA regulation as part of an initiative to promote flexible, innovative ways to recycle more wastes and reduce the nation's reliance on fossil fuels. The proposal would allow petroleum refining byproducts and possibly other industry byproducts to be processed with a gasification technology without being managed under RCRA. The exempted byproducts would be mixed with coal, petroleum, coke, municipal solid waste and sewage sludge to produce synthetic gas that would be used as a fuel to generate electricity or steam, or as a basic chemical building block for many uses in the petrochemical and refining industries. EPA believes that  the synthetic gas is cleaner than other fuels in use today and is comparable to natural gas. Processors would have to meet certain conditions to make sure the byproduct materials are handled carefully and that the syngas meets stringent purity standards. 
EPA Clarifies LDR Paperwork Requirements for Subtitle D Facilities
EPA recently clarified that Subtitle D facilities that treat decharacterized waste for Underlying Hazardous Constituents (“UHCs”) are not subject to LDR notification and certification requirements. When a generator of a characteristic waste treats the waste so that it no longer exhibits the hazardous waste characteristic that caused the waste to be classified as a hazardous waste, the generator may send the decharacterized waste off site to a Subtitle D (non-hazardous) waste facility for further treatment to address the UHCs and ultimate disposal.  
  	The initial generator is required to place a one-time notification and certification in the facilities files and send copies to the EPA region and authorized state (40 CFR §268.9(d)).  However, the generator is not required to notify the Subtitle D facility of the constituents subject to treatment.  Accordingly, Subtitle D that treat wastes that are no longer hazardous but require treatment to satisfy LDR treatment standards are not currently required to verify compliance with treatment standards or to provide further notification of constituents in the waste or certification of treatment (58 FR 48092, 48135; September 14, 1993).
Commentary: Subtitle D facilities can handle wastes that may be regulatory exempt from the definition of hazardous wastes but nevertheless can severely impact the environment if improperly managed or disposed. If these facilities suffer releases to groundwater, the customers of these facilities can find themselves liable as a CERCLA generator for the cleanup of the facility. Thus, purchasers of businesses should identify all of the disposal facilities that a business has used for all of its waste streams to determine if there is any potential generator liability.  
Current Landfill Owner Pays Fine for Improper Disposal by Prior Owner
Waste Management Inc. (“WMI”) agreed to pay a $3.7 million civil penalty to the Pennsylvania DEP to settle violations committed by the former owner of the Alliance Landfill in Lackawanna County. The former owner had accepted 36,000 tons more municipal solid waste than the landfill was allowed during 1995 and 1996. Four officers of the former landfill operator were indicted for concealing the excess dumping and underpaying the required disposal fees.
Commentary: This case illustrates how purchasers can be held liable for past violations of a business. When purchasing an ongoing business, it is important for purchasers to go evaluate current and past environmental compliance. Under the ASTM E1527-00, so-called environmental business risks are not normally included within the scope of a Phase I ESA unless specifically requested by the client.

TOXIC SUBSTANCES

 Criminal Enforcement Actions Against Landlords for LBP Violation
An owner of 15 low-income rental properties in the District of Columbia and Maryland was sentenced to two years in prison and ordered to pay a $50,000 fine for failing to comply with the lead-based paint (“LBP”) disclosure rule.  The landlord has previously pleaded guilty to obstructing an investigation by the Department of Housing and Urban Development (“HUD”) by submitting falsified LBP disclosure forms. The landlord was also required to perform LBP assessments and provide all tenants with LBP disclosures. 
Meanwhile, one of the nation's largest property management firms has agreed to pay a $129,580 penalty for failing to provide LBP notices to tenants living in 130,000 apartments in 47 states and Washington, D.C. Denver-based Apartment Investment and Management Co. ("AIMCO") also agreed to investigate for the presence of LBP in all of its rental units and to abate LBP hazards that are found. Because AIMCO voluntary disclosed the LBP violations, EPA substantially reduced the civil penalty. 
In the first case where a corporation has been criminally prosecuted for failing to comply with LBP notices, a New Hamsphire landlord and his real estate management company pleaded guilty in connection with a lead poisoning case involving the death of a two-year-old girl in Manchester in April 2000. The defendants pleaded guilty to charges of obstructing justice, making false statements ti investigators and failing to provide prospective tenants with LBP notices. 
EPA launched its investigation after the Manchester Health Department announced in November 2000 that the girl's lead poisoning was "most likely” caused by LBP and lead-contaminated dust in the apartment.  When EPA investigators visited the offices of JTA Real Estate Brokerage and Property Management, the landlord gave EPA representatives forged documents showing that the victim's mother and other tenants living in the apartment building had been given the required federal LBP disclosure information.  
Commentary: While there are hundreds of lead poisoning cases each year, this was the first reported death from lead poisoning in the United States since 1990.
Landlord Can be Liable for Lead Poisoning Despite Absence of State Statute
The New York Court of Appeals recently ruled that a landlord can be liable for lead paint poisoning of tenants even though New York had not adopted a statute specifically imposing a duty on landlords to test or abate LBP hazards. The court established a five-point test that tenants must meet to hold their landlords liable, including proof the landlord knew that a young person was living in the apartment and was aware that paint on the premises was peeling. Tenants also must prove the landlord knew the apartment was built at a time when lead paint was used and that the paint was hazardous to young children. (Chapman v. Silber, N.Y., No. 128)
Painter Pleads Guilty for Improper Disposal of LBP Waste
A Pennsylvania painter and his company pleaded guilty to violating RCRA after employees dump 55 tons of abrasive material mixed with lead paint chips that had been sandblasted from a railroad bridge. A painting crew had dumped the waste near a warehouse in 1996.  In his plea, the owner of the painting business admitted that he did not notify EPA after learning of the improper disposal in 1998.
Commentary: In 1998, EPA proposed to suspend the RCRA toxicity rule for LBP debris generated by deleading, renovation or demolition activities at target housing covered by the LBP disclosure rule as well as public and commercial buildings if the LBP debris was managed in accordance with the requirements of the proposed rule. However, the proposed rule did not apply to structures such as bridges. EPA recently withdrew the proposed rule because of adverse comments. 
Broker Not Liable for LBP Violations
	The Specials Appeals Court of Maryland ruled that a real estate broker who lists real estate is not liable as an owner under the state Lead Paint Act. In Dyer v. Criegler (No. 2856, January 3, 2000), the plaintiff/tenant argued that a real estate agent or broker was obligated under the Lead Paint Act to protect tenants from exposure to LBP. The plaintiff focused on the definition of “owner” which included a leasing agent. The court said the statute applied to person who had the right to control the property. Because rental agents and brokers typically end their relationship with the property when the lease is signed, the court said brokers did not exercise sufficient control to be considered an owner. In the absence of special circumstances or the right to manage or control the property, the court ruled that the statute did not impose a duty of care on a broker who was merely acting as a listing agent. 
Commentary:  Under the federal LBP disclosure regulations, any person who enters into a contractual arrangement with a seller or lessor either directly or indirectly through a representative of the seller or lessor is responsible for assuring compliance with the requirements of the LBP disclosure rule. To satisfy this duty, the agent must inform the seller or lessor of its obligations under the LBP disclosure rule and ensure that the seller/lessor has carried out its obligations or personally carry out the disclosure obligations of the seller/lessor. An agent who satisfies these two conditions will not be liable for any LBP hazards known by the seller that were not disclosed to the purchaser/tenant. However, agents retained by buyers are not responsible for ensuring compliance with the rule.
EPA Announces PCB Settlements 
The Anchor Glass Container Corporation has agreed to pay $43,400 for failing to comply with various PCB requirements at its facilities in Salem and Cliffwood, New Jersey and Elmira, New York.  EPA inspectors found that the facilities had failed to move combustible materials a safe distance from electrical devices containing PCBs, did not properly identify a PCB waste storage area, did not properly mark the means of access to transformers containing PCBs, failed to keep complete annual records regarding the use, storage and/or disposal of PCB equipment as well as not keeping complete inspections and maintenance records for PCB transformers.
Meanwhile, Transcontinental Gas Pipe Line Corporation (Transco) has agreed to pay a $1.4 million civil penalty and to investigate and cleanup contaminated soil and groundwater along its 10,500-mile natural gas pipeline that traverses 12 states from Texas to New York. The company also agreed to implement a storm water-monitoring program at several compressor stations. The Transco pipeline has 53 compressor stations that drive natural gas trough the pipeline. The pipeline generates wastes known as natural gas pipeline condensate that contains a complex mixture of hydrocarbons, including benzene.  EPA alleged that from the 1950s to the mid-1980s, Transco disposed of pipeline condensate and other materials in unlined earthen pits and debris areas at its compressor stations. In addition, PCB contamination was found at a number of Transco's compressor stations, generally resulting from historic use of PCB-containing lubricants.  PCBs are classified as probable human carcinogens.   At some compressor stations, PCB contamination extended beyond the company's property line onto adjacent property. Finally, EPA claimed that Transco historically discharged commingled storm and process waters from its compressor stations without a permit. 
	The settlement also addresses mercury contamination from metering stations. EPA alleged that the company disposed of mercury in the soils when repairing or maintaining the pipeline meters. Transco commenced performed cleanups at most of the metering stations. Since cleanups at the remaining metering stations are being performed under supervision of state environmental agencies in New York, New Jersey, and Louisiana, the settlement does not address those cleanups. 
Commentary: Records compiled by the National Response Center (“NRC”) indicate that the number of PCB spills reported nationwide continued to increase in 2001.  80 PCB spills were reported to NRC in 1998, 200 PCB spills were reported in 2000 and 300 PCB spills were disclosed reported in 2001. EPA is not sure of the cause for the increased in reported spills but believes it is due to deterioration of old equipment and greater awareness of the reporting requirement. As a result, EPA has launched an enforcement initiative to inspect facilities with older transformers. 
Recyclers Facing Imprisonment for Improper Disposal of Mercury-Containing Equipment 
A New Hampshire man will serve 18 months in jail improperly disposing of fluorescent lights and ballast containing mercury and PCBs. The man owned and operated a business that was purported to be in the business of recycling fluorescent bulb and lighting ballast waste.  The defendant accepted light bulb and light ballast wastes from school districts and government agencies in Colorado, New York, North Carolina, Ohio and elsewhere.  However, instead of recycling the materials, he simply abandoned the lighting fixtures at a number of locations in New Hampshire and Massachusetts. 
	In North Carolina, a Durham man was indicted for abandoned several large scales containing mercury on the banks of Lake Jordan.  A fisherman discovered the leaking scales.  If convicted, the man faces a maximum sentence of up to five years in prison.
Commentary: In recent years, EPA and many states have launched initiatives to decrease the use of mercury in household and commercial products and to prevent the mercury in existing products from entering the waste stream. Connecticut, Maine, Massachusetts, Minnesota, New Hamsphire, New Jersey, New York,  Oregon, Rhode Island, and Vermont have enacted or are considering legislation to reduce mercury in waste by banning the sale of certain mercury-added products, requiring product labeling, and implementing collection and recycling programs for some products. In addition, numerous stewardship efforts have been initiated by government, industry, and non-governmental organizations targeting a variety of mercury-containing products including:
Batteries—Since the early 1980s, battery manufacturers have reduced mercury content by over 98% percent. Federal and state legislation such as the Mercury-Containing and Rechargeable Battery Management Act of 1996 severely restrict the sale of most types of mercury-containing batteries.
Thermometers—Several states have banned the sale of mercury thermometers, and additional states are considering similar legislation.
Thermostats—U.S. thermostat manufacturers have begun a program to collect used thermostats and recover the mercury they contain.
Medical waste—EPA and the American Hospital Association have signed a memorandum of understanding that calls for the virtual elimination of mercury-containing hospital wastes (see related H2E article).
Mercury-containing components in vehicles—Some states are considering legislation to phase out the use of mercury-added switches in vehicle hood and trunk lighting and in some antilock braking systems, and recommending that automakers be made responsible for the safe removal and management of mercury-added components from existing cars. Several vehicle manufacturers have voluntarily reduced their use of mercury-containing switches in new models. 
Fluorescent lamps—Since 1985, manufacturers have reduced the average mercury content of a typical four-foot fluorescent bulb by over 75%. 

SUPERFUND/BROWNFIELDS

 Non-Profits Play Role in Brownfield Development 
A Pennsylvania non-profit redevelopment corporation agreed to conduct a site investigation and clean up of a site located in Butler County that has remained vacant in 1990. The nine-acre site was used to store agricultural chemicals for over 50 years and is contaminated with pesticides, herbicides and fertilizers. 
The prior owner donated the property to CDC Environmental in exchange for a release from liability. The non-profit will receive a $113,000 Industrial Sites Re-Use Program Grant through the Pennsylvania Department of Community and Economic Development (“DCED”) to finance 75% of the cost of the site investigation. CDC Environmental hopes to redevelop the site for commercial or industrial use and will preserve the forestland on the property in perpetuity for public benefit. CDC Environmental believes the property will have a market value of more than $60,000 after it is remediated. 
	Meanwhile, a former refractory plant located in Clearfield Borough, Pennsylvania was remediated by the Clearfield County Economic Development Corp (“CCEDC”) using a $120,000 grant from the DCED. Construction has begun on a 25,000-square foot, multi-tenet building on 5.5 acres of the site that will house manufacturing and industrial startup companies. Later this year, a 45,000-square foot “green technology” office building will be built on seven acres that will serve as the new offices for an engineering office of PennDOT. 
A non-profit organization has helped facilitate 35-acre brownfield site in San Diego that will include a new ballpark for the San Diego Padres. The Centre City Development Corporation (“CCDC”) prepared a master plan that included a project-wide risk assessment, development of risk-based cleanup standards, and a health and safety plan for the investigation and remediation of the site. In addition to the ballpark, the project includes a number of private developments including a 300-unit residential complex, a hotel, a shopping area and an urban technology/office campus 
Questions Raised About EPA Model for Residences Near Contaminated Sites
In 1998, developed computer models for measuring the estimating concentrations of indoor air concentrations of pollutants that might migrate through the soil or groundwater from a nearby contaminated site. With brownfields increasingly being used for residential or high-occupancy commercial uses, environmentalists have begun questioning whether the model is sufficiently protective of human health.
The 1998 model was based on the 1991 Johnson-Ettinger analysis that calculated the potential for subsurface vapors to migrate into buildings. Federal and state cleanup managers can use the model as a screening device to predict indoor air concentrations of contaminants instead of having to gain access to residences and collect actual indoor air samples. If the model indicates that indoor air levels will be within safe limits, then no sampling is required. 
The model contains 60 variables and many assumptions such as that a home has a 994-square-foot ground floor and a six inch concrete foundation with 126 feet of cracks. Case managers then feed in site-specific data and the model will then calculate if the contamination concentration levels will result in unhealthy levels in buildings. 
By using the model, the government and parties performing a cleanup can save the expense of sampling which can cost $1,000 per home. The model also saves considerable time and allows case managers to issue final cleanup decisions for many more sites than would be possible if each home near a site had to be sampled. Responsible parties also prefer to use the model since sampling they do not have to contact homeowners who might become alarmed and perhaps bring toxic tort suits. 
However, some EPA employees and state case managers believe the model underestimates exposures. For example, at the former Redfield superfund site in southeast Denver, the model predicted that fewer than three dozen homes would have excessive levels of VOCs. However, indoor air samples detected unhealthy levels of VOCs in more than 300 homes. In some cases, the contaminant concentrations were 200 times higher than predicted by the model. 
Last year, EPA's inspector general began preparing a report that was critical of the model. However, the audit was halted in January because it appeared that the only indoor air exposure pathway was for DCE and that the perceived health risk was therefore substantially reduced. 
Commentary: Colorado, Connecticut, Kansas, Maine, Massachusetts, New York, North Dakota, Oregon, Vermont, West Virginia and Wyoming regularly test for toxic vapors in homes. Other states use the model almost exclusively including heavily industrialized states such as Louisiana, Michigan, Ohio and Pennsylvania.  Other states that do not routinely require indoor air sampling include Alabama, Delaware, Georgia, Indiana, Kentucky, Mississippi, New Mexico, North Carolina, South Carolina, Tennessee, Utah, Virginia and Wisconsin. 
Last Round of PPAs?
There has been much speculation whether EPA will continue to enter into prospective purchaser agreements (“PPA”) now that the Small Business Liability Relief and Brownfields Revitalization Act has created the Bona Fide Prospective Purchaser Defense (see our last issue for a detailed discussion of this defense and the legislation). The agency has issued a number of PPAs this year that presumably were in the pipeline before the legislation became effective. 
EPA issued a PPA for the Gardner Little  League, Inc. to acquire  approximately 10 acres of property to construct  a youth baseball facility. In exchange for a covenant not to sue, the purchaser agreed to pay EPA $12,000 and provide  an irrevocable right of access to EPA.
Supreme Mid-Atlantic  Corporation, Inc. entered into a PPA to acquire approximately 25 acres of property that is currently owned by Western  Sand and Gravel, Inc. The purchaser intends to  use the property to construct and operate a truck  body manufacturing plant. In exchange for the covenant not to sue, the Purchaser agreed to pay EPA $25,000, provide an irrevocable right of access to EPA, file a deed notice to notify future owners about the remedies performed at the site and comply with institutional controls. 
Alabama Structural Steel entered into a PPA to acquire 15 acres of the Gulf States Steel Superfund Site free and clear of all liens, claims and interests under section 363(f) of the Bankruptcy Code. The purchaser planned to continue operating a welded beam manufacturing plant on the site. In exchange for a covenant not to sue, the purchaser agreed to pay EPA $100,000 in four equal annual payments, file a notice in the local land records that EPA had not yet selected a remedy, provide access to EPA, comply with institutional controls, and record an easement to EPA to enforce the institutional controls pursuant.
In the PPA for the Sanitary Landfill Company ("IWD") Superfund Site in Moraine, Ohio,  Debpat, LLC has agreed to pay EPA $5,000 and comply with institutional controls imposed at the site. The company plans to renovate and use an existing  warehouse on the property. 
The Pittsfield Economic Development Authority (“PEDA”) entered into a PPA to acquire 52 acres of the GE- Pittsfield/Housatonic River Superfund Site. Pursuant to a  Definitive Economic Development Agreement entered into by PEDA, the  City, and the General Electric Company (``GE''), the parcel will be transferred to PEDA  after GE completes removal actions. In exchange for the PPA, the PEDA will pay the natural resource trustees up to  $4 million consisting of in-kind services and/or a percentage of  PEDA's net revenues. The PEDA will also provide access to EPA, comply with institutional controls and conduct other post-removal site control measures.
An interesting pre-negotiated PPA was proposed for the Benfield  Industries Superfund Site in Waynesville, North  Carolina. EPA will enter into a PPA with the party who purchases the property pursuant to a auction conducted by the  county sheriff. At the time of the PPA, the identity of the purchaser was not known. The purchaser will pay EPA 5,000, file a deed notice that the site is subject a response action funded by EPA, provide access to EPA and comply with institutional controls. EPA will also remove its lien upon receipt of the payment.
Pacific Wood Preserving of Oregon ("PWPO") has entered into a PPA to acquire 34 acres of a  superfund site located in Sheridan, Oregon. PWPO will be purchasing the property from wood treatment business that has filed a chapter 11 bankruptcy proceeding. In exchange for the settlement, PWPO will pay EPA $500,000, operate and maintain a groundwater  extraction and disposal system, maintain the existing asphalt cover,  and maintain the contaminated soil storage cells. In addition, PWPO has  agreed not to treat wood with solutions containing ammoniacal copper  zinc arsenate, cooper chromated arsenate, pentachlorophenol, creosote,  or any arsenical wood-preserving compounds. Instead, PWPO will treat lumber products and poles with preservatives that have relatively low environmental impact and toxicity.     
EPA announced that it had withdrawn a PPA for the Metcoa Radiation Superfund site located near the village of  Pulaski, Pennsylvania.
CERCLA Settlements Utilizes Trust  
The federal government lodged a proposed consent decree with a federal district court in Colorado to address resolve the liability of the S.W. Shattuck Chemical Company for Operable Unit 7 of the controversial Denver Radium Superfund Site. Under the terms of the decree, the defendant will pay EPA $5.45 million to reimburse the agency’s past response  costs, pay $250,000 to the Department of  the Interior to settle a potential natural resource damages claim and  establish a trust that will hold title to the 5.9 acre parcel. When the site cleanup is completed, the trust will sell the property and distribute the net sale proceeds to EPA's special account for the  site. 
As part of a bankruptcy liquidation proceeding, the Coast Guard will receive $861,865 as  an Allowed Administrative Expense Claim. In addition, the debtor,  American Western Refining, L.P.,  will place its  refinery in a liquidating trust and provide funding that will facilitate cleanup of the facility.
Bankruptcy Sale Resolves Liability of Debtor’s Estate
In a settlement involving a bankrupt owner of a contaminated site in Detroit , a bankruptcy trustee will pay 50% of the net proceeds of sale of the Site property after payment  of the real estate broker's commission, transfer taxes, and closing  costs, and liens, such as real property taxes. In exchange for the proposed distribution of the proceeds of the sale EPA will not make any further claims against the estate 
 EPA performed a response action at the site and removed approximately  900 55-gallon drums and numerous smaller containers filled with  material from the chemical packaging  and distribution operation that was located on the Site. The property was sold  for $150,000 and the proposed distribution to EPA from the sale has  been determined to be 39,768.63.
Commentary: In bankruptcy proceedings, purchasers sometimes seek an order from a bankruptcy court authorizing the property to be sold free and clear on all liens and interests in the hope that the order will cutoff liability for pre-existing contamination. In some instances, courts have expressly referred to environmental liabilities as among the interests cutoff by the sale. There has been some dispute over whether a bankruptcy court had the authority to interfere with the CERCLA liability scheme that would impose liability on the purchaser as a current owner unless it could assert either the third party defense or innocent purchaser’s defense. From a practical standpoint, the innocent purchaser defense would not be available unless the purchaser conducted due diligence and was not aware of any contamination. Given this uncertainty, purchasers entered into PPAs as in the foregoing case. However, with the new bona fide prospective purchaser defense, purchasers may now knowingly acquire contaminated property without incurring CERCLA liability. As a result, 365(f) orders may become a more viable tool in brownfield development. 

ENVIRONMENTAL CASES INVOLVING CORPORATE AND REAL ESTATE TRANSACTIONS

Courts Interpret Supreme Court Bestfoods Decision
On the remand from the United States Supreme Court, the district court for the western district court of Michigan ruled that Bestfoods is not liable for response costs at a subsidiaries former plant (Bestfoods Inc. v. Aerojet General Corp., W.D. Mich, No. 98-CV-503, 11/9/01).  The court said that Michigan and EPA failed to prove that the company, and not its subsidiary, actually operated the plant.  The decision leaves both governments responsible for the entire site cleanup because the other PRP party, Aerojet General Corp., resolved its liability with the United States in 2000.
In another parent corporation liability case, the Court of Appeals for the First Circuit  ruled that the 1998 Bestfoods decision did not invalidate a 1990 district court ruling that a parent was an operator of its subsidiary’s facility (United States v. Kayser-Roth Corp., 1st Cir., No. 00-2038, 12/3/01).In that case, the district court had issued a declaratory judgment  in 1989 holding a parent corporation liable as an operator because it had exercised pervasive control over its subsidiary’s environmental operations United States v. Kayser-Roth Corp., 724 F. Supp. 15 (D.R.I. 1989) (Kayser-Roth I). The First Circuit affirmed Kayser-Roth I in 1990 on operator liability but did not address the court’s holding that the company was also liable as an owner on a veil-piercing theory. 
In 1998, the United States sought $ 4.1 million in additional response costs incurred after the 1990 judgment and $ 2.3 million in interest.  After the cost recovery action was filed, the Supreme Court issued its Bestfoods decision where the court said that the focus for operator liability should be on the relationship between the parent and facility instead of between the parent and the subsidiary. Since Kayser-Roth I had ruled that the parent had exercised pervasive control over its subsidiary, Kayser-Roth filed a 60(b)(5) motion for relief from the 1990 declaratory judgment on the grounds that Bestfoods changed the CERCLA liability standards applied by the district court.
 In 2001, the district court found that even under the Bestfoods analysis, officers of Kayser-Roth had exercised control over environmental matters at the subsidiary’s facility (U.S. Kayser-Roth Corp, 103 F. Supp. 2d 74 (D.R.I. 2000)(“Kayser-Roth II”). On appeal, the First Circuit ruled that while 1990 decision applied the wrong law for determining operator liability for a parent corporation, there was sufficient evidence that Kayser-Roth exercised control over environmental matters at the plant and therefore the Kayser-Roth II court did not abuse its discretion in denying the company’s motion for relief.

Copyright (c) 2002 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. The fee for the seminar is $20 per credit hour. A course book with transactional forms is included with the seminar. The course book may be purchased separately for $95. 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.