Law and the Environment

“Know when to hold ‘em, know when to fold ‘em”: When to Disclose All in an Environmental Criminal Investigation

Kenny Rogers sang a song years ago with the lines “Know when to hold ‘em, know when to fold ‘em.” While referring to a poker game and a life lesson, I was reminded of the song in a recent criminal investigation a client was facing.  In these investigations, you always have to decide how much you will volunteer versus waiting on specific requests from environmental criminal investigators or attorneys.Making the decision on how much to volunteer is a true judgment call.

In some cases, like the one I just worked on, you have to decide if the facts demonstrate a clear lack of criminal intent or knowing violation in the case of most state and environmental statutes.  Some are based on strict liability or negligence, but most are “knowing” violations.  The line between civil and criminal enforcement is often largely a matter of enforcement discretion by environmental agencies or attorneys, prosecutors, agency attorneys, or district attorneys.

Evaluating the facts and circumstances, and how they may be perceived by the individuals involved is critical.  Different people will see matters differently.  One sees something as a mistake, others as an intentional, knowing act.

Sometimes this may mean federal and state agencies, sometimes two or three.  Occasionally, a local city or county investigator may want to be involved.  In addition to environmental agencies, in Texas EPA and the Texas Commission on Environmental Quality, you may face review by wildlife agencies such as the US Fish and Wildlife Service or the Texas Department of Parks and Wildlife.

In the right case, it can be productive to disclose the facts and make facilities available for tour by the investigators.  It can be effective to avoid a criminal investigation to disclose all and push for a decision that the matter should be referred to civil enforcement representatives, rather than being investigated by the criminal side of the agency house.

Often a rather early meeting and provision of documents and information may gain great confidence from the criminal investigators that the parties under review acted in good faith, but for whatever reason violated the law, even causing environmental damage.  Avoiding the criminal investigation can be more important for reputation of the entity and potentially even stock price.  Criminal environmental investigations tend to gain focus by the media and reverberate through the Internet and social media.  A turn from the criminal to the civil can avoid much of the damaging reputational impact.  For some parties that work with the government, criminal investigations can result in debarment from federal, state, or local contracts—with even greater damage than any fine.

When an event occurs that leads to a criminal investigation, a rapid legal analysis and strategy development is crucial.  Sometimes, it makes a significant difference if the alleged violator acts quickly and presents information and explanation before any subpoena or other request for information is received.  

The pro-active disclosure strategy does not fit every case. Sometimes waiting for any requests for information or documents is the best strategy.  Every instance must be considered based on its unique facts and actions by the entity’s or contractor’s employees.  

You have to “know when to hold ‘em, know when to fold ‘em.” I have found that in the right case, the full disclosure approach can turn a potentially damaging criminal investigation into a civil settlement of a small penalty.  

Debris and Contaminated Soil from Construction Site Can Lead to Major Problems and Expense

A few years ago, I received a call from a bankruptcy trustee, who said he had a environmental problem he was struggling to resolve.  It seems a company had developed a “mulch business” that had ultimately led to bankruptcy, and liquidation at that.  What may be surprising to some is the waste involved seems so innocuous at first thought.

The problem related largely to construction debris.

Construction debris and wood waste (including trees and branches) had been collected by the mulching company and placed over several acres.  The owner ultimately took the money to receive the material, but then abandoned the site and never mulched or did anything else with the material.  The city was very concerned about the growth of vermin and a substantial potential fire hazard.  Home and business owners nearby were very concerned. 

I was engaged by the trustee and the city to attempt to identify potentially liable parties who had brought the waste to the site or whose waste was brought there.  The owner had left all of the records for everyone who brought material, and we were preparing to file suit against all of those parties to try to recover the costs of addressing the acres of waste.

The city was able to get the Texas legislature to appropriate several million dollars, and the lawsuit was never filed--all those developers, building owners, contractors, and subcontractors lucked out. But they are not and will always be so lucky.

In another case, I represented a landowner whose land had become the dumping ground without their permission.  One trucker illegally dumped on it, and then within a short time, the word got out, and several acres were covered with wood, shingles, bricks, and soil.  What other wastes may have been mingled in or what contaminants were in soil was unknown.

The lesson is that construction waste can become a significant potential liability for the owner of the project or the contractors and subcontractors.  

Other cases have involved disposal of contaminated soil on an unknowing person’s land, who is looking for fill, or who, like my client, may not have wanted any material placed on their land.   

Recently, one my clients had a subcontracting trucking firm dump soil excavated from an area where contamination from a former underground storage tank had been located.  The soil had to be excavated for construction of a building.  The soil was supposed to go to a landfill, but the environmental consultant engaged to monitor the contractor and subcontractors noted several waste manifests did not come back from the designated landfill with signatures or any weight tickets. 

The issue of who is liable for this misplacement of affected soil, and what damages will arise for remediation costs and any property damages arises.  What about liability if the material is placed into wetlands, if there were fish kills?  Could it become a criminal matter?

The liability risks can grow, particularly if the state or federal government holds the owner liable and the construction contractor or sub contractors are unable or unwilling to cover the loss or address the issue.

 Solutions:

In representing clients preparing for and engaging in clearing, demolition, grading, and construction, I have found there are ways to try to avoid these risks and be prepared to manage them.  Some steps that can be taken to reduce the risk of incurring environmental liability for construction debris or soils management during a construction project:

•  Establish contractual provisions to address construction debris and soil management;
•  Ensure environmental laws and regulations are met;
•  Deal with safety issues for construction workers;
•  Consider environmental insurance for the project, negotiated to cover these risks;
•  Obtain indemnities from the contractor;
•  Understand what the state will allow for managing debris and affected soil on-site and off-site;
•  Develop a waste management or soil management plan, and have the state environmental agency review and, if they will, approve it;
•  Have a tracking process for hazardous and non-hazardous waste, that which must go to a landfill and to a site for unrestricted fill;
•  Engage an in-house person or outside environmental consultant to review and oversee the process to determine if waste manifests or trip tickets area coming back and are properly filled out.

Best practices in this area may save your company or entity a significant amount of money in avoiding some of the horror stories that can arise when construction debris or soil ends up in the wrong place. Trucking companies hauling debris or soil from construction sites are renowned for looking for the cheapest and easiest way of getting rid of the material.   A little preventative medicine may go a long way.

Will New ASTM Standard for Assessing Vapor Intrustion Wreak Havoc on Phase I Environmental Site Assessment Process?

Sitting at a Starbucks at in Dallas, Texas, I'm looking North at a Chevron-branded station owned by TETCO.  This is clearly noted on the sign with regular gasoline at $3.19 per gallon.  Clearly I am sitting downhill from the station, and if my client were buying the shopping center, my first suggestion would be testing the groundwater to see if the underground storage tanks containing various grades of gasoline or diesel below the gas station/convenience store have leaked and contaminated the property--under the Starbucks.  When I visit this site after dropping my daughter at school, I see the capped groundwater monitoring wells.  I would venture a guess that the hundreds of people who walk over or park on top of them have no idea what they are?  The two charming elderly women sitting outside the women in front of me have no idea that their may be gasoline and diesel 10 or 20 feet below their feet.  In reality, they probably have no reason for concern.  But a new standard for assessing risk from vapors from soil and groundwater may create havoc for real estate developers and banks.

Thinking about these issues is no different from any day in the office as an environmental lawyer.  (The "office" having grown with laptops, Blackberries, and cell phones to be about anywhere I am, ergo sitting in Starbucks with my T-Mobile connection blogging about an environmental issue--the mobile environmental lawyer.) Tanks leak.  Piping leaks.  People drive off and pull of the hose dispenses or otherwise spill fuels.  This is nothing new and has been going on for decades.  What is new is an ASTM standard for assessing the risk that those chemicals in the soil and groundwater are turning into vapor and getting into a building?  Could this new standard wreak havoc on the Phase I environmental site assessment process?  Could it be that I'm breathing benzene as I sit here typing this message?

It's actually unlikely.  My toxicologist friends working who work with me to assist clients in advising clients who remediate contaminated sights say it is highly unlikely in most instances.  In fact, they tell me it is when you fill up your car that you get your biggest shot of benzene--a known human carcinogen. 

So why the ASTM standard for assessing these risks if in fact they are so unlikely?  In the environmental regulatory world I live in as a corporate environmental lawyer since I graduated from Harvard Law School over 20 years ago, the regulatory agencies have begun to focus on these issues.  Yes, primarily in California, where all environmental regulatory programs tend to start (California has enacted and will be implementing a climate change greenhouse gas program before the Congress passes a bill), and the Texas environmental agency has not really tackled this issue and does not necessarily require that it be assessed.  Reportedly, the California agency is going back to sites closed under old rules that did not require vapor intrusion analysis and requiring that the sites be re-examined.  EPA has issued guidance documents on the subject of vapor intrusions and how to test for it.

As regulatory agencies and scientists begin to look at vapor intrusion into buildings, these issues have come up in real estate transactions in many parts of the country.  Real estate developers, real estate investment trusts, and banks then start to ask questions and the environmental lawyers and environmental consultants that work for them in their transactions start to ask questions.  Is vapor intrusion a problem?  What are the concentrations of chemicals in buildings that may arise from human sources in the ground (in soil and groundwater)?  Do such concentrations present a risk to people who work, live, visit these buildings?

The new ASTM standard is titled "Standard Practice for the Assessment of Vapor Intrusion into Structures on Property Involved in Real Estate Transactions" (E-2600-08). Roger Smith of Weston in Dallas provided this summary of the Standard.

The standard provides for a tiered approach to assessing and mitigating vapor intrusion conditions (VICs):

Tier 1

– Screening Level Assessment conducted with information typically gathered for a Phase I ESA (current and previous property use, location relative to potential sources, etc.) to decide if a potential vapor intrusion condition (pVIC) is present. It would make sense to include a request for a E 2600-8 Tier 1 VI screening level assessment along with the standard ASTM E1527 Phase I ESA. Since the assessment is based to a large degree on information gathered for the Phase I, there should be little additional cost associated with the screening levels assessment.

Tier 2

– Screening Level Assessment conducted by comparing information typically gathered in a Phase II ESA (soil and groundwater analytical data) to risk-based concentrations (look-up values) to decide if a pVIC is present. The Tier 2 VI assessments will mostly likely be requested whenever a standard Phase II ESA is requested. Since this is comparison to look-up values, there should be little additional cost associated with the Tier 2 screening level assessment.

Tier 3

– Vapor Intrusion Condition Assessment using modeling, soil gas samples, sub-slab vapor samples (from within buildings), and/or indoor air samples to decide if a VIC is present. This would be conducted when it has been determined that a pVIC is present that could affect current or future development on the property. The least expensive approach is likely to be modeling using existing data. This is typically a very conservative approach that may overestimate the risk of a VIC. If additional sampling is needed, the cost for conducting a VI assessment would typically be less than the cost for a Phase II assessment of the property.

Tier 4

– Vapor Intrusion Mitigation by building design, institutional controls, or engineering controls (removal of source, barriers, or mitigation systems). The scope and cost would be highly variable for Tier 4. For new construction, all three options are available. For existing construction, you are typically looking at the options for engineering controls.

The Standard is dense and may cause insomnia for even an environmental lawyer or consultant, but it does have potential implications for real estate transactions.  While it is not a part of the Phase I Site Assessment Standard which is used on almost all commercial real estate transactions, it is an add on to this standard.  It may in time become a standard practice to evaluate soil vapor intrusion.

If this happens, it may raise new issues and confusion in the commercial real estate market.  Banks will be unfamiliar with it and may be skiddish about chemical vapors and buildings.  What we need is to try to educate the real estate and banking industry about these issues.  While it will take time, it may be important not to scare off buyers and banks over vapor intrusions.

First, real risks may be rarely found.  The concentrations necessary to create a risk to workers in office buildings and industrial or warehouse settings are probably going to be rare.  People may need to work in buildings for 20 or 30 years, which is rare these days.  For residences, the concentrations are probably rarely going to raise a concern.  Second, for new buildings a vapor barrier can be constructed to prevent vapors from entering structures.  For old buildings, steps can be taken to vent the vapors.

Environmental assessments have become a standard practice in the real estate industry.  If vapor intrusion assessments become more commonly a part of those assessments, we need to be sure they don't become a source of undue alarm.  As commercial real estate faces the collateral damage of the subprime mortgage debacle, we need to take care that a new environmental concern and potential risk does not hamper transactions and the health of the market.  Understanding the scientific realities and real risk analysis is the first step in this process. 

Supreme Court Decision Expands Cost Recovery Actions under CERCLA

On June 11th, the U.S. Supreme Court decided a closely watched environmental case that may have significant financial implications for both the federal government and private industry. The case, United States v. Atl. Research Corp., is the second of two cases that have considered whether private parties can recover costs incurred to cleanup contaminated sites under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) when the cleanup effort was voluntarily carried out, rather than compelled by a lawsuit or government order. These two cases are extremely important for parties who pay more than their fair share to cleanup contaminated sites, as they set forth how parties can recover from others who are also liable, but have not taken action to address environmental contamination of the relevant site. The ability of parties to recover costs from other potentially responsible parties or “PRPs" is a critical public policy issue in terms of encouraging parties to take action to remediate contaminated sites.

 

In the first of the two cases, Cooper Indus., Inc. v. Aviall Serv., Inc., the Court held that private parties who voluntarily clean up sites could seek contribution under § 113 of CERCLA only after having been sued under CERCLA or entering into a settlement agreement with the government resolving CERCLA liability. The upshot of the Aviall case is that a party thatconducts a purely voluntary cleanup will typically not be able to recover under § 113 against other PRPs.

 

In Atlantic Research, however, the Supreme Court reviewed the general cost recovery provision in § 107 of CERCLA. Prior to Aviall, § 107 was typically used only by a governmental body or a private party to sue for cleanup costs when the plaintiff was not otherwise liable for the cleanup, i.e. when the plaintiff was “innocent.” Before Aviall, the weight of authority held that no private cost recovery or contribution action was available under § 107 for parties who themselves were PRPs. After Aviall, the lower courts were divided on the issue.

 

The Supreme Court’s decision in Atlantic Research allows parties that engage in voluntary cleanup actions to recover their costs from other liable parties under CERCLA § 107 even if they have not been sued by other parties and even if they themselves are liable for cleanup costs. This outcome is a welcome one because private parties will no longer be deterred from cleaning up contaminated sites.

 

A more in depth analysis of the Atlantic Research case will be forthcoming.

EPA Releases Long-Awaited Proposed Rule Revising the Definition of Solid Waste

EPA has, after a decade or more of consideration, finally issued a proposed rule for revising the definition of solid waste under the Resource Conservation and Recovery Act.  The definition of solid waste effects what is then classified as hazardous waste.  Competing concerns of recycling and getting materials out of the solid and hazardous waste regulatory systems and preventing sham recycling that often leads to new Superfund sites have long-delayed the revisions of the definition of solid waste.  At issue are materials that are recycled by the same generator or the same industry, and recycling that EPA approves on a case-by-case basis.

EPA has decided to define "legitimate recycling."  EPA states that defining legitimate recycling ensures that only authentic recycling, and not treatment or disposal under the guise of recycling, receives the benefits of streamlined regulations.  In order to be legitimately recycled, the material must provide a useful contribution to the recycling process; and recycling must make a valuable new product.

EPA has issued a "prepublication version of the rule" in advance of the publication of the proposed rule in the Federal Register.  Such an early release will give potentially affected parties and industries a chance to prepare to comment on the rule.

The comment period will extend for 60 days following publication of the proposed rule in the Federal Register.