Published in NH Bar News (9/18/2019)
Practitioners performing environmental due diligence have grown accustomed to the now routine use of Phase 1 Environmental Site Assessments (ESA). However, the adoption of new regulatory standards raises the possibility that standard ASTM-compliant ESAs may be insufficient to identify potential environmental risks. Specifically, so called contaminants of emerging concern (CECs), which include chemicals found in firefighting foam, water proof fabrics, pharmaceuticals, personal care goods and many more products have only very recently become regulated. However, CECs are not currently classified as “hazardous” under federal law, and therefore, are not regulated under the variety of environmental statutes and accordingly, are not assessed by standard Phase 1 ESAs.
The PFAS Issue
The class of CECs currently receiving the most attention are poly- and perfluoroalkyl substances (PFAS), man-made chemicals that include PFOA, PFOS, GenX. The Environmental Protection Agency (EPA) explains that PFASs can be found in: food packaged in PFAS-containing materials, processed with equipment that used PFAS, or grown in soil or water containing PFAS compounds; household products, such as water and stain repellant fabrics, non-stick products, polishes, waxes, paints, cleaning products; certain fire-fighting foams; and at facilities that engaged in chrome plating, electronics manufacturing or oil recovery. (https://www.epa.gov/pfas/basic-information-pfas)
The Regulatory Landscape
As of September 30, 2019, New Hampshire will enforce Maximum Contaminant Limits (MCL) for ambient groundwater quality criteria for four PFAS substances at levels ranging from 11 ppt to 18 ppt. See N.H. Code. Admin. R. Env-Or 603.03(b)–(c). See also Env-Dw 705.06 (establishing MCLs and Maximum Contaminant Level Goals (MCLGs) for PFAS in drinking water); Env-Wq 402, et seq. (modifying groundwater discharge permit criteria for PFAS). The Department has an entire (https://www4.des.state.nh.us/nh-pfas-investigation/) devoted to its efforts with regard to PFAS which includes a sampling map that identifies those properties where PFAS testing has been done. These rules will affect municipalities as well as private entities. New Hampshire regulators estimate communities will need to spend $190 million on landfills, wastewater treatment plants and drinking water supplies to comply with the PFAS criteria.
A growing number of other states, including Massachusetts, Maine, New York, Vermont, Michigan, Pennsylvania, Connecticut, Wisconsin, California, and Alaska are in varying stages of regulating and/or assessing historical releases of PFAS. On the national level, EPA has recommended that people not drink water containing a total concentration of PFOS and PFOA above 0.07 ug/L (70 parts per trillion (ppt)) and is working on establishing a MCLs for certain PFAS chemicals. What is important about this, for purposes of transactional, environmental due diligence, is that inconsistent standards may be adopted for PFAS nationwide in the very near future.
The potential costs associated with the study and remediation of PFAS could well be enormous. New Jersey issued PFAS-focused orders to “Responsible Parties” and filed multiple lawsuits in 2019 against manufacturers and sellers of products that included PFAS. These administrative and judicial actions seek relief ranging from past costs incurred by the government, to costs of future investigations and remediation, and payment of Natural Resource Damages. In addition, New Jersey has threatened to seek treble damages. Using the threat of treble damages in an environmental enforcement will look very familiar to those who previously dealt with similar EPA “106 Orders” at Superfund sites.
The Phase 1 ESA
Environmental due diligence in accordance with established commercial and legal standards is well-recognized as a critical element of almost every transaction involving real property. An ESA incorporating “all appropriate inquires” by a qualified environmental professional, should be performed to determine whether there are conditions indicating past or current releases of petroleum or hazardous substances. An ESA is conducted according to ASTM standards, and must include, for example:
- A review of historical records;
- A review of government environmental records;
- Interviews with current and past property occupants; and
- A physical site inspection
At the conclusion of a properly conducted ESA, one may qualify for certain liability protections as an innocent landowner or a Bona Fide Perspective Purchaser. See EPA Common Elements Guidance. These legal protections may insulate a new owner from liability for pre-existing contamination if certain precautions were taken. The performance of an ESA is an effective means of identifying potential environmental problems— except, perhaps, CECs.
Parties engaged in transactions that involve the acquisition of real estate—and that take the prudent step of obtaining a pre-closing ESA—will want to be aware of the potential presence of CECs, including PFAS, that the standard Phase 1 ESA may not address.
What Should the Practitioner Do?
Unless/until the ASTM standard is revised to include PFAS, and perhaps other CECs, there are steps that a prudent practitioner should take during the ESA process.
First, become knowledgeable about CECs generally. This is not easy. There are innumerable substances that may “emerge” in the future. Simply understanding the risk, however, is important.
Second, be informed about substances that are under consideration for regulation. EPA publishes technical fact sheets, that provide a summary of information on CECs that are being considered for new, or expanded regulation.
Third, retain an experienced Environmental Professional to conduct the ESA and evaluate the potential CEC issues before the ESA begins. Practitioners should pay attention to the section of the ESA relating to the historic use of the site as well as adjacent property. Was a fire reported at the site or nearby, with the potential that firefighting foams containing PFASs were used? Were there ever fire resistant aviation hydraulic fluids, photography and film products present at the site, or was PFAS used in a manufacturing process, to name a few? If the site history shows the potential presence of CECs, further analysis is warranted.
Lastly, practitioners should be aware that a Phase I ESA still might not adequately address CECs under state law. There will likely be more variability among CEC standards than for more traditional compounds. It is essential to determine in addition to federal environmental law, which State laws apply.
As new compounds are developed each year, and the universe of CECs expands, risks identified in environmental due diligence inquiries will develop apace. Look for this to be an evolving issue that must be constantly reevaluated.