NOVEMBER 2005 CHANGES IN THE STANDARDS FOR PERFORMING
ENVIRONMENTAL SITE ASSESSMENTS TO SATISY CERCLA

Prepared by Fitzgerald Henne & Associates, Inc.
3125 Sovereign Drive, Lansing, Michigan 48911
517-887-1100 / www.fitzhenne.com

Statutory Basis for and Defenses to CERCLA Liability

Under CERCLA, individuals, corporations, and governmental units may be held strictly liable for cleaning up hazardous substances at properties that they either currently own or operate or owned or operated at the time of improper disposal of contaminants.  Strict liability for contamination may be imposed based solely on property ownership and without regard to fault or negligence.  In 1986, Congress created an “innocent landowner” defense to CERCLA liability for individuals or entities that “did not know and had no reason to know” prior to purchasing a property that any contaminants were on the property.  To claim the defense, the purchaser must have undertaken “all appropriate inquiries” (AAI) into the prior property ownership and uses before buying the property.  In 2002, the defense was expanded to “contiguous property owners” and “bona fide purchasers” if they also undertook “all appropriate inquiries.”

What was needed to qualify as an innocent landowner was not defined until proposed AAI standards were issued by the U.S. EPA in August 2004.  After a large number of comments were received and revisions were made in the proposed standards, the final standards were published in the Federal Register on November 1, 2005 (70 FR 66069).

Prior to releasing the proposed standards and while the standards were being reviewed, the industry standard for completing environmental site assessments was ASTM (American Society of Testing and Materials) Method E 1527-00.  Three weeks after the AAI standards were published, ASTM published revised method (E 1527-05) to make changes needed to comply with the EPA’s requirements.

Changes Created by the New AAI and Revised ASTM Standards

·         AAI Uses a New Term:  “Conditions Indicative of a Release” 

The “buzz phrase” in the AAI standards is “conditions indicative of a release or threatened releases of hazardous substances on, at, in or to the property.”  Although this is a mouthful, a search of the Internet found only one abbreviation, “CIR,” used by the author of a Winter 2004 Michigan Environmental Law Journal article about the then-proposed rules.  ASTM stuck with its phrase, “recognized environmental condition” (REC), thus this term likely will continue to be used in the industry.
          CERCLA Section 101(22), AAI p 66098, AAI §312.1(c)(1), ASTM Section 1.1.1

·         Potential Liability for Contamination Coming from Other Properties

AAI only releases a “contiguous property owner” from liability for contamination coming from an off-site source if an AAI investigation is completed.  In the AAI standards, the U.S. EPA suggested that testing may be required along a property line to look for contamination coming from off-site so that data gaps can be filled.  ASTM, however, excludes testing from its standards.  Federal law differs from Michigan law, which exempts a property owner from liability for contamination coming from an off-site source regardless of whether an environmental site assessment or testing has been completed.
          AAI pp 66073, 66089; AAI §§ 312.1, 312.20(g), ASTM Section 7.4, MCL 324.20126(4)(c)

·         AAI’s Performance-based Standard

The AAI standard creates a performance-based standard with a primary objective to “identify conditions indicative of a release or threatened release,” rather than the more prescriptive data-gathering standard previously used by ASTM.  The new version of the ASTM standards has adopted the AAI’s performance-based criteria.  To adhere to the new standards, Fitzgerald Henne believes that data-gathering will begin in a systematic fashion, but as the data is analyzed, the environmental professional will need to modify the research process to fill in “data gaps.”
          AAI pp 66075 and 66086, AAI § 312.20(e)

·         Data Gaps and Data Failures

Both new standards require that any “data gaps” and “data failures” be identified, and evaluated with regards to their significance in meeting the objectives of the site assessment.  A data gap has been defined by ASTM as a lack or inability to obtain information.  A data failure occurs when the information is obtained, but it doesn’t fully meet the historical research objective of the site assessment, described in ASTM Section 8, which is to identify RECs in connection with the property.  A data failure is only one type of data gap.
          AAI p 66077, AAI § 312.21(c)(2), ASTM Sections 3.2.19, 3.2.20, 4 and 12.7

·         Validity of ESAs Conducted Solely in Accordance with ASTM

According to AAI, ESAs previously conducted in accordance with the 1997 and 2000 ASTM standards will be allowed and recognized as a defense to CERCLA liability, subject to new 180-day deadlines.  According to the AAI standards, the old ASTM standards can continue to be followed for reports issued until November 1, 2006.  After that date, CERCLA liability protection will only be recognized if the work was done in accordance with the AAI standards.  Fitzgerald Henne believes, however, that as soon as it was approved and published, ASTM E 1527-05 automatically became the standard we need to follow for new environmental site assessments.
          AAI pp 66070, 66072 and 66107

·         Certification of Environmental Professionals

Individuals signing a report must state on the signature page that they meet the regulatory definition of an environmental professional, and that the report was done in accordance with the AAI standards.  An individual is considered qualified as an environmental professional if they are a state-licensed professional engineer or professional geologist with three years experience conducting environmental assessments, or if they have a bachelors degree in a science and five years of experience conducting environmental site assessments, or if they merely have 10 years experience conducting site assessments.  Although some activities that are part of the AAI research need only be done under the supervision of the environmental professional, the EPA strongly recommends, but does not require, that the site inspection portion of the investigation be done by an environmental professional.  (Three-quarters of Fitzgerald Henne’s environmental group members are fully qualified as Environmental Professionals, and at least one performs every site walkover.)
          AAI pp 66077 and 66078, AAI § 312.10(b), ASTM Sections 3.2.29 and 12.12

·         Time that Should be Allowed for a Site Assessment

Many of Fitzgerald Henne’s clients have become accustomed to getting quick turn-around, last-minute environmental site assessments done, knowing that Fitzgerald Henne consistently met its objectives.  The AAI standards require that the Environmental Professional gather the required information “that is publicly available, obtainable from its source within reasonable time and cost constraints, and which can practicably be reviewed.”  ASTM defined “reasonable time” to be 20 days.  If insufficient time is allowed for all of the research data to arrive, Fitzgerald Henne will need to identify any missing information as a data gap, and the strength of the CERCLA defense is diminished.
          AAI p 66086, AAI § 312.20(f)(1), ASTM Section 8.1.4.2

·         Expiration Dates

Both standards require that certain research tasks be completed within 180 days of the date of property acquisition, that the entire report must be updated if it’s more than one year old, and that the environmental investigation be completed before the transaction occurs.  The six-month time limit applies to the interviews, the search for environmental liens, a review of governmental records, and the site inspection portions of the research.  Accordingly, some research for transactions that take more than six months to complete will probably need to be updated before the closing takes place, and if a transaction takes more than one year to complete, the report will need to be fully updated.
          AAI p 66083, AAI § 312.20(b), ASTM Section 4.6

·         Use of Data in Prior ASTM Phase I Reports for New AAI Research

Information in prior AAI and ESA reports completed in accordance with ASTM’s 1997 or 2000 standards can be used if the purchaser and environmental professional check the information and find it to be accurate and valid.
          AAI p 66084, AAI § 312.20(c)(4), ASTM Section 4.7

·         Continuing Obligations for Liability Protection

The EPA clearly states:  “the mere fact that a prospective landowner conducted all appropriate inquiries does not provide an individual with a defense to or limitation from CERCLA liability.  To qualify as a bona fide prospective purchaser, innocent landowner, or a contiguous property owner, a person must, in addition to conducting all appropriate inquiries prior to acquiring a property, comply with all of the other statutory requirements.”  Once property is acquired, the purchaser has several continuing obligation, most significant is probably the obligation to undertake “reasonable steps” to stop any continuing release, prevent future releases, and prevent or limit human, environmental, or natural resource exposure to contaminants.  EPA does not believe Congress intended innocent entities seeking CERCLA protection to have the same types of response obligations that a CERCLA–liable party has, and believes that what will be considered “reasonable steps” is site-specific.
          AAI pp 66073-4, see also “Interim Guidance Regarding Criteria Landowners Must Meet in Order to Qualify for the Bona Fide Prospective Purchaser, Contiguous Property Owner, or Innocent Landowner Limitations on CERCLA Liability,” available at http://www.epa.gov/compliance/resources/policies/cleanup/superfund/common-elem-guide.pdf.

·         Research to Identify Institutional and Engineering Controls

The AAI and ASTM standards require that information regarding institutional and engineering controls be researched and reported.  ASTM has named these “Activity and Use Limitations” (AULs).  These controls commonly include land use, well installation, or other government-created restrictions intended to protect the public from regional contamination problems.  Some controls impact large areas with multiple properties, and are not typically discovered through title searches.
          AAI p 66093, AAI §§ 312.10(b) and 312.20(e)(1)(vii), ASTM Section 5

·         Commonly Known or Reasonably Ascertainable Information

Often everybody in town knows about the former uses and likely contamination on a property.  The new standards require some the purchaser and environmental professional to explore what is known about the property and surrounding area through interviews with current and past owners, occupants of the site and surrounding properties, local or state officials, local media sources, and local libraries and historical societies.  In promulgating this requirement, the EPA was not specific about the intensity or how exhaustive this research needed to be, merely stating, “[t]he intent of the requirement is to establish that a prospective landowner or grantee and an environmental professional … must make efforts to collect and consider information about a property that is commonly known within the local community or that can be reasonably ascertained.”
          AAI pp 66099-100, AAI § 312.30, ASTM Section 6.6

·         Search for Environmental Cleanup Liens

Both standards require a search for environmental cleanup liens against the property.  The preamble to the rule states, “we believe that the decision of who conducts the search [for environmental cleanup liens] is best left up to the judgment of the prospective landowner or grantee and environmental professional.”  Environmental cleanup lien searches are commonly included with title searches that identify the historic ownership of the site.  Although the ASTM standards have for many years required that environmental liens be identified, the new standards more clearly require that a title search be done.
          AAI p 66092, AAI § 312.25, ASTM Section 6.2

Other Long-term Requirements of the ASTM and AAI Standards with Minor Updates

In developing the AAI and ASTM standards, the groups that worked on these documents clarified some of the long-standing requirements of an environmental site assessment.  Some of these clarifications are discussed below.

·         Investigation of Historic Uses

When Congress passed the legislation that resulted in the creation of AAI, it required that historical sources of information be reviewed to “determine previous uses and occupancies of the real property since the property was first developed.”  First developed use includes agricultural uses and placement of fill dirt.  If a search of historical sources of information does not allow the environmental professional to document the site uses “as far back in history as it can be shown that the property contained structures or was placed into use of some form,” then the lack of information must be considered a “data gap.”  The EPA believes that the “intent [of the ASTM and AAI standards] is the same and the final rule represents no change from current good customary business practice.”  Although it is often difficult to learn about property uses prior to about 1900, the environmental professional should attempt to gather this data for most properties in Michigan. 
          AAI p 66091, AAI § 312.24(b), ASTM Section 8.3.2

·         Relationship of Purchase Price to Value of Property

The report must comment on the relationship of the purchase price to the value of the property assuming that no contamination is present; however, the standards anticipate that most of the time this assessment of purchase price will be done by the prospective purchaser and provided to the environmental professional.  The User isn’t required to disclose the purchase price, but if the purchase price is significantly less than the fair market value, s/he should now disclose this to the Environmental Professional and explain why a difference exists.  Although it isn’t required, Fitzgerald Henne believes that even if the fair market value and purchase price are the same, it would also be prudent for the prospective purchaser to identify how the fair market value was determined (e.g. fair market value study or appraisal).  
          AAI p 66098, AAI § 312.29, ASTM Section 6.5

·         Interviews of Current and Former Owners and Operators

For single-occupant properties, AAI requires that the environmental professional interview at least one current property owner or occupant, or if the current owner or occupant has limited knowledge, a past property owner and occupant.  The identification of and requirements for additional interviews expands for multi-occupant properties, or when the interviewed person has limited knowledge of the current and historic property uses.  If a property has been “abandoned,” adjacent property owners and occupants, or in some cases government officials should be interviewed to gather information about the historic property uses.  No specific set of questions is required; rather the questions should be tailored for each site “to gather information to achieve the rule’s objectives and performance factors.”
          AAI p 66089, AAI § 312.23, ASTM Section 10

·         Specialized Knowledge of Purchaser and Environmental Professional

If a purchaser asserts one of CERCLA’s defenses for liability, the Court hearing the case has the discretion to consider the “specialized knowledge” of the purchaser (then known as the “defendant”).  Individuals or entities that routinely buy and sell commercial properties are likely to be held to a higher standard in identifying contamination than someone who rarely buys commercial property.  To avoid this liability, the purchaser should provide the environmental consultant with any information he/she has regarding the property conditions and current and historic uses that could be indicative of contamination.  The environmental professional must also identify and use any specialized knowledge he/she has regarding the environmental conditions of the property.
          AAI pp 66097-8, AAI § 312.28, ASTM Section 6.3