considerations for transactions with environmental issues

Considerations for Transactions with Environmental Issues

Richard M. Fil, Esq.

Sources of Potential Liability

• Federal CERCLA / state counterparts• RCRA (federal and state)• Common law• Other causes of actions (e.g., public trust)

Types of Damages

• Environmental damage to real property• Bodily injury / personal property damage• Third party claims from off-site impacts• Claims for off-site / non-owned impacts• Operational non-compliance

– Capital costs

– Penalties

– Operational losses

Importance of Allocation

• Seller caused the problem• Buyer owns the problem• Failure to allocate may result in:

– Litigation

– Uncertainty

– Additional costs

Basic Considerations

• Condition of facility (current and historic)• Operation of facility (current and historic)• Divergent interests of buyer and seller

Potential Sources of Concern

• Compliance– Permits

– Reporting / other requirements

• Contamination– On-site

– Off-site

– Former sites

– Neighboring properties (sources and receptors)

Importance of Site Characterization

• Potential compliance needs (e.g., permitting; Transfer Act)

• Identify site history / conditions• Establish baseline• Quantify remediation costs• Allocate responsibility

Types of Site Assessments

• Environmental conditions– Phase I

– Phase II

– Phase III

• Operational practices– Necessary permits in place

– Compliance with permits

– Compliance with reporting / other requirements

Considerations for Retaining a Consultant

• Confidentiality• Generate written reports only on request• Stamp all reports “A/CP” and “Draft”

unless directed otherwise• Product ownership

Considerations for Retaining a Consultant (continued)

• Insurance• Access to all sites• Clearly identify the client• Time and cost issues• Reporting requirements

Potential Reporting Requirements

• CERCLA• C.G.S. Section 22a-450 (spills)• C.G.S. Section 22a-6u (S.E.H.)• RCSA Section 22a-133v-1 et seq. (LEP

Regulations)• C.G.S. Section 22a-134g (termination of

operations)• Federal SEC disclosures• Aquifer Protection Regulations (in draft)

Ethical Considerations

• Identify your client• Watch for conflicts that may arise• Remain aware of divergent interests of

others

Important PSA Elements

• Definitions• Representations and warranties• Schedules of exceptions• Indemnification by buyer and seller

Definitions

• Environmental conditions• Environmental liability• Hazardous materials• Environmental laws

Representations and Warranties

• Potential on-site and off-site contamination• Actual or threatened claims or proceedings• Presence of USTs, asbestos, PCBs• Health & safety• Provision of all relevant documents• Permit status and compliance

Schedules of Exceptions

• Identify exceptions to representations and warranties

• Typical thresholds may include materiality, time period, and seller’s knowledge

• Examples:– Spills

– Orders, NOVs, litigation

– Exceedance of permit limits

Indemnification

• Division of responsibility• Trigger for indemnification• Define compliance• Basket and cap• Limits on notice / time• Independent statutory claims

Considerations for Indemnification

• Define cleanup standards and options• Identify party in control of cleanup and

agency contact• Provide for adequate access• Require cooperation• Define survival period for right to

indemnification

Examples of Buyer- and Seller-Friendly Agreements

• Buyer friendly terms• Seller friendly terms

Other Forms of Protection

• Covenant not to sue• Prospective purchaser agreement• Comfort letter• Environmental insurance

Connecticut Transfer Act

• C.G.S. Section 22a-134 et seq.• “Establishment”• “Transfer”

“Establishment”

• Generation of more than 100 kg of hazardous waste in any month since 11-80

• Handling of hazardous waste generated elsewhere by another person

• Operated at any time since May 1, 1967 as:– Dry cleaner

– Furniture stripper

– Vehicle body repair or painting shop

“Transfer”

• “Any transaction or proceeding through which an establishment undergoes a change in ownership,” with 20 exceptions

• Includes leases of 25 years or more

Transfer Act Filing

• Forms I-IV• RCSA Section 22a-133k-1 et seq.,

Remediation Standard Regulations (“RSRs”)

• “Certifying Party”• Environmental Condition Assessment Form

(“ECAF”)

Transfer Act Non-Compliance

• Strict liability / damages to transferee under C.G.S. Section 22a-134b

• Penalties under C.G.S. Section 22a-134d• Other enforcement actions by DEP

RSRs and ELURs

• RSRs– Soil and groundwater

– GA v. GB

– Residential v. industrial / commercial

• ELURs– Limit site uses

– Impose controls

Other Relevant Requirements in Connecticut

• Termination of operations• Aquifer protection regulations

Hypothetical Transactions

• Consider the sale of a car dealership to:– Another car dealer

– “Big box” retail developer

– Affordable housing developer

Conclusion

• Consider and address potential liability for:– Compliance

– On-site and off-site contamination

• State and federal requirements• Contractual and statutory liability