This article was originally published in Law360 on August 8, 2014.
The Comprehensive Environmental Response, Compensation, and Liability Act imposes strict liability for the costs of environmental contamination on four classes of responsible parties, including current owners of contaminated properties. The statute provides liability for even “innocent owners” who had nothing to do with the contamination-causing activities. The Small Business Liability Relief and Brownfields Revitalization Act of 2002 provided funds for brownfields revitalization and amended CERCLA to provide some liability relief for certain types of property owners. Specifically, the Brownfields Act limited CERCLA liability under Section 107 (42 U.S.C. § 9607) for bona fide prospective purchasers and contiguous property owners and clarified the requirements for an innocent landowner defense. One of the requirements to qualify for these defenses is that a purchaser of contaminated property must undertake “all appropriate inquiries” into prior ownership and prior uses of the site.1
As the Ninth Circuit explained, “An owner seeking to establish that it made ‘all appropriate inquiries’ … must show that the examination was performed by an environmental professional, as defined in 40 C.F.R. § 312.10, that particular kinds of information about the property, its history and its value were collected, 40 C.F.R. § 312.22 and that various sources were consulted, 40 C.F.R. § 312.30.”2 “Regulations further spell out the steps an owner must take to qualify.”3
In 2005, the U.S. Environmental Protection Agency promulgated the regulations establishing standards and practices for conducting AAI.4Specifically, the EPA authorized use of ASTM5 E1527-05 “Standard Practice for Environmental Site Assessment Process” (commonly called “Phase I” assessments) to comply with AAI requirements.6
Phase I environmental site assessments are standard industry tools prepared by environmental professionals to evaluate the potential for environmental contamination at a property. They commonly include reviews of databases and historical records to identify other potential sources in the vicinity of the property, site inspections, interviews with key personnel about the property’s historical use and evaluations of known or reasonably ascertainable information about the property. Phase I assessments do not typically include sampling or laboratory analysis.
In November 2013, ASTM published an update to the Phase I standards contained in ASTM E1527-13. In addition to minor definitional changes, the 2013 revision to ASTM E1527 adopted one significant change: the new version requires the environmental professional conducting the Phase I to undertake a review of agency files and records about the property. This extensive review was not required by the 2005 standard and is commonly treated as an “add-on” for Phase I assessments following the 2005 protocol.
On Dec. 30, 2013, the EPA published a final rule authorizing use of ASTM E1527-13 to comply with the AAI Rule.7 This final rule did not remove reference to the 2005 standard. Thus, although the EPA made clear that reliance on the updated ASTM Phase I standard would satisfy a purchaser’s AAI obligations under CERCLA, the agency left significant uncertainty as to whether a Phase I that does not include an agency file review (i.e., a Phase I done in compliance with ASTM E1527-05) was sufficient to meet AAI requirements.
Commentators prophesized that this dual-qualification system for complying with the AAI Rule would result in significant confusion in the market, cost disadvantages to small businesses, uncertainty about liability concerns over brownfield sites and, ultimately, litigation. In particular, there were concerns that this dual-standard left prospective purchasers with a risky choice: pay less for an investigation without a complete file review and risk losing a defense to CERCLA if a court were to find the 2005 standard inadequate to satisfy the AAI requirements or pay more to complete the agency file review to ensure compliance with the 2013 standard.
For two reasons, the concern that the dual-standard would spawn significant litigation was probably never very realistic. First, courts have not had difficulty applying updated ASTM standards in the past.8 Second, compliance with AAI requirements has never been a hot button issue for litigation. Although courts have been reluctant to allow the CERCLA defenses requiring demonstration of AAI, typically the failure of these defenses has not rested on compliance with AAI.9 Rather, the demonstration of AAI tends to be a relatively low hurdle, satisfied by the certification of compliance by a registered environmental professional.10 It is not surprising, therefore, that the predicted problems arising from a dual-qualification standard for satisfying AAI have not been observed at any significant level.
And now the issue is largely moot. On June 17, 2014, the EPA issued another proposed rulemaking to amend the AAI rule in 40 CFR 312 to remove the reference to ASTM E 1527-05. According to the EPA’s proposal, the “proposed action removes the reference to a standard that ASTM International no longer recognizes as current and that it no longer represents as reflecting its current consensus-based standard.”11
Following this proposed rulemaking, to comply with the all appropriate inquires requirement for defenses under CERCLA, prospective purchasers must comply with ASTM E1527-13.
For properties acquired between Nov. 1, 2005, and the effective date of the proposed rule, the 2005 ASTM standard will satisfy the AAI rule. Further, to accommodate investigations that may be ongoing at the time the rule goes into effect, the EPA anticipates a one-year delay in the effective date of the final action to provide adequate time for parties to complete ongoing investigations and become familiar with the updated 2013 standard.
Although use of the 2013 ASTM standard may be slightly more expensive, the elimination of the dual standard for compliance with the AAI rule should not be controversial. A single standard will reduce any perceived uncertainty in the application of the innocent purchaser, bona fide prospective purchaser and contiguous property owner defenses to CERCLA. It also will reduce any potential for litigation over compliance with this standard for purposes of the AAI defense. To avoid risking the loss of a CERCLA defense, prospective purchasers who have not yet begun their investigation should anticipate compliance with the new standard and, as has always been the case, should employ a qualified environmental professional to complete the necessary inquiries.