ENVIRONMENTAL DUE DILIGENCE BEYOND THE PHASE I ESA

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Everyone in the manufacturing industry is well aware of the liabilities associated with being responsible for environmental contamination, which is why you all work diligently to prevent releases in the first place.  It stands to reason then, if you are willing to put forth the effort to avoid these liabilities at your own facilities, then the last thing you want to do is put yourself in a position of being responsible for someone else’s environmental liabilities.  This is why you perform your environmental due diligence when considering the purchase of new properties.  Performing a Phase I Environmental Site Assessment (ESA) in accordance with the ASTM E1527-13 standard meets the requirements of the All Appropriate Inquiries (AAI) regulation at 40 CFR Part 312, and is one of eight (8) criteria needed to qualify you for either the bona fide prospective purchaser (BFPP), innocent landowner or contiguous property owner defenses to Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) strict liability.  With regard to the BFPP defense, there are seven (7) other criteria: (1) all disposal of hazardous substances occurred before acquiring the property; (2) all legally required notices were provided regarding discovery or release of any hazardous substances at the property; (3) reasonable steps were taken to prevent any continuing or future release and exposure to previously released substances; (4) provided full cooperation with any response actions; (5) complied with land use restrictions; (6) complied with requests for information; and (7) confirmed no affiliation with any potentially responsible party.  Performing the Phase I ESA early in the due diligence process is critical in the event Recognized Environmental Conditions (RECs), Historical RECs (HRECs) and/or Controlled RECs (CRECs) are discovered resulting in the need for additional time to investigate them.  Discovering RECs automatically places the purchaser in the role of BFPP, thus obligating them to meet the seven (7) above criteria to maintain a defense to CERCLA liability.  For the risk averse, this can be where the process stops, but if you see sufficient value in your planned purchase, then moving forward with a Phase II ESA will be necessary.  It is also highly recommended that you work with appropriate legal counsel and a qualified environmental professional to navigate through the process.

The Phase II ESA should be specifically tailored to the RECs discovered and sufficient in scope to meet the “reasonable steps” element of criterion three (3) mentioned above, which means more than one mobilization to investigate the property may be required.  The Phase II ESA process should follow the Indiana Department of Environmental Management’s (IDEM’s) Remediation Closure Guide (RCG) and will generally involve the collection of soil, groundwater and/or vapor samples to be analyzed for specific chemicals of concern (COCs).  It may also include conducting a geophysical survey to search for subsurface objects such as storage tanks, vaults, drums, etc.  If tanks, vaults, drums, etc. are found and they contain contents, then the contents must be sampled as well.  Once received, the analytical result for each COC is compared to its respective media specific (i.e., soil, groundwater, vapor, etc.) default screening level provided in the RCG Screening Level table.  Default concentrations are provided for both residential and commercial/industrial exposure scenarios and the intended future use of the property will dictate which scenario is appropriate.  If all COC concentrations are below their default residential screening levels, then your environmental due diligence is likely complete.  However, if COC concentrations are above their respective residential or commercial/industrial default screening levels, then criterion two (2) mentioned above must be followed to maintain the BFPP defense.  In addition, consideration must be given on how best to move forward because the presence of contamination means you now have continuing obligations that must be met to maintain your BFPP defense (see criterion (3)).  Although many options are available, because the defense is completely self-executing, one option is to enter the property into the Indiana Brownfields Program (IBP) and request a Comfort Letter.  The Comfort Letter is not a legal release from liability, but it provides an opinion from the State as to whether or not the purchaser has met the criteria required for the BFPP defense, and with respect to continuing obligations, provides a plan for “reasonable steps” to be followed to maintain the BFPP defense in the future.