Environmental Due
Diligence:
A Practical Guide to Survival
Scott D. Hubbard
(616) 752-2157
shubbard@wnj.com
1
The Drill

Get the Agreement
 Buying
or selling?
 Purchasing
 Assets,
or leasing?
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
2
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?
3
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
 Prior

and procedures for transfer
assessments and audits
Buyer: get representation that Seller has disclosed all
4
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
 Chemical
 Permit
regulatory regimes
usage
requirements
 Decommissioning
activities
5
The Drill

Ordering the environmental assessment
 Timing,
timing, timing
 Scope
 Multiple
 Terms

 All
properties
and conditions of engagement
Indemnities, limitations of liability
reports in draft form
 Lines
of communication
6
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
7
The Assessment

Is there a lender involved?
 Many

lenders have special requirements

Scope

Certification of report
“Updating” the Phase I
 Data
staleness
 ASTM
limitations
8
The Assessment

Using the other party’s consultant (the
“Seller’s Phase I”)

Manage the consultant
9
Environmental Liability

Site contamination
 CERCLA/state

analogs
Status based, subject to exceptions

Innocent purchaser

BFPP

Contiguous landowner

Continuing obligations
 RCRA

Corrective action liability
10
Environmental Liability

Site contamination cont.
 CWA
 TSCA
 State
Statutes

OSHA (Asbestos)

Limits of defenses

Common law
11
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
12
4864618
Environmental Due Diligence:
A Primer
By: Sara Beth Watson
swatson@steptoe.com
202-429-6460
steptoe.com
October 27, 2010
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?
15
Environmental Assessment

Select the correct assessment for your site
and project




What
What
What
What
do I know about the history of the site?
is the development plan?
are the constraints of the deal?
will the financing require?
16
ASTM Guidance
 ASTM Guidance (sample)
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

Complete list available at
http://www.astm.org/Standards/environmentalassessment-and-risk-managementstandards.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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To Whom is AAI Applicable?
All Appropriate Inquiry is applicable to 3 categories of
property owners:
1.
Innocent purchasers
2.
Contiguous property owners
3.
Bona fide prospective purchasers

4.
provided that the property owner meets the
statutory criteria, which will be analyzed on a
fact-specific basis
Certain Brownfield grant recipients
19
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
20
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)
21
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
22
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
23
Special Issues

Specific transactions may have special issues



Endangered Species
Migratory Birds
Environmental Justice
24
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
25
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
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