Environmental Due Diligence: A Practical Guide to Survival

1. Environmental Due Diligence:A Practical Guide to Survival Scott D. Hubbard (616) 752-2157 shubbard@wnj.com

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 49503 (616) 752-2157 shubbard@wnj.com 4864618

13. Environmental Due Diligence: A Primer By: Sara Beth Watson swatson@steptoe.com 202-429-6460

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 • ASTM Guidance (sample) • Complete list available at http://www.astm.org/Standards/environmental-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. To Whom is AAI Applicable? All Appropriate Inquiry is applicable to 3 categories of property owners: • Innocent purchasers • Contiguous property owners • Bona fide prospective purchasers • provided that the property owner meets the statutory criteria, which will be analyzed on a fact-specific basis • Certain Brownfield grant recipients

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 20036 (202) 429-6460 swatson@steptoe.com