1 Environmental Due Diligence: A Practical Guide to Survival Scott D. Hubbard (616)

2 The Drill Get the Agreement  Buying or selling?  Purchasing or leasing?  Assets, stock, merger, financing, joint venture, etc.  Representations and warranties Purposes: guide due diligence; allocate liability Scope: contamination, compliance, USTs, prior reports, no litigation/proceedings Exceptions and qualifiers

3 The Drill Get the Agreement  Representations and Warranties cont. Disclosure Schedules  Buyer: when will we get them?  Seller: what are my resources to prepare them?  Indemnity: tied to reps and warranties, and/or separate environmental liability – specific covenants?

4 The Drill Get the Agreement  Governing covenants: timing, access, procedures Buyer: access to properties, access to personnel, permission to do invasive investigation Seller: Time lines, mutual approval of consultants, work plans, limits on timing, scope of work  Confidentiality  Permits and procedures for transfer  Prior assessments and audits Buyer: get representation that Seller has disclosed all

5 The Drill Learn all you can about your client’s business and its industry. The more you can learn, the more effective you can be.  Site-specific regulatory regimes  Chemical usage  Permit requirements  Decommissioning activities

6 The Drill Ordering the environmental assessment  Timing, timing, timing  Scope  Multiple properties  Terms and conditions of engagement Indemnities, limitations of liability  All reports in draft form  Lines of communication

7 The Assessment ASTM Phase I ESA: basic building block of environmental due diligence  Focus is on releases and site contamination  Covers USTs  Does not cover various issues that may be critical in a given deal: asbestos, wetlands, lead paint, radon, historical/cultural sites, endangered species

8 The Assessment Is there a lender involved?  Many lenders have special requirements Scope Certification of report “Updating” the Phase I  Data staleness  ASTM limitations

9 The Assessment Using the other party’s consultant (the “Seller’s Phase I”) Manage the consultant

10 Environmental Liability Site contamination  CERCLA/state analogs Status based, subject to exceptions  Innocent purchaser  BFPP  Contiguous landowner  Continuing obligations  RCRA Corrective action liability

11 Environmental Liability Site contamination cont.  CWA  TSCA  State Statutes OSHA (Asbestos) Limits of defenses Common law

12 Contact Information: Scott D. Hubbard Warner Norcross & Judd LLP 900 Fifth Third Center 111 Lyon Street NW Grand Rapids MI (616)

October 27, 2010steptoe.com Environmental Due Diligence: A Primer By: Sara Beth Watson

14 Overview  Defining the Transaction  Environmental Assessments  EPA’s All Appropriate Inquiry Regulations  Ongoing Operations  Other Requirements  Special Circumstances

15 Defining the Transaction  What type of transaction -- ongoing operations, real estate purchase, long-term lease or short term lease?  Who do you represent – buyer, seller, lender, lessor?  What are the timing constraints?  What is the experience level and comfort level of the client?

16 Environmental Assessment  Select the correct assessment for your site and project  What do I know about the history of the site?  What is the development plan?  What are the constraints of the deal?  What will the financing require?

17 ASTM Guidance DesignationTitle D (2005)Standard Practice for Conducting Environmental Baseline Surveys E Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process E Standard Practice for Limited Environmental Due Diligence: Transaction Screen Process E (2002)Standard Guide for Environmental Site Assessments: Phase II Environmental Site Assessment Process E Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process E Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process for Forestland or Rural Property  ASTM Guidance (sample)  Complete list available at assessment-and-risk-management- standards.html#E assessment-and-risk-management- standards.html#E50.02

18 All Appropriate Inquiry The Small Business Liability Relief and the Brownfields Revitalization Act of 2002 (Brownfield Amendments)  Potential for federal CERCLA liability relief  Hurdles to qualify for the relief before the acquisition of the property  Long-term commitments to maintain the relief  State law liability issues must be considered separately

19 All Appropriate Inquiry is applicable to 3 categories of property owners: 1. Innocent purchasers 2. Contiguous property owners 3. Bona fide prospective purchasers  provided that the property owner meets the statutory criteria, which will be analyzed on a fact-specific basis 4. Certain Brownfield grant recipients To Whom is AAI Applicable?

20 Statutory Criteria For Compliance – All Appropriate Inquiry Statute required EPA to consider several factors in developing the regulations which are codified at 40 CFR Part 312 Results of the inquiry of an environmental professional Interview with past and present owners, operators and occupant regarding the potential for contamination Review of historical sources Searches for recorded environmental clean-up liens Reviews of federal, state and local records Visual inspections for the facility and adjoining properties Relationship of the purchase price to the value of the property if not contaminated Commonly known or reasonably ascertainable information about the property The degree of obviousness of the presence or likely presence of contamination and the ability to detect contamination by appropriate investigation

21 Other Qualifying Criteria?  Evaluation of compliance preformed on a “careful, fact-specific analysis”  Statutory Criteria for compliance:  “All Appropriate Inquiry” Criteria  Full Cooperation  Compliance with Land Use Restrictions and Institutional Controls  Did Not Cause, Contribute or Consent to a Release/Disposal Occurred Prior to Acquisition  Compliance with All Requests for Information  All Legally Required Notices  No Affiliation with a Potential Liable Party  Reasonable Steps 42 U.S.C. § 9601(35)(B)(iii)

22 Other Issues  Uniform Environmental Covenants Act  State Law Liability Programs  Facility Compliance History (federal, state, local)  Water  Air  RCRA  Underground and Aboveground Storage Tanks  Zoning

23 Ongoing Operations  Facility Operating Permits – (e.g Water, Air RCRA Hazardous Waste Operator)  will they transfer?  timeline for new permits?  Other Permits/Authorizations –  TSCA  FIFRA

24 Special Issues  Specific transactions may have special issues  Endangered Species  Migratory Birds  Environmental Justice

25 Special Issues  Is the project subject to the National Historic Preservation Act (NHPA), 16 U.S.C. § 470 et seq. due to government funding?  Section 106 of NHPA requires all Federal agencies to take into account the effects of their actions on historic properties.  Lead Agency (Agency providing funding, issuing permit, etc.)  State Historic Preservation Officer (SHPO)  Tribal Historic Preservation Officer (THPO)  Advisory Council on Historic Preservation (ACHP), 36 CFR Part 800  Cultural Resources Surveys

26 Environmental Due Diligence  Questions?  Contact Information Sara Beth Watson Steptoe & Johnson LLP 1330 Connecticut Avenue, NW Washington, DC (202)