THE BEST OF CLENOVEMBER 30, 2011

IDENTIFYING AND RESPONDING TO ENVIRONMENTAL ISSUES IN

TRANSACTIONS

TOP 10 ENVIRONMENTAL MYTHS IN TRANSACTIONS

presented by

DOUG CLOUD M2C2LAW.COM

1. NO NEED FOR A PHASE I, IT’S JUST…

office, retail, vacant, farmland, lease

CASE STUDY

2.0 acres in rural Georgia Vacant one-story, sheet metal

building Neighbors just residential, church Security for small commercial loan Default and foreclosure

Call from the Georgia EPD

Property on Hazardous Site Inventory

Nearby Wells

Due Diligence Today

What We Do Phase I ESA ASTM E1527-05 Standard

Transaction screen Asbestos, radon, lead

Phase II if necessary Review of prior reports, documents,

records Compliance audit as appropriate

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

2. INNOCENCE IS BEST DEFENSE

Major concern for environmental liabilities in transactions arose with federal Superfund/CERCLA

Spawned thicket of laws Broad liability scheme

Current and past owners and operators, generators, arrangers (transporters)

Strict, retroactive, joint & several liability Liability not limited to property

value/investment Innocence can be no defense

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

3. “CLEAN” PHASE I = NO CONTAMINATION

Scope of Phase I - site inspection, interviews, readily available records review

Apparent Recognized Environmental Conditions (presence or likely presence of hazardous substances or petroleum contamination)

Consultant qualifications (experience, reputation, insurance)

DUE DILIGENCE

:Why We Do It To learn more about the

environmental risk profile (current or potential exposure and liabilities)

To qualify for certain liability defenses under CERCLA

To inform allocation of risks among parties

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

4. “CLEAN” PHASE I = NO LIABILITY

What CERCLA Defenses? Innocent Landowner Adjacent Landowner Bona Fide Prospective Purchaser

Must perform “all appropriate inquiries” per AAI Final Rule at 40 CFR Part 312

ASTM E1527-05 Standard Phase I complies

Shelf lifeATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

Buyer Beware

Under CERCLA, relatively few commercial parties have successfully avoided liability by virtue of these defenses

3000 E. Imperial, LLC v. Robertshaw Controls Co.

Ashley II of Charleston, LLC v. PCS Nitrogen

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

5. “CLEAN” PHASE I = NO PHASE II

Scope and limitations Contracting and reliance Get what you pay for

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

6. IF PHASE II ID’s CONTAMINATION, AGENCY NOTIFICATION IS REQUIRED

Regulatory gaps v. agency practice

Georgia’s special case (HSRA) Monitor consultants, parties to

the deal

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7. AGENCY NFA MEANS NEVER

Reopener

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

8. OK TO RELY ON PRIOR PHASE I

Snapshot in time Shelf life Updates

ATTORNEY-CLIENT PRIVILEGED & CONFIDENTIAL

9. CONTAMINATED PROPERTY IS UNMARKETABLE

Never so many effective tools for managing environmental risks in transactions than those available in today’s marketplace

Voluntary Cleanup & Brownfields Programs

Agency oversight Grants Liability protections Growing acceptance of RBCA

Regulatory Protections

CERCLA defenses Agency

NFA determinations Comfort letters Prospective purchaser agreements

Secured creditor exemptions

Environmental Insurance

Pollution Legal Liability (PLL)/Premises Pollution Liability (PPL)

Can offset some typical risks, including known and unknown onsite and offsite conditions In many ways, addresses "pollution exclusion" clauses in modern CGL policies

10. Let’s Use the Environmental Short Form

Common knowledge that environmentally related hazards can be a source of substantial risk and liability. Over the years, environmental liabilities have grown and laws and lawsuits have proliferated. Sustainable allocation of environmental risks in transactions requires full disclosure and meeting of the minds