SCHNAPF ENVIRONMENTAL  REPORT
A Newsletter Covering Recent Environmental Developments and Caselaw
May 2002						Vol. 4, Issue 3	

Contents
Page   2	The Impact of the CERCLA 2002 Amendments on Due Diligence-Part 2
Page   2	Rating Agencies Considering Including Mold for Due Diligence Criteria
Page   3	Asbestos and Radon Not a “RECs” Under ASTM Phase I ESA Standard
Page   4	Pennsylvania Hotels To Join “Green Hotel” Program
Page   4	EU Parliament Adopts Product Stewardship Responsibility For Electronics
Page   5	States Considering Extended Product Responsibility Programs for Used Cell Phones
Page   5	EPA Announces New Incentives for National Environmental Performance Track Program
Page   6	Zurich Announces Insurance Policy for Institutional Controls
Page   7	CMBS Buyers Requiring Mold Insurance for Residential Properties
Page   8	California Legislature Approves Greenhouse Gas (GHG) Legislation
Page   8	New Jersey Operated-Facilities To Purchase Green Power
Page   9	Power Companies Use CO2 Sequestration to Achieve CO2 Emission Reductions
Page   9	EU CO2 Increase From 1999
Page   9	2002 SO2 Auction Results
Page 10	District Court Invalidates NY Ban on Out-of-State SO2 Trades
Page 11	OTC Releases Study on NOx Budget Program
Page 12	EPA Asbestos Enforcement Actions
Page 12	EPA CFC Enforcement Actions
Page 13	Corps Adopts EPA Definition of Fill Material
Page 13	District Court Decisions Conflict Decisions After SWANCC
Page 14	Study Finds New Jersey Mitigation Program Fails to Stem Loss of Wetlands
Page 15	UST Owner Not Eligible for UST Fund Reimbursement
Page 16	EPA Announces MTBE Grant for Rhode Island
Page 16	New York City Dry Cleaner Reaches Settlement with EPA
Page 17	Owner Sentenced to 15 months for Failing to Comply With the LBP Disclosure Rules
Page 17	EPA and HUD Bring LBP Enforcement Actions Against Chicago Property Owners
Page 17	LBP Complaint Allowed to Proceed Against Philadelphia Housing Authority
Page 18	School District Fined for Improper Handling of PCBs
Page 19	EPA Announces New Round of BCRLF Grants
Page 19	Contaminated Soil Detected at California Public Schools
Page 19	Maine Communities Use Eminent Domain to Facilitate Reuse of Brownfield Site
Page 20	Buried Drums Discovered During Construction at Military Base
Page 20	Remediated Florida Superfund Site Poses Risks to Drinking Water
Page 20	EPA Enters into More PPAs
Page 21	PPA Used to Facilitate Sale of Assets of Bankrupt Company
Page 22	EPA Proposes to Waive Past Response Costs To Facilitate Cleanup of Adjacent Residential Neighborhood
Page 23	PRPS Absorb Cost of Bankrupt Owner of Superfund Site
Page 23	Estate Enters Into Ability to Pay Settlement
Page 24	Purchaser Who Dissolved Corporation Liable As a Successor Corporation
Page 24	Supreme Court Declines to Rule on California Passive Migration Case
Page 25	PRP Trust May Bring Contribution Action

DUE DILIGENCE/ AUDITING/ DISCLOSURE/ ENFORCEMENT

The Impact of the CERCLA 2002 Amendments on Due Diligence-Part 2
We introduced a new feature in our last issue that discusses how the Small Business Liability Relief and Brownfields Revitalization Act may change how due diligence is performed.
In this installment, we discuss what the notification requirement of the new Bona Fide Purchaser and Contiguous Property Owner defenses. This element of these defenses has received little attention but may prove to be one of the most problematic elements to satisfy. Indeed, some environmental lawyers have termed the notification condition to be a sleeping giant. 
To successfully assert the defenses, a property owner must comply with all reporting requirements and other required notices regarding the discovery or release of any hazardous substances at the facility. At first glance, this would seem a rather innocuous provision but it is full of pitfalls for the unwary because of the plethora of state and federal disclosure obligations.
Almost every federal environmental law has a reporting obligation and these notification requirements are not only complex but also overlapping. A prospective purchaser or owner may have to file multiple notices a single release. Moreover, the owner or purchaser may have reporting requirements under state environmental laws. 
Further complicating the issue is that federal and state reportable quantities usually require disclosing of certain releases of hazardous substances over a period of time- usually 24 hours. As a result, it is often unclear if a reporting obligation is triggered by the discovery of historical contamination. For example, EPA has consistently claimed that CERCLA section 103(c) which is known as the “lasting provision” imposes a continuing obligation of property owners to disclose the existence of releases of hazardous substances. Yet, a careful reading of the actual language of this section reveals that it required owner or operators of facilities to notify EPA by June 6, 1981. As a result, many attorneys have argued that contamination discovered after that date does not have to be reported.
The ASTM E1527-00 Practice for Phase I ESAs does not require consultants to address compliance issues like reporting obligations. Instead, consultants must only identify the existence of recognized environmental conditions (“REC”) which is defined as the presence or likely presence of an existing release, past release or a material threaten of a release of hazardous substances. Consultants can conclude that a past or present release does not rise to the level of a REC and may be classified as a de minimis condition if it does not present a material risk of harm to public health or the environment and would generally not be the subject of an enforcement action if brought to the attention of environmental authorities. However, the standard does not require consultants to determine if a reportable quantity of hazardous substances has been released or when the materials were released. 
As a result, property owners or prospective purchasers who are concerned about asserting these new defenses will have to ask their consultants to sufficient information about the nature of the release to enable the client or its attorney to determine if a reporting obligation exists. In many instances, the amount of hazardous substances that were released cannot be determined without performing a Phase II investigation. However, it is doubtful that such information could be developed within the time period required for complying with a state or federal release reporting requirement. Thus, under such circumstances, a prospective purchaser may feel compelled to file a protective filing with regulators before the extent of the release is known.  
This option will often place a prospective purchaser in a conundrum since it likely obtained access to a site pursuant to an agreement with the seller where the buyer agreed not to disclose the contents of the investigation to regulators unless required by law. Thus, the buyer might need to first obtain approval from the seller before notifying the government of the suspected release of a reportable quantity of hazardous substance. 
Because of limited enforcement resources, government regulators usually adopt a common sense approach towards these notification requirements and generally will not bring enforcement actions against property owners who provide notification a few days or even a couple of weeks late provided the tardy notice was made in good faith and the owner is not trying to hide a serious environmental hazard.
However, the new law does not provide for substantial compliance or a waiver for technical violations of the notification requirements. Unless the forthcoming EPA regulations provide relief from technical violations of the reporting obligations, prospective purchaser or contiguous property owner can expect that PRPs filing contribution actions will argue that the law requires strict compliance with reporting requirements and that a late or incomplete notice will be insufficient to establish these defenses. 
Rating Agencies Considering Including Mold for Due Diligence Criteria
In past issues, we have been discussed how the presence of mold in residential and multi-family properties is becoming a concern to property owners and their lenders or insurers. Now we have learned that the rating agencies are considering adding mold to their due diligence protocols.
While the rating agencies are pondering how to address mold, some lenders have begun to examine their own due diligence programs to determine if mold should be included within the standard scopes of work and how this task should be performed. For example, some financial institutions are considering having their consultants indicate in the ESAs whether they have observed any conspicuous evidence of microbial infestation. Under this approach, the consultant would be expected to make cursory examination of bathrooms, under sinks in kitchens and drip pans under air conditioners. 
However, this approach will not identify any hidden mold.  As a result, another approach under consideration is a moisture meter that can simply be placed along a wall. The newer meters can detect moisture 1 to 3 inches into a wall. Since wallboard is usually not more than 2 inches thick, the method could detect moisture in insulation or interior wall cavities where mold could grow unnoticed. One mold expert has advised us that he has never encountered mold when moisture readings were below 15% and found mold 100% of the time when moisture levels were above 30%. 
Some lenders are leaning towards having mold issues addressed in Property Condition Assessments (“PCAs”) since mold is associated with moisture problems resulting from building design or construction defects. They reason that the professionals performing PCAs are more likely to identify possible existing or prior water problems than consultants performing ESAs who are not likely to review plumbing and maintenance records during the course of a Phase I ESA. 
 Asbestos and Radon Not a “RECs” Under ASTM Phase I ESA Standard
Environmental consultants often identify friable or suspect asbestos-containing materials (“ACM”) as a REC in their Phase I Environmental Site Assessment (“ESA”) Reports. However, if the ESA follows the ASTM E1527-00 Standard for Phase I ESAs, ACM may not be identified as a REC if it is part of the building structure.
The reason is that RECs refer to the presence or likely presence of an existing release, past release or a material threaten of a release of hazardous substances. However, CERCLA exempts from the statutory definition of a release products resulting in an exposure that are part of the structure of a residential or commercial building. Thus, while ACM may be discussed in the portion of the ESA report discussing non-scope items, it cannot be identified as a REC unless the building is demolished and ACM debris remains at the site and is exposed to the environment. In such case, since the ACM is no longer a part of the building structure, the exemption will not apply.
Likewise, lenders often require consultants to identify the radon zone of a property. EPA has divided the country into four radon zones with sites in radon zone 1 have a likelihood of concentrations above the 4.0 Pico curies per liter. If a property is located in a radon zone 1, consultants often identify this as a REC. 
Once again, though, the CERCLA definition of release excludes releases of naturally occurring substances in unaltered form or altered by natural processes. Thus, where radon gas may be present in a building from naturally occurring radon, it may be discussed in the portion of the ESA report discussing non-scope items but it cannot be identified as a REC. However, radon present at a site because of the presence of radioactive sources within a building is considered a hazardous substance and the exemption would not apply. 
   Pennsylvania Hotels To Join “Green Hotel” Program
50 Pennsylvania hotels and motels will be participating in the Green Seal voluntary certification program for lodging facilities. Pennsylvania will support this program encouraging state employees to stay in Green Seal-certified hotels and holding conferences at Green Seal certified facilities. Pennsylvania will also pay the certification fees for the first 50 properties certified by Green Seal.
Green Seal which is a non-profit environmental standard-setting and certification organization based in Washington, D.C will develop an initial certification effort in Pennsylvania for all hotels, motels, inns and bed-and-breakfast facilities. To qualify for the program, lodging facilities must comply with 36 criteria in six major facility categories, including waste minimization, reuse and recycling; energy efficiency, conservation and management; management of fresh water resources; wastewater management; hazardous substances; and environmentally and socially sensitive purchasing policies. Hotels wishing to participate in the program must complete a questionnaire on their environmental initiatives. Green Seal will use the checklist to identify hotels that may move into the certification process. Green Seal will then inspect the facilities and award certificates to facilities that comply with the green hotel standard. 
EU Parliament Adopts Product Stewardship Responsibility For Electronics 
The European Parliament recently adopted legislation requiring all EU governments establish programs for recycling electrical goods by 2005. The Waste Electrical and Electronic Equipment (“WEE”) directive will cover Televisions, washing machines, stereos, computers, mobile phones, vacuum cleaners, hairdryers and other electronic equipment. The directive establishes a mandatory recycling target of 6 kilograms per capita from households by the end of 2005. Manufactures will bear the cost of collecting, dismantling and recycling the products. 
In addition, WEEE will impose a levy on non-EU manufacturers to help defray the cost of the recycling program. The levy would be at the point of entry and based on the fair share of electronic goods manufactured and exported to the EU by the non-EC manufacturer. Each EU member will determine the amount of the levy.  It has been estimated that prices for electrical goods are likely to rise by up to 5%.
The EU Parliament also passed a ban on using heavy metals in electronic equipment that will take effect on January 1, 2006. Both bills are now headed to a conciliation committee to iron out differences with measures favored by the Council of Ministers. Once the bills are finalized, the individual EU governments must approve and implement the legislation. 
	Meanwhile, Japan passed a mandatory recycling program for personal computers that will take effective in 2003. Under the new program, retailers will collect approximately $40 for each new desktop and $15 for each laptop they sell. The fees will be transferred to PC manufactures who will have the responsibility for collecting and disposing the computers. The country has already implemented recycling program for business computers in 2001.
States Considering Extended Product Responsibility Programs for Used Cell Phones 
According to a recent study by Inform, Americans will discard approximately 500 million cellular telephones containing over 65,000 tons of toxic metals by 2005. Cell phones, along with other "wireless waste" such as pagers, pocket PCs, and music players contain a number of toxic materials including arsenic, antimony, beryllium, cadmium, copper, lead, nickel, and zinc, said the report.
According to the Cellular Telephone Industry Association (“CTIA”), cell phone manufacturers have established recycling and "donate-a-phone" programs where private groups collect phones and give the proceeds to charity. Many of the phones are resold in developing countries. However, these programs only collect approximately one million phones per year. 
	The Inform report urged the cellular phone industry to take steps to expand the "take-back" programs and also to adopt industry-wide technical and design standards so that phones are not thrown away after a user switches services.  However, CTIA opposes efforts to develop a single phone standard. 
A number of states including California, Massachusetts, and Minnesota are considering adopting Extended Producer Responsibility legislation for electronic products. 

EPA Announces New Incentives for National Environmental Performance Track Program
In June 2000, EPA formed the National Environmental Performance Track to recognize and reward facilities with superior environmental performances. To participate in Performance Track, facilities must have an Environmental Management System in place, demonstrate continued environmental improvements, conduct public outreach, report performance annually to the EPA and have a record of sustained compliance with environmental regulations.
Thus far, 280 facilities have committed to reducing emissions of volatile organic compounds by 98,000 pounds, lowering green house gas emissions by 26 million pounds, and reducing solid waste by 225 million pounds.  Member facilities represent small and large companies from the manufacturing, chemical, dry cleaning and automotive industries, among others.
	EPA recently proposed to simplify reporting requirements for Maximum Available Control Technology program for Performance Track members. In addition, the agency said that Performance Track members would be allowed to store hazardous waste on site for an additional 90 days if the facilities use secondary containment in the storage areas. 
	EPA also executed memorandums of agreement with Colorado, Virginia and Massachusetts. Those states have developed programs similar to the Performance Track program and the MOAs will make it easier for members of each program to benefit from both programs.

ENVIRONMENTAL INSURANCE

  Zurich Announces Insurance Policy for Institutional Controls
With the proliferation of brownfield and voluntary cleanup programs (“VCPs”) that allow risk-based cleanups, institutional and engineering controls are playing an increasingly important role in the selection of site remedies. 
Institutional controls are legal controls that create barriers which prevent the public from being exposed to unhealthy concentrations of contaminants. They are often used in conjunction with engineering controls which are constructed barriers such as impermeable caps dikes, trenches, leachate collection systems, treatment systems, and groundwater containment systems that physically separate people and environmental receptors from contact with contaminants. Because cleanups relying partially or wholly on institutional controls may not require groundwater treatment or may allow higher levels of residual soil contamination, cleanups using institutional controls may be initially more cost-effective and be completed much faster than the traditional site cleanups.
The use of institutional controls in for site remediation is not a new development. What is significant is the extent that institutional controls are being used to achieve cleanup goals. In the 12 years following passage of the CERCLA, only 14% of the CERCLA cleanups used institutional controls.  However, since the mid-1990s, 60 percent of all remedies approved by EPA have included institutional controls as part of the remedy. 32 states now use institutional controls in their site remediation programs.
However, the use of institutional controls is fraught with risk (after all, Love Canal was essentially a failed institutional control). Creating institutional controls is a complex process where human error in the design or construction of an engineering control or an ineffective legal restriction can expose the public to environmental risk.
Even if the institutional controls are properly designed and implemented, there is also concern over the long-term effectiveness of institutional controls. Unlike permanent remedies, land use controls need to be monitored to ensure their effectiveness. Environmental agencies perform detailed risk assessments for developing remedial actions but there is virtually no post-construction analysis to determine if an institutional or engineering control is effectively preventing the affected community from exposure. If an impermeable cap placed over a commercial site contaminated with heavy metals is allowed to deteriorate, workers and visitors to the site could become exposed to contaminated dust. Likewise, if utility lines have to be repaired and the excavation activities damage a vapor extraction system, occupants could be exposed to unhealthy levels of volatile organic compounds (“VOCs”).
There are also problems with enforcement of institutional controls. Parties to real estate transactions as well as state environmental authorities often assume that the local government will enforce the restrictions. However, most local governments lack the experience, resources and inclination to verify compliance. Likewise, applications for building permits or subdivision plats generally only require evidence of ownership and do not review underlying deeds to see if the proposed uses violates any existing deed restrictions. Moreover, usually county governments and not the local town officials are responsible for recording deeds and other land use restrictions. Thus, the local government authorities may not even be aware of the existence of the institutional controls.
The passage of time can also impact the effectiveness of zoning as an institutional control. A property may have been used as a manufacturing facility in the earlier part of the century and then may have been converted into a shopping store. After the store goes out of business, a developer may want to build residential units on the property, or the town may want to build a school or allow a day care center to be operated. However, there might not be any institutional memory or adequate records alerting the zoning board that the site might be contaminated. As a result, the board may grant a petition to reclassify the property for residential or commercial use without taking measures to ensure that occupants are not exposed to contaminants at the site
	   Then there is the problem of financing the cost of maintaining the institutional controls. Under the National Contingency Plan (‘NCP”), institutional controls are considered long-term operation and maintenance (“O & M”). As a result, cost cap environmental insurance policies do not cover the cost to monitor or repair failed institutional controls. Moreover, parties rarely accurately assess the costs of maintaining the institutional controls. Because of the long period of time that the controls must stay in effect, the costs can be significant. Indeed, a 1995 Government Accounting Office report estimated that O & M could costs as much as $32 billion over the next four decades. 
In response, Zurich recently announced a Post Remediation Care Financial Assurance and Insurance policy that offer the following types coverage. The policy will not be an off-the-shelf form but will be manuscripted for each transaction.  
Coverage A will insure against cost overruns in the design and initial implementation of institutional controls for an Insured Project including engineering, legal and related costs. This coverage will be available to a project owner, site responsible parties, or contractors who had made fixed price proposals to design and install the institutional controls.
	Coverage B will insure against errors or omissions by professionals who design or establish institutional controls. The coverage will pay damages for bodily injury and property damage, and cleanup costs resulting from an error or omission in the design or establishment of institutional controls. This coverage will be available to a project owner, site responsible parties, or contractors who had made fixed price proposals to design and install the institutional controls.
	Coverage C will insure against the failure of properly designed and established institutional controls as well as changes in standards or site conditions so that properly designed and established controls are no longer protective of public health and the environment.  Under such circumstances, the coverage will pay both damages for bodily injury and property damage, and cleanup costs arising from the failure of the institutional controls, including the costs of developing and installing new environmentally protective controls or site remediation. The coverage is limited to failure of controls for known contamination. This coverage will be available to a project owner, site responsible parties, or contractors who had made fixed price proposals to design and install the institutional controls.
	Coverage D will pay damages for bodily injury and property damage, and cleanup costs related to errors or omissions by persons responsible for maintenance or enforcement of institutional controls.  For example, if local zoning officials permit construction that should not have been permitted under an established institutional control so that contaminates are exposed requiring cleanup.  However, the policy will not apply if a responsible party failed to maintain required fencing or restrictions on groundwater access, and bodily injury resulted from this failure. The coverage is available to municipal governments, project owners, or site responsible parties might purchase this type of coverage.
	The coverages will be subject to the same types of limitations and exclusions commonly found in environmental insurance stop loss and liability policies. A detailed scope of work endorsement will be required that describes in detail the process for designing and installing institutional controls.  The policy will not cover business interruption costs or other forms of economic damages that result from errors or omissions with respect to, or failure of, institutional controls.
CMBS Buyers Requiring Mold Insurance for Residential Properties
In our last issue, we discussed that some insurers were adding mold exclusions to the secured creditor policies This has caused problems for conduit lenders who issue Commercial Mortgage Backed Securities (“CMBS”) because one of the purchasers of “B” priced of CMBS has indicated that it will not accept a mold exclusion for residential and nursing home type loans even where due diligence shows there is no problem.
	To accommodate the needs of the market, some insurers are willing to provide coverage for mold for loans below $3.5 million. To qualify for this coverage, the borrower has to satisfactorily complete an Indoor Air Quality Questionnaire which contains questions about building construction, whether the building owner has an indoor air management plan and if there are any incidents of water damage or leaks. 
	For example, the building owner must indicate the age of building, the roof design, dates of any improvements, if the building is air-conditioned and the protocols for starting up the air conditioner system. The owner must also disclose if there is visible mold on any surface materials, if bathrooms and dryers vent to outside air and if there is a pool in the building. In addition, the questionnaire requests owners to indicate if they have a mold response plan and attach copies of such plans, if the building has been sampled for mold and if the building maintenance program refers to mold. 

AIR POLLUTION DEVELOPMENTS

California Legislature Approves Greenhouse Gas (“GHG”) Legislation
During the past few years, we have discussed how individual states are taking actions to reduce GHG emissions (see June 2000 issue). The California legislation recently took one of the most dramatic step thus far when both houses passed legislation setting strict vehicle emission controls for carbon dioxide (“CO2”). Approximately 40% of CO2 emissions in California are from motor vehicles. 
The bill (AB 1058) will require the state's Air Resources Board to adopt regulations by 2005 that would achieve "the maximum feasible reduction" in GHG emissions including carbon dioxide emitted by cars and light-duty trucks. The bill applies to vehicles whose primary use is noncommercial personal transportation and would apply to sport utility vehicles. The regulations would not take effect until Jan. 1, 2006 but the CO2 tailpipe emission limitations would apply for vehicles introduced after model year 2009. 
The legislation would have the effect of tightening fuel economy standards since this is the only practical way to reduce CO2 from motor vehicles. Thus, the legislation will have a particular impact on sport utility vehicles (SUVs). 47% of passenger vehicles sold in the state are SUVs, minivans or light trucks.
New Jersey Operated-Facilities To Purchase Green Power
New Jersey has entered into a contract with the Green Mountain Energy Company to provide green power to 196 State-operated facilities through 2003. State facilities covered under the contract will purchase Green Mountain Energy's(SM) "Enviro Blend," a Green-e certified product generated from renewable resources such as wind, water, biomass and solar generation.
The 15-month contract will account for approximately 12% of the electricity purchased by the state government and will be equivalent to the average amount of electricity purchased in a month by approximately 173,000 homes. Over the life of the contract, the state believes CO2 emissions will be reduced by 9,000 tons. 
Commentary: According to the federal Department of Energy (“DOE”), three other states have implemented green power purchase programs for government-operated facilities. The Maryland program represents 6% of the state electric load while Pennsylvania is at 5% and Tennessee at 2%. 
Several cities are also purchasing green power. In 1996, Salem, Oregon became the first U.S. city to purchase 100% of its power from renewable energy sources. The city obtains 83% of its electricity from hydropower and 17% from wind energy purchased from the Bonneville Power Administration. In 2000, Oakland and Santa Monica, California use exclusively green power for their city facilities.  In June 2001, Chicago and 48 other Illinois municipalities agreed to purchase 10% of their electricity from renewable sources. Denver, Fort Collins, and Aspen also purchase green power. EPA uses 100% green power at five facilities, Nationwide, green power accounts for 9% of its overall electricity consumption.
Utilities in eight states now offer commercial and residential users the option to purchase green power.  In Colorado, 20,000 residences use green power as well as numerous commercial facilities including IBM, Hewlett-Packard, and Patagonia Clothing.    
Commentary: Green-e is a program of the Center for Resource Solutions, a non-profit organization based in San Francisco, CA. To receive Green-e certification, an energy product must come from at least 50% eligible renewable resources. The Illinois green power standard is more stringent than the Green-e program since  at least two-thirds of the energy must come from renewable sources such as wind and solar power and must also create air quality benefits for the state. 
Power Companies Use Sequestration to Achieve CO2 Emission Reductions 
 Under section 1605(b) of the Energy Policy Act of 1992, DOE’s Energy Information Administration  manages a Voluntary Reporting of Greenhouse Gases Program. Under the 1605(b) program, organizations can report activities that sequester or reduce GHG emissions. The companies hope to use those reductions or credits for any future carbon cap program that may be implemented.
For example, a group of energy companies including Dynegy Inc., American Electric Power, ChevronTexaco have been working with Future Forests to implement a reforestation program in the lower Mississippi valley which stretches from Illinois to Louisiana. During the past three years, the reforestation plan has restored 55,000 acres of bottomland hardwood habitat. Recently, the 15 millionth tree was planted under the program. 
Commentary: The lower Mississippi valley has lost 80% percent of its original 22 million acres of bottomland hardwood ecosystems to agricultural development during the past 50 years. Because much of the valley's remaining forested area is fragmented rather than in large blocks, many bird and wildlife species have either disappeared from the region or experienced declines. For the same reasons, reforesting native tree species will not likely stabilize or help restore the Louisiana black bear and Florida panther populations. 
EU CO2 Increase From 1999
The European Environment Agency ("EEA") announced that aggregate GHG emissions from its 15 nation were 3.5% below 1990 emissions but slightly higher than 1999. Under the Kyoto Protocol, the European Union (“EU”) must reduce its GHG output by 8% below 1990 by 2012. 
The increase in GHG emissions was partly due to a 1.2% increase in emissions from England which increased the amount of energy generated by coal-fired power plants. Nine other EU states are still far from reaching their individual targets, led by Spain which had GHG emissions up 33.7% over 1990 levels. Germany had the deepest reduction in GHG emissions, cutting its emissions by 19.1%.  Germany has been able to achieve substantial GHG emission reductions by closing “dirty” plants in the former East Germany. 
The EU members negotiated a burden-sharing agreement to meet their Kyoto Protocol limits. Under this arrangemen, less developed EU members may increase GHG emissions while the more industrialized must achieve deeper emissions cuts. Thus, Luxemborg must reduce reduce GHG emissions by 28%, Germany by 21%, Belgium by 7.5%, and Italy and Netherlands by 6%. In contrast, Ireland may increase emissions by 13%, Spain by 15%, Greece by 25% ad Portugal by 27%. Sweden was allowed to increase its emissions by 4% because it is phasing out its nuclear power plants. Denmark has challenged its goal of reducing emissions by 21% because it had because it imported a unusual amount of energy from Norway in 1990 that artificially depressed its GHG emissions.
Meanwhile, England launched the world’s first national GHG trading program in April. The voluntary program provides financial incentives to companies who agree to reduce GHG emissions by 2006. The participants will establish targets for reducing GHG emissions and receive cash payments for each ton of GHG emission that is cut. The clearing price for a ton of GHG was set at $76 per metric ton. Thus far, 36 companies have agreed to participate in the program which is administered by the Carbon Trust.    
Commentary: A DOE report has predicted that CO2 emissions from developing countries will increase by 40% during the next 20 years. The study also said that in 1990, industrialized countries accounted for 55% of CO2 emissions, with the United States having 35% of CO2 emissions. Between 1990 and 2000, U.S. emissions rose by at least 14%.
2002 SO2 Auction Results 
EPA and the Chicago Board of Trade (CBOT”) recently conducted the tenth annual acid rain auction.  The auction covered allowances for the 2002 spot market and the 2009 advance market. The price for 2002 allowances ranged from $150-$215 with an average price of $167.74 per allowance. The clearance price for the 2002 allowances which is the lowest successful bid price was $160.50. The price for 2009 allowances ranged from $60-$120 with an average price of $81.87. The clearance price for 2009 allowances was  $68.00 
	The auction results continued a recent trend of increasing disparity between the prices for the spot market and advance market. Between 1995-1998, the differential was only 5% but increased to 45% from 2000-2002. This year, the discount increased to 51%. Traders believe the disparity is because the costs of controlling SO2 is falling. Current estimates indicate compliance costs 75% below those originally predicted by EPA. Others suggest the pricing reflects the belief of energy generators that SO2 enforcement may slacken in the future.        
Commentary: The CAA’s Acid Rain Program established an annual national cap on SO2 emissions.  Each year, EPA issues allowances to existing sources to match that cap.  An allowance gives affected sources (mainly existing electric power plants) the right to emit one ton of SO2 per year.  A plant's total annual emissions cannot exceed its allowances.  Allowances are transferable, allowing market forces to determine their price. If a source reduces its SO2 emissions more than required, it can sell the excess allowances or bank the allowances for future use.  However, the Clean Air Act mandates that a limited number of those allowances are withheld and auctioned.  The auctions help ensure that new electric generating plants have a source of allowances beyond those allocated initially to existing units.  Proceeds from the auctions are returned to sources in proportion to the allowances withheld.  In addition to allowances offered by EPA, private parties may offer allowances for sale in the auction. Allowance auctions are held for the current year and seven years in advance to help provide stability in planning for capital investment.  According to EPA, SO2 emissions are 5 million tons below 1990 levels and acid deposition in the eastern United States has declined by as much as 30%.
District Court Invalidates NY Ban on Out-of-State SO2 Trades
A federal district court ruled in Clean Air Markets v. Pataki, that New York’s Air Pollution Mitigation Law was unenforceable because it violated both the Supremacy and Commerce clauses of the U.S. Constitution. As a result, New York companies will be able to sell their SO2 allowances on the open market without restriction. The case, , evolved from an effort by New York to control the acid rain that pollutes the Catskills, the Hudson Highlands, the Rensselaer Plateau and parts of Long Island, and which is particularly destructive to the Adirondack wilderness. Acid rain results largely from emissions of sulfur dioxide and nitrogen oxides that are the byproducts of fossil fuels. While New York companies emit substantial quantities of the pollutants, the problem is exacerbated by the fact that emissions from out-of-state utilities are wind-blown into New York State. 
The case began in 1991 when Governor Pataki issued an executive order requiring New York electric generators to collectively reduce their sulfur dioxide emissions to half what is allowed under the CAA Acid Rain Program. New York firms instantly had more allowances available for transfer under SO2 cap and trade program. Concerned that that emissions from utilities located in Midwest and the South are significant contributors to acid rain in the state, the New York legislature passed a bill that would penalize New York utilities who sell SO2 allowances to coal-burning plants located in 14 states. The states covered by the law include Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and Wisconsin.
The state could not declare an outright ban on the sale of those credits to upwind polluters since this would clearly violate the federal Acid Rain Program. Instead, the law provided that sales and trades of SO2 allowances would have to be reported to the state Public Service Commission (“PSC”). If the sale or trade was made to a utility located in one of the prohibited states, the PSC would levy a fine known as an “air pollution mitigation offset” equal to the 100% of the proceeds of the transaction. The funds would then be placed into an “air pollution mitigation fund” to managed by the State Energy Research and Development Authority. Pollution sources within the state that imposed a restrictive covenant on the trading or sale of their own allowances to states upwind of sensitive resource areas in New York will be exempt from the air pollution mitigation offsets. Contracts for the sale of SO2 allowances that were entered into prior to the effective date of the law will not be subject to the penalty offset and the law will not apply to the transfer of allowances between facilities located in New York or the transfer of allowances within one company in state.
Commentary: Many New York power plants have accumulated excess or surplus SO2 allowances because of emission reductions that were mandated by an earlier state law. To date, New York power plants have sold 700,000 SO2 allowances to out-of-state sources since the Acid Rain Cap and Trade program went into effect in 1995. The authors of the legislation hoped that the law would create incentives for New York utilities who have excess allowance credits to make "green" trades on the market that will not contribute to acid rain deposition in New York. The mechanism for accomplishing this goal was imposing a restrictive covenant on the allowance much in the same way that use restrictions may be placed on real estate. 
Despite the concerns expressed by the New York legislature, a recent GAO report suggests that upwind trades by New York power plants are not significant and do not substantially contribute to acid rain problems in the state. According to the GAO report, 81% of allowances used to offset SO2 emissions in the 25 states that participated in the federal Acid Rain program have come from other sources within states where the emitting source was located. The data shows that there was only 3% flow of net allowances between the regions meaning that there was extremely low shifting of total emissions from one part of the country to the other. The largest change in flow of allowances was from the MidAtlantic to the Midwest states largely because of allowance transfers from Tennessee and West Virginia to Illinois and Indiana. 
The GAO data also indicates that there has been a 17% reduction in SO2 emissions since 1995 and a 25% reduction in acid rain deposition in the eastern states. The Phase I program applied to the 263 units located at 110 utility plants located in 21 eastern and midwestern states. An additional 182 units joined Phase I of the program as substitution or compensating units, bringing the total of Phase I affected units to 445. The Phase I program capped SO2 emissions at 5.7 million tons per year but the average emissions for the affected plants was only 4.6 million tons per year of SO2.  During Phase I, the cost of SO2 allowances averaged $150 per ton which is significantly below the $250-$700 range that had been predicted when the program went into effect. A report by Resources for the Future estimated that by 2005, the cost savings from using emissions trading in lieu of traditional pollution controls might amount to 37 percent.  
Of the 30.2 million allowances that had been allocated to utilities nationwide, nearly 8.7 million or 29% were not used. This data suggests that utilities have been banking those allowances to be used or sold to other plants that become subject to Phase II of the Acid Rain program which began earlier this year.  The banking of allowances may be a principal reason for the “over-compliance” achieved during Phase I. As more plants need to use the surplus allowances during Phase II, the price of the allowances may increase while the environmental benefits decrease. The number of regulated combustion units subject to the Phase II will increase to over 2,000. In addition, by 2010 the allowable SO2 emissions under Phase II will be capped at 8.5 million tons which will represent a 50 percent reduction from 1980 levels. 
OTC Releases Study on NOx Budget Program
The Ozone Transport Commission (“OTC”) released a report showing NOx emissions in nine participating states and Washington, D.C. were 12% below allowable  emission levels for 2001 and 60% below 1990 levels. The NOx Budget Program is a "cap and trade" emission reduction mechanism similar to acid rain program used since 1995 to control sulfur dioxide emissions from power plants.
EPA Asbestos Enforcement Actions
Two principals of the Atlas Knitting Mills Inc. of Brooklyn, N.Y., were indicted for allegedly ordering workers to remove asbestos-containing materials (“ACM”) without complying with the asbestos notification and work practice rules. The ACM was removed from a building in Brooklyn that the defendants intended to lease.  If convicted, the defendants each face up to five years in prison and/or a fine of up to $250,000 on each count of the indictment. 
Fred N. Durante, Jr. General Contractor Inc. of Stamford, Conn. and its general manager were each indicted for illegally removing of ACM during the demolition of an old clubhouse at the Darien, Connecticut country club.  The building contained 15,000 square feet of friable asbestos ceiling plaster but after properly arranging to remove 8,000 feet of the asbestos-containing plaster, the defendants declared that there was no more ACM in the building.  The building was then allegedly demolished without following the federal asbestos workplace standards.  If convicted on all counts, the general manager faces a maximum sentence of up to 15 years in prison and a fine of up to $750,000.  The company faces a  maximum fine of up to $1.5 million. 
Finally, Plymouth Environmental Co. of Norristown, Pa. agreed to pay a $13,200 penalty for allegedly failing to provide proper advance notice of two asbestos abatement projects. According to EPA, Plymouth notified EPA that it would be removing 300 feet of asbestos pipe insulation at a Ursinus College power plant from May 21-25, 2001. However, when EPA's inspector visited the site on May 22, 2001, he learned that the work had been completed on Sunday, May 20. Similarly, Plymouth notified EPA that it would remove 700 feet of asbestos-containing floor tile and 300 feet of asbestos insulation at an office building from October 16-19, 2001. When the inspector arrived on October 16th, he discovered that this work commenced on October 15, and was completed about two hours before he arrived on October 16.
Commentary: The last enforcement action demonstrates how strictly EPA enforces the ten-day asbestos notification rule. The primary mechanism EPA uses to ensure that asbestos is being handled properly is on-site inspections which are usually conducted on the last day of the project.  
EPA CFC Enforcement Actions
Three Pompano, Florida individuals pleaded guilty to illegally importing approximately 300 cylinders of the ozone-depleting chlorofluorocarbon (“CFC”) refrigerant R-12 into the United States. The CFC-12 was smuggled into the United States from the Bahamas in pleasure boats and then sold to south Florida businesses.  R-12 was commonly used in air conditioners in cars manufactured before 1994.  One individual will serve six months in home confinement, three years probation and forfeit a 33-foot pleasure boat. Another individual will serve three years probation and pay a $2,000 fine.  The third individual who was the principal in the CFC smuggling scheme is awaiting sentencing. He faces a maximum sentence of up to five years in prison and/or a fine of up to $250,000. 
In another CFC smuggling, an individual pleaded guilty to conspiracy with at least three other individuals to illegally import 63,600 tons of CFC-12 into the U.S. from Canada in 1996. When sentenced, the defendant faces a maximum sentence of up to five years in prison and/or a fine of up to $250,000.
	Three Boston individuals pleaded guilty to illegally importing 660 tons of CFCs from 1994-1998. They pleaded guilty to making false statements to EPA and the Customs Service, and defrauding the IRS. Under the terms of the plea agreement, one individual will serve between 78 and 97 months in prison while the two other men will agreed to prision terms of between 70-87 months. The individuals also forfeited a $2 million mansion, a three-carat diamond ring and two luxury cars.  

WATER POLLUTION/ENDANGERED SPECIES

Corps Adopts EPA Definition of Fill Material
Section 404 of the Clean Water Act provides jurisdiction to the EPA and the Army Corps of Engineers (“Corps”) to regulate the discharge of dredged or fill material into “navigable waters” which has been interpreted to include wetlands. Both agencies have promulgated their own regulations to implement the wetlands program. Since 1977, the agencies have had different definitions of what constitutes “fill material.”
The Corps used the “primary purpose test” for determining when a substance is to be regulated as “fill material”. The Corps defined "fill material'' as any material used for the primary purpose of replacing an aquatic area with dry land or of changing the bottom elevation of a water body, and specifically excluded from that definition any material discharged into the water primarily to dispose of waste. 
In contrast, the EPA regulations examined the effect of the material. The EPA definition of “fill material'' provides that fill material will include any pollutant which replaces a portion of the waters of the U.S. with dry land or which changes the bottom elevation of such waters, regardless of the purpose of the discharge.
Following a decision by the Ninth Circuit Court of Appeals in Resource Investments Incorporated v. U.S. Army Corps of Engineers, 151 F.3d 1162 (9th Cir. 1998) where the court reversed a district court ruling upholding a denial of a permit to locate a landfill in a wetlands (see the discussion in our May/June 2000 issue), the agencies proposed to adopt a uniform definition of fill material (65 FR 21291 April 20, 2000). The final rule adopts EPA's definition of "fill material (67 FR 31129, May 9, 2002). 
Examples of ``fill material'' identified in the final rule include rock, sand, soil, clay, plastics, construction, 
debris, wood chips, overburden from mining or other excavation activities, and materials used to create any structure or infrastructure in waters of the U.S. Trash and garbage are specifically excluded from the definition of fill material so that a permit may not be issued to approve disposal of these materials. In addition, the definition of “discharge of fill materials” has been amended to included the placement of fill material for construction or maintenance of any liner, berm, or other infrastructure associated with solid waste landfills as well as placement of overburden, slurry, or tailings or similar mining-related materials. 
District Court Decisions Conflict Decisions After SWANCC 
In our January 2001 issue, we reported on the United States Supreme Court ruling in Solid Waste Agency of Northern Cook County v. United States Army Corps of Engineers (“SWANCC”) that the Corps did not have jurisdiction over isolated wetlands because they were not navigable waters. Since SWANCC, the federal courts have issued conflicting decisions on what constitutes jurisdictional wetlands under the CWA. 
In United States v. Newdunn, Civ. No. 01-508 (E.D. Va. April 3, 2002), a federal district judge ruled that Corps had not carried its burden of proving a sufficient connection between the wetlands and navigable waters. In that case, a consulting firm retained by the defendant performed a wetland delineation and determined that most of the property contained non-tidal forested wetlands. After the Corps then issued a formal jurisdictional determination that the Property contained jurisdictional wetlands, the defendant began draining and filling the wetlands. The Corps then issued a cease and desist order but the defendant ignored the order believing that the Corps lacked jurisdiction over the Property following SWANCC. The government then filed a complaint seeking an order requiring the defendant to restore the wetlands. 
Surface water from the property drained for several miles through a network of manmade drainage ditched including a culvert that ran under I-64 before finally reaching a non-navigable creek which eventually flowed into a navigable water. The Corps argued that the drainage ditches and culvert all qualified as tributaries to waters of the United States. 
The court found that the wetlands on the Property were not adjacent to navigable waters by any reasonable definition of adjacency. The court then held because SWANCC excluded wetlands and tributaries that are not contiguous or adjacent to navigable waters from the scope of the CWA, the property was not subject to the Corp’s jurisdiction. 
The same judge issued an oral ruling in U.S. v. RGM Corp., Civ. No. 01-719 (E.D. Va. 05/07/02) that the Corps did not have jurisdiction wetlands whose only connection to navigable waters was via ditches. In this case, the court had denied a motion for a preliminary injunction last October that sought to halt unauthorized dredging and fill activity in wetlands on a 658-acre golf course community located in Chesapeake Virginia. The site lies about five miles from the Intracoastal Waterway. The defendant argued that the wetlands only appeared for short periods of time and were isolated, non-adjacent wetlands. The judge ruled that the Congress did not intend the CWA to apply to wetlands that are only connected to navigable waters by miles of man-made ditches that were occasionally wet. Otherwise, the court said, almost any ditch in America could be construed as a public waterway under federal jurisdiction.
The Northern District of Illinois reached an oppposite conclusion in U.S. v. Lamplight Equestrian Center, Civ. No. 00-C-6486 (N.D. Ill. March 8, 2002). In that case, the defendant also hired an environmental consultant who concluded the property contained 8.3 acres of wetlands and that the wetlands were identified on the National Wetland Inventory Map. 
Several years later, the defendant began filling wetlands on the property to construct a path for its horses. The Corps issued a restoration order and after the defendant failed to comply, the Corps filed its action seeking an order from the court requiring the defendant to restore the wetlands.
The property had been historically used as a farm and a prior owner had installed underground clay tiles to drain the property. At some point before the defendant acquired the Property, one of the underlying drainage tiles was cut but instead of repairing the tile, the farmer excavated a drainage ditch to carry water away from the southern wetlands area. The Corps asserted that the ditch carried water away from the property and into a delta area which flowed to a non-navigable creek that drained into a navigable water which was a tributary of an interstate waterway. 
Relying on the Ninth Circuit decision in Headwaters, Inc. v. Talent Irrigation Dist., 243 F. 3d 526 (9th Cir. 2001), the court found that man-made irrigation canals were could be considered when they exchanged water with, and were therefore tributaries to, natural streams. The court also noted that cases decided before and after SWANCC have found that a tributary need not have a direct connection to the navigable water but may be linked through other connections two or three times removed from the navigable water to be subject to the Corps' jurisdiction.  Since water from the wetlands flowed into a delta that flowed into a tributary of the navigable water, the court held there was a "significant nexus" between the wetlands and the navigable water. 
Study Finds New Jersey Mitigation Program Fails to Stem Loss of Wetlands  
According to a report issued by the New Jersey Department of Environmental Protection (“DEP”), the state has suffered a 22% net loss of wetland acreage since the implementation of its freshwater wetlands program and less than 50% of the wetland acreage created under its mitigation program was functioning as a viable wetlands system. The study did not evaluate other mitigation measures such as wetland restoration or enhancement 
This study also shows that certain types of wetlands were more difficult to create. For example, constructed forested wetlands were less successful than the creation of emergent wetlands. The study also found that three times the amount of open water areas was created than intended even though these areas do not replace the functions of the lost wetlands. 
To improve the effectiveness of the wetland’s program, DEP will make the following changes to its program:
•	Require all projects be certified by a consulting biologist at the time of project completion. While most permits now require use of a consulting biologist, biologists generally provide their certification at the design stage and not when project is completed; 
•	Require third party certification that permit conditions have been satisfied for larger projects; 
•	Strengthen bonding requirements for permits that require mitigation to ensure funds are available to successfully the  project. 
•	Devoting more enforcement resources to the wetlands program; 
•	Promote aggregation of small mitigation projects to a single large site or to a mitigation bank to ensure more effective oversight; and
•	Require on-site meetings between DEP and construction designers prior to implementation of the mitigation project. 
Commentary: New Jersey lost 1,755 acres of wetlands per year between 1986 and 1995 and lost 20% of its wetlands between the 1950s and the 1970s.

HAZARDOUS WASTES/USTS

 UST Owner Not Eligible for UST Fund Reimbursement
Court of Appeals for the Fourth Circuit recently ruled that a underground storage tank (“UST”) owner could not seek payments from a state UST fund for the costs of providing alternative drinking water supplies to homeowners whose wells were contaminated by leaking USTs. 
In North Carolina v. Acme Petroleum and Fuel Co., No. 01-2665 (March 19, 2002), benzene was detected in a number of residential wells above the federal drinking water standard. In one well, the benzene levels were 3,464 parts per billion (ppb). The contamination was traced to convenience store. The defendant owned the USTs but did not operate the store. The state Department of Environmental Resources (“DENR”) provided alternate water supplies to the affected homeowners at a cost of $ 137,573.78 and sought reimbursement from the defendant. However, the defendant refused to pay, arguing that the DENR should seek reimbursement directly from the state UST Fund which will pay for "cleanup of environmental damage" costs above a deductible of $ 20,000 or $ 50,000 as well as to compensate third parties for bodily injury and property damage above a $ 100,000 deductible. 
The defendant asserted that the alternate water costs were cleanup costs and that it had satisfied its deductible for environmental damages. However, court ruled that alternate water supply costs should be classified as compensation to third parties for property damage. Because the defendant had not satisfied the $100,000 deductible for this category of costs, the district court concluded that it could not order direct payment from the UST Fund, and granted summary judgment to the state. 
On appeal, the defendant argued that since no third party had brought a claim for property damage and private parties do not "own" groundwater in North Carolina, groundwater cannot constitute property damage. Therefore, the lower deductible should apply. However, the Fourth Circuit noted that the DENR conducted the testing and provided alternate water to several households the homeowners complaining their water smelled like gasoline. The court said it was not necessary for third parties to file claims to trigger a state's response. Moreover, the court observed that providing bottled water and point-of-entry water filters to individual households does not reduce contamination to the soil or groundwater or otherwise clean up the environment. Instead, the court said that the alternate water was an attempt to compensate the third parties harmed by the contamination. Accordingly, the court concluded the district court properly ruled that North Carolina law categorizes alternate water supplies as compensation to third parties. Because Acme had not satisfied its deductible, it was not entitled to indemnity from the UST Fund. 
Commentary: In this case, the convenience store could also be responsible as an operator of the USTs. Leases often fail to indicate who is the owner of USTs at a site and landlords will usually argue that the tenant is responsible for the cleanup as an owner/operator of the USTs. Leases often allow tenants to construct or install equipment that is necessary for the operation of the tenant’s business including USTs. Many of the older leases simply provide that such equipment and fixtures are the personal property of the tenants and that the tenant has the right to remove such personal property at the termination of the lease. However, these leases often do not address what happens if a tenant leaves fixtures such as USTs in the ground. Further complicating the situation is that the leases are often assigned or sublet to successive operators who use the USTs but ownership of the USTs are rarely addressed in the consents issued by the landlord. Then, after the last tenant vacates the premises, a dispute arises over who is responsible for removing the USTs and remediating the contamination associated with the USTs. 
Former tenants have argued that they abandoned the USTs which then became fixtures for which the owners were responsible. Cutting against this argument is the statutory definition of a UST owner in RCRA and many state UST laws. The federal definition provides that tanks the owner of tank that was no longer in use as of November 8, 1984 is the person who owned the tank immediately before the discontinuation of its use.
Moreover, the weight of authority seems to be that there is a rebuttable presumption that USTs which have been installed by a tenant for the purpose of carrying on a business are trade fixtures. Unlike fixtures, trade fixtures do not become part of the realty but instead remain the personal property of the tenant. Courts will often look to the intent of the parties in determining ownership of the USTs     
EPA Announces MTBE Grant for Rhode Island
EPA awarded a $1 million grant to the Rhode Island Department of Environmental Management (“DEM”) to address contaminated groundwater in Burrillville, R.I. The village’s water supply has been contaminated with methyl tertiary-butyl ether (“MTBE”) and other gasoline constituents. The DEM has already spent $1.1 million to provide bottled water to more than 4,000 affected residents, install an interim filter system at the wells and to start a cleanup at an abandoned gasoline station that is the source of the contamination. $550,000 of this funding came from the federal Leaking Underground Storage Tank (“LUST”) fund. DEM will use the additional funding to remove the source of the contamination and construct a groundwater treatment system.
Commentary: EPA usually does not use the LUST fund to finance state cleanups of UST sites. However, because petroleum is excluded from the CERCLA definition of hazardous substances, EPA has not been able to use brownfield grants to fund cleanups at petroleum-contained sites. The Small Business Liability Relief and Brownfield Revitalization Act will address this problem since it expressly authorizes $50 million for cleanup of petroleum-contaminated brownfield sites.      

TOXIC SUBSTANCES

New York City Dry Cleaner Reaches Settlement with EPA
In our August 2000 issue we reported that EPA had brought an enforcement action against a Long Island dry cleaner. The dry cleaner and its owner recently agreed to pay a $10,800 penalty, and implement a Supplemental Environmental Project (“SEP”) that will cost the company approximately $60,000 over three years. 
Under this innovative agreement, the dry cleaner will install a new alternate solvent dry cleaning machine that uses a hydrocarbon solvent which is less toxic than perc. The machine will be installed after approval by the New York City Fire Department (“FDNY”). The alternate solvent dry cleaning equipment must be installed within a year of its approval by the FDNY and the dry cleaner must operate it for at least three years.  In addition, the company also agreed to publicize its use of the alternate solvent machine and to provide information about the technology when requested. 
Until the machine is installed, the company will provide EPA with monthly status reports.  After installation, the company will provide a six-month operation report, followed by two annual reports.  EPA has the right at any time to visit the Long Island City facility to ensure that the machine is being properly operated.  
Owner Sentenced to 15 months for Failing to Comply With the LBP Disclosure Rules
In our last issue, we reported on the first indictment issued to a property owner for failing to comply with the lead-based paint (‘LBP”) notification rule. In that case, the defendants failed to warn the mother of a two year-old about lead hazards and the child subsequently died of lead intoxication. The landlord has now been sentenced to 15 months imprisonment.  Earlier, he and his real estate management company paid a $40,000 fine.   
 EPA and HUD Bring LBP Enforcement Actions Against Chicago Property Owners
The federal government filed civil complaints against four Chicago-area apartment building owners for failing to warn their tenants that their homes may contain lead-based paint hazards. The complaints seek an aggregate penalty of nearly $400,000 for 373 violations in 75 apartment units. 
All of the properties are managed by Hyde Park Realty Company Inc. The government is seeking $56,980 from Harpoon Partnership for 45 violations in nine apartment units, $102,410 from Meljenko Protega for 92 violations in 19 apartment units, $154,440 from Josip Tudor for 106 violations in 21 apartment units and $83,380 Henry Maglio for 130 violations in 26 apartment units. 
LBP Complaint Allowed to Proceed Against Philadelphia Housing Authority 
A federal district court will allow a lawsuit to proceed against the Philadelphia Housing Authority for allowing a private landlord to provide subsidized housing with deteriorated LBP. 
In Paige v. Philadelphia Housing Authority, the plaintiff qualified for section 8 Housing Assistance Payments program which provides "decent, safe and sanitary” housing for low-income families. Under the Section 8 program, local housing authorities enter into annual contribution contracts with HUD. The housing authority uses the funds as a rent subsidy that is paid to private landlords of housing that meets the HUD housing quality standards.
In 1996, the plaintiff moved into a rental unit in 1996 that contained deteriorating LBP.  As a result of the exposure to LBP, the plaintiff’s children were diagnosed with elevated blood lead levels (“EBL”). The plaintiff asserted that section 8 regulations required HUD to conduct a lead inspection of chewable paint surfaces before certifying the housing. The Plaintiff also claimed that the landlord would not agree to provide her with the section 8 rent subsidy because the PHA passed the charge for the LBP testing onto the landlord. Being unable to pay for the testing herself, the plaintiff alleged her Section 8 certificate expired for lack of use and she was decertified from the program. Since she could not pay the unsubsidized rent, she was evicted from her Section 8 unit, became homeless and was forced to reside in a shelter. 
The plaintiff filed suit in September 2000 alleging that the PHA failed to comply with federal LBP regulations by passing the costs of LBP tests to property owners and that the lead poisoning of her children deprived her of “decent, safe and sanitary” housing. She sought injunctive relief requiring PHA to enforce the federal LBP regulations, a fund for medical monitoring, and reimbursement unsubsidized rent payments.
Prior to September 2000, 24 C.F.R. § 982.401(j)(4) provided that a housing authority must test for LBP when notified that a child under the age of six with EBL occupies Section 8 units constructed prior to 1978. Shortly after Paige commenced her lawsuit, HUD revised its Section 8 regulations to provide that when a housing authority is notified of a child with an EBL in a Section 8 unit, the housing authority must conduct a "risk assessment" within 15 days of the notification, which includes a visual inspection, limited wipe sampling and any other activity as may be deemed appropriate. 
The PHA filed a motion to dismiss. When ruling on a motion to dismiss, a court must accept as true all well pleaded allegations of fact, and any reasonable inferences that may be drawn from the plaintiff's complaint. In denying the defendant’s motion to dismiss, the judge found that the allegations in the complaint established that the section 8 regulations and Lead-Based Paint Poisoning Prevention Act specifically require housing units to be inspected both initially and annually for the presence of LBP and that the plaintiff established injury resulting from those violations.  
School District Fined for Improper Handling of PCBs
An Oregon school district and its Superintendent/Principal/science teacher have been fined $94,600 for improper handling and disposal of light fixtures containing PCBs.  
In January 2001, a fire occurred in a fluorescent light fixture in a classroom used for second and third grade classes. A strong odor persisted for several weeks after the fire and a teacher and some students subsequently complained of illnesses. The superintendent sent a letter to parents indicating that there were no health effects attributable to the light fixtures and that the fixture did not contain PCBs. He then hired high school students to dispose of the PCBs-laden light fixtures but did not provide them with appropriate personal protection gear.
After receiving an anonymous complaint, EPA sampled the tar-like potting compound found on the carpet in the room and found PCBs concentrations as high as 52,000 parts per million (“ppm”). Samples collected from other light fixtures had PCBs ranging from 2,800 ppm to 20,000 ppm. The sample from the light fixture in the classroom where the fire occurred had PCBs of 400 ppm. 
Commentary: Fluorescent lights contain ballasts that may contain PCBs. Ballasts manufactured before 1978 should be considered PCB fluorescent light ballasts (“PCB Ballasts”) even if they do not contain a stamp that says "NO PCBs". This is because the pre-1978 ballasts usually have a thimble-sized capacitor that may contain an ounce of nearly pure PCBs. The compacitors are usually buried in a black insulating material inside the ballast known as “potting compound”. If the capacitor leaks, the potting compound can become contaminated. If a leaking capacitor has been replaced or repaired, the contaminated potting compound should also be replaced. 
Under the EPA PCB regulations, non-leaking PCB Small Capacitors may be disposed of as municipal solid waste unless they are disposed by the manufacturer of the small capacitors or by a company that included the small capacitors in its products. 
The small capacitor exemption does not apply if a PCB Small Capacitor is leaking or if the potting compound contains PCBs at concentrations greater than or equal to 50 ppm. In such circumstances, the PCB ballast would be considered a PCB Article and the entire PCB ballast would have to be regulated as a PCB waste which may only be disposed a TSCA-approved incinerator, chemical waste landfill or by an EPA-approved alternate PCB disposal technology.   
While non-leaking PCB small capacitors are not subject to the PCB disposal requirements, some EPA regions have recommended that best management practices be used for these items. For example, EPA Region III recommends that no more than 25 intact and non-leaking PCB ballasts be disposed within a 1-year period in a facility municipal or industrial solid waste landfill. These PCB ballasts should be packed in a lined, steel drum containing an absorbent material.
Some recycling facilities have been approved an alternate disposal methods for disposing ballasts containing less than 50 ppm of PCBs. The recyclers must have EPA approval to separate the components of the PCB ballasts. In addition, the facility must receive EPA approval if the facility will store more than 500 gallons of liquid or 70 cubic feet of non-liquid PCBs.

SUPERFUND/BROWNFIELDS

EPA Announces New Round of BCRLF Grants
In what may be the final round of grants under EPA’s Brownfield Cleanup Revolving Loan Fund program, the agency recently announced it had awarded $21.5 million in grants to state and local governments under its.  The largest state grant of $2 million was awarded to Hawaii. State grants of $1 million were awarded to Alabama, Arkansas, Kansas, and New Mexico. In addition, South Carolina was awarded a $900,000 grant. Colorado and Washington each received 800,000. 
Local governments grants of $1 million each were awarded to Oakland County, Mich.; Coralville, Iowa; El Paso, Texas; Kenosha, Wis.; Milwaukee, Wis.; Madera County, Calif.; Santa Rosa, Calif.; Monroe, Mich.; Taylor, Mich.; Montgomery County, Pa.; Southern Windsor Regional Planning Commission, Vt.; Springfield, Ohio; and Worcester, Mass. 
To date, EPA has awarded 143 Brownfields Revolving Loan Fund grants totaling almost $91 million.
Commentary: EPA expects to issue draft guidance for the brownfield funding program authorized under the Small Business Liability Relief and Brownfields Revitalization Act in September. Thus, it appears that funding program will not start until fiscal year 2003.
Contaminated Soil Detected at California Public Schools
The California Department of Toxic Substances Control recently completed its first statewide sampling of soil at 752 school districts. 473 school sites passed their first inspection while 267 required further study. Of these, 12 sites required some soil remediation. 
The investigation was conducted under a state law enacted two years ago in the wake of the Belmont Learning Complex controversy. In that matter, the Los Angeles Unified School District spent $154 million to build a school on 34 acres only to have to abandon the project after discovering the site was a former oil field that was emitting methane gas and hydrogen sulfide vapors. School officials became concerned that flicking on light switches could ignite the vapors. The school district spent another $20 million in lawsuits filed against contractors and a law firm. The state law provides that school districts must have future school sites investigated before they can receive state construction bond funds.
Commentary: The contamination identified at the schools was associated with prior industrial or agricultural use. Many urban school districts need to build new schools to handle increased enrollment but often times the only suitable tracts of available land are former industrial sites. It is important for school districts to perform due diligence on land before construction begins so any hazards that may be present from historical uses can be addressed. Often times, the building design can be modified to minimize the risk such as constructing an impermeable liner in the foundation, installing a vapor recovery system to vent vapor from exhaust points on the roof and constructing a positive pressure system that will prevent fumes from migrating into a school building. 
Maine Communities Use Eminent Domain to Facilitate Reuse of Brownfield Site
Two Maine towns recently approved a plan to use their power of eminent domain to take title to 138 acres of PCB-contaminated riverbed to facilitate the sale of abandoned paper mills. 
The mills have been idle since August when American Tissue Inc. filed for bankruptcy. 580 of 690 workers were idled when the mills were shut down. Under Maine law, the state holds the river in public trust but property owners hold title to the riverbed and rights to use the water. Purchasers were reluctant to acquire the mills because of the contaminated river sediments.
The plan clears the way for Fraser Papers to purchase the facility and restart the paper mills property. The state conducted a response action to cleanup a PCB spill alongside the Androscoggin River and plans to pursue prior landowners to recover its costs. The bondholders in the bankruptcy case have agreed to provide up to $1 million to complete the cleanup. There are no plans to cleanup the riverbed at this time.
Buried Drums Discovered During Construction at Military Base
Workers excavating soil to build a new missile defense system at Fort Greely encountered a previously unknown dump containing 20 rusting World War II era drums that could hold remnants of chemical weapons. Many of the barrels were open and contained crystallized materials while others were laden with holes and were empty. Some barrel lids from the previously unknown military dump were labeled "US CWS" which was the abbreviation for the United States Chemical Warfare Service that was deactivated in 1946. 
During the1950s and 1960s, the Army conducted secret tests of weapons, including nerve gas, mustard gas and tularemia, a bacterial disease known as rabbit fever that killed every animal and bird across 100 acres during a 1965 test. In the mid-1960s, hundreds of rockets carrying poison gas sank into Greely's Blueberry Lake after the Army stored them on the frozen surface but failed to remove them during the spring. 
Commentary: This incident emphasizes the importance of comprehensive historical due diligence before purchasing a former industrial or military bases. Often times, there are no records documenting past disposal practices or any individuals who are familiar with prior environmental practices. Extensive use of aerial photography and geophysical techniques can help determine if there are any suspected disposal areas that need to be further investigated.  
Remediated Florida Superfund Site Poses Risks to Drinking Water
A superfund site cleaned up by EPA approximately ten years ago may be the impacting the primary source of drinking water in Central Florida.  The site is located about a half-mile from a 350 home subdivision near Orlando, Florida.
From 1957 to 1980, the Tower Chemical plant manufactured a variety of pesticides. After the plant was abandoned, EPA performed a $6 million cleanup. It appears that the contaminates have migrated into the groundwater through a sinkhole located 90 feet below the former chemical plant. Most of the contamination that has been detected is within 100 feet of the sinkhole. However, minute traces of unidentified pesticides have been found in drinking water wells of several nearby homes. 
Commentary: With federal and state governments increasingly relying on risk-based cleanups, it is important for purchasers, tenants and lenders to verify that a remedy at a site or adjacent to a site remains effective. During due diligence, consultants should determine if contaminated sites near a site have been issued a no further action letter and should determine if EPA has conducted a five year on superfund sites that could impact the property. 
EPA Enters into More PPAs
Despite passage of the Small Business Liability Relief and Brownfields Revitalization Act, EPA is continuing to enter into Prospective Purchaser Agreements (“PPAs”). These PPAs were already being negotiated when the legislation was enacted. 
At the Leeds Silver Reclamation Superfund Site in Utah, EPA has proposed to enter into a PPA with a developer who will be purchasing the assets of 5M that owned and operated an ore processing operation to extract copper and silver. The purchasers will acquire and satisfy all claims against the site and then foreclose to acquire clear title. The purchaser intends to use the site for open space as part of a plan to create a residential subdivision in the Silver Reef area. In exchange for a covenant not to sue and contribution protections, the purchasers will pay EPA $60,000 within six months of the effective date of the PPA. 
EPA performed a removal action at the site in 1996 that consisted of capping exposed tailings and disposing other hazardous substances at a cost of $1,362,657.54.  5M did not reimburse any portion of these removal costs. EPA filed a lien on the site in 1998 and obtained a default judgment against 5M. 
5M opposed the sale of any of its assets to satisfy its creditors so the purchase of the property will be considered an involuntary acquisition. The purchaser is required to file a notice in the local land records and the deed indicating that the site was the subject of a Fund-led removal action and advise successors-in-title not to disturb the cap. In addition to agreeing to provide access to EPA and maintaining the cap, the purchaser must also notify EPA at least 60 days before it intends to file any contribution action and must notify EPA within 10 days of being served with a claim for contribution. 
EPA has also proposed to enter into a PPA for the Gurley Pesticide Burial Superfund site. The purchaser will be acquiring the 103-acre site as part of a chapter 7 liquidation proceeding. EPA and the state of North Carolina performed a series of removal actions at the site in the early 1990s and prior owners of the site are currently performing an RI/FS. The trustee of the debtor currently holds title to site and will be selling the land to the purchaser under an “Order of Private Sale of Real Property Free and Clear of Liens”. In exchange for a covenant not to sue and contribution protection, EPA will receive 1/3 of the $200,000 purchase price. The purchaser is also required to file a notice in the local land records indicating that EPA has been investigating the site, that PRPs have entered into an administrative order on consent (“AOC”) requiring them to perform an RI/FS and that a remedy for the site may be selected in the future. In addition to agreeing to cooperate with the investigation and cleanup, the purchaser must also notify EPA at least 60 days before it intends to file any contribution action and must notify EPA within 10 days of being served with a claim for contribution.
PPA Used to Facilitate Sale of Assets of Bankrupt Company
EPA agreed to enter into a settlement with a chapter 11 trustee for the Taylor Lumber & Treating Superfund Site. The proposed settlement resolves claims set forth in the EPA’s proof of claim filed in the bankruptcy proceeding in 2001. Taylor Lumber & Treating, Inc. had entered into an AOC in 1995 where it agreed to perform corrective action under RCRA section 3008(h).  After the company filed its bankruptcy petition, EPA incurred over $6 million to perform a time critical removal action and other response actions. The bankruptcy court approved a sale of debtor’s treating business including the Taylor Lumber site to Pacific Wood Preserving of Oregon (“PWPO”) in December 2001. 
In exchange for a covenant not to sue and contribution protection, EPA receives a payment of $500,000 from the proceeds of the sale of the Taylor Lumber treating plant. EPA may also receive additional payments if the total amount of funds in the bankruptcy estate available for distribution to general unsecured creditors other than EPA is greater than $350,000.  For purposes of any such distribution, the EPA was deemed to have an allowed general unsecured claim in the amount of $6.0 million. EPA will release its liens filed levied on the Taylor Lumber site. 
As part of the settlement, PWPO entered into a separate PPA with EPA where PWPO will receive a covenant not to sue and contribution protection for existing contamination at the site. PWPO intends to conduct a business at the Property that involves the treatment of lumber products and poles with preservatives distinguishable from preservatives presently on the Site. The consideration for the PPA is the $500,000 cash payment from the sale of the Taylor Lumber site. The covenant not to sue will not take effect until EPA receives the payment. In addition, PWPO agreed to operate and maintain the groundwater extraction and disposal system at the Facility, maintain the existing asphalt cap and maintain the existing contaminated soil storage cells.  PWPO also agreed not to treat wood with solutions containing ammoniacal copper zinc arsenate, copper chromated arsenate, pentachlorophenol, creosote, or any arsenical wood-preserving compounds. The purchaser was required to file a notice in the local land records indicating that the Property is part of the Taylor Lumber & Treating Superfund Site. PWPO has estimates that the cost to perform this work for the next 20 years is approximately $1.9 million net present value.
Commentary: In the last two transactions, the purchasers acquired the “free and clear” of any liens and interests under section 363(f) of the Bankruptcy Code. Some developers of brownfield sites believe they can use this section of the  bankuptcy code to avoid liabilities associated with contaminated properties where they might not qualify for an innocent purchaser or prospective purchaser defense. However, the federal courts are divided on whether a sale of assets free and clear pursuant to section 363(f) can insulate the asset purchaser from environmental liabilities associated with those assets. Some federal district courts have held that environmental liability does not fall within the meaning of “liens and interests” or that the bankruptcy court does not have the jurisdiction to alter the CERCLA liability scheme or cutoff the rights of parties under federal environmental laws. Other courts, though, have ruled that sales pursuant to section 363(f) includes environmental liability particularly where the asset being acquired is real property. 
EPA Proposes to Waive Past Response Costs To Facilitate Cleanup of Adjacent Residential Neighborhood
EPA has proposed to enter into an AOC for the Old American Zinc (“OAZ”) Superfund Site. The 132-acre OAZ Site was formerly a smelter and is now surrounding residential, industrial and commercial properties. In 1999, EPA determined that airborne contamination in the form of heavy metals including arsenic, cadmium, lead and zinc posed an imminent and substantial threat to human health. 
EPA commenced negotiations with the respondent in September 2000 to perform a removal action which culminated in the AOC.  Under the agreement, the respondent will cleanup all contaminated soils in the residential and other at-risk areas adjacent to the OAZ Site. The respondent will also establish controls and monitor of off-site migration of air and liquid materials to prevent recontamination of these areas. In return for conducting the removal action, EPA has agreed to waive past response costs of approximately $71,847.55 as well as provide the Respondent with a covenant not to sue and contribution protection.
PRPs Absorb Cost of Bankrupt Owner of Superfund Site
PRPs who have already spent over $1.4 to remediate a RCRA facility owned by an insolvent waste recycling company have agreed to pay additional $136,457 in past costs. Because the PRPs agreed to perform a time-critical removal and have had to absorb the costs attributable to the defunct site owner, the agency has agreed to forgive the remaining  $107,468 in unreimbursed past costs. 
Between 1976 and 1997, Environmental Waste Resources, Inc. (``EWR'') accepted hazardous and nonhazardous waste in bulk and container shipments. EWR filed a Chapter 11 bankruptcy petition which was later converted into a Chapter 7 liquidation proceeding. EWR abandoned the Site, including hazardous substances, pollutants and contaminants that were stored in deteriorating drums and bulk tanks.  In addition, approximately 40 compressed gas cylinders were left in outdoor areas and numerous laboratory chemicals including concentrated acids, bases, flammables, oxidizers, poisons, and radioactive material remained in the laboratory building. 
The Illinois Environmental Protection Agency conducted a site investigation after the bankruptcy filing and then referred the Site to EPA.  EPA performed an emergency response action and provided 24-hour security at the Site. The agency then entered in an AOC with 21 PRPs to perform a time-critical removal action and to reimburse U.S. EPA for oversight costs associated with overseeing the removal. The PRPs removed over 300,000 gallons of liquid and solid waste, 928 drums, 257 containers of laboratory hazardous substances, and 48 compressed gas cylinders at a cost of $1,186,894. In addition, the AOC parties paid $163,393 in oversight costs to EPA. 
Estate Enters Into Ability to Pay Settlement
An estate of the former owner of a contaminated site in Bluefield, West Virginia entered into an ability to pay settlement with EPA.
In United States v. William R. Aliff, Representative of the Estate of Elwin Eugene Aliff, C.A. No. 1:02-0279 (S.D.W.Va.), the estate agreed to pay EPA $30,380.00 and to turn over to EPA the proceeds from the sale/transfer of the property. In addition, the estate agreed to assign and transfer 60% of a claim filed against the Federal Deposit Insurance Corporation (“FDIC”) to EPA. The FDIC had issued a Receiver’s Certificate of Proof of Claim to the Estate for funds the decedent had deposited in a bank that failed. The present value of the Estate's FDIC Claim is $440,500. 

ENVIRONMENTAL CASES INVOLVING CORPORATE AND REAL ESTATE TRANSACTIONS

 Purchaser Who Dissolved Corporation Liable As a Successor Corporation
A federal district court in Ohio ruled that a corporation that purchased the stock of a company, liquidated the stock shortly after acquisition and then operated the acquired company as a corporate division was liable under CERCLA as a successor corporation. 
In Cytec Industries Inc. v. B.F. Goodrich Corp., No. C2-00-1398 (S.D. Ohio, 4/5/02),  Marietta Dyestuffs Company ("Dyestuffs") operated a facility in Marietta, Ohio from 1926 to 1946. During this time, Dyestuffs discharged wastes into two ponds and two solid waste areas on the property. American Home Products Corporation ("AHP") acquired Dyestuffs in 1944 as a wholly owned subsidiary. In 1945 Dyestuffs changed its name to Marietta-Harmon Chemicals, Inc. ("Marietta-Harmon") which was then merged with Harmon Color Works, Inc., another AHP subsidiary that operated two manufacturing facilities in New Jersey. After the merger, the Marietta facility was operated as the "Marietta Division of Marietta-Harmon.
In 1946, Cyanamid purchased the property, assets, and business of the Marietta Division of Marietta-Harmon, but this sale did not include the purchase or acquisition of Marietta-Harmon stock, which was owned solely by AHP. After the sale, Marietta-Harmon changed its name to Harmon Color Works, Inc. ("Harmon Color"). Four years later, in 1950, Goodrich purchased 100% of the stock of Harmon Color and its two New Jersey facilities. Harmon Color operated as a wholly owned subsidiary of Goodrich until 1952 when Goodrich liquidated and cancelled all of Harmon Color's stock, and distributed its existing assets, subject to its liabilities, to Goodrich. Thereafter, the business was operated as Harmon Color Works, a division of the B.F. Goodrich Company. Goodrich dissolved Harmon Color six months later.
In 1959, Goodrich sold the assets of the Harmon Color Works division to Allied Chemical Corporation ("Allied"). Allied did not assume any liabilities relating to the Marietta facility. In 1993, Cyanamid "spun-off" its chemicals business into new independent corporate entity, Cytec. Cyanamid also transferred ownership of the Marietta facility to Cytec which expressly assumed all environmental liabilities associated with Cyanamid's ownership and operation of the facility from July 1, 1946 through December 17, 1993. 
In the mid-1990s, Cytec expended approximately $25 million to remediate the site and filed a contribution action against Goodrich. Cytec argued that when Cyanamid purchased the business of the Marietta Division of Marietta-Harmon from AHP in 1946, it did not assume any of the pre-1946 environmental liabilities of the Marietta facility because it only acquired the assets of Marietta Division of Marietta-Harmon. Cytec asserted that Harmon Color retained any liabilities arising from the Marietta facility and that Goodrich assumed those liabilities when Goodrich purchased all of the stock of Harmon Color and later liquidated that stock and acquired all of Harmon Color's assets in 1950. 
Goodrich argued that Cyanamid purchased the entire business of the Marietta Division and was liable as a successor corporation under the mere continuation theory. However, the court ruled that because the AHP-Cyanamid transaction did not result in the same shareholders owning both corporations and AHP continued to exist as a viable corporation after the transaction, Cyanamid could not be liable as a successor corporation under the mere continuation exception.
Cytec also argued that Goodrich became liable as a successor corporation when it liquidated Harmon Color's stock, acquired all of Harmon Color's assets, and thereafter continued to operate Harmon Color's business as a new division of Goodrich. Cytec pointed to language in the liquidating plan that provided that Harmon Colors would distribute, subject to its liabilities, all of its property and assets of every kind to Goodrich. However, the court said the plan simply provided that Harmon Color would first pay any outstanding debts or other liabilities out of its current assets and then distribute its remaining assets to Goodrich. The court also said the plan language was neither "specific enough to include CERCLA liability [nor] general enough to include any and all environmental liability.” Thus, the court concluded as a matter of law that the plan did not shift onto Goodrich the CERCLA liabilities of Harmon Color. 
Cytec also argued that the dissolution of Harmon Color's stock and the transfer of its assets to Goodrich amounted to a de facto merger of the two companies, thereby rendering Goodrich liable as a successor corporation. The court said that a de facto merger occurred under Ohio law when there was (1) a continuation of the previous business activity and corporate personnel, (2) continuity of shareholders, (3) the dissolution of the predecessor corporation, and (4) the assumption by the purchasing corporation of all liabilities and obligations necessary to continue the predecessor's business. Goodrich argued the asset for stock transaction did not meet the second test. However, the court concluded that Goodrich absorbed Harmon Color's assets and continued to operate Harmon Color's business in the same manner as before the transaction and that the only change was that Harmon Color was a division instead of a subsidiary of Goodrich. Thus, the court held the transaction resulted in the kind of nexus between the predecessor corporation and successor corporation that the continuity of shareholders factor requires. The court also noted that it was clear that Goodrich would have had to assume Harmon Color's obligations, such as contractual obligations, in order to continue the seamless operation of Harmon Color. 
Commentary:  Federal courts frequently use a federal common law approach when determining if a business should be liable as a successor corporation. The federal common law test is often more liberal than the traditional corporate law analysis. Though this case was decided under state corporate law principles, it illustrates the importance of investigating prior transactions involving a corporation being acquired as well as former facilities that may have been operated by the company or a predecessor. Often times, purchasers just focus on the current corporate structure and current facilities.   
Supreme Court Declines to Rule on California Passive Migration Case
In our November 2001 issue, we discussed Carson Harbor Village Ltd. V. Unocal Corp., No. 98-55056 (10/24/01) where the full court of the Ninth Circuit Court of Appeals reversed an earlier decision by a three-judge panel and ruled that passive migration or gradual migration of previously deposited contaminants through the soil does not meet the statutory definition of disposal. In April, the U.S. Supreme Court declined to review this ruling. 
Commentary: Under Section 107(a)(1) of CERCLA, current owners of property for any contamination existing on the site even if the present owner did not place the hazardous waste on the site or cause the release. However, section 107(a)(2) only imposes liability on former owners of contaminated property if the person owned the site “at the time of disposal” The federal courts have been divided over whether a person who simply owned the site while previously deposited contaminants migrated through the soil or groundwater and then sold the property could be liable as a former site owner. 
Courts holding that the term “disposal” does not refer to mere movement or migration of pre‑existing contamination require some affirmative act of disposal.  These courts have pointed to the language of CERCLA section 107(a)(2) that holds persons who were owners at the time of DISPOSAL liable for RELEASES.  Noting that the term “release” was broader than “disposal” since the latter refers to leaking or spilling, these courts maintain that if Congress had intended to impose liability on past owners for mere migration of hazardous substances, Congress would have referred to owners “at the time of release.” Former owners who did not place the hazardous substances on the site are known as passive intervening landowners. In jurisdictions adopting the passive intervening landowner defense, the liability of a current owner will be broader than a former owner since the current owner will be liable for all contamination at the site while a former owner is only liable for contamination it disposed. 
PRP Trust May Bring Contribution Action
The District Court for the Southern District of California ruled in Karras v. Teledyne Industries Inc., No. 99CV0996 (3/25/02) that trusts created by PRPs to carry out remedial actions at a Superfund site are not precluded from bringing contribution actions against other PRPs. The defendant argued that the trusts were not real parties in interest and had not incurred response costs since the PRPs had funded the trusts. Therefore, the defendant maintained the trusts did not have standing to bring a CERCLA contribution action. 
Commentary: It is common for PRPs at a site to establish a trust to fund a cleanup at the site. The settling PRPs pay the funds into the trust which then disburses funds to the contractors retained to perform the cleanup.  Usually, the PRP steering committee will file a contribution action against non-settling PRPs. In this case, the trusts filed the action.

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.