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Deveau: RCRA threatens validity of brownfield redevelopment

August 27, 2014
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Indiana Lawyer Focus

By Frank Deveau

During the past 12 months a troubling trend has developed in the area of brownfield redevelopment. In several routine property transactions, buyers, sellers and lawyers have had the unpleasant experience of having their deals scuttled by a questionable application of the Resource Conservation and Recovery Act.

RCRA, of course, is the so-called federal “cradle to grave” statute that governs treatment, storage and disposal of hazardous waste. When a RCRA-permitted facility ceases hazardous waste operations, it must go through closure or corrective action to remediate any associated contamination. Most environmental practitioners would likely agree that it is indeed appropriate for the permittee to clean up contamination resulting from its operation. Several problems arise, however, when an environmental agency seeks to impose RCRA closure and/or corrective action obligations on a subsequent landowner of a former RCRA-permitted facility.

The BFPP defense and comfort letters

deveau Deveau

Typically, in the world of brownfield redevelopment, parties are concerned about potential liability under the Comprehensive Environmental Response Compensation and Liability Act or CERCLA. CERCLA imposes strict, joint and several liability on the current owner of contaminated property, regardless of fault. As a result, buyers of brownfield properties typically are very careful to avoid or limit such liability. Congress provided an effective tool for avoiding CERCLA liability in such transactions with the enactment of the 2002 brownfield amendments, which created the Bona Fide Prospective Purchaser defense. To obtain the benefits of the defense, there are certain pre-closing and post-closing requirements. Pre-closing, thorough due diligence is one of the most important requirements. Post-closing, reasonable steps to ensure human health and the environment are protected is likely the most important requirement. U.S. EPA and many state environmental agencies will also provide qualifying buyers with comfort letters, which generally say that the agency believes the buyer has met all BFPP requirements and, therefore, has no CERCLA liability. Even though comfort letters are non-binding, clients and lenders love them because it gives them a degree of “comfort” that they won’t be subject to crushing CERCLA liability after closing.

The RCRA time bomb

The RCRA problem has arisen in the following context. During due diligence, the prospective buyer discovers contamination that indicates that a prior owner (RCRA permittee) failed to properly perform RCRA closure. As a result, the agency (rightly) withdraws its prior finding that the site was closed and (wrongly) declares that the current title holder (that has always operated a flower shop at the site) is required to complete RCRA closure/corrective action at the site. Moreover, the agency further announces that any subsequent title holder will also be subject to RCRA closure and/or corrective action even if such owner is a BFPP and has obtained a comfort letter.

An even worse scenario (which has also happened) is the following: Years after closing, with a comfort letter still firmly in hand, a BFPP is notified that RCRA has asserted jurisdiction over the property. And, per RCRA, the poor guy who holds title is deemed to be the RCRA permit-holder for purposes of corrective action.

There are several problems with this agency policy.

First, environmental agencies apply it to not only former big volume treatment and disposal facilities, but also to small-time operations that stored hazardous waste on site.

Second, a buyer can be “liable” even if his pre-purchase due diligence revealed the site had received written regulatory closure confirmation. Clearly, this creates a RCRA time bomb giving “buyer beware” a whole new meaning.

Third, it imposes a serious threat to brownfield redevelopment because so many properties are potentially implicated.

Fourth, it threatens the future viability of the BFPP defense and agency comfort letters, and

Fifth, as discussed below, it’s just plain wrong legally.

RCRA does not apply to subsequent title holders

Unfortunately, there isn’t much caselaw interpreting this issue. Both RCRA and CERCLA came onto the legal scene in 1980. The cases from the early 1980s suggest that initially U.S. EPA wasn’t sure which statute to utilize in cleaning up contaminated sites. However, U.S. EPA quickly figured out that the strict, joint and several liability scheme of CERCLA made it the enforcement/remediation tool of choice. As a result, there are virtually no cases dealing with subsequent owners of former RCRA-permitted facilities … at least until a few months ago.

In May, New York’s appellate court held that, under RCRA regulations (essentially identical to Indiana’s) a subsequent owner was not subject to corrective action requirements at a formerly permitted storage facility. Thompson Corners, LLC v. New York State Dep’t of Environmental Conservation, 2014 WL 1924148 (N.Y. App. Div. May 15, 2014).

The case arose when New York’s Department of Environmental Conservation issued an order requiring a subsequent owner of a former RCRA-permitted property to comply with RCRA corrective-action requirements. The trial court upheld DEC’s corrective-action order. Thompson appealed, resulting in the May 15 decision.

The court ultimately found that RCRA regulations contemplate that corrective action can only be imposed as a condition of obtaining a permit to operate a RCRA facility. Citing New York’s version of CERCLA, the court explained further that the Legislature knew how to impose strict liability on subsequent property owners and did not do so with respect to RCRA.

The same result should apply in Indiana. Indiana’s RCRA regulations are materially the same as New York’s. Similarly, Indiana’s Legislature could have imposed strict corrective-action liability on subsequent owners of formerly permitted RCRA facilities but chose not to do so.

Nevertheless, if environmental agencies do not back off their application of RCRA to subsequent brownfield purchasers, an Indiana court will need to resolve this dilemma. Until that happens, buyers (and their lawyers) need to beware of the lurking RCRA threat.•

XBTXFrank J. Deveau is co-chair of Taft’s environmental practice group and a member of the firm’s executive committee. For over 30 years, he has devoted his practice primarily to all aspects of environmental law, related administrative and civil litigation and insurance recoveries. Deveau also frequently serves as a mediator in environmental disputes. The opinions expressed are those of the author.

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  1. A sad end to a prolific gadfly. Indiana has suffered a great loss in the journalistic realm.

  2. Good riddance to this dangerous activist judge

  3. What is the one thing the Hoosier legal status quo hates more than a whistleblower? A lawyer whistleblower taking on the system man to man. That must never be rewarded, must always, always, always be punished, lest the whole rotten tree be felled.

  4. I want to post this to keep this tread alive and hope more of David's former clients might come forward. In my case, this coward of a man represented me from June 2014 for a couple of months before I fired him. I knew something was wrong when he blatantly lied about what he had advised me in my contentious and unfortunate divorce trial. His impact on the proceedings cast a very long shadow and continues to impact me after a lengthy 19 month divorce. I would join a class action suit.

  5. The dispute in LB Indiana regarding lake front property rights is typical of most beach communities along our Great Lakes. Simply put, communication to non owners when visiting the lakefront would be beneficial. The Great Lakes are designated navigational waters (including shorelines). The high-water mark signifies the area one is able to navigate. This means you can walk, run, skip, etc. along the shores. You can't however loiter, camp, sunbath in front of someones property. Informational signs may be helpful to owners and visitors. Our Great Lakes are a treasure that should be enjoyed by all. PS We should all be concerned that the Long Beach, Indiana community is on septic systems.

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