The Comprehensive Environmental Response Cleanup and Liability Act (CERCLA), better known to the general public as the Superfund program, was passed by Congress on December 11, 1980. Under CERCLA, the Environmental Protection Agency (EPA) was given the authority to respond directly to the release or threatened release of hazardous substances onto sites which could endanger the public health or the environment. Superfund established requirements regarding these contaminated sites as well as the liability of individuals and businesses responsible for the site contamination. In order to pay for the environmental cleanup of abandoned or uncontrolled hazardous waste sites, the government began taxing chemical and petroleum industries over a period of five years. The resulting $1.6 billion created a trust fund or Superfund to pay for these cleanups.
Later legislation, such as The Superfund Amendments and Reauthorization Act (SARA) in 1986, underlined the need for permanent and creative solutions in cleaning up hazardous waste sites by providing methods for settlement between responsible parties and the government. SARA also ensured CERCLA was in line with other federal and state environmental legal standards and requirements and increased state involvement in the Superfund program. It revised the Hazards Ranking System in order to ensure it focused on the human health issues associated with the sites. Finally, SARA brought another $8.5 billion into the fund for cleanup. Additional funds have been appropriated since.
There have been some legislative attempts at reducing or eliminating the liability for small businesses under CERCLA. However, in the wake of expensive cleanup efforts and increased environmental legislation, most large companies have dramatically improved their operations in order to avoid future remedial action. Unfortunately, the EPA has found that many small businesses tend to be among the most egregious polluters.
POTENTIALLY RESPONSIBLE PARTIES (PRPS)
Liability for contamination under CERCLA extends to a number of individuals or groups it terms "potentially responsible parties" (PRPs). These include: the current owner or operator of the site; previous owners or operators of the site during the time of contamination or after it; companies or individuals handling the waste disposal or transportation; and other parties connected to the sale or lease of the property, such as title companies or real estate agents.
The impact of this legislation for the small business owner can be devastating. Essentially, if a site is found to be contaminated, the landowner or operator and other parties connected to the property are responsible for environmental cleanup costs. This liability extends to the owner/operator, even if the site was contaminated by previous owner/operators and, in most cases, even if the current owner/operator was unaware of the contamination.
When considering the purchase of real estate, a small business should attempt to avoid contaminated sites both from the perspective of unwanted liability and costs for cleanup as well as the adverse impacts on business that a cleanup (also known as a remediation project) can bring. These include the stigma associated with a contaminated site and the cleanup's probable interference with business operations.
Therefore, a thorough assessment of the site in question (also known as "due diligence") should be conducted prior to purchasing it. This can, in some instances, protect the purchaser from liability for contamination. In order to be covered under the "innocent purchaser exemption" of CERCLA, however, a landowner must prove that s/he "did not know and had no reason to know" of the problem at the time of purchase. Since there is so much at stake, hiring a professional to do an environmental site assessment can (but does not guarantee) that you qualify for the exemption if the property turns out to be contaminated.
ENVIRONMENTAL SITE ASSESSMENTS
An environmental site assessment (ESA) performed by an environmental auditing company can ensure that a property is not contaminated. There are two forms of environmental site assessments. The first, known as a Phase I ESA, examines public records such as aerial photographs, EPA documents, and other public documents of the property in question, in order to determine whether the site had previous uses such as manufacturing operations or hazardous materials storage which may cause contamination. If any data found during the Phase I ESA proves questionable or suspicious, a Phase II ESA is called for. In a Phase II ESA, the environmental consulting firm takes soil and other samples from the site. The type and location of the samples will be determined by information found in the Phase I ESA.
Environmental site assessments (primarily Phase I ESAs) of property may also be required by banks when a business seeks to borrow against the equity of the property. This is because a possible cleanup could severely diminish the value of the site. Depending on the lending institution, this may be required for large loans, such as those over $500,000.
According to the Small Business Administration, the cost of a Phase I Environmental Site Assessment can begin around $1000 and rises with the size of the property and detail of the assessment. Since this is a crucial investment, it pays to secure a reputable firm. Look for an environmental consulting firm with a proven track record and actual experience in performing ESAs, as well as one that is insured. Be sure to check references.
What happens if a business already owns a contaminated site or, despite its best efforts, purchases a site which is later found to have contamination? Under CERCLA, liability for cleanup is difficult to avoid. In legal terms, CERCLA liability is strict, several and joint. Strict liability does not require intent or negligence or a specified amount of precaution on the part of the potentially responsible party. If the PRP is within one of the categories established by CERCLA, that party can be held strictly liable for all costs associated with an environmental cleanup of the site. Liability for the cleanup is also joint and several. This means, according to Martin McCrory in American Business Law Journal, that all of the PRPs "are liable as a group or that each contributor is individually liable for the entire harm at the site." In layman's terms, a business's responsibility for costs incurred in the site cleanup is not necessarily proportional to its actions that lead to the site's contamination.
Once the liability of a PRP is established, escaping the burden of costs is only defensible under a few scenarios. These include if the release was caused by an act of God, an act of war, an act or the lack of action by a third party, or any combination of these scenarios. The defense that the release was caused by an act or lack of action by a third party is the most often used defense. It also frequently fails, according to McCrory.
RESPONSE ACTIONS OR SITE CLEANUP
Under CERCLA, there are two types of governmental responses to contamination that can take place. The first is known as a short-term removal or removal action, in which the EPA takes immediate action in order to prevent or eliminate the release of hazardous materials in the case of an environmental emergency. A removal action cannot take more than one year from start to finish, and cannot cost more than $2 million. The second, known as a long-term remedial action, works to "permanently and significantly" lower the dangers connected to releases or threats of releases. This kind of action is meant to be much more comprehensive and therefore can continue over several years and, according to McCrory, average over $30 million per site. Long-term remedial response actions occur only at sites listed on the EPA's National Priorities List (those sites which rate highest on the Hazards Ranking System.)
Prior to the start of the cleanup, a remedial investigation and feasibility study (RI/FS) is done on the site in order to determine the level of contamination and select a method for removal or neutralization of the hazardous materials. The RI portion of the study collects information needed to establish the nature and extent of the contamination at the site. It also characterizes the environmental risks of the contamination and establishes the goals of cleanup. Using this information, the FS develops a number of possible cleanup scenarios for the contaminated site. Finally, the RI/FS forms the basis of the Record of Decision (ROD), which evaluates these scenarios and selects the appropriate one. Frequently, the cleanup proposal will be phased with separate remedies to address different problems on the site.
A PRP may settle with the EPA to handle all of these remedies (known as a global settlement) or some of them. The business may also come to an agreement with the EPA to pay for the RI/FS or the removal of the contamination. In some cases, the business/PRP may actually perform the site cleanup, rather than reimburse the EPA. It should be noted, however, that a settlement with the EPA does not necessarily protect a PRP from future liability.
Given the potential for liability, the best method for avoiding costly litigation and cleanup is prevention. When purchasing real estate, a company should work to avoid previously contaminated properties by engaging professionals to do thorough site evaluations. Companies whose business operations generate or deal with hazardous waste should work to prevent disasters. An environmental plan is crucial for this. A company needs to determine which regulations impact them, develop a comprehensive plan for dealing with hazardous waste, and work closely with local authorities where needed to execute it.
The EPA has established a toll-free number for assistance on hazardous waste issues: the RCRA/Superfund Hotline. Callers can get information on storage and transportation procedures, local contractors and governmental agencies, and other information pertinent to hazardous waste. Additional information is available on the EPA Web site. If contamination is discovered, the most important action a business can take is to stay involved in the process and take responsibility early in the hopes of a settlement, rather than an EPA-led cleanup.