DEVELOPING BROWNFIELDS:TOOLS FOR TRANSACTIONAL LAWYERS AND DEVELOPERS TOBETTER ASSESS RISK
PRESENTED TO THE SDCBA REAL PROPERTYAND ENVIRONMENTAL LAW/LAND USE SECTIONS
DECEMBER 7, 2005
I . A ssessing site history.Typical first avenues:Phase 1.Learn as much as possible about site and neighboring site history.Are there underground storage tanks (USTs) that have been or are present?Are they properly permitted or have they all been removed?ALL USTS must be permitted – either to operate or to close. NOabandonments are allowed.Is there a history of receiving Notice of Violations (NOVs) or failing USTtank integrity tests?Governmental environmental files review: DEH, RWQCB, DTSC, EPA..Site “closure,”Has site been closed? When is it projected to get closure?“No further action” (“NFA”) letter = “closure.”NFA letters can and do reopen when site conditions change,such as when construction activities encounter contamination.Property Ownership since start of contamination.Operations History.People knowledgeable about relevant events.People knowledgeable about relevant relationships.Present and former owners, neighbors, employees.Detailed site history can include:For inquiries further back in time than last 15-20 years, consider:Fire Department records such as Sanborn maps.Aerial photographs.Ex: Identification of bounds of junk yard in the 1920/1920s.Historical Society photos.Newspapers.Satellite, Historical Photos.City, county archives if governmental permit or approval ever required.Ex: Identification of address property, owner/operator and years ofoperation as a junk yard in the 1920/1930s.I I. A ssessing extent of contamination.Technical review of environmental data.Is the site “fully delineated?”If not, what areas remain to be assessed?ONE OF THE BIGGEST RISKS COMES FROM GLOSSING OVERTHE UNKNOWNS!Quantify the unknown risk and adjust price.How toxic and persistent is the contaminant?What are the pathways to exposure?Will contaminants be encountered during construction?Will the intended constructive house sensitive individuals?Will a barrier need to be constructed to block, for instance, benzenefumes from passing through a concrete slab and collecting in anenclosed space?Are there concerns about further migration of contaminants to aneighboring property?Are utility corridors affected which can create a host of other concerns, includingpotential for explosion when utility workers enter confined spaces?Utility corridors can pose a problem when they intersect or are in the levelof the fluctuating groundwater.Water passes RAPIDLY through the pea gravel on which manypipes are laid, compared to the typical surrounding dense clayeysand mix, so pollution can travel farther, faster.I II. K ey areas of risk.Groundwater contamination.Are drinking water aquifers, streams, bay, etc. actually or potentiallyaffected?How bad is the problem?What is the pollutant of concern?Rate of groundwater migration?Are neighboring properties affected?Could they be affected if remediation goes too slowly?How conducive is the soil and groundwater to remediation?I V. L oan limitation when site is not completely assessed.With risk not completely defined, it may be difficult or impossible to getconventional loan.Until the site is fully assessed, most lenders have policy of not lending orrefinancing.If major oil company accepts responsibility, it may be willing to provideindemnify a loan (e.g., SBA loan).If you are a buyer, keep in mind the practical problem of finding a newbuyer or obtaining refinancing.V . T he tug-of-war over contractual terms.Buyer always seeks full indemnification from seller, but the indemnification maynot be worth anything when and if the need arises (seller not financially able tohonor it).Seller always seeks to sell “as is,” but is still required to make all materialdisclosures to questions to avoid fraud.Another key concern here is that federal law cannot be swept away or avoided byindemnification, sale “as is,” etc. (CERCLA 42 USC § 9607(e))Contractual provisions do not insulate a party from the government or otherparties.V I. W hen is the state UST Cleanup Fund available? (H & S Code Ch. 6.75)Owners and operators may have access up to $1,500,000 for corrective action (siteassessment and remediation) of leaking USTs for petroleum products.Must be permits and compliance, which, on occasion, can occur after thefact.New property buyer may gain access to the fund if no affiliation with aparty which has caused ineligibility with the fund.V II. T he overlay with federal and state law.An overview of key federal and state laws that typically pertain to contaminatedproperties follows:A . F ederal law:1. CERCLA. Comprehensive Environmental Response, Compensation and LiabilityAct. 42 USC § 9601, et seq. (Liability; cost-recovery action). Briefly stated: Any owneror operator of a “facility” (any place where hazardous substances have come to belocated) at the time of disposal of hazardous substances, or any current owner or operatorof that facility, or anyone who contracted, agreed or arranged for such disposal, oranyone who accepts such hazardous substances, is liable for costs of removal or remedialaction by the government and other necessary costs of response by others. Liability isstrict.Petroleum products are excluded from the definition of hazardous substance. 42USC § 9601(14). However, petroleum products, such as waste oil, that are contaminatedwith other hazardous substances do not fall into this exception (Tosco Corporation v.Koch Industries, Inc., 216 F.3d 886 (10th Cir 2000)), and the defendant has the burden ofestablishing that the petroleum exclusion is applicable. Johnson v. Langley OperatingCompany 226 F.3d 957 at n.4 (8th Cir. 2000)Section 107 of CERCLA (42 USC § 9607) governs cost recovery actions by theUnited States and States. Numerous cases hold that these government plaintiffs areentitled to have private parties held jointly and severally liable under Section 107 ofCERCLA, even if certain federal agencies are themselves PRPs. See, e.g., State ofCalifornia Dep’t of Toxic Substances Control v. Alco Pacific, Inc., 217 F. Supp. 2d 1028,1036 (C.D. Cal. 2002); United States v. Gurley, 317 F. Supp. 2d 870, 882-883 (E.D. Ark.,2004). While defendants can argue for apportioned liability, they have the burden ofshowing either distinct harms or a reasonable basis for apportioning a single harm topublic health and the environment. See e.g. United States v. Hercules, 247 F.3d 706,716-18 (8th Cir. 2001); Control Data Corp. v. S.C.S.C. Corp., 53 F.3d 930, 939 n.4 (8thCir. 1995).Section 113 of CERCLA (42 USC § 9613) governs cost recovery actions byprivate parties. Under the Ninth Circuit decision in Pinal Creek Group v. NewmontMining Corp. 118 F.3d. 1298. (9th Cir. 1997), contribution plaintiffs, are generallylimited to seeking apportioned liability from contribution defendants.The statute of limitations for CERCLA cases are quite long. Section 107 actionsby the government must be brought six years after initiation of on-site construction of aremedial action or three years after completion of a removal action. (42 U.S.C. §113(g)(2). However, since “removal” actions include the planning and oversight of thecleanup, the statute of limitations will usually not begin to run until the government hascertified that the cleanup has been completed. Illinois v.Grigoleit Company 104 F. Supp.2d 967, 975 (C.D. Ill. 2000), California Department of Toxic Substances Control v. AlcoPacific, Inc. 308 F. Supp. 2d 1124 (C.D. Cal. 2004). The limitations period for section113 contribution actions is three years, and it begins to run when a judgment oradministrative order is entered against the contribution plaintiff.What are the defenses??? 42 USC § 9607(b)1) Act of God.2) Act of war.3) Act or omission of a third party, other than an employee or agent of thedefendant, and other than an act or omission in connection with a contractual relationshipwith the defendant, where defendant exercised due care and took precautions againstforeseeable acts or omissions of such third party.“Contractual relationship” is defined at 42 USC § 9601(35)(A) to include,land contracts, deeds, easements, leases and other instruments transferring title orpossession unless defendant acquired the property after the disposal of hazardoussubstances occurred and one of the following three circumstances applies:1) At time of acquisition, defendant did not know and had no reasonto know of the disposal. (So-called “due diligence” or “innocentlandowner” defense);2) defendant is a governmental entity;or 3) defendant acquired property by inheritance or bequest.2002 Brownfields Amendments clarified the basis for “innocentlandowner” protection, with the addition of the “All Appropriate Inquiry”(“AAI”) standard.The EPA was directed to develop standards for AAI, which it did inNovember 2005. 70 Fed. Reg. 66070 (40 CFR Part 312). Thesestandards become effective on November 1, 2006. (See attachedEPA AAI Fact Sheet for details)Key new points: e nvironmental professional must do ac omprehensive investigation, including interviews with past andp resent owners, operators and occupants, so the price will increases ignificantly.2. RCRA. The Resource, Conservation and Recovery Act provides a “citizen suit”action for injunctive relief only at 42 USC § 6972. To prevail, you must show the partyyou are suing has disposed of a “hazardous waste” which has caused or may cause animminent and substantial endangerment to the environment. The court may awardattorneys’ fees to the prevailing party. Liability is strict.One early case involving multiple gas station operators shifted the burden of proofso that the landlord does not have to prove who contaminated what and how much duringany particular tenant’s term. Instead, the tenants have the burden of proving the releasedid not occur during their respective term. Zands v. Nelson (S.D. Cal. 1991) 779 F.Supp. 1254 . In Zands, the District Court for Southern California (retired Judge GordonThompson) held the release of petroleum into the environment at a gas station constitutesan abandonment of a hazardous material, thus falling within a definition of a “hazardouswaste” within the purview of RCRA.B . S tate law:1. Nuisance.Nuisance can be a tricky area because of the distinction between continuing andpermanent nuisance, the resulting statute of limitations and different standards of proof.The basic definition of nuisance is anything that interferes with the comfortableenjoyment of life or property by being injurious to health, indecent or offensive to thesenses, or an obstruction to the free use of property. Civ. Code § 3479; Koll-IrvineCenter Property Owners Assn. v. County of Orange (1994) 24 Cal.App.4th 1036. Thetortious conduct that leads to a nuisance is not material and can be based on negligent,reckless, intentional, or ultrahazardous behavior. Barnhouse v. City of Pinole (1982) 133Cal.App.3d 171; and see, Mangini v. Aerojet-General Corp. (1991) 230 Cal.App.3d1125. Both the party who maintains the nuisance as well as the party who creates thenuisance are responsible for the ensuing damage, regardless of who currently possessesthe property. KFC Western, Inc. v. Meghrig (1994) 23 Cal.App.4th 1167; WilshireWestwood Associates v. Atlantic Richfield Co. (1993) 20 Cal.App.4th 732.Soil and groundwater contamination constitute grounds for a nuisance action.Beck Development Co. v. Southern Pacific Transportation Co. (1996) 44 Cal.App.4th1160.Permanent nuisances are those causing a permanent injury. Damages are assessedonce and for all. Shamsian v. Atlantic Richfield Company (2003) 132 Cal.Rptr.2d. 635.A nuisance is permanent if it appears improbable as a practical matter that the nuisancecan or will be abated. Considerations include the feasible means of, and alternatives to,abatement, the time and expense involved, legitimate competing interests, and thebenefits and detriments to be gained by abatement or suffered if abatement is denied.Beck Development Co. v. Southern Pacific Transportation Co. (1996) 44 Cal.App.4th1160.By contrast, a nuisance that can be discontinued or abated at a “reasonable costby reasonable means” is a continuing nuisance. (Mangini v. Aerojet-General Corp.(1996) 12 Cal.4th 1087, 1103. A key factor in determining whether contamination maybe abated at a reasonable cost is whether the cost of remediation would greatly exceed thevalue of the land after remediation. Beck Development Co. v. Southern PacificTransportation Co. (1996) 44 Cal.App.4th 1160, 1222.Courts often look to see if a continuing nuisance or trespass claim could beasserted when a permanent nuisance would be barred. E.g., Mangini v. Aerojet-GeneralCorp. (1991) 230 Cal.App.3d 1125 (Mangini I); Capogeannis v. Sup. Ct. (1993) 12Cal.App.4th 668. A nuisance must be considered permanent if plaintiff fails to prove anuisance is abatable. Beck, 44 Cal.App.4th 1160, 1221.2. Trespass.The same analysis is used for trespass as for nuisance. Continuing and permanenttrespass analysis applies. Also like nuisance, trespass is governed by a three-year statuteof limitations under Code of Civil Procedure section 338(b).Trespass is an unlawful interference with possession of property, whereas anuisance is an interference with the interest in private use and enjoyment of the land anddoes not interfere with possession. Mangini v. Aerojet-General Corp. (1991) 230Cal.App.3d 1125. Trespass exists when chemical contamination migrates from oneproperty to another. An essential element of trespass is an actual physical entry orintrusion onto real property by a person or a tangible thing. San Diego Gas & ElectricCo. v. Superior Court (1996) 13 Cal.4th 893. Like nuisance, trespass can be based on anact that is negligent, reckless, intentional, or as a result of an ultrahazardous activity.Resolution Trust Corp. v. Rossmoor Corp. (1995) 34 Cal.App.4th 93.3. Negligence.A negligence action is available where a property owner allows contamination ofsoil and groundwater. Newhall Land & Farming Co. v. Superior Court (1993) 19Cal.App.4th 334 (negligence action against property owner who contaminated soil andgroundwater while operating a gas plant).4. Negligence Per Se – Evidence Code 669.Contamination of groundwater allows a cause of action for Negligence Per Seunder Evidence Code section 669(a). Newhall Land & Farming Co. v. Superior Court(1993) 19 Cal.App.4th 334. The discharge of gasoline into groundwater constitutes aviolation of California Fish & Game Code section 5650.5. Leases/Contract.Leases are frequently an issue. Consider continuing obligations to lessee in leaseassignments. An assignment does not absolve the tenant of the obligations of the lease,and, as such, the tenant acts as a surety for the assignee for the duration of the lease, evenwhen the landlord consents to the assignment. Vallely Investments, L.P. v.BancAmerica Commercial Corp., 88 Cal.App. 4th at 822; Kendall v. Ernest Pestana, Inc.(1985) 40 Cal.3d 488,500, 502. Also, in Meredith v Dardarian (1978) 83 Cal.App.3d248, 255, the court held if a lease contains an option to renew or extend, which is bindingon the lessor, and the assignee exercises the option, the lessee remains liable.