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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. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  2. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  3. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  4. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

  5. I am compelled to announce that I am not posting under any Smith monikers here. That said, the post below does have a certain ring to it that sounds familiar to me: http://www.catholicnewworld.com/cnwonline/2014/0907/cardinal.aspx

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