Superfund Reform Provides Liability Protection to Small Businesses and Brownfields Developers

April 04, 2002

In one of the most significant reforms to the Superfund law since its enactment, The Small Business Liability Relief and Brownfields Revitalization Act (“Brownfields Act”) was signed by President George W. Bush on January 11, 2002. This Act provides relief for small businesses from liability under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), promotes the cleanup and reuse of Brownfields, provides financial assistance for Brownfields revitalization, and enhances state response programs.

A. What is a Brownfield?

A Brownfield is an abandoned, idled or under-utilized property where expansion or redevelopment is complicated by real or perceived environmental contamination. Brownfields pose health and environmental risks, legal and financial burdens, blights on communities and devaluation of properties.

B. Small Business Liability Protection

Small businesses and small contributors at Superfund sites have experienced the unfairness of CERCLA’s expansive joint and several liability scheme, which has caused these groups to expend considerable sums of money and has pushed many into bankruptcy.

i) The De Micromis Exemption

The Brownfields Act amends CERCLA to exempt from liability a generator or transporter of hazardous waste material that can demonstrate that the total amount of hazardous material contributed by it to the facility was less than 110 gallons of liquid materials, or less than 200 pounds of solid materials. This de micromis exemption is available to the generator or transporter if it can also demonstrate that all or part of the disposal, treatment or transport of hazardous material occurred prior to April 1, 2001. Generators and transporters that fall within the de micromis exemption are not liable for response costs at a facility listed on the National Priorities List (“NPL”). (ii) Municipal Solid Waste Exemption

The Brownfields Act also amends CERCLA to exempt from liability those that sent only Municipal Solid Waste (“MSW”) to a site. Examples of MSW include: food and yard waste, paper, clothing, appliances, disposable diapers, cosmetics and household hazardous waste. The Brownfields Act provides that any owner, operator or lessee of residential property is not liable for response costs for the cleanup of a facility listed on the NPL, provided it sent only MSW to the facility. In addition, any business entity which employs not more than 100 full-time individuals and is a small business concern (within the meaning of the Small Business Act) that sent only MSW to a facility is not liable for response costs with respect to that facility. A similar exemption is provided for “501 (c)(3) not-for-profit corporations” employing not more than 100 individuals. Since a majority of the businesses in the United States employ fewer than 100 people, the effects of this exemption will be far reaching.

(iii) Expedited Settlements

The Brownfields Act amends CERCLA to provide for conditional expedited settlements with individuals who demonstrate an inability or limited ability to pay response costs. Several factors are considered by the government in making the determination of an individual’s inability to pay, and the government’s decision on this matter is final.

C. Landowner Defenses

(i) Innocent Landowners

The Brownfields Act provides two significant changes to CERCLA’s innocent landowner defense to liability. First, the Brownfields Act puts an affirmative duty on the landowner to take steps to stop current releases and prevent future releases, as well as to comply with land use restrictions and not to interfere with the response actions of others.

Second, the Brownfields Act requires that the Administrator promulgate regulations within two years that will define the phrase “all appropriate inquiry”. Until that time, landowners must look to the Brownfields Act’s interim standards to determine whether it meets the innocent landowner criteria. Specifically, for landowners who acquired property before March 1, 1997, the specialized knowledge of the landowner, a comparison with the purchase price of uncontaminated property, commonly known information about the property, the obviousness of the presence of contamination, and the landowner’s ability to detect contamination by appropriate inspection are all factors to be considered. For landowners who purchase property on or after March 1, 1997, the standards used by professionals in conducting a Phase I environmental site assessment apply. It is unclear how EPA will interpret this mandate with respect to Phase II activities, which include subsurface investigations.

(ii) Contiguous Landowners

The Brownfields Act exempts from CERCLA owner or operator liability, an owner or operator of land contaminated by a contiguous property if the owner or operator can demonstrate that it did not contribute to the release of hazardous substances, is not potentially liable, has taken responsible steps to thwart any continued release of contamination, cooperates with authorities, complies with land use controls, conducted all “appropriate inquiries” at the time of the purchase, and had no reason to know that the property was or could be contaminated by a release from other real property.

(iii) Prospective Purchasers

A drawback of the CERCLA innocent purchaser defense has been the requirement that the landowner establish that it had no reason to know that the property was contaminated. In today’s sophisticated market where technology is advanced, this is an unlikely scenario. In addition, the very fact that a site is a brownfield means that the existence or suspicion of contamination is known.

To eliminate this obstacle to development of brownfields, the Brownfields Act creates a new Bona Fide Prospective Purchaser defense. This defense applies to Brownfields and NPL sites. Under this defense, landowners and their tenants will be protected from CERCLA owner or operator liability so long as the landowner (or tenant) does not impede the performance of a response action or natural resource restoration.

For the defense to apply, the Bona Fide Prospective Purchaser must be able to establish the following conditions: (1) all disposal took place before the date of acquisition; (2) the landowner made all appropriate inquiry; (3) the landowner exercises appropriate care to stop any continuing release, prevent any threatened future release, and prevent or limit exposure; (4) the landowner provides full cooperation, assistance, any access required to undertake response actions; (5) the landowner complies with land use restrictions and does not impede performance of institutional controls; and (6) the landowner is not potentially liable or affiliated with any other person potentially liable at the site.

D. Brownfields Revitalization Funding

(i) Federal and State Funding

The Brownfields Act authorizes up to $200 million per year for Brownfields assessment and cleanup. In addition, the Brownfields Act authorizes $50 million per year for federal grants to assist states in developing response programs.

(ii) Eligible Entities and Sites

The Brownfields Act limits those entities eligible for funding to federal, state or local government entities, although it does provide for eligible entities to make a subsequent loan to a private site owner or developer. Further, the Act limits eligible sites by excluding those that are listed on the NPL, are the subject of a removal or environmental enforcement action, or are contaminated with PCBs. However, quite significantly, the Act provides that a petroleum-contaminated site can be an eligible site, notwithstanding the fact that virgin petroleum products are clearly excluded from the definition of hazardous substances under CERCLA.

(iii) Federal Enforcement Bar

The Brownfields Act expands the importance of state brownfields programs by barring USEPA from pursuing a party under CERCLA at a site undergoing cleanup under a state program. This enforcement bar is available in states that maintain a public inventory of brownfields sites, which many do not do at this point. New York State is one of the states that does not, so that the federal enforcement bar will not apply in New York until it institutes an inventory program. The Brownfields Act outlines certain circumstances in which USEPA may bring an enforcement action, notwithstanding the fact that the site is undergoing cleanup under a state brownfields program, such as the discovery of new information requiring further remediation.

So long as these limited circumstances are not present, this enforcement bar will provide some comfort and finality for parties who clean up pursuant to state Brownfields programs.

E. Looking Ahead
The goal of the Brownfields Act is to encourage the acquiring and developing of Brownfields. It appears that the combination of increased funding, multiple liability protections, new and expanded defenses, and the federal enforcement bar at state Brownfields sites could help accomplish this goal. We will have to wait to see how USEPA interprets the provisions for which it has been mandated to issue regulations and for which it retains regulatory authority.

Those who seek to take advantage of the Bona Fide purchaser defense should be sure to make an all “appropriate inquiry” in the form of a site assessment consistent with ASTM standards and, eventually, consistent with USEPA’s regulations. Once contamination is discovered, in order to take advantage of the “innocent purchaser” defense, parties must be sure to take affirmative steps to stop the release and prevent future releases. This Advisory is meant as an outline only, and omits details contained in the Brownfields Act which must be considered by any party involved in a transaction who wishes to take advantage of the Brownfields Act. For more infomation regarding the Brownfields Act, how it may impact future transactions, or to request a copy of the Brownfields Act, please contact Miriam E. Villani at (516) 227-0607.

This Advisory was written by Miriam E. Villani, Counsel to the Firm, and Dianne K. LeVerrier, Associate, of the Environmental Practice Group. Ms. Villani heads the Environmental Practice Group and handles a broad range of environmental matters, including advising clients with regard to compliance with CERCLA and other federal and state environmental statutes. Ms. Villani also counsels clients in transactional matters, including the coordination of environmental assessments as part of the due diligence process, and the drafting and negotiating of environmental representations and warranties. She negotiates the terms of Voluntary Cleanup Agreements, Prospective Purchaser Agreements, and counsels clients with regard to Brownfields redevelopment.

Miriam E. Villani 516.227.0607 mvillani@farrellfritz.com

EAB Plaza Uniondale, NY 11556-0120 (516)227-0700 (516) 227-0777 facsimile ffmail@farrellfritz.com www.farrellfritz.com

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