Lessons on Regulatory Reporting in California

• Jurisdiction: California,United States
• Citation: Vol. 26 No. 1
• Publication year: 2017
• Author: by Sedina L. Banks and Brian E. Moskal
• topic: Environmental Law,Real Estate

Lessons on Regulatory Reporting in California

by Sedina L. Banks^* and Brian E. Moskal^**

I. INTRODUCTION

It is midnight and you receive a frantic call from your client. There has just been a major solvent spill at their Southern California facility and she asks what she should do. The immediate focus, of course, should be on containing and cleaning up as much of the spill as possible to minimize any potential impacts to public health and the environment. However, an equally important consideration is to determine very quickly whether your client is obligated to report the release and, if so, to notify the appropriate regulatory agency (or agencies) as soon as possible.

Under California law, there are many regulatory reporting requirements that potentially apply to a new release of hazardous substances or materials, hazardous waste or sewage. Some statutes require reporting within hours of discovery. Failure to report an incident can expose your client to substantial administrative, civil and criminal penalties. Therefore, it is important to understand how these requirements may apply to your clients' facilities and operations before an emergency occurs.

In a second scenario, you represent the seller of an industrial property. The buyer wants to perform an environmental investigation, including soil, soil vapor and groundwater testing, and your client asks for your guidance. While the circumstances surrounding the deal will impact your advice, prudent counselors should consider the client's potential liability exposure if legacy contamination (i.e., contamination resulting from a historical release) is discovered during the site investigation. Although the law is murkier than the situation involving a new release, the discovery of legacy contamination can also trigger reporting requirements that may ultimately lead to agency oversight, including investigation and cleanup obligations. Therefore, it is important to be aware of the circumstances in which legacy contamination discovered in the course of present-day site assessment work must be reported.

We explore these issues below, including situations that give rise to regulatory reporting requirements, potential requirements for new and legacy releases, and the consequences for failing to comply.

II. TYPICAL SCENARIOS IN WHICH REGULATORY REPORTING REQUIREMENTS ARISE

Regulatory reporting requirements typically arise in three scenarios: (1) new releases from ongoing operations, (2) legacy releases discovered during subsurface investigations conducted for various reasons, and (3) legacy releases discovered in connection with the investigation of off-site contamination. Each of these scenarios is discussed below.

A. New Releases from Ongoing Operations

A new release of hazardous substances or materials from ongoing operations can arise in several contexts, including system failure, human error or natural disasters. These releases are often readily apparent and, therefore, more easily ascertained for reporting purposes.

An obvious example of a new release is a one-time occurrence that is immediately apparent to on-site personnel, such as a spill during material loading or unloading, a tank or pipe rupture, or a breach of on-site containment measures. A new release can also occur as a result of a natural disaster such as flooding. In some circumstances an ongoing release can occur without being immediately detected, such as a release from an underground storage tank or the failure of an underground containment system. Regardless of the cause, new releases usually trigger at least some agency reporting requirements. In many cases, new releases must be reported verbally immediately after discovery, unless reporting the release would impede response and containment measures.

B. Legacy Releases Discovered During Subsurface Investigations

Regulatory reporting requirements may likewise be triggered when legacy or historical releases are discovered during a subsurface investigation. These are releases that occurred in the past and do not have an ongoing primary source. Although the contaminants may still be migrating in the subsurface, the primary source of the contamination has ceased. For example, evidence of a historical release from an underground storage tank may be discovered, even though the tank is empty or was previously removed.

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Subsurface investigations that could lead to the discovery of a legacy release may occur in connection with property redevelopment, refinancing, real estate transactions or corporate transactions involving the transfer of real property. When these situations arise, environmental attorneys and their clients should be cognizant of the liability that may result if previously unknown contamination is discovered, potentially triggering a reporting obligation.

For example, prospective purchasers or lessees often want to conduct investigations of subsurface soil, soil vapor and groundwater. However, certain types of investigation work may trigger a reporting obligation by the owner if contamination is discovered—even if the potential buyer or tenant withdraws from the deal—leaving the owner responsible for obligations triggered by the reporting requirement. Therefore, it may be advisable for the owner to limit the scope of, or in some circumstances even prohibit, any subsurface investigation to minimize the potential for triggering a reporting obligation.

C. Legacy Releases Discovered in Connection with the Investigation of Off-site Contamination

A legacy release discovered during an investigation of off-site contamination may also trigger reporting requirements. Often when there is a release from an adjacent property or a regional contamination problem, the regulatory agency will require further off-site investigation to assess fully the lateral extent of contamination, especially in groundwater. Similarly, the responsible party may suspect that an off-site source is contributing to the contaminant plume and pursue off-site investigation. Either scenario can lead to the discovery of legacy contamination at your client's property.

Because of the potential for the discovery of a legacy release in these situations, property owners must carefully evaluate any request for subsurface investigation. If the investigation is voluntary, property owners are generally well-advised to seek counsel to limit the scope of the investigation as much as possible and to ensure appropriate protections are established (e.g., a site access agreement with indemnity and insurance protections). When a regulatory agency is ordering the investigation, it may be more difficult to dictate the scope of work, but care should be taken to evaluate the number and locations of proposed sampling points.

Property owners should request and evaluate additional information about the purpose of the site investigation, any regulatory orders requiring the investigation, any information suggesting the subject property is a source of contamination, and the timeline for the investigation and detailed information about the scope of the work, including a work plan that details the proposed location of the investigation. By responding with detailed questions regarding the scope of the investigation...