Lessons Learned from Phase I Litigation: Case Studies

by

Anthony J. Buonicore, P.E., BCEE, QEP

CEO, The Buonicore Group

Past Chairman, ASTM Phase 1 Task Group

Lessons Learned from Phase I Litigation: Case Studies

• Background• Case Studies:

• Case Background• Problem• Plaintiff’s Contention• Defendant’s (EP) Response• Discussion• Result• Lessons Learned

• Final Thoughts

Overview

• The key questions in all five Phase I case studies to be discussed are:• Was the “standard of care” provided by the EP deficient?• How did the EP’s performance compare with “customary practice”? • Did the work scope meet the requirements in ASTM E1527?

• All of the cases were settled (typical) with the settlement kept confidential (insurance companies prefer not to establish precedent)

• Where the cases were complex with numerous claims, only that portion of the case believed to be most relevant to Phase I consultants will be discussed

• RULE: If you recognize the case, please do not mention the firm or individual names when that case is discussed (so as to not violate confidence)

Background

#1: Phase I Update Case

• Paint manufacturing on the site for 40 years• Operations ended in the early 1970s • Site abandoned and five vacant buildings• In 1998, a combined Phase I and Phase II was conducted prior

to acquisition• Phase I followed the ASTM E1527-97 standard• Phase II consisted of limited sampling:

• Installed MWs up-gradient (1) and down-gradient (5) of the former industrial building complex

• Sampled soil (from the borings) and groundwater

Case Background

• Phase II results indicated: • VOCs and petroleum products in soil and groundwater samples

below the detection limit• Heavy metals in soil below background levels

• Phase I/II concluded that there were no RECs or serious environmental contamination issues associated with the site

• Property was acquired and partially developed• In 2004 the property was put up for sale

Case Background cont’d

• Property owner provided prospective purchaser with original Phase I and Phase II (consultant that performed this work was no longer is in business)

• Prospective purchaser submitted these reports to lender• Lender requested that they be updated• Prospective purchaser retained a Phase I consultant to “do

an update acceptable to the lender”


• Consultant submitted SOW with specific tasks to be conducted for the “update” (“update” defined in the SOW as “from the time the previous Phase I was conducted to the present”)• Update of government records• Review of any new uses of the property in the update period for

potential environmental impact• Site reconnaissance• Re-sampling groundwater in existing monitoring wells installed on the

site in previous Phase II investigation• Lender indicated that SOW for the update was acceptable• SOW executed by consultant and no material environmental issues

(RECs) identified as occurring in the update period• Lender made the loan and the property was acquired


• New owner had plans to remove one of the buildings on the property and construct new retail/office space

• When geotechnical work was conducted, evidence of possible soil contamination was observed

• A new consultant was brought in to investigate and found contamination (VOCs, PCBs and petroleum products) above state remediation standards in soil located immediately adjacent to the building that was going to be removed, and in soil under the building

• Remediation recommended

The Problem

• Consultant who did the original update should have known that the previous Phase I and Phase II were deficient and the conclusions should not have been relied upon

• Consultant did not meet the standard of care followed by environmental professionals performing this type of work

• Consultant who did the update was sued (the consultant who did the original Phase I/II was no longer in business) for negligence and harm caused, and sought damages

Plaintiff’s Contention

• The conclusions drawn in the initial Phase I and Phase II were relied upon (there was no “second guessing”)

• Client did not ask for a new Phase I/Phase II, only an update • Update only covered the period between when the previous

Phase I/ Phase II was conducted to the present • The update SOW was agreed to by the lender and the

property owner

Defendant’s (EP) Response

• The update scope of work was conducted as proposed• The E1527 standard does not require the EP to verify

independently information collected in the course of conducting the investigation and allows the EP to rely on information provided unless the EP has actual knowledgethat certain information provided is incorrect or unless it is obvious [that the information is incorrect]

Defendant’s (EP) Response cont’d

• How do you feel about relying on another consultant’s professional opinion in a Phase I?

• Do you think it is professional to second guess another EP’s opinion when you clearly do not have access to everything that went into developing this opinion?

• How far do you think one should go in reviewing another consultant’s previous Phase I for an update?

• How do you interpret the term “actual knowledge”?• What would you consider “obvious” that a Phase I consultant

should know?

Discussion

• Case was settled by the insurance company that provides the consultant’s E&O insurance

Result

• Updating another consultant’s Phase I can be especially difficult and risky (particularly since you often do not have the benefit of being able to review all the information collected and without any assurance that all reasonably ascertainable information has been collected)

• Relying on the professional opinion of another EP brings with it considerable risk (looking at the same data, different professionals can have different opinions and draw different conclusions)

• If you did not do the previous Phase I, it would be wise to refrain from doing an “update” of another consultant’s Phase I

• If, for business reasons, you decide to do an update, consider proposing an SOW consistent with effectively re-doing the Phase I and charging accordingly

Lessons Learned

#2: Non-Scope Consideration Case

• A prospective purchaser retained a consulting firm in 1999 to conduct a Phase I on a parcel of undeveloped property and specifically to identify “recognized environmental conditions”

• The scope of work conducted followed ASTM E1527-97 • No evidence of “recognized environmental conditions” was

identified• Property was acquired and development initiated

Case Background

• During the permitting process, the new property owner was advised that:• Wetlands existed on the property• A wetlands delineation investigation was required• Wetlands mitigation would be required• The extent of the property’s development would likely be limited

• The existence of wetlands on the property resulted in permitting delays, additional engineering costs, additional surveying costs, mitigation costs, construction delays and an inability to develop the property as planned

The Problem

• Property owner relied on the consultant to advise if there were any environmental issues

• The consultant was aware the property was going to be developed and should have known that the presence of wetlands could adversely impact this development

• Had the Phase I consultant exercised reasonable professional diligence and identified the presence of wetlands on the property, the property would not have been acquired


• The Phase I consultant breached the standard of care for the conduct of environmental assessments and was negligent in the performance of its professional services

• Property owner was harmed and sought damages that were a direct result of the Phase I consultant’s negligence

Plaintiff’s Contention cont’d

• An ASTM E1527-97 Phase I was proposed by the consultant, accepted by the client and conducted by the consultant

• According to the ASTM Phase I standard, wetlands is a non-scope consideration and is not included in the SOW unless the client specifically indicates otherwise

• The client did not request that wetlands be included in the SOW• The Phase I was directed at identifying RECs which are

associated with the presence or likely presence of hazardous substances or petroleum products on the property – the presence of wetlands on the property could not be considered a REC

Defendant’s (EP’s) Response

• As an environmental professional, what responsibility do you have to your client?

• If during the site recon you notice wetlands on a property that is going to be developed (or asbestos in a building that is going to be renovated), how would you handle this if your SOW is to be consistent with the ASTM E1527 standard?

Discussion


Result

• Do not assume that a client understands what is or is not included in an ASTM Phase I – many clients still perceive the Phase I as identifying any environmental conditions that may adversely impact a property

• Include a detailed scope of work based on the ASTM E1527 standard that makes it clear what an ASTM Phase I includes—and does not include

Lessons Learned

• Refrain in the SOW from indicating that any non-scope environmental condition is excluded, e.g., “asbestos is not included” • If you say an environmental condition is excluded, but at the same time do

not specifically exclude every other environmental condition, then all those other environmental conditions not specifically excluded may be presumed to be included!

• You may want to consider using a “such as” clause to clarify that a non-scope condition, e.g., asbestos or wetlands or lead-based paint, is not part of the SOW: “The SOW meets the requirements of the ASTM E1527-XX standard. The ASTM E1527-XX standard includes Section 13, Non-scope Considerations such as _________, that are not part of the required ASTM SOW unless the client specifically requests otherwise. ”

Lessons Learned cont’d

• If a non-scope condition has been observed in the site recon, it should not be mentioned in the Phase I report – by doing so you run the risk of it being perceived as included in your SOW

• What you might consider doing is contacting your client and discussing what you observed, what might be done and what it could cost

• If the client chooses to add this to the SOW, then send the client a change order with the cost adder

• If the client chooses not to do anything for whatever reason, business or otherwise, fully document this in the project file(not in the report)


#3: Vapor Migration Case

• A property developer wanted to acquire a parcel of vacant land and build a development of single family homes

• A consultant was retained in 2006 to conduct a Phase I according to the ASTM E1527-05 standard

• A former industrial site that used chlorinated solvents was identified adjacent and hydraulically cross-gradient from the target property

• Review of the contaminated plume delineation study on this former industrial property indicated that the contaminated groundwater plume was not on the target property

• The consultant did not identify any recognized environmental conditions on the target property and the property was acquired

Case Background

• After the first phase of residential development was completed and sold, one of the homeowners complained of “unusual odors”

• An indoor air investigation was conducted and identified the presence of TCE and PERC in the homes

• An environmental consultant was retained to investigate, and identified the source of the indoor air contaminants as vapors volatilizing from the contaminated groundwater plume at the adjacent former industrial site

• Subsequent indoor air investigations revealed a number of homes with levels of TCE and/or PERC

The Problem

• The developer incurred the cost of installing vapor intrusion mitigation systems in all impacted homes

• Homeowners sued the developer for impact on health and property value diminution

• The developer sued the Phase I consultant for negligence in not identifying vapors migrating onto the property from the adjacent former industrial site as a REC, and sought damages

The Problem cont’d

• The ASTM Phase I ESA is driven by CERCLA • CERCLA does not differentiate by the form of the release

(solid, liquid or vapor) to the environment, only that the release be a hazardous substance

• TCE and PERC are hazardous substances• The CERCLA definition of environment includes the

subsurface• The CERCLA definition of release includes hazardous

substances “emitting” and “escaping” into the subsurface environment

• Vapor migration is included as a consideration in a Phase I • The ASTM REC definition includes “releases into structures

on the property”


• The state where the property was located has a draft vapor intrusion guidance document and the consultant should have been aware of this

• The consultant was negligent in the conduct of the Phase I by not identifying the potential presence of hazardous vapors on the property

• Had the consultant identified the potential presence of hazardous vapors migrating onto the property, the developer would not have acquired the property without further investigation

• The consultant’s negligence caused harm to the property owner and damages were sought

Plaintiff’s Contention cont’d

• The ASTM E1527-05 standard does not include a vapor migration investigation in the SOW

• The standard of care and customary practice for conducting a Phase I ESA does not include consideration of vapor migration

• There is no consensus methodology for evaluating vapor migration in a Phase I [non-intrusive type] investigation

• EPA does not include consideration of the vapor pathway in its Hazard Ranking System (HRS) for identifying Superfund sites


• The ASTM E1527-05 standard was silent with respect to vapor migration. (Not until the ASTM E1527-13 standard was published in 2013 was it clarified that vapor migration (or encroachment) must be considered in a Phase I investigation no different than the way contaminated groundwater migration is considered.)• What was your practice back in 2006? • Was it or was it not “good commercial and customary practice”

in 2006 to include consideration of vapor migration in an ASTM Phase I investigation?

Discussion


Result

Lessons Learned

• If you conducted Phase Is prior to November 2013 (when the ASTM E1527-13 standard was published) and did not consider vapor migration in those Phase Is, there is liability risk.

• It would be prudent to work with your legal counsel to develop a strategy to respond to a potential future lawsuit claiming that you were negligent .

• Consider the following in developing a response strategy:• Industry consensus on a vapor migration screening methodology

for Phase Is was not developed and published until 2008 (ASTM E2600-08 standard)

• The ASTM E2600-08 standard included vapor migration as a “non-scope consideration” that would be included only at the client’s request (under legal pressure that this exclusion was inconsistent with CERCLA, E2600 was revised in 2010 to delete vapor as non-scope)

• The ASTM E1527-13 Phase I standard published in November 2013 for the first time specifically refers to vapor migration

• EPA first published a draft vapor intrusion guidance document in 2002, but only published its final version for public comment in April 2013 – and still has not published a final document

• In 2008, only 14 states had vapor intrusion guidance (this increased to 23 states in 2010 and 35 states today)


• Bottom line:• For Phase Is conducted prior to 2002 (when EPA published its

draft VI guidance), a reasonably strong case can be made for not having included vapor migration in your Phase I

• For Phase Is conducted between 2002 and 2005 (AAI Rule), a reasonable case might still be made, but this will likely be dependent in large part on whether the state where the property is located had published vapor intrusion guidance

• For Phase Is conducted post-2005 when EPA published its AAI Rule, it will be difficult to make a case since EPA in its December 30, 2013 AAI Amendment to the Rule clearly stated that the 2005 Rule included consideration of vapor migration

• For Phase Is conducted after 2010 (ASTM E2600-10 publication date), to make any kind of respectable case will be unlikely


#4: Former Tenant Case

• A prospective purchaser of a retail property (shopping center) retained an environmental consultant in 2003 to conduct a Phase I on the property to identify recognized environmental conditions

• The Phase I SOW complied with the ASTM E1527-00 standard

• The Phase I investigation concluded that there was no evidence of any RECs

• The property was acquired

Case Background

• When refinancing was sought four years later, the bank required a new Phase I and used a firm from their “approved” list

• The consultant doing the new Phase I for the bank was not the firm that did the original Phase I

• The consultant identified that a former dry cleaner existed on the property and recommended a Phase II investigation

• The Phase II investigation found PERC contamination in the soil and groundwater on the property and remediation was required to comply with state cleanup standards

• The property was not able to be re-financed

The Problem

• The existence of a former dry cleaner tenant on the property that was not identified in the original Phase I investigation conducted prior to the property being acquired

• This resulted in site investigation costs, remediation costs and an inability to refinance the property

• The firm that performed the original Phase I did inadequate historical research and did not follow the standard of care applicable to the conduct of Phase Is

• This caused harm for which damages were being sought• The damages sought were directly attributable to negligence

by the firm performing the original Phase I investigation


• The Phase I complied with the ASTM E1527-00 standard• The E1527-00 standard states that “review of standard

historical sources at less than approximately five year intervals is not required” • Past tenants were identified by the defendant using a city

directory search at approximately 8-10 year intervals (which meets the “not less than five year interval” requirement)

• The dry cleaner tenant identified by bank’s consultant was a tenant on the premises within this 8-10 year interval

• The bank’s Phase I consultant searched city directories more frequently (at approximately a three year interval), which is beyond what was required to comply with ASTM E1527


NOTE: For retail shopping center properties, the lender’s consultant made the case that it knew from experience that dry cleaners were often tenants at shopping centers (particularly where there were large food stores) and that they moved relatively frequently. As such, this justified their searching city directories at a more frequent interval (assuming the city directories were available).

Defendant’s (EP) Response cont’d

• How do you view the “not less than approximately five year intervals” in the E1527 standard? Should this be interpreted as “at five year intervals” if available?

• Would a 10 year interval comply with the E1527 standard? • For certain types of properties, such as shopping centers

where it is known that tenants come and go more frequently, should the interval be more frequent, assuming the city directories are available?

• What present and former tenant research should you do on a shopping center property adjacent to the target propertybecause it may have had for example a dry cleaner tenant in the past? Does the potential for vapor migration drive you to do more today?

Discussion


Result

• For retail properties such as shopping centers or industrial tenant properties, knowledge of past tenants is important

• Sellers typically only have limited information on all past tenants

• Historical city directories can provide insight into past tenants• It may make sense to review all available (“reasonably

ascertainable”) city directories for these types of properties • Note: This may be beyond the [interval] requirements of the

E1527 standard; hence, it would be prudent first to discuss this with the client (you may even be able to charge for the expansion in the scope of work).

Lessons Learned

• For these types of properties, you should make a special request to the client to obtain a list of all past tenants (even though this information typically is not available, and if it is available, it frequently would only be for a limited period of time)

• If you are following the E1527 standard for these types of properties, then your Phase I should include a limitation that the investigation may not identify all past tenants on the property and therefore may miss a high risk tenant (such as a dry cleaner)


#5: “What is obvious” Case

• A property was about to be foreclosed upon in 2002 and the bank authorized a Phase I prior to foreclosure

• A small industrial tenant located on the site was in the process of closing down

• This industrial tenant assembled small (desk-top) electrostatic coating equipment (with a component being a small vapor degreaser) and tested them prior to shipping

• No manufacturing was done on site• The operation utilized small quantities of chlorinated solvents in

testing the machines

Case Background

• A Phase I consultant was retained by the bank to do a pre-foreclosure Phase I following the ASTM E1527-00 standard

• The Phase I consultant requested hazardous waste manifests from the tenant but none were found in the on-site records

• Plant personnel during interviews were not able to recall any hazardous waste manifests

• The database company’s search of RCRA records identified no hazardous waste generation records for the site

• The consultant made a request to the state DEP for any manifest records and was told there were none for the site


• The consultant concluded that the site likely was a CESQG (where an EPA ID number and manifesting was not a requirement in the state)

• The Phase I consultant recommended a Phase II• The Phase II involved the installation of 6 monitoring wells

around the building exterior• No VOCs or PHCs were found in any of the soil or

groundwater samples• The consultant concluded that there was no evidence of

RECs• The bank went ahead with the foreclosure proceedings


• During the foreclosure proceedings, a prospective purchaser appeared on the scene and indicated an interest in acquiring the property

• The prospective purchaser’s lender (different from the bank involved in the foreclosure) required a Phase I

• The prospective purchaser retained the Phase I consultant that did the original Phase I for the foreclosing bank

• The original Phase I (8 months old) was updated following the ASTM E1527-00 standard

• The Phase II conducted for the foreclosing bank was less than two months old and not updated


• The consultant concluded again that there was no evidence of RECs and the “environmental risk associated with the site was low”

• The property was acquired and the building subdivided for office space


• Five years later, the property owner decided to refinance the property and the bank (different from the previous banks) requested a Phase I

• The consultant that was retained conducted the Phase I following the ASTM E1527-05 standard

• The consultant in requesting manifest data from the state for the site’s former light industrial operation was now told there were manifest records and received copies indicating that the site was in fact a LQG (the initial state search made an error by searching under an incorrectly spelled address, resulting in no manifest records on file at this “incorrect” address)

The Problem

• The consultant recommended Phase II sampling both at the exterior and in the interior of the building

• The Phase II found chlorinated solvent contamination below the floor of the building at levels that required remediation

• The property owner was unable to get the refinancing completed and was required to investigate the site more thoroughly, develop a remediation plan and cleanup the property

• Had the consultant that conducted the initial Phase I and Phase II identified the potential presence of hazardous substances in the subsurface below the slab, the property would not have been acquired

The Problem cont’d

• The Phase I consultant that conducted the Phase I/II did not meet the standard of care and should have known that these types of industrial facilities (testing vapor degreasers) require more comprehensive investigation, including sampling inside the building where the testing took place

• The consultant should have known the state DEP’s reply was inaccurate (it was “obvious”) and conducted further investigation, i.e., visited the regulatory offices and conducted the manifest record search itself (it is widely known that hazardous waste transporters for any size generators typically utilize the manifest system)

• The firm performing the Phase I was negligent and caused harm for which damages were sought


• The interviews of plant personnel indicated:• The use of solvents at the plant was minimal• No recollection of spills or releases• Only minor amounts of waste solvent generated from the testing (1-2

quarts)• No manufacturing was done on site, only assembly and testing• State DEP had no manifests for the site (providing support that

the site was likely a CESQG)• Search of the RCRA database by the government records search

company indicated no hazardous waste generation records at the federal level for the site

Defendant’s Response

• The ASTM E1527 standard does not require independent verification of information received from third parties (including government agencies and personnel interviewed) but may rely on this information “unless he or she actual knowledge that certain information is incorrect or unless it is obvious that certain information is incorrect based on other information obtained or actually known to the environmental professional”

• A CESQG is not required in the state to have an EPA ID number and is not required to manifest

Defendant’s Response cont’d

• How far does an EP have to go, if at all, to verify information received from third parties?

• How can EPs know what is “customary practice” for the conduct of Phase Is by competitors in their area?

• How does one judge what should be “obvious”?

Discussion


Result

• If something does not pass the smell test, it probably is worth doing additional investigation

• If you are relying on certain data for your professional opinion, make sure this is made clear in the Phase I report

• If there are limitations in any of the site assessment activities reviewed, such as in this case the fact that there was no sampling inside the building below the slab, clearly identify this limitation in the Phase I report

Lessons Learned

1. When you rely on important facts (such as the depth to groundwater or the type soil or groundwater flow directionfrom a Phase II investigation), be sure to reference the source.

2. When you rely on important assumptions (such as groundwater flow following surface topography, or the soil in the subsurface being homogenous), be sure to clearly state this.

3. When you provide your professional opinion, be sure always to condition it (e.g., clearly identify what you base it on).

Final Thoughts

4. Be sure to identify in your terms and conditions the limiting conditions identified in the ASTM E1527 standard, i.e., the investigation is not exhaustive and uncertainty is not eliminated.

5. Describe your scope-of-work clearly and as comprehensively as possible

6. State who can rely on the report7. When litigation takes place, a key question will be:

“Did you clearly say what you will do?”And then:

“ Did you do what you said you would, no more, no less?”

Final Thoughts

Law

Lessons Learned from Phase I Litigation: Case Studies