Look Away at Your Peril
January 15, 2014
- He’s a tenant, not the owner, so he won’t be liable for past environmental contamination, right? WRONG!
- I disposed of that waste legally, I can’t be held liable, right? WRONG!
- We sold that subsidiary 50 years ago, we won’t have to pay for a cleanup occurring now, right? WRONG!
- That guy’s contamination is flowing under my property in the groundwater, I have no responsibility, right? WRONG!
These and many other surprising principles of environmental law, can bite you, and bite hard. It always pays to conduct a sensible environmental investigation into your acquisition, whether it is a corner grocery, an office park, a warehouse or an industrial operation. Even forests an agricultural land carry potential environmental liabilities. Don’t turn a blind eye, as ignorance is not a defense. In fact, the more you understand about the condition of the property you are acquiring, the more likely it is that you will be in a position to defend against liability arising in the future.
Here are some principles of environmental law to bear in mind:
- Cleanup liability may arise from the disposal of hazardous materials, even when the disposal action was legal at the time.
- Cleanup for the lawful disposal of hazardous materials can cost millions of dollars.
- Liability can be strict, joint, and several and the government is not required to go after all responsible parties.
- Most statutes of limitations do not begin to run until the cleanup begins, this can be decades after the disposal occurred and can bring liability to full range of historic owners and lessees.
- Liability can attach due to contamination migration to non-owned sites, use of third party disposal sites, and former assets and subsidiaries.
- Corporate parents can become liable for polluting actions of their subsidiaries when management formalities and separateness is not properly maintained.
- Failure to respect deed restrictions or to maintain institutional controls on your property can result in liability as though you were an original responsible party.
The bottom-line is that you do not have to be a “big guy” involved in a Superfund cleanup to find yourself with a big cleanup bill.
Here are a few true-life examples:
- We once did a transaction involving a fast food chain, which was being acquired by an investment firm. As a general rule, fast food businesses do not raise red-flags in diligence because they do not use hazardous materials and on-site waste is minimal. However, it turned out that this fast food company had hundreds of thousands of dollars in environmental liability because they had not performed the proper level of environmental investigation on the properties they acquired. In their frenzy to grab up desirable corner lots at intersections across America, they unfortunately forgot what had traditionally occupied those properties since the days of Model T Sedans: gas stations! Gas stations with abandoned leaking underground tanks. This oversight proved disastrous, as site construction was delayed, sometimes for years: vapor barriers were required and a mess of regulatory red-tape nearly ruined this business.
- We helped evaluate a vast track of private forestland in the Southeast for possible acquisition by a paper company. Environmental issues surrounding forestland purchases primarily involve endangered species. In this case, there was also a strange groundwater issue: high levels of arsenic. Investigation revealed that a small Civil War era cemetery occupied an up-gradient location, and we determined that well into the 20th century -- embalming fluid contained arsenic, which is extremely toxic and presents a serious threat to drinking water sources. During the Civil War, up to 12 pounds of arsenic was used per corpse to kill bacteria long enough to ship the body back to its place of origin. Who would have thought that an old cemetery in the middle of a forest would be a source of significant groundwater pollution?
These are but two of the surprising liability issues we have uncovered through our careful environmental due diligence over the past 15 years. And truly, it takes years of digging into a broad variety of properties and their uses to develop a trained sense on what to look for and where to look in order to get a full picture. A Phase I Environmental Site Assessment (ESA) provides a good overview but often lacks all the information necessary to make an informed decision. For instance, a standard Phase I ESA does not involve a compliance review. Capital costs for addressing old violations and for maintaining compliance can be very costly too, and often involve operational interruption. The moral of this story? Do not give short shrift to your environmental diligence process, and preferably hand the job over to an experienced professional. Contact Tellus Law Group for details on ways to minimize the risk of liability and compliance costs. Getting us involved early saves you money and protects your position. You benefit from our experience.