CHAPTER 2 THE STATE FRAMEWORK: STATUTES AND REGULATIONS AFFECTING TRANSACTIONS

• Jurisdiction: United States

Environmental Considerations in Natural Resource and Real Property Transactions
(Nov 1988)
CHAPTER 2
THE STATE FRAMEWORK: STATUTES AND REGULATIONS AFFECTING TRANSACTIONS
John L. Watson ^*
Holme Roberts & Owen
Denver, Colorado

TABLE OF CONTENTS

SYNOPSIS

Page

I. INTRODUCTION

A. The Federalism Order

B. Environmental Concerns Generally

II. THE NEW JERSEY ENVIRONMENTAL CLEANUP RESPONSIBILITY ACT

A. Scope, Exemptions and Liability

B. Negative Declaration, the Sampling Plan and the Cleanup Plan

C. Letters of Non-Applicability and Administrative Consent Orders

D. Case Law

III. CALIFORNIA'S PROPOSITION 65, CONNECTICUT'S TRANSFER ACT, NOTICE STATUTES, AND SUPERLIEN LAWS

A. California's Safe Drinking Water and Toxic Enforcement Act

1. Background

2. Statutory Scope and Exemptions

3. Implementation and Enforcement

4. Agency Regulations

5. Whither Goest Implementation?

B. Connecticut's Transfer Act

1. Scope and Negative Declaration

2. Liability and Penalties

C. Notice Statutes

1. RCRA Notice Requirements

2. Other Notice Statutes

D. Superlien Laws

1. CERCLA

2. State Superlien Laws

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IV. NEPA AND ITS STATE MUTANTS

A. The National Environmental Policy Act of 1969

B. State Mini-NEPAs

1. Generally

2. The California Environmental Quality Act

a. Scope and Exemptions

b. Requirement For and Adequacy of the EIR

c. Subsequent EIRS, Supplements and Addenda

d. Procedures

V. COMMON LAW TORT

A. Theories of Liability

1. Trespass

2. Strict Liability

3. Nuisance

4. Negligence

5. Other Theories of Liability

B. Theories of Damages

1. Emotional Distress

2. Fear of Future Injury

3. Future Medical Surveillance

4. Quality of Life

5. Increased Risk of Future Injury

C. State Statutes

D. Punitive Damages

VI. CONCLUSION

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I. INTRODUCTION.

A. The Federalism Order.

The following portion of Executive Order No. 12612 must have been written by a political speech writer turned lawyer:

(a) Federalism is rooted in the knowledge that our political liberties are best assured by limiting the size and scope of the national government.

(b) The people of the States created the national government when they delegated to it those enumerated governmental powers relating to matters beyond the competence of the individual States. All other sovereign powers, save those expressly prohibited the States by the Constitution, are reserved to the States or to the people.

(c) The constitutional relationship among sovereign governments, State and national, is formalized in and protected by the Tenth Amendment to the Constitution.

(d) The people of the States are free, subject only to restrictions in the Constitution itself or in constitutionally authorized Acts of Congress, to define the moral, political, and legal character of their lives.

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(e) In most areas of governmental concern, the States uniquely possess the constitutional authority, the resources, and the competence to discern the sentiments of the people and to govern accordingly. In Thomas Jefferson's words, the States are "the most competent administrations for our domestic concerns and the surest bulwarks against antirepublican tendencies."

(f) The nature of our constitutional system encourages a healthy diversity in the public policies adopted by the people of the several States according to their own conditions, needs, and desires. In the search for enlightened public policy, individual States and communities are free to experiment with a variety of approaches to public issues.

(g) Acts of the national government—whether legislative, executive, or judicial in nature—that exceed the enumerated powers of that government under the Constitution violate the principle of federalism established by the Framers.

(h) Policies of the national government should recognize the responsibility of—and should encourage opportunities for—individuals, families, neighborhoods, local governments, and private associations to achieve their personal, social, and economic objectives through cooperative effort.

(i) In the absence of clear constitutional or statutory authority, the presumption of sovereignty should rest with the individual States. Uncertainties regarding the legitimate authority of the national government should be resolved against regulation at the national level.¹

President Reagan signed the Federalism Order on October 26, 1987. The order is designed to guide executive departments and agencies in the formulation and implementation

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of policies that have "federalism implications."² The order directs the heads of executive departments and agencies to designate an official to ensure implementation of the order. For those proposed policies that have sufficient federalism implications, the agency must prepare a Federalism Assessment.³ The ultimate enforcer of the order is the Office of Management and Budget.⁴

Few policies have more direct federalism implications than those concerning federal environmental laws. Some say the federal environmental statutes have overrun and totally preempted effective state control leaving the states virtually no discretion whatsoever.⁵ Nevertheless, the United States Congress, in enacting federal statutes during the environmental decade of the '70's, consistently allowed the states to impose more stringent laws on a state-by-state basis.⁶ Importantly and in addition, the states have

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continued to regulate those substantive areas where the federal government has not otherwise preempted such local control.

For those substantive areas where the federal government has preempted complete state control, several states have intentionally gone well beyond federally mandated standards and now impose substantially more stringent requirements on the regulated community. Several states have willingly and aggressively embraced one of the central principles of the Federalism Order, even before it was displayed over the signature of Ronald Reagan: "In the search for enlightened public policy, individual States and communities are free to experiment with a variety of approaches to public issues."⁷

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Some of these experiments are the subjects of this presentation. Following this brief introduction, section II will review the provisions of the New Jersey Environmental Cleanup Responsibility Act,⁸ a law that establishes an extreme and broad base from which other laws may be viewed. Section III reviews a select group of other state laws including California's Proposition 65,⁹ notice statutes, and "superlien" statutes that have somewhat different impacts on real estate, business and natural resource transactions. Section IV reviews the impacts of so-called state mini-NEPAs, most notably the California Environmental Quality Act ("CEQA").¹⁰ Section V addresses potential common law liabilities, including trespass, nuisance, negligence and strict liability, although in an abbreviated form due to the presentation by Mr. Donovan at this Institute.¹¹ Finally, Section VI contains my conclusions.

B. Environmental Concerns Generally.

Environmental concerns in real estate and natural resources transactions focus, generally, on either (1) the operational or developmental costs associated with a particular property, or (2) whether and to what extent environmental matters that are associated with, or may become related to the collateral, impact the value of the collateral, the ability of the borrower to repay a loan, and how these matters may affect a lender's decision to foreclose on the collateral.

Certain environmental impacts may simply be integrated into the operational or developmental costs of the property with little or no negative impact on the security for a loan. For example, the costs associated with, and methods used to control, air emissions, water effluent or other waste streams are typically presumed to be relatively fixed costs of operations. In addition, many businesses integrate certain limited remedial and mitigation activities into operational and developmental costs, e.g., certain limited asbestos

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removal, water quality treatment improvements and limited solid/hazardous wastes cleanup.

Other environmental matters may substantially affect the collateral, and thus have a negative impact on a transaction from its inception. For example, significant on-site hazardous waste releases and disposal practices, past or existing permit and license violations, and offsite hazardous waste transportation incidents or releases can, and in many instances should, either terminate a transaction or substantially increase the costs of the transaction to the transferor of the property.

As most property transactions involve financing, every party to the transaction (including buyers, sellers and lenders) could be significantly impacted by environmental liabilities that attach to a given piece of property. These types of environmental liabilities will vary depending on the type of collateral. Real property as collateral will most frequently be negatively impacted by on-site water quality problems, solid and hazardous waste disposal practices, wetlands issues, and the need for remedial or mitigation measures such as water collection, treatment and monitoring. Liabilities may also be associated with offsite impacts from on-site operations such as injuries to natural resource values and/or to third parties' property or person. As well, ongoing permit and license violations may substantially affect a lender's ability to foreclose on or sell the collateral without incurring significant costs associated with mitigation.

Personal property as collateral (such as equipment or inventory), may be affected by costs associated with treatment, mitigation and disposal activities. For example, asbestos removal and remedial actions concerning polychlorinated biphenyls ("PCBs") can significantly add...