Considerations for Transactions with Environmental Issues

1
Considerations for Transactions with
Environmental Issues

• Richard M. Fil, Esq.

2
Sources of Potential Liability

• Federal CERCLA / state counterparts
• RCRA (federal and state)
• Common law
• Other causes of actions (e.g., public trust)

3
Types of Damages / Costs

• Environmental damage to real property
• Bodily injury / personal property damage
• Third party claims from off-site impacts
• Claims for off-site / non-owned impacts
• Operational non-compliance
• Capital costs
• Penalties
• Operational losses

4
Importance of Allocation

• Seller caused the problem
• Buyer owns the problem
• Failure to allocate may result in
• Litigation
• Uncertainty
• Additional costs

5
Basic Considerations

• Condition of facility (current and historic)
• Operation of facility (current and historic)
• Divergent interests of buyer and seller

6
Potential Sources of Concern

• Compliance
• Permits
• Reporting / other requirements
• Contamination
• On-site
• Off-site
• Former sites
• Neighboring properties (sources and receptors)

7
Importance of Site Characterization

• Potential compliance needs (e.g., permitting
  Transfer Act)
• Identify site history / conditions
• Establish baseline
• Quantify remediation costs
• Allocate responsibility

8
Types of Site Assessments

• Environmental conditions
• Phase I
• Phase II
• Phase III
• Operational practices
• Necessary permits in place
• Compliance with permits
• Compliance with reporting / other requirements

9
Considerations for Retaining a Consultant

• Confidentiality
• Generate written reports only on request
• Stamp all reports A/CP and Draft unless
  directed otherwise
• Product ownership

10
Considerations for Retaining a Consultant
(continued)

• Insurance
• Access to all sites
• Clearly identify the client
• Time and cost issues
• Reporting requirements

11
Potential Reporting Requirements

• CERCLA
• C.G.S. Section 22a-450 (spills)
• C.G.S. Section 22a-6u (S.E.H.)
• RCSA Section 22a-133v-1 et seq. (LEP Regulations)
• C.G.S. Section 22a-134g (termination of
  operations)
• Federal SEC disclosures
• Aquifer Protection Regulations (in draft)

12
Ethical Considerations

• Identify the parties and players
• Watch for conflicts that may arise
• Remain aware of divergent interests of others

13
Important PSA Elements

• Definitions
• Representations and warranties
• Schedules of exceptions
• Indemnification by buyer and seller

14
Definitions

• Environmental conditions
• Environmental liability
• Hazardous materials
• Environmental laws

15
Representations and Warranties

• Potential on-site and off-site contamination
• Actual or threatened claims or proceedings
• Presence of USTs, asbestos, PCBs
• Health safety
• Provision of all relevant documents
• Permit status and compliance

16
Schedules of Exceptions

• Identify exceptions to representations and
  warranties
• Typical thresholds may include materiality, time
  period, and sellers knowledge
• Examples
• Spills
• Orders, NOVs, litigation
• Exceedance of permit limits

17
Indemnification

• Division of responsibility
• Trigger for indemnification
• Define compliance
• Basket and cap
• Limits on notice / time
• Independent statutory claims

18
Considerations for Indemnification

• Define cleanup standards and options
• Identify party in control of cleanup and agency
  contact
• Provide for adequate access
• Require cooperation
• Define survival period for right to
  indemnification

19
Other Forms of Protection

• Covenant not to sue
• Prospective purchaser agreement
• Comfort letter
• Environmental insurance

20
Environmental Insurance

• Types
• Unknown conditions
• Cost cap
• Finite risk
• Other considerations
• Definitions
• Exclusions
• Limitations
• Coverage limits and future availability

21
Connecticut Transfer Act

• C.G.S. Section 22a-134 et seq.
• Establishment
• Transfer

22
Establishment

• Generation of more than 100 kg of hazardous waste
  in any month since 11-80
• Handling of hazardous waste generated elsewhere
  by another person
• Operated at any time since May 1, 1967 as
• Dry cleaner
• Furniture stripper
• Vehicle body repair or painting shop

23
Transfer

• Any transaction or proceeding through which an
  establishment undergoes a change in ownership,
  with 20 exceptions
• Includes leases of 25 years or more

24
Transfer Act Filing

• Forms I-IV
• RCSA Section 22a-133k-1 et seq., Remediation
  Standard Regulations (RSRs)
• Certifying Party
• Environmental Condition Assessment Form (ECAF)

25
Transfer Act Non-Compliance

• Strict liability / damages to transferee under
  C.G.S. Section 22a-134b
• Penalties under C.G.S. Section 22a-134d
• Other enforcement actions by DEP

26
RSRs and ELURs

• RSRs
• Soil and groundwater
• GA v. GB
• Residential v. industrial / commercial
• ELURs
• Limit site uses
• Impose controls

27
Other Relevant Requirements in Connecticut

• Termination of operations
• Aquifer protection regulations

28
Hypothetical Transactions

• Consider the sale of a car dealership to
• Another car dealer
• Big box retail developer
• Affordable housing developer

29
Conclusion

• Consider and address potential liability for
• Compliance
• On-site and off-site contamination
• State and federal requirements
• Contractual and statutory liability