Legal Update on Environmental Diligence and NYSDEC Draft Environmental Audit Policy

Transcription

1 MTA New York City Transit Advanced Environmental Workshop Jesse Hiney, Esq. December 2012 Legal Update on Environmental Diligence and NYSDEC Draft Environmental Audit Policy

2 Where Are We? Nixon Peabody Offices San Francisco Chicago Rochester Albany Buffalo Manchester Boston New York Providence Long Island Palo Alto Washington, D.C. Los Angeles Palm Beach Gardens Shanghai London Paris 2 2

3 What Do We Do? Practice Groups and Industry Focus: PRACTICE AREAS Antitrust Class Actions Corporate Governance & Regulatory Corporate Transactions / M&A Corporate Trust Environmental Energy Financial Restructuring & Bankruptcy Franchise & Distribution Global Finance Government Investigations & White Collar Insurance & Reinsurance Intellectual Property International Arbitration Labor & Employment Private Clients Private Equity Products Liability, Mass & Complex Tort Public Finance Real Estate Securities Syndication Tax INDUSTRY FOCUS Affordable Housing Agribusiness Aviation Beverage Alcohol Biotech Construction Consumer Packaged Goods Energy Financial Services Franchising Health Services Higher Education Interactive Entertainment & Media Life Sciences Maritime Medical Devices Municipalities & Government Agencies Nonprofit Organizations Pharmaceutical Real Estate Renewable Energy Sports & Entertainment Technology 3 3

4 Focus of Discussion What Drives Environmental Diligence and Defenses to CERCLA Liability NYSDEC s Draft Environmental Audit Policy 4

5 CERCLA Liability Framework Imposes liability for environmental conditions on four classes of parties Owner or operator at time of disposal Current owner or operator Generator of hazardous substances Transporters /arrangers Liability is strict, joint and several, retroactive State counterparts can be broader, and have variations (e.g., apportionment) 5 5

6 Liability Framework (cont d) Current owner or operator has liability for acts that occurred even prior to ownership. Arrangers include parties who coordinate hazardous substances for on- or off-site disposal (landfills, transfer stations, recycling, midnight dumping). Transporters must have selected the disposal site. 6 6

7 Liability Framework Operator can encompass person having authority (even if unexercised) to control hazardous substance disposal activities (split in circuits). Officers, directors, shareholders and parent entities can be responsible parties along with corporation, if they participated in environmental decisions. 7 7

8 Liability Framework Liability is not limited to value of the property or the amount of financing it goes beyond polluter pays to all assets available. In for a penny, in for a pound. Some circuits (Ninth, Fourth) hold that passive migration is disposal. Exemptions for inheritance/bequest and escheat; other conditional exemptions (fiduciaries, trustees). Liability to the government is not affected by contractual efforts to shift it in transactional or loan agreements right of contribution is sole recourse. 8 8

9 Liability Framework: Purchasers may be liable for historic environmental issues at acquired sites. Sellers certainly remain liable even after sale. Parents, successors, directors, shareholders, lenders and others can be drawn into broad web of liability. Liability doctrines extended despite efforts to structure business transactions to avoid it: Continuity of enterprise doctrine 9 9

10 Liability Framework Few defenses Act of God; Act of War; and Act of third party not in contract relationship. Contractual relationship definition is basis for innocent landowner defense Did not know and had no reason to know hazardous substances were disposed of in, on or at the facility

11 Liability Framework Innocent landowner defense To establish no reason to know must have conducted, at the time of acquisition, all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial or customary practice. ASTM Phase I standards established good commercial practice absent regulations. EPA adopted AAI regulation (40 CFR Part 312) establishing ASTM E as presumptive proof of innocent landowner defense Some state counterparts lack this defense

12 All Appropriate Inquiry ASTM Phase I -- non-intrusive investigation into historical uses of site. Identify any recognized environmental condition (REC): The presence or likely presence of any hazardous substances or petroleum products on a property under conditions that indicate an existing release, a past release, or a material threat of a release of any hazardous substances or petroleum products 12

13 Recognized Environmental Condition not intended to include de minimis conditions that generally do not present a material risk of harm to public health or the environment and that generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies

14 State Variations on Innocent Landowner Defense cartoonbank.com, Used with permission until December 7,

15 All Appropriate Inquiry -- Recent Expansions Proposed vapor intrusion standard (not yet part of AAI rule, ASTM E 2600) Limited to PAH/VOCs Criticized Costly Revision 2013 Standard Guide for Property Condition Assessments (ASTM E ) Potential Source Engineering, mechanical, structural, fire, electrical systems, code 15 15

16 All Appropriate Inquiry If potential REC exists, no longer innocent must investigate, and become bona fide purchaser cartoonbank.com, Used with permission until December 7,

17 New Liability Exemptions Bona Fide Purchaser Defense Acquire site despite known environmental conditions. Numerous conditions to qualify (includes access, assistance, compliance with land use restrictions, taking appropriate care, not PRP, etc.) Very few states expressly recognize this other than through VRP/VCP/BCP programs 17 17

18 New Liability Exemptions Contiguous Property Owner Defense Addresses issue of liability for passive migration. Similar conditions to ILO and BFP liability exemption. Unclear how this will affect acquisition of downgradient sites or promulgation of new due diligence standards Vapor intrusion considerations 18 18

19 Common Elements of New Liability Protection All Appropriate Inquiries No Affiliation Demonstration Compliance with Land Use Restrictions and Institutional Control Take Reasonable Steps to Stop/Prevent Releases Provide Cooperation, Assistance and Access Comply with Information Requests Provide Legally Required Notices with Respect to Discovery/Releases 19

20 Recent Challenges to BFP Defense 3000 E. Imperial, LLC v. Robertshaw Controls Pre-Acquisition Phase I identified soil and ground water contamination from TCE and Benzene Property acquired by Imperial in 2006 and buildings demolished in 2007 In May 2007, on-site tanks were sampled and determined to contain TCE In October 2007 contents of tanks removed. Tanks pulled in 2009 Imperial sued Robertshaw for contribution and Robertshaw counterclaimed Court found Imperial did not exacerbate existing conditions and exercised appropriate care 20

21 Recent Challenges to BFPP Defense (cont d) Appropriate care: (1) Stop any continuing release (2) Prevent any threatened future release (3) Prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substance 21

22 Challenges to BFP Defense Ashley II of Charleston, LLC v PCS Nitrogen, Inc. (S.C. 2010) In 2003 Ashley acquired a portion of a larger 43-acre tract that formerly operated as a fertilizer manufacturer Post-acquisition, Ashley demolished a building exposing a number of cracked sumps containing hazardous materials to the elements This failure along with others resulted in the Court concluding that Ashley did not exercise appropriate care and could not avail itself of the BFP Defense 2 Lexis

23 NYSDEC Draft Environmental Audit Policy Penalty Reductions for Current Operators and New Purchasers 23

24 NYSDEC Draft Environmental Audit Policy (cont d) Anticipated publication in Environmental Notice Bulletin (ENB) Jan/Feb 2012 DEC reviews comparable federal and state environmental audit policies. Develops a matrix comparing self-audit policies and creates recommendations for new draft policy. Mar/May 2012 DEC develops draft selfaudit policy. July 2012 DEC receives comments from stakeholders. Sept/Oct 2012 Final policy submitted within DEC. June 2013 Anticipated date for final policy implementation (6 months after publication in ENB)

25 NYSDEC Draft Environmental Audit Policy (cont d) The Policy encourages: Environmental audits Disclosure of violations Prompt correction of any violations Preparation of strategies to manage and prevent violations Advancement of pollution prevention, best management practices, and environmental management systems Incentives Include: Penalty waivers waived or reduced Candidacy in New York Environmental Leaders Program 25

26 NYSDEC Draft Environmental Audit Policy (cont d) Eligibility Any entity regulated under NYS Environmental Laws (federal, state, or municipal agency or private sector facility) Exception NYSDEC discretion to exclude entity if within past 5 years received Warning letter Notice of Violation Penalty Demand for alleged violation of same or similar requirement for which a penalty waiver is being sought Prior penalty waiver for similar violations Recalcitrant or uncooperative entity 26

27 NYSDEC Draft Environmental Audit Policy (cont d) Eligible violations: Discovered by eligible entity through audit Discovered by DEC during pollution prevention or compliance assistance activities Exceptions: Alleged criminal conduct Discovered during DEC compliance inspection Serious actual harm/imminent and substantial endangerment Significant non-compliance/high priority violation 27

28 NYSDEC Draft Environmental Audit Policy (cont d) Disclosure period: 30 days after the regulated entity knew or should have known of the violation Audit agreement may dictate alternate timeframe Scope of disclosure: One or multiple violations One or multiple regulatory programs Correcting Violations: Within 60 calendar days after disclosure Audit agreement may dictate alternative timeframe 28

29 NYSDEC Draft Environmental Audit Policy (cont d) Penalty waiver Gravity-based penalties waived Economic benefit penalty may be waived for: De Minimis amounts anticipated to be less than $5000 $10,000 Costs to implement pollution prevention measures 29

30 NYSDEC Draft Environmental Audit Policy (cont d) Manner of disclosure Contact NYSDEC regional office As defined in an audit agreement Eligibility assurance Define scope of audit Commitment to implement pollution prevention measures, environmental performance tools Identify case-specific disclosure and correction schedules 30

31 NYSDEC Draft Environmental Audit Policy (cont d) Ensuring future compliance Ensure correction action is implemented and maintained Must make a commitment to pollution prevention and environmental management systems 31

32 NYSDEC Draft Environmental Audit Policy (cont d) New owners Must satisfy eligibility criteria One-time conditional penalty waiver Violations discovered prior to acquisition must be disclosed within 60 days after acquisition Violations discovered after acquisition must be disclosed within 30 days of knowledge or 60 days after acquisition (whichever is later). 32

33 This presentation contains images used under license from Thinkstock.com. These images may not be re-distributed or re-used for other purposes. This presentation may be considered advertising under certain rules of professional conduct. The content should not be construed as legal advice, and readers should not act upon information in this publication without professional counsel. Nixon Peabody LLP. All rights reserved. 33