1. Kane Russell Coleman Logan PC
A Brief Discussion of Environmental Liability and the Use of Phase I and II ESAs
Bruce M. Flowers
Kane Russell Coleman Logan PC
1601 Elm Street, Suite 3700
Dallas, Texas 75201

2. Disclaimers
This presentation is for informational purposes only and does not constitute nor contain legal advice. Further, this presentation does not create (and is not intended to create) an attorney-client relationship.
This presentation does not serve as a substitute for obtaining legal advice from a competent attorney licensed in any given jurisdiction. No person gaining access to information through this presentation should act on it without first seeking the advice of competent counsel.
KRCL is competent counsel.

3. I Get it

4. Outline Sources of Environmental Liability Environmental Due Diligence
Environmental Terms to Know
CERCLA Liability
Available Defenses
All Appropriate Inquiry
Ongoing Obligations
Site Assessment Standards – Phase I and Phase II
Phase I
Phase II
Takeaways

5. The Beginning of the Modern Environmental Movement
Published September 27, 1962

6. Sources of Environmental Liability
Comprehensive Environmental Response, Compensation and Liability Act (1980)
Texas Solid Waste Disposal Act (1989)
Oil Pollution Act (1990)
Resource Conservation and Recovery Act (1976)
Clean Water Act (1972)
Clean Air Act (1963)
Third-Parties
Other State and Federal Laws

7. Environmental Due Diligence
Identify environmental concerns
Potential liability protection under certain environmental statutes
Assess the environmental risk associated with acquiring or funding an interest in commercial real estate
Use in negotiating contract terms
Minimize potential legal claims
Required by most lenders

8. A Few Terms to Know:
CERCLA  - Comprehensive Environmental  Response, Compensation and Liability Act
RCRA – Resource Conservation and Recovery Act
TSWDA – Texas Solid Waste Disposal Act
PRP – Potentially Responsible Party
AAI – All Appropriate Inquiry
ESA – Environmental Site Assessment
Phase I ESA – Non-invasive
Phase II ESA – Invasive
REC – Recognized Environmental Condition
PPM – Parts per million
De Minimus – Very small
VOC – Volatile Organic Compounds
TPH – Total Petroleum Hydrocarbons
PCE  - Perchloroethelyne

10. CERCLA Liability WHO: Potentially Responsible Parties (PRP)
Current and former owners and operators
Persons who arranged for disposal
Transporters
Generators
Retroactive and Strict Liability
Joint and Several Liability
Statute of Limitations
Six Years (after remediation initiated) or
Three Years (after removal completed)

11. CERCLA Liability Cont’d
Plaintiff must prove by a preponderance of the evidence
a release (hazardous substance) covered by CERCLA
incurred response costs
response costs were necessary
defendant is a PRP
Once a defendant is proven to be a PRP
a presumption of liability arises
burden shifts to the PRP to disprove liability

12. PRP Defenses Under CERCLA
Act of God
Act of War
Third-Party with no contractual relationship
Innocent Landowner – AAI and no reason to know of contamination
Bona Fide Prospective Purchaser – AAI and knowledge of contamination
Contiguous Landowner – AAI and onsite contamination coming from contiguous properties

13. All Appropriate Inquiry
The assessment of a property to identify and assess liability for potential environmental contamination.
Applies to all entities and individuals purchasing property for non-residential use, who may, seek protection from CERCLA liability for releases of hazardous substances.
Also, a factor in determining safe harbor defenses available under other environmental statutes.

14. Innocent Landowner Defense
Satisfy AAI requirements before acquiring title
No reason to know of contamination
Contamination was present before ownership
Contamination caused by third-party with no employment, agency or contractual relationship
Satisfy continuing obligations

15. Bona Fide Prospective Purchaser Defense
Satisfy AAI requirements before acquiring title
Know, or have reason to know, of contamination
Contamination occurred before ownership
Have no affiliation(1) with any prior owner or operator
Satisfy continuing obligations
(1) Could include indemnities owed to seller or previous owners

16. Contiguous Landowner Defense
Satisfy AAI requirements before acquiring title
No reason to know of contamination from other property
No affiliation with any PRP
Not cause, contribute to or consent to contamination
Satisfy certain continuing obligations

17. Ongoing Obligations Comply with and not imped land use restrictions
Not impede the performance of any response action
Exercise “due care” (ILO) or “appropriate care” (BFPP) by taking reasonable steps with respect to hazardous substances on the property
Cooperation, assistance and access
Compliance with information requests and subpoenas
Providing legally required notices

19. Phase I ESA Industry Standards
EPA rules compliance with the new ASTM E standard (as well as the older ASTM E standard) satisfies AAI.
EPA is seeking to remove rule ASTM E from satisfying AAI.

20. What is a Phase I ESA?
A Phase I ESA is a qualitative assessment to identify Recognized Environmental Conditions (RECs).
"the presence or likely presence of any hazardous substances or petroleum products on a property under conditions that indicate an existing release, a past release, or a material threat of a release of any hazardous substances or petroleum products into structures on a property or into the ground, groundwater, or surface water of the property.”

21. Who Can Perform a Phase I ESA?
Environmental Professionals
PE or PG plus equivalent of 3 years full-time relevant experience; or
Government certified to do Phase I’s plus 3 years; or
Bachelor’s or higher degree in science or engineering plus 5 years; or
10 years equivalent full-time relevant experience
Must remain current via continuing education or similar

22. What is in a Phase I ESA? Governmental Database Reviews
Historic Document Summaries
Historic Aerial Photo and Maps
Findings and recommendations
Site Reconnaissance
Interviews with Current Owners
Property/Building Descriptions
Historical and Current Land Use

23. A Phase I ESA Does Not Answer
Soil and groundwater contamination
Asbestos
Radon
Lead-Based Paint
Lead in Drinking Water
Wetlands
Regulatory Compliance
Oil & gas wells
Cultural Resources
Industrial Hygiene
Health and Safety
Ecological Resources
Endangered Species
Indoor Air Quality
Mold
Biological Agents

25. ASTM E1527-2013 Phase I ESA Major Revisions
Recognized Environmental Conditions (RECs)
REC definition “simplified”
Revised definition of HREC
New definition for a “controlled” REC (CREC)
Vapor Migration – potential must be addressed (Note distinction between migration and intrusion).
Regulatory File Review
If the target property or any adjoining property is identified in government records search, “pertinent regulatory files and or records associated with the listing should be reviewed”

26. REC-HREC-CREC Relationship
Contamination in, at or on the target property.
Is it de minimis?
Has it been addressed? NO
YES
YES NO
De minimis (“Not a REC”)
Would regulatory officials view cleanup as inadequate today?
REC (“Bad REC”)
YES
HREC (“Not a REC”) NO
Are there restrictions?
CREC (“Good REC”) NO
YES

27. Limitations of the Phase I ESA
Limited shelf life – up to 1 year, but:
Must be updated within 180 days of transaction close
Does not include all environmental concerns or provide protection from all environmental laws
Can be used by, and provides protection only for the User
Reliance letter allows third party use, with conditions
NOTE: ongoing obligations must be satisfied

28. When a Phase I ESA Recommends Further Investigation
Investigate the RECs through a Phase II ESA
Determine if soil and/or groundwater is impacted at levels that require corrective action under state standards
Determine who is responsible for the cost
If no impacts above regulatory limits, the report is issued and the purchaser’s due diligence is complete

29. What is the Value of a Phase II?
Provides baseline environmental liability assessment
Evaluate risk tolerance of a potential purchase or lender
May affect the outcome and negotiation proceedings of a property transaction

30. Phase II Scope and Report
Collect/analyze soil and/or groundwater samples based on Phase I RECs
REPORT
Purpose or goals and objectives
Summary of field activities
Summary of analytical results
Health Risk Assessment
Data Validation
Results & Recommendations

31. Limitations of a Phase II
Not a comprehensive site assessment
Scope limitations - locations, COC, media, type testing
Data gaps and assumptions
Does not quantify the environmental risk
Does not usually provide an action plan

32. Take Away Points Environmental law is statutorily driven
Environmental statutes are complex and subject to interpretation
Environmental statutes require strict compliance
Environmental due diligence is a necessity
Always involve an Environmental Professional