The Increasingly Steep Climb to Regulatory Closure for Contaminated Sites

• Jurisdiction: United States,Federal
• Citation: Vol. 24 No. 1
• Publication year: 2015
• Author: by Keith B. Walker
• topic: Contracts,Environmental Law,Insurance Law,Civil Procedure,Real Estate

The Increasingly Steep Climb to Regulatory Closure for Contaminated Sites

by Keith B. Walker^*

Two recent key developments will significantly impact the way prospective purchasers and landowners identify and address the presence of contamination. First, the U.S. Environmental Protection Agency has adopted a new environmental due diligence standard that requires a new focus on soil vapor. The second development is a noticeable shift by federal and state environmental agencies with respect to evaluating human health risks resulting from contaminated soil vapor off-gassing from soil and groundwater which may then enter indoor air (i.e., "soil vapor intrusion"). The collective impact of these developments requires (1) more precisely defining the extent of subsurface impacts in multiple environmental media; and (2) more extensive evaluation to determine whether there is a potentially complete exposure pathway for soil vapor intrusion.

These changes have significant impacts for both landowners and prospective purchasers by further complicating purchase and sale negotiations, especially in regard to responsibility for completing the investigation and remediation processes. They also introduce significant uncertainties in regard to the time it will take and the costs that will need to be incurred with respect to achieving regulatory closure. Consequently, sellers may frequently be forced to either take on significant post-closing obligations or cut purchase prices. For their part, buyers may have to accept deed restrictions that prohibit the unfettered use of the property and/or require maintenance of human health risk mitigation measures in perpetuity, which may greatly inhibit their ability to re-sell the property. In addition, new emphasis on indoor air quality, which may or may not be related to the subsurface contamination giving rise to the initial regulatory requirements, introduces a wild card into the equation. When confronted with these changes to the environmental due diligence process and the regulatory environment, the engagement of highly qualified consultants and experienced, specialized environmental counsel is essential for structuring an approach that (i) achieves regulatory closure on a timely and cost-effective basis; (ii) minimizes the potential for significant toxic tort liability; and (iii) avoids undue restrictions on the use and marketability of the property at issue.

ADOPTION OF ASTM E 1527-13 BRINGS POTENTIAL SOIL VAPOR CONCERNS INTO THE LIGHT

The first development arises from U.S. EPA publishing its final rule adopting the American Society of Testing and Materials ("ASTM") standard E 1527-13 as the standard for satisfying the "all appropriate inquiries" ("AAI") standard.¹ By satisfying AAI, prospective purchasers can assert the "bona fide prospective purchaser" defense to liability under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA").² Essentially, the default path for satisfying AAI is to engage an environmental consultant to perform a Phase I Environmental Site Assessment pursuant to the applicable ASTM standard, the results of which are set forth in a "Phase I Report."

In its final rule, EPA recommended that Phase I Environmental Site Assessments begin to follow the standards set forth in ASTM E 1527-13. EPA then issued another final rule establishing that compliance with ASTM E 1527-05 will no longer be deemed acceptable as of the effective date of ASTM E 1527-13 (October 6, 2015).³

ASTM E 1527-13 initiates significant changes in the way soil vapor is evaluated, bringing the potential for soil vapor impacts into the discussion and, as a result, drastically affecting purchase and sale negotiations. Under the old standard, environmental impacts to soil vapor were typically considered an indoor air quality issue that was outside of the standard's focus. Pursuant to ASTM E 1527-13, however, soil vapor impacts must be evaluated in the very same way that soil and groundwater impacts have been evaluated.⁴ The practical implication is that many conditions that may not have been identified as "recognized environmental conditions" ("RECs") by the "Environmental Professional" under ASTM E 1527-05 will be identified as RECs under the new standard. The new RECs will increase the likelihood of recommendations for performance of a "Phase II" subsurface investigation, which may identify contamination that may have otherwise gone undetected.

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The results of the Phase II subsurface investigation may then give rise to the need to perform a human health risk assessment ("HHRA"). The purpose of the HHRA is to determine the extent to which subsurface contamination in soil, soil vapor and/or groundwater may be affecting the health of occupants in structures overlying the contamination sources. The default HHRA standard methodology includes the analytical theories of Johnson and Ettinger (1991) for contaminant partitioning and subsurface vapor transport into buildings (the "J&E Model").⁵ Multiple rounds of risk assessment, however, may be required in order to account for seasonal pressure, temperature and other variations that affect intrusion and diffusion rates. Once completed, the HHRA may indicate the need for active remediation to address the contamination source. Alternatively, the HHRA may conclude that mitigation measures such as soil vapor barriers and subsurface depressurization systems, discussed below, could adequately address identified human health risks, subject to the approval of a regulatory agency, if applicable.

For sellers of real property, the switch to ASTM E 1527-13 likely means that pre-acquisition environmental due diligence conducted by prospective purchasers will become far more extensive in scope, with a heightened focus on soil vapor. It also likely means additional ambiguity regarding the environmental and human health risks at issue and, consequently, far more heated negotiations over price. Further, as the extent of recommended Phase II subsurface investigation increases, the likelihood of discovering additional previously-undiscovered environmental impacts increases. Cumulatively, these developments will greatly complicate purchase and sale discussions regarding responsibility for remediation and/or mitigation measures - potentially putting the seller between a rock and a hard spot: (1) taking on extensive residual post-closing obligations or (2) accepting a significant decrease in the purchase price. With these added layers of complexity, it is essential to engage experienced, highly-qualified and astute environmental counsel and environmental consultants.

On the other side of the table, prospective purchasers must engage in far more sophisticated pre-acquisition environmental due diligence, with an increased focus on soil vapor impacts and the potential for vapor intrusion and toxic tort liability. Prospective purchasers must also realize that deed restrictions may be imposed on the property, which may include requirements to maintain human health risk mitigation measures or prohibitions on disturbing residual impacts in soil. Such deed restrictions may result in costly work required over a number of years, which in turn could have serious repercussions on the property's marketability. In addition, as discussed in detail below, the process of conferring regulatory closure will likely become lengthier and more expensive.

THE PATH TO REGULATORY CLOSURE IS CHANGING UNDERFOOT

Once the contamination has been characterized and the human health risks evaluated, the process of addressing the contamination begins. Historically, governmental agencies would grant regulatory closure following the completion of remediation to address the source of the contamination. In the traditional scenario, agencies would issue regulatory closure only once cleanup levels had been reached. Closure typically came in the form of a letter issued by the applicable regulatory agency stating that "No Further Action" was necessary in...