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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. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

  2. "Meanwhile small- and mid-size firms are getting squeezed and likely will not survive unless they become a boutique firm." I've been a business attorney in small, and now mid-size firm for over 30 years, and for over 30 years legal consultants have been preaching this exact same mantra of impending doom for small and mid-sized firms -- verbatim. This claim apparently helps them gin up merger opportunities from smaller firms who become convinced that they need to become larger overnight. The claim that large corporations are interested in cost-saving and efficiency has likewise been preached for decades, and is likewise bunk. If large corporations had any real interest in saving money they wouldn't use large law firms whose rates are substantially higher than those of high-quality mid-sized firms.

  3. The family is the foundation of all human government. That is the Grand Design. Modern governments throw off this Design and make bureaucratic war against the family, as does Hollywood and cultural elitists such as third wave feminists. Since WWII we have been on a ship of fools that way, with both the elite and government and their social engineering hacks relentlessly attacking the very foundation of social order. And their success? See it in the streets of Fergusson, on the food stamp doles (mostly broken families)and in the above article. Reject the Grand Design for true social function, enter the Glorious State to manage social dysfunction. Our Brave New World will be a prison camp, and we will welcome it as the only way to manage given the anarchy without it.

  4. When I hear 'Juvenile Lawyer' I think of an attorney helping a high school aged kid through the court system for a poor decision; like smashing mailboxes. Thank you for opening up my eyes to the bigger picture of the need for juvenile attorneys. It made me sad, but also fascinated, when it was explained, in the sixth paragraph, that parents making poor decisions (such as drug abuse) can cause situations where children need legal representation and aid from a lawyer.

  5. Some in the Hoosier legal elite consider this prayer recommended by the AG seditious, not to mention the Saint who pledged loyalty to God over King and went to the axe for so doing: "Thomas More, counselor of law and statesman of integrity, merry martyr and most human of saints: Pray that, for the glory of God and in the pursuit of His justice, I may be trustworthy with confidences, keen in study, accurate in analysis, correct in conclusion, able in argument, loyal to clients, honest with all, courteous to adversaries, ever attentive to conscience. Sit with me at my desk and listen with me to my clients' tales. Read with me in my library and stand always beside me so that today I shall not, to win a point, lose my soul. Pray that my family may find in me what yours found in you: friendship and courage, cheerfulness and charity, diligence in duties, counsel in adversity, patience in pain—their good servant, and God's first. Amen."

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