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Environmental Due Diligence:

A Practical Guide to Survival

Scott D. Hubbard(616) 752-2157

shubbard@wnj.com

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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

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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?

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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

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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

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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

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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

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The Assessment

Is there a lender involved?

Many lenders have special requirements Scope

Certification of report

“Updating” the Phase I

Data staleness

ASTM limitations

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The Assessment

Using the other party’s consultant (the “Seller’s Phase I”)

Manage the consultant

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Environmental Liability

Site contamination

CERCLA/state analogs Status based, subject to exceptions

Innocent purchaser

BFPP

Contiguous landowner

Continuing obligations

RCRA Corrective action liability

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Environmental Liability

Site contamination cont.

CWA

TSCA

State Statutes

OSHA (Asbestos)

Limits of defenses

Common law

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Contact Information:

Scott D. HubbardWarner Norcross & Judd LLP

900 Fifth Third Center111 Lyon Street NW

Grand Rapids MI 49503(616) 752-2157

shubbard@wnj.com

4864618

October 27, 2010steptoe.com

Environmental Due Diligence: A Primer

By: Sara Beth Watsonswatson@steptoe.com202-429-6460

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Overview

Defining the Transaction Environmental Assessments EPA’s All Appropriate Inquiry

Regulations Ongoing Operations Other Requirements Special Circumstances

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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?

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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?

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ASTM Guidance

Designation Title

D6008 - 96(2005) Standard Practice for Conducting Environmental Baseline Surveys

E1527 - 05 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process

E1528 - 06 Standard Practice for Limited Environmental Due Diligence: Transaction Screen Process

E1903 - 97(2002) Standard Guide for Environmental Site Assessments: Phase II Environmental Site Assessment Process

E2018 - 08 Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process

E2247 - 08 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process for Forestland or Rural Property

ASTM Guidance (sample)

Complete list available at http://www.astm.org/Standards/environmental-assessment-and-risk-management-standards.html#E50.02

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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

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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?

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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

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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)

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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

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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

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Special Issues

Specific transactions may have special issues Endangered Species Migratory Birds Environmental Justice

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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

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Environmental Due Diligence

Questions?

Contact InformationSara Beth Watson

Steptoe & Johnson LLP1330 Connecticut Avenue, NW

Washington, DC 20036(202) 429-6460

swatson@steptoe.com