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1
Environmental Due Diligence:
A Practical Guide to Survival
Scott D. Hubbard(616) 752-2157
2
The Drill
Get the Agreement
Buying or selling?
Purchasing or leasing?
Assets, stock, merger, financing, joint venture, etc.
Representations and warranties Purposes: guide due diligence; allocate liability
Scope: contamination, compliance, USTs, prior reports, no litigation/proceedings
Exceptions and qualifiers
3
The Drill
Get the Agreement
Representations and Warranties cont. Disclosure Schedules
Buyer: when will we get them?
Seller: what are my resources to prepare them?
Indemnity: tied to reps and warranties, and/or separate environmental liability – specific covenants?
4
The Drill
Get the Agreement Governing covenants: timing, access, procedures
Buyer: access to properties, access to personnel, permission to do invasive investigation
Seller: Time lines, mutual approval of consultants, work plans, limits on timing, scope of work
Confidentiality
Permits and procedures for transfer
Prior assessments and audits Buyer: get representation that Seller has disclosed all
5
The Drill
Learn all you can about your client’s business and its industry. The more you can learn, the more effective you can be.
Site-specific regulatory regimes
Chemical usage
Permit requirements
Decommissioning activities
6
The Drill
Ordering the environmental assessment
Timing, timing, timing
Scope
Multiple properties
Terms and conditions of engagement Indemnities, limitations of liability
All reports in draft form
Lines of communication
7
The Assessment
ASTM Phase I ESA: basic building block of environmental due diligence
Focus is on releases and site contamination
Covers USTs
Does not cover various issues that may be critical in a given deal: asbestos, wetlands, lead paint, radon, historical/cultural sites, endangered species
8
The Assessment
Is there a lender involved?
Many lenders have special requirements Scope
Certification of report
“Updating” the Phase I
Data staleness
ASTM limitations
9
The Assessment
Using the other party’s consultant (the “Seller’s Phase I”)
Manage the consultant
10
Environmental Liability
Site contamination
CERCLA/state analogs Status based, subject to exceptions
Innocent purchaser
BFPP
Contiguous landowner
Continuing obligations
RCRA Corrective action liability
11
Environmental Liability
Site contamination cont.
CWA
TSCA
State Statutes
OSHA (Asbestos)
Limits of defenses
Common law
12
Contact Information:
Scott D. HubbardWarner Norcross & Judd LLP
900 Fifth Third Center111 Lyon Street NW
Grand Rapids MI 49503(616) 752-2157
4864618
14
Overview
Defining the Transaction Environmental Assessments EPA’s All Appropriate Inquiry
Regulations Ongoing Operations Other Requirements Special Circumstances
15
Defining the Transaction
What type of transaction -- ongoing operations, real estate purchase, long-term lease or short term lease?
Who do you represent – buyer, seller, lender, lessor?
What are the timing constraints? What is the experience level and
comfort level of the client?
16
Environmental Assessment
Select the correct assessment for your site and project What do I know about the history of the
site? What is the development plan? What are the constraints of the deal? What will the financing require?
17
ASTM Guidance
Designation Title
D6008 - 96(2005) Standard Practice for Conducting Environmental Baseline Surveys
E1527 - 05 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process
E1528 - 06 Standard Practice for Limited Environmental Due Diligence: Transaction Screen Process
E1903 - 97(2002) Standard Guide for Environmental Site Assessments: Phase II Environmental Site Assessment Process
E2018 - 08 Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process
E2247 - 08 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process for Forestland or Rural Property
ASTM Guidance (sample)
Complete list available at http://www.astm.org/Standards/environmental-assessment-and-risk-management-standards.html#E50.02
18
All Appropriate Inquiry
The Small Business Liability Relief and the Brownfields Revitalization Act of 2002 (Brownfield Amendments)
Potential for federal CERCLA liability relief Hurdles to qualify for the relief before the
acquisition of the property Long-term commitments to maintain the relief State law liability issues must be considered
separately
19
All Appropriate Inquiry is applicable to 3 categories of property owners:
1. Innocent purchasers
2. Contiguous property owners
3. Bona fide prospective purchasers provided that the property owner meets the
statutory criteria, which will be analyzed on a fact-specific basis
4. Certain Brownfield grant recipients
To Whom is AAI Applicable?
20
Statutory Criteria For Compliance – All Appropriate Inquiry
Statute required EPA to consider several factors in
developing the regulations which are codified at 40 CFR Part 312
• Results of the inquiry of an environmental professional• Interview with past and present owners, operators and
occupant regarding the potential for contamination• Review of historical sources• Searches for recorded environmental clean-up liens• Reviews of federal, state and local records• Visual inspections for the facility and adjoining properties• Relationship of the purchase price to the value of the property
if not contaminated• Commonly known or reasonably ascertainable information
about the property• The degree of obviousness of the presence or likely presence
of contamination and the ability to detect contamination by appropriate investigation
21
Other Qualifying Criteria?
Evaluation of compliance preformed on a “careful, fact-specific analysis”
Statutory Criteria for compliance: “All Appropriate Inquiry” Criteria Full Cooperation Compliance with Land Use Restrictions and Institutional
Controls Did Not Cause, Contribute or Consent to a Release/Disposal
Occurred Prior to Acquisition Compliance with All Requests for Information All Legally Required Notices No Affiliation with a Potential Liable Party Reasonable Steps
42 U.S.C. § 9601(35)(B)(iii)
22
Other Issues
Uniform Environmental Covenants Act State Law Liability Programs Facility Compliance History (federal, state,
local) Water Air RCRA Underground and Aboveground Storage Tanks Zoning
23
Ongoing Operations
Facility Operating Permits – (e.g Water, Air RCRA Hazardous Waste Operator) will they transfer? timeline for new permits?
Other Permits/Authorizations – TSCA FIFRA
24
Special Issues
Specific transactions may have special issues Endangered Species Migratory Birds Environmental Justice
25
Special Issues
Is the project subject to the National Historic Preservation Act (NHPA), 16 U.S.C. § 470 et seq. due to government funding?
Section 106 of NHPA requires all Federal agencies to take into account the effects of their actions on historic properties. Lead Agency (Agency providing funding, issuing
permit, etc.) State Historic Preservation Officer (SHPO) Tribal Historic Preservation Officer (THPO) Advisory Council on Historic Preservation (ACHP),
36 CFR Part 800 Cultural Resources Surveys
26
Environmental Due Diligence
Questions?
Contact InformationSara Beth Watson
Steptoe & Johnson LLP1330 Connecticut Avenue, NW
Washington, DC 20036(202) 429-6460