Environmental. What s in the New Brownfields Law for Site Owners and Developers? Overfile Protection, Funding and Liability Relief

Environmental FEBRUARY 2002 What s in the New Brownfields Law for Site Owners and Developers? Overfile Protection, Funding and Liability Relief In 1980, the Comprehensive Environmental Response, Compensation and Liability Act ( CERCLA aka Superfund ) was enacted for the primary purpose of funding and accomplishing the cleanup of contaminated properties. Since then, in addition to the various industrial operations whose processes generated hazardous substances and wastes that were treated or disposed of at facilities across the country, many businesses, municipalities and other organizations have been snared in Superfund s widely cast and sticky web of strict, joint and several liability. Others, intent on redeveloping brownfields sites (underutilized contaminated properties), have been frustrated, delayed and discouraged by the bureaucracies and liabilities associated with the federal Superfund law. In recent years, states have made tremendous strides in encouraging brownfields redevelopment by enacting voluntary cleanup laws with land use-based remediation standards and protection from state law liability for those who remediate a site under a state program. Nonetheless, the federal Superfund law continued to be a major impediment to successful brownfields redevelopment opportunities. Much of that concern has now been addressed by the enactment of the Small Business Liability Relief and Brownfields Revitalization Act, P.L. 107-118 (the Act ). The Act was signed into law by President Bush on January 11, 2002 and is the result of substantial effort by those interested in accomplishing Superfund reform. The three primary issues addressed by the Act are (1) protection from overfiling associated with state cleanup programs, (2) brownfields revitalization funding, and (3) small business (and small shipments) liability protection. The Act also includes some statutory clarification of CERCLA defenses and liability issues. No one has worked harder or more diligently for these reforms than Linda Garczynski, Director of Outreach and Special Projects for the Environmental Protection Agency ( EPA ), to accomplish this feat. Ms. Garczynski also is responsible for the national Brownfields Conference that attracts thousands from across the country each year to discuss approaches for successful brownfields redevelopment efforts. We spoke to Ms. Garczynski to get her thoughts on the Act, and her comments are included throughout this Alert. LIMITATION OF EPA AUTHORITY TO OVERFILE AT SITES REMEDIATED UNDER STATE CLEANUP PROGRAMS Background Currently, at least 35 states have voluntary brownfields cleanup programs. Generally, such programs provide cleanup standards based upon anticipated future land use and protection from state law liability to persons that clean up facilities under the program. Kirkpatrick & Lockhart LLP

Willingness to participate in a state voluntary cleanup program may be tempered by the concern that potential CERCLA liability is unaffected by compliance with the state program. In an attempt to address those concerns, the EPA has executed memoranda of agreement ( MOAs ) with about 18 states recognizing that the state should generally be the lead agency with respect to such sites. See, Final Draft Guidance for Developing Superfund Memoranda of Agreement (MOA) Language Concerning State Voluntary Cleanup Programs, 62 Fed. Reg. 47495 (Sept. 9, 1997). The EPA does not provide CERCLA liability protection or relinquish any of its CERCLA enforcement authority under the MOAs, but merely states that it does not generally anticipate taking removal or remedial action at sites participating in the state voluntary cleanup program. 62 Fed. Reg. 47495. Congress found that, indeed, EPA has never overfiled, i.e., exercised CERCLA enforcement authority at a facility undergoing remediation pursuant to a state voluntary cleanup program. S. REP. NO. 107-2, at 32 (Mar. 12, 2001). Nonetheless, the fear that EPA retains such authority serves as a disincentive to brownfields redevelopment. Changes Introduced by the Act: The Enforcement Bar The Act provides that EPA may not bring an enforcement action under CERCLA 106 or 107 regarding a release at an eligible response site against a person who is conducting or has completed a response action with respect to such release in compliance with a state cleanup program. 42 U.S.C. 9628(b)(1)(A). Because the purpose of this enforcement bar is to encourage future cleanups, it only applies to response actions conducted after February 15, 2001. 42 U.S.C. 9628(b)(3). Applicability Eligible Response Sites For purposes of the enforcement bar, an eligible response site is defined as real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant. 42 U.S.C. 9601(41)(A) (referencing 42 U.S.C. 9601(39)(A)). The definition specifically excludes:! A National Priority List ( NPL ) facility (aka Superfund site );! A facility where EPA has developed a preliminary score sufficient for possible listing on the NPL, or that otherwise qualifies for the NPL, unless EPA has determined that no further federal action will be taken;! A facility subject to a planned or ongoing CERCLA removal action or CERCLA order;! A federal facility;! Facilities that EPA determines warrant particular consideration as identified by regulation, such as sites posing a threat to a sole-source drinking water aquifer or sensitive ecosystem; and! One of the following facilities, unless EPA determines, on a site-by-site basis, after consultation with the state, that the enforcement bar would be appropriate, protective of human health and the environment and promote goals of brownfields redevelopment (e.g., economic development, protection of green spaces): A facility subject to an order or permit by EPA or authorized state pursuant to the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. ( RCRA ), Clean Water Act, 33 U.S.C. 1321 et seq. ( CWA ), Toxic Substances Control Act, 15 U.S.C. 2601 et seq. ( TSCA ), or Safe Drinking Water Act, 42 U.S.C. 300f ( SDWA ); 2 KIRKPATRICK & LOCKHART LLP ENVIRONMENTAL ALERT

A facility that is the subject of an RCRA corrective action permit or order or RCRA closure plan; or A polychlorinated biphenyl ( PCB )- contaminated facility subject to remediation under TSCA. 42 U.S.C. 9601(41). This final exclusion has unique implications to facilities with ongoing operations subject to a CWA permit. The releases at such facilities may be of a historical nature and be completely unrelated to the current CWA permit. Nonetheless, if a person remediating a release at such a facility under a state cleanup program desires the benefits of the enforcement bar, it must bring the facility (and the release) to the attention of EPA so that EPA can make a determination that the bar is appropriate. Eligible State Cleanup Programs For the enforcement bar to apply, the state cleanup program must be one that specifically governs response actions for the protection of the public health and the environment. 42 U.S.C. 9628(b)(1)(A)(2). This language would seem to include both mini-superfund laws that proliferated in the 1980s as well as voluntary cleanup programs with remediation standards and liability releases that were widely enacted in the 1990s. The Act has no requirement that EPA review and approve state cleanup programs in order for the enforcement bar to apply to facilities addressed under the program. However, for a state cleanup program to qualify, the Act requires that the state must maintain a public record, updated annually, of facilities addressed under the program, including the status of each facility in the program. Upon completion of a response action for a facility under the program, the public record must identify any land use restrictions or institutional controls relied upon in the response action. 42 U.S.C. 9628(b)(1)(C). Exceptions to the Enforcement Bar EPA may nonetheless bring a CERCLA enforcement action at an eligible response site that has been addressed under a state cleanup program if one of the following exceptions applies:! The state requests federal involvement;! EPA determines that hazardous substances may migrate across state lines or onto a federal facility;! New information, not known at the time of cleanup, is discovered such that the release requires further remediation to protect public health and the environment; or! After considering the response action already taken under the state cleanup program, EPA determines that the release or threatened release may present an imminent and substantial endangerment to public health or welfare or the environment and that additional response actions are likely to be necessary to address, prevent, limit or mitigate the release or threatened release. 42 U.S.C. 9628(b)(1)(B). The last exception would seem to swallow the enforcement bar whole. EPA s authority under CERCLA 106, for example, is predicated on the requirement that EPA determines that there may be an imminent and substantial endangerment associated with the release of hazardous substances. 42 U.S.C. 9606(a). A substantial body of case law has developed interpreting the phrase imminent and substantial endangerment as used in several environmental statutes, and courts almost uniformly defer to EPA s determination that such imminent and substantial endangerment exists. However, the Act, supported by the legislative history, reveals that Congress placed two real limitations on EPA s authority under this exception, and thereby envisions that overfiling potential based upon this exception would be rare. FEBRUARY 2002 Kirkpatrick & Lockhart LLP 3

First, EPA is to make the imminent and substantial endangerment determination, taking into account the reductions in risk effectuated by the response action under the state cleanup program. Second, even where EPA nonetheless finds imminent and substantial endangerment under this standard, EPA is still not authorized to act unless additional response actions are likely to be necessary to address the remaining risk. 42 U.S.C. 9628(b)(1)(B)(iii). According to Congress, these two additional limitations are reflective of current EPA practice at state voluntary cleanup sites, as implemented through policy, and such limitations have resulted in EPA never having taken an enforcement action at a brownfields site being addressed under a State cleanup program without a request from the State. S. REP. NO. 107-2, at 18 (Mar. 21, 2001). History suggests that EPA will not apply a heavy hand in implementing this safety net. Id. at 27. EPA s Ms. Garczynski told Alert that this history demonstrates that EPA has confidence in the state programs. Moreover, Congress placed what might be termed a political restraint on EPA s authority to overfile at a facility where it determines that one of the exceptions to the enforcement bar applies. Within 90 days of the initiation of any enforcement action under one of the exceptions (except for a request by the state), EPA must file a report to Congress describing the basis for the enforcement action, including specific references to the facts demonstrating that enforcement action is permitted under one of the exceptions. 42 U.S.C. 9628(b)(1)(E). Other Observations on the Enforcement Bar An important limitation to the enforcement bar is that it only limits EPA s authority under CERCLA not other federal environmental statutes. For example, where the facility has a leaking underground storage tank ( UST ), EPA retains its authority under the RCRA UST provisions to order corrective action (42 U.S.C. 6991b(h)(4)), or where oil or hazardous substances are being discharged from the facility into navigable waters, a purchaser may have liability under the CWA (33 U.S.C. 1321). The federal enforcement bar only applies to actions against persons who conducted the cleanup. S. REP. NO. 107-2, 16 (Mar. 21, 2001). Some state voluntary cleanup laws extend statelaw liability protection not only to the person conducting the cleanup, but also to future successors in the chain of title of the property. See, e.g., The Pennsylvania Land Recycling and Remediation Standards Act (aka Act 2 ), 35 P.S. 6026.501(a)(1). A future successor who intends to purchase property with protection from both state and federal enforcement for a release that a previous owner had remediated under such a state cleanup program would need to avail itself of a different federal mechanism, such as bona fide prospective purchaser protection (discussed below). Many state voluntary cleanup laws allow persons to participate in the program, irrespective of their status as a party potentially responsible for the release. Under Pennsylvania s Act 2, for example, any person may clean up the release under the program and qualify for the state law liability protection. See 35 P.S. 6026.501. In such a scenario, persons participating in the remediation receive state law liability protection under the state statute, as well as protection from an EPA CERCLA action under the Act s enforcement bar. This, of course, assumes that none of the Act s exceptions or exclusions to the enforcement bar apply. All such exceptions and exclusions, however, are based on the risk associated with the release, not the status of the person performing the cleanup. Finally, the enforcement bar applies on a releaseby-release basis, as opposed to an entire site. There may be separate releases at the same facility that are addressed separately, especially if they occur at different times or have different parties responsible for them. S. REP. NO. 107-2, 16 (Mar. 21, 2001). This provides persons with 4 KIRKPATRICK & LOCKHART LLP ENVIRONMENTAL ALERT

flexibility to avail themselves of the benefits of the enforcement bar without cleaning up an entire facility. This flexibility, however, is only available to the extent that the underlying state cleanup program allows the persons performing the cleanup to choose to address the facility on a release-by-release basis. BROWNFIELDS REVITALIZATION FUNDING Background Since 1995, EPA s Brownfields Economic Redevelopment Initiative or Brownfields Initiative has facilitated brownfields redevelopment through funding for environmental assessments, education and training and capitalization of loan funds for brownfields remediation. EPA s fiscal year 2000 budget included $98,000,000 for this effort. Changes Introduced by the Act More Money, More Eligible Facilities and Entities The Act more than doubles that funding to $250,000,000 for each fiscal year through 2006 and requires EPA to establish a competitive application program to select funding recipients. 42 U.S.C. 9604(k)(12)(A). ($200,000,000 of the funding is for the EPA s competitive grant program while $50,000,000 is for assistance to states for administration of state brownfields programs. 42 U.S.C. 9628(a)(3)). Grants are available for state and local governmental entities and nonprofit organizations while loans are available (through state and local entities) to facility owners and private developers (excluding persons with CERCLA liability at the brownfield site). EPA s Ms. Garczynski, who directs the Brownfields Initiative, notes that, unlike before the Act, petroleum-contaminated facilities such as gasoline stations are now eligible for funding. In fact, $50,000,000 is earmarked each year for such sites (42 U.S.C. 9604(k)(12)(B)). Another important change from the existing program is that quasi-governmental agencies such as community development organizations will now qualify for grants, says Ms. Garczynski. Applicability Brownfield Sites For purposes of funding eligibility, the Act defines brownfield site broadly as real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant. 42 U.S.C. 9601(39)(A). The definition specifically excludes:! An NPL facility;! A facility subject to a planned or ongoing CERCLA removal action or CERCLA order;! A facility subject to an order or permit by EPA or authorized state pursuant to RCRA, CWA, TSCA or SDWA;! A facility that is the subject of an RCRA corrective action permit or order or RCRA closure plan;! A federal facility;! A PCB-contaminated facility subject to remediation under TSCA; and! A facility for which assistance has been obtained from the federal Leaking Underground Storage Tank Trust Fund. 42 U.S.C. 9601(39)(B) (this definition is similar, but not identical, to the definition of eligible response site discussed above in reference to the enforcement bar). Under certain circumstances, EPA may nonetheless authorize brownfields revitalization funding to certain excluded sites if it determines that financial assistance will protect human health and the environment, and either promote economic development or enable the creation of, preservation of, or addition to parks, greenways, undeveloped property, other recreational property, or other property used for nonprofit purposes. 42 U.S.C. 9601(39)(C). FEBRUARY 2002 Kirkpatrick & Lockhart LLP 5

Grants for Brownfield Site Characterization and Assessment EPA may make grants to eligible entities for programs to inventory, characterize, assess, and conduct planning related to one or more brownfield sites. 42 U.S.C. 9604(k)(2)(B)(i). Eligible entities are, in general, state, local or tribal entities. 42 U.S.C. 9604(k)(1). An environmental assessment of a brownfield site using such funding must be performed in accordance with the all appropriate inquiry standard associated with the innocent landowner defense described below. 42 U.S.C. 9604(k)(2)(B)(ii) (referencing 42 U.S.C. 9601(35)(B)). Funding is available up to $200,000 per brownfield site. This limitation may be waived by EPA for a grant of up to $350,000 per brownfield site. 42 U.S.C. 9604(k)(4)(A)(i). Grants and Loans for Brownfield Site Remediation EPA may make grants to eligible entities and nonprofit organizations to be used directly for remediation of brownfield sites owned by such entity or organization, in amounts up to $200,000 per brownfield site. 42 U.S.C. 9604(k)(3)(A)(ii). EPA may also make grants to eligible entities to be used for capitalization of revolving loan funds, up to $1,000,000 per eligible entity. 42 U.S.C. 9604(k)(3)(A)(i), 9604(4)(A)(ii). Recipients of such grants shall use the funds to make grants and loans for remediation of brownfield sites. 42 U.S.C. 9604(k)(3)(B). Grants may be made to other eligible entities and nonprofit organizations to be used for remediation of brownfield sites owned by such entity or organization. 42 U.S.C. 9604(k)(3)(B)(ii). Loans may be made to facility owners, facility developers or other private parties. 42 U.S.C. 9604(k)(3)(B)(i). Prohibitions The Act prohibits use of the funds for the payment of:! A penalty or fine;! A federal cost-share requirement;! An administrative cost;! A response cost where the recipient of the grant or loan is a PRP; and! A cost of compliance with federal law, except for compliance with laws applicable to the remediation. 42 U.S.C. 9604(k)(4)(B). Application and Award Process The Act requires EPA to publish guidance to assist eligible entities in applying for grants and to develop a ranking system for decision-making as to awards. 42 U.S.C. 9604(k)(5)(A)-(B). The Act identifies 10 criteria for EPA to include in the ranking procedure. Generally, the criteria favor projects that foster economic development, reduction of environmental risk and exposure, reuse of existing infrastructure, preservation of green spaces, local community involvement and protection of sensitive subpopulations. 42 U.S.C. 9604(k)(5)(C). Eligible entities receiving grants from EPA must contribute a 20% matching share from nonfederal funds or in-kind services, unless EPA determines that such a requirement would pose a hardship on the eligible entity. 42 U.S.C. 9604(k)(9)(B)(iii). All grants and loans made with the funds must be subject to an agreement which requires the recipient to use the funds for the purposes authorized under the Act and comply with all applicable federal and state laws and which may contain other EPA-required terms and conditions. 42 U.S.C. 9604(k)(9). 6 KIRKPATRICK & LOCKHART LLP ENVIRONMENTAL ALERT

Ms. Garczynski told Alert that EPA expects to issue grant application guidance and forms by September 2002 and to be making awards as early as Spring 2003. Awards authorized under preexisting CERCLA authority will still be made this year. Entities that have not received awards and that have applications pending will need to reapply when the new program is up and running in September. the material containing hazardous substances contributed by the PRP has contributed significantly or could contribute significantly, either individually or in the aggregate, to the cost of the response action or natural resource restoration; the PRP has failed to comply with an information request or administrative subpoena; or SMALL BUSINESS (AND SMALL SHIPMENTS) LIABILITY PROTECTION The Act exempts from liability certain parties that have long bemoaned the unfairness of being ensnared in the Superfund process: those that have sent very small amounts of waste to a facility and small businesses whose only contribution to a Superfund site were wastes such as office paper and cardboard boxes. De Micromis Exemption The de micromis exemption amends CERCLA to provide relief from response cost liability at an NPL facility to PRPs that contributed limited amounts of material to the facility. To qualify for the exemption:! the PRP cannot have been an owner or operator of the facility;! the material containing hazardous substances that the PRP sent to the facility must be less than 110 gallons of liquid or 200 pounds of solid material; and! all or part of the disposal, treatment or transport at issue must have occurred before April 1, 2001. 42 U.S.C. 9607(o)(1). The Act allows EPA to adjust the de micromis threshold quantities up or down by regulation. In addition, the Act provides for exceptions to the exemption where either:! the PRP has been convicted of a crime for the conduct to which the exemption would apply; or! EPA determines that: the PRP has impeded the response action or natural resource restoration associated with the facility. 42 U.S.C. 9607(o)(2). In the case of a contribution action for response costs brought by a private nongovernmental party, the burden is on the plaintiff to show that the exemption does not apply. 42 U.S.C. 9607(o)(4). Municipal Solid Waste Exemption The municipal solid waste exemption amends CERCLA to provide relief from generator liability for response costs at a Superfund site to residential, small business and nonprofit PRPs that contributed municipal solid waste to a facility. To qualify for the exemption, the PRP must demonstrate that it is either:! a residential facility owner, operator or lessee;! a small business concern (within the meaning of the Small Business Act (15 U.S.C. 631 et seq.)) with, on average, not more than 100 fulltime employees during the past three taxable years (including the parent, subsidiary or affiliate of the business); or! a 501(c)(3) organization (26 U.S.C. 501(c)(3)) with, on average, not more than 100 paid employees during the past three taxable years at the location from which the municipal solid waste was generated. 42 U.S.C. 9607(p)(1). The exemption for each of the three categories of generators described above only applies where all the municipal solid waste at the Superfund site attributable to the PRP FEBRUARY 2002 Kirkpatrick & Lockhart LLP 7

was generated at the residence, small business or nonprofit organization, as applicable. 42 U.S.C. 9607(p)(1). There are also exceptions to the municipal solid waste exemption which parallel the exceptions to the de micromis exemption described above (other than the exception for criminal conviction). 42 U.S.C. 9607(p)(2). EPA s determinations with respect to the exceptions to the exemption are not subject to judicial review. 42 U.S.C. 9607(p)(3). For purposes of this exemption, municipal solid waste is defined as waste material that is either generated by a household or generated by a commercial, industrial, or institutional entity, to the extent that the waste material is, in general, similar in character to household waste. (See the definition of municipal solid waste, along with examples at 42 U.S.C. 9607(p)(4)). In the case of a CERCLA contribution action brought by a private nongovernmental party, the burden is on the party bringing the action to show that the municipal solid waste exemption does not apply and even where a federal, state or local government entity brings an action for response costs under CERCLA 107 or 113, if disposal occurred before April 1, 2001, the burden is on the party bringing the action to show that the municipal solid waste exemption does not apply. 42 U.S.C. 9607(p)(5). Further, with respect to both the de micromis and municipal solid waste exemptions, if a private nongovernmental party brings a CERCLA contribution action against a defendant who is not liable pursuant to one of the exemptions, the party bringing the action is liable for the defendant s costs and fees in defending the action. 42 U.S.C. 9607(p)(7). Both the de micromis and municipal waste exemptions are applicable only to liability under CERCLA for response costs at NPL facilities. The exemptions do not apply to liability at non- NPL facilities, or to liability associated with natural resource damage claims, federal or state statutory causes of action other than CERCLA or common law causes of action. LIABILITY CLARIFICATIONS Innocent Landowner Defense Since CERCLA was amended in 1986 by the Superfund Amendments and Reauthorization Act ( SARA ), CERCLA has included an innocent landowner affirmative defense, whereby, in general, an owner of a contaminated property would avoid liability if it can demonstrate that it acquired the facility after all disposal of hazardous substances ceased, that it did not know and had no reason to know that hazardous substances were disposed of at the facility, and that at the time of acquisition of the facility, it had made all appropriate inquiry (i.e., conducted environmental due diligence). 42 U.S.C. 9607(b)(3), 9601(35). A review of case law reveals that very few owners have successfully demonstrated the requirements of the innocent landowner defense, partially because no objective standard for all appropriate inquiry has been defined by the statute or regulations. In an attempt to expand the utility of the innocent landowner defense by providing a safe harbor, the Act requires EPA to promulgate, by January 11, 2004, standards and practices which would satisfy the requirement of all appropriate inquiry. 42 U.S.C. 9601(35)(B)(ii). Until such time, the Act provides that, with respect to facilities purchased on or after May 31, 1997, all appropriate inquiry is satisfied by use of the procedures in American Society for Testing and Material ( ASTM ) Standard E- 1527-97 Standard Practice for Environmental Facility Assessment: Phase I Environmental Facility Assessment Process. 42 U.S.C. 9601(35)(B)(iv)(II). ASTM s Phase I standard is currently the generally accepted commercial practice for environmental due diligence in transactions of potentially contaminated property. With respect to facilities purchased before May 31, 1997, the Act requires a court, in evaluating whether an owner has satisfied the all appropriate inquiry requirement, to consider: 8 KIRKPATRICK & LOCKHART LLP ENVIRONMENTAL ALERT

! any specialized knowledge or experience on the part of the owner;! the relationship of the purchase price to the value that the facility would have if it was not contaminated;! commonly known or reasonably ascertainable information about the facility;! the obviousness of the presence or likely presence of contamination at the facility; and! the ability of the owner to detect the contamination by appropriate inspection. 42 U.S.C. 9601(35)(B)(iv)(I). In addition, in order to successfully demonstrate the innocent landowner defense, the owner must cooperate with and assist anyone authorized to conduct a response action at the facility, comply with any land use restrictions and not impede any institutional controls relied on in connection with the response action. 42 U.S.C. 9601(35)(A). Bona Fide Prospective Purchasers Fear of potential CERCLA liability has tempered the willingness of prospective purchasers to buy and redevelop sites which may be contaminated by hazardous substances. To encourage brownfield redevelopment, EPA established a program of negotiating agreements with prospective purchasers on a case-by-case basis which could serve to relieve such purchasers from owner/operator liability under CERCLA. See, Guidance on Agreements With Prospective Purchasers of Contaminated Facility and Model Prospective Purchaser Agreement, 60 Fed. Reg. 34792 (July 3, 1995). The Act allows bona fide prospective purchasers of contaminated property to avoid CERCLA owner/operator liability without the burden of time and resources that have been associated with negotiating a prospective purchaser agreement with EPA. 42 U.S.C. 9607(r)(1). The Act defines bona fide prospective purchaser as a purchaser who acquires ownership of a facility after January 11, 2002, where all releases of hazardous substances occurred before such acquisition, and the purchaser:! made all appropriate inquiries, defined by reference to the innocent landowner defense described above;! provided all required notices with respect to discovery of hazardous substances;! has exercised appropriate care with respect to hazardous substances discovered;! cooperates and assists with anyone authorized to conduct a response action;! complies with all institutional controls relied on in connection with the response action;! complies with CERCLA information requests (such as 104(e) requests) or subpoenas;! has no corporate, financial or contractual affiliation with any PRP at the facility (other than relationships associated with the transfer of title from a PRP to the prospective purchaser, or contracts for the sale of goods or services). 42 U.S.C. 9601(40). Appropriate care generally requires the purchaser to take reasonable steps to stop a continuing release of hazardous substances, prevent any threatened future release and limit human and natural resource exposure to the hazardous substances. See 42 U.S.C. 9601(40)(D). In the event that EPA conducts a cleanup and has unrecovered response costs associated with the facility, the Act provides the United States with a windfall lien against the property (or other form of security as agreed to by the purchaser). The amount of the lien is the unrecovered response cost, or the increase in the fair market value of the facility effectuated by the cleanup, whichever is less. 42 U.S.C. 9607(r)(2). FEBRUARY 2002 Kirkpatrick & Lockhart LLP 9

This provision provides prospective purchasers with the liability protection by operation of the statute that it would gain by undertaking the process of negotiating an agreement with EPA. Moreover, the prospective purchaser would avoid the burden of paying tens or hundreds of thousands of dollars in consideration that EPA often demands as part of the agreement. However, there may be some situations where a purchaser would benefit from additional protections afforded by an agreement, particularly if the facility at issue is a Superfund site. First, the agreement would provide the purchaser (and its financiers) with certainty that EPA agrees that all the conditions required for bona fide prospective purchaser protection have been satisfied. For example, the agreement may identify a site-specific program of appropriate care for the facility. Second, perhaps the agreement can be used to negotiate with EPA the value of the windfall lien and the form of the security. This provision mitigates a major disincentive to redevelopment of brownfields by providing a prospective purchaser of contaminated property with greater control and certainty with respect to CERCLA liability. An important limitation of this provision, however, is that it only relieves a prospective purchaser of liability under CERCLA not other federal statutes. Contiguous Property Exemption An owner of a facility to which hazardous substances have migrated through subsurface groundwater from a neighboring facility may have CERCLA owner liability, even though such owner did not cause or contribute to the contamination. 42 U.S.C. 9607(a)(1). Since 1995, EPA has had a policy limiting enforcement actions against owners of a facility contaminated solely by subsurface migration from off-site and considering entering into de minimis settlements with such persons to provide contribution protection. See, Final Policy Toward Owners of Property Containing Contaminated Aquifers, 60 Fed. Reg. 34790 (July 3, 1995). The Act codifies and expands on that policy by exempting such persons from CERCLA owner or operator liability, where the person:! did not cause, contribute, or consent to the release of hazardous substances;! has no corporate, financial or contractual affiliation with any PRP (other than contracts for the sale of goods or services);! takes reasonable steps to stop a continuing release of hazardous substances, prevent any threatened future release and limit human and natural resource exposure to the hazardous substances;! cooperates and assists with anyone authorized to conduct a response action;! complies with any land use restrictions and not impede any institutional controls relied on in connection with the response action;! complies with CERCLA information requests or subpoenas;! provides all required notices with respect to discovery of hazardous substances; and! at the time of acquisition of the facility, made all appropriate inquiries as defined with reference to the innocent landowner defense described above, and did not know or have reason to know that the property was or could be contaminated by a release of hazardous substances from other real property. 42 U.S.C. 9607(q)(1)(A). 10 KIRKPATRICK & LOCKHART LLP ENVIRONMENTAL ALERT

The Act clarifies that reasonable steps do not require the owner to conduct any groundwater monitoring or groundwater remediation, unless the owner operates a groundwater well which may affect the migration of contamination in the affected aquifer. 42 U.S.C. 9607(q)(1)(D). The Act also allows EPA to issue a no enforcement action letter to a person who qualifies for the contiguous property exemption and to grant such a person contribution protection. 42 U.S.C. 9607(q)(3). A person who cannot demonstrate all of the requirements for the contiguous property exemption as listed above may still potentially qualify as an innocent landowner or bona fide prospective purchaser. 42 U.S.C. 9607(q)(1)(C), 9607(q)(2)(A). Comparison of Bona Fide Prospective Purchaser with Innocent Landowner and Contiguous Property Owner The liability relief for bona fide prospective purchasers is strictly prospective it applies only to persons who purchase a facility after January 11, 2002, whereas a person may assert the innocent landowner defense or demonstrate the contiguous property exemption irrespective of when the facility was purchased. Moreover, unlike an innocent landowner and contiguous property owner, a bone fide prospective purchaser may have knowledge of the presence of hazardous substances at the facility associated with past releases prior to purchase. KENNETH S. KOMOROSKI 412.355.6556 kkomoroski@kl.com MELODY A. HAMEL 412.355.6228 mhamel@kl.com FOR FURTHER INFORMATION, please consult one of the lawyers listed below. HARRISBURG R. Timothy Weston 717.231.4504 tweston@kl.com PITTSBURGH Kenneth S. Komoroski 412.355.6556 kkomoroski@kl.com Melody A. Hamel 412.355.6228 mhamel@kl.com WASHINGTON Barry M. Hartman 202.778.9338 bhartman@kl.com BOSTON! DALLAS! HARRISBURG! LOS ANGELES! MIAMI! NEWARK! NEW YORK! PITTSBURGH! SAN FRANCISCO! WASHINGTON... This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with a lawyer. FEBRUARY 2002 2002 KIRKPATRICK & LOCKHART LLP. ALL RIGHTS RESERVED. 11 Kirkpatrick & Lockhart LLP

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