The Small Business Liability Relief and Brownfields Revitalization Act: Implementing Changes to Superfund Liability

K.C. Schefski

After years of legislative deliberations on Superfund reform, the 107th Congress passed the most significant amendments to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund), 42 U.S.C. §§ 9601-9675 (2000), since the Superfund Amendments and Reauthorization Act of 1986. The Small Business Liability Relief and Brownfields Revitalization Act (the Act), Pub. L. No. 107-118, 115 Stat. 2356 (2002) (to be codified in scattered Sections of 42 U.S.C §§ 9601-9675), addresses many of the reforms sought, and largely achieved administratively, since the 103rd Congress. However, the Act is not the comprehensive Superfund reform sought by many in the Superfund community. Rather, the Act targets some of the most inequitable consequences of Superfund’s broad liability scheme, and changes that will encourage the responsible cleanup and re-use of contaminated properties. The result is an Act that received bipartisan support in Congress, the endorsement of the Bush administration, support from the states, and approvals from both sides of the fence in the Superfund community.

The Act consists of two titles. Title I addresses liability exemptions for parties who generate and transport small quantities of hazardous substances and certain generators of municipal solid waste. Title I also provides for expedited settlements with certain parties that can demonstrate a limited or inability to pay their share of response costs. Title II amendments focus on facilitating the responsible cleanup and re-use of contaminated properties. The amendments provide specific statutory authority for the Environmental Protection Agency’s (EPA) brownfields program and authorize appropriations to fund brownfields grants and grants for state and tribal response programs. Title II also provides conditional exemptions from CERCLA liability for contiguous property owners and bona fide prospective purchasers and clarifies the pre-existing innocent landowner defense. Finally, the amendments place certain limits on EPA’s use of its enforcement and cost recovery authorities at low-risk sites where a person is conducting a response action in compliance with a state program.

The Liability Provisions of the New Law

De Micromis, MSW, and Ability to Pay

Section 102 of the amendments adopted with some modification three existing EPA policies in the areas of generators and transporters of de micromis amounts of hazardous substances, generators and transporters of municipal solid waste (MSW), and expedited settlements for certain parties with a limited ability to pay. Under new CERCLA Sections 107(o) and 107(p), certain de micromis and MSW generators and transporters are statutorily exempt from CERCLA generator and transporter liability, subject to several statutory exceptions. 42 U.S.C. § 9607. Congress also amended Section 122(g) to codify for the benefit of certain parties EPA’s practice of providing expedited ability to pay settlements. 42 U.S.C. § 9622.

Overall, the Act will likely not significantly change EPA’s policies to the extent such policies are consistent with the Act. However, some provisions in the Act contain notable deviations from existing EPA policies. For example, while EPA policies addressing de micromis and MSW generators and transporters apply generally at all sites, the new statutory exemptions are limited solely to sites on the National Priorities List (NPL). EPA expects to issue guidance to explain these differences and how EPA policy might apply to similar parties not covered by the statute.

The Agency recently completely guidance for the MSW exemption. On Nov. 7, 2002, EPA’s Office of Site Remediation Enforcement and the Department of Justice issued guidance entitled Revised Settlement Policy and Contribution Waiver Language Regarding Exempt De Micromis and Non-Exempt De Micromis Parties. This policy explains that EPA will continue to consider on a site-specific basis settlements with, and contribution protection for, generators and transporters contributing de micromis amounts of hazardous substances that may not fall within the statutory exemption (e.g., at non-NPL sites).

Contiguous Property Owners, Bona Fide Prospective Purchasers, and Innocent Landowners

The amendments create two new conditional exemptions from CERCLA “owner/operator” liability for contiguous property owners and bona fide prospective purchasers (BFPP). Again, these exemptions embody aspects of pre-existing EPA policies. See US EPA, Policy Towards Owners of Property Containing Contaminated Aquifers (1995); US EPA, Guidance on Settlements with Prospective Purchasers of Contaminated Property (1995). The Act also modifies the existing innocent landowner defense by clarifying the meaning of “all appropriate inquiries.”

One of the most notable aspects of these provisions is that all three conditional exemptions embody the following “common elements” for persons to maintain non-liable status:

• conduct “all appropriate inquiry” prior to purchase of the property;
• not be potentially liable or affiliated with any person potentially liable;
• exercise appropriate care by taking reasonable steps to “stop any continuing release; prevent any threatened future release; and prevent or limit any human, environmental, or natural resource exposure to any previously released hazardous substance;”
• provide full cooperation, assistance, and access to persons undertaking a response action or natural resource restoration;
• comply with all governmental information requests;
• comply with land use restrictions and not impede the performance of institutional controls; and
• provide all legally required notices regarding releases of hazardous substances

At time of publication, EPA is considering whether to produce general guidance on these “common elements.” EPA has heard from stakeholders that they need clarification of these requirements to ensure they take appropriate actions to avoid liability. EPA provide direction where needed. However, requirements such as what constitutes appropriate care/reasonable steps will greatly depend on site specific circumstances.

Contiguous Property Owners

Section 221 of the Act adds new Section 107(q) which exempts from owner or operator liability persons that own land contaminated solely by a release from contiguous, or similarly situated property owned by someone else. In the case of a contiguous property owner, the owner must not have known or had reason to know of the contamination at the time of purchase and must not have caused or contributed to the contamination. The section also modifies what constitutes appropriate care/reasonable steps for contiguous property owners by clarifying that the requirement does not obligate a contiguous property owner to conduct groundwater investigations or remediate groundwater contamination except in accordance with EPA’s pre-existing contaminated aquifer policy.

While much of the contiguous property owner provision would be covered in any guidance on the common elements, EPA is considering developing additional guidance on aspects of the provision that may differ from existing EPA policy. The Act generally provides greater protections for contiguous property owners than EPA’s existing policy on owners of contaminated aquifers. The Act does not limit the exemption to properties contaminated by groundwater but may also apply to soil contamination resulting from neighboring properties. The Act also grants EPA the authority to provide assurances that the Agency will not take action against a person and protection from third party suits. As in EPA’s Contaminated Aquifer Policy, a person who purchases with knowledge of the contamination cannot claim the exemption; however, the Act notes that a party who does not qualify for the exemption for this reason may still qualify as a BFPP.

Bona Fide Prospective Purchasers

The most notable aspect of the BFPP provision is that for the first time Congress has limited the CERCLA liability of a party who purchases real property with knowledge of the contamination. The caveats to this exemption, in addition to the common elements, include a requirement that all disposal takes place prior to the date of purchase, that the person does not impede a response action, and that the property may be subject to a “windfall lien.” The windfall lien provision provides for a lien on the property of a BFPP if EPA has unrecovered response costs and the response action increased the fair market value of the property. The lien arises as of the date the response cost was incurred and the amount cannot exceed the increase in fair market value attributed to the response action. EPA recognizes that the windfall lien provision has proven a point of discussion and confusion that will likely require some explanation from EPA as to how the provision will be applied.

EPA’s policy on prospective purchaser agreements (PPAs) proven to be one of the most successful and high profile administrative liability reforms prior to enactment of the Act – prior to passage EPA had issued over 160 PPAs. Immediately after passage, EPA was asked repeatedly whether EPA would continue to issue PPAs. Many people commented that EPA needs to continue the practice, despite the fact that the Act provides an exemption and confronts an ongoing complaint, from some of these same people, that EPA should not be involved in private real estate transactions.

To address this issue, on May 31, 2002, EPA’s Office of Site Remediation Enforcement issued new guidance entitled Bona Fide Prospective Purchasers and the New Amendments to CERCLA. This guidance states that “EPA believes that, in most cases, the Brownfields Amendments make PPAs from the federal government unnecessary.” Therefore, in the majority of cases, EPA intends for the law to be self-implementing. However, the guidance does recognize the following two exceptions where EPA may enter into an agreement with the purchaser: 1) there is likely to be a significant windfall lien needing resolution; and 2) the transaction will provide significant public benefits and a PPA is needed to ensure the transaction will take place.

Innocent Landowners

Changes to CERCLA Section 101(35)(B) now define “all appropriate inquiries” for purposes of all three provisions. First, the Act directs EPA to promulgate regulations based on statutory criteria within two years of date of enactment, establishing standards for all appropriate inquiry. For purchases prior to issuance of these regulations, the Act utilizes two standards based on date of purchase. For purchases prior to May 31, 1997, the Act sets forth a narrative standard, directing courts to consider such factors as, inter alia, specialized knowledge of the defendant, the obviousness of the contamination, and relationship of purchase price to property value. For purchases after May 31, 1997, the Act states that procedures set forth in the American Society for Testing and Materials, Standard Practice for Environmental Site Assessment: Phase 1 Environmental Site Assessment Process, Standard E1527-97 shall satisfy the requirement. The section also provides that for purchasers of property for residential use or similar use by a nongovernmental or noncommercial entity a facility inspection and title search shall fulfill the requirements.

The provisions defining all appropriate inquiry raise two implementation issues for EPA. First, EPA must promulgate a regulation setting forth the standards which will satisfy this requirement. To this end, EPA has initiated the process for conducting a negotiated rulemaking under the Negotiated Rulemaking Act. 5 U.S.C. §§ 561-570 (2000). If EPA decides to follow this approach, it will allow EPA to work with a broad range of stakeholders to develop practices designed appropriately for their intended use. Also, the Phase 1 Environmental Site Assessment standard referenced in the new law was actually superceded with a new standard in 2000. The 1997 version is no longer available through ASTM. EPA expects to issue a Direct Final Rule pursuant to the Administrative Procedure Act to clarify that compliance with the 2000 standard will satisfy the all appropriate inquiry requirement.

Limitations on EPA CERCLA Enforcement and Cost Recovery Authorities

Section 231 of the Act amends CERCLA by adding a new Section 128. 42 U.S.C. § 9628. Section 128(b) sets forth limitations on EPA’s enforcement authority under Section 106(a) and cost recovery authority under Section 107(a). These limitations apply to actions against persons who have conducted or are conducting response actions at “eligible response sites” in compliance with a “State program that specifically governs response actions for the protection of public health and the environment.” The limitations only apply at eligible response sites – a term now defined in CERCLA Section 101(41)(C). 42 U.S.C. § 9601(41)(C). Furthermore, the limitations only apply to response actions commenced after Feb. 15, 2001 and in states that maintain a public record of sites being addressed under a state program in the upcoming year and those addressed in the preceding year. Additionally, these limitations are subject to specified exceptions.

EPA has decided not to issue guidance at this time on these new limits to EPA authority. EPA believes that Congress provided a fairly detailed statutory structure and that Section 128(b)(1) simply appears to embody EPA’s current practice of generally not getting involved at sites being cleaned up under a state program. However, EPA has taken some steps to ensure proper implementation of this section. Some EPA regional personnel have communicated with their respective states regarding how they anticipate handling the notification requirements and state requests for assistance, if necessary. For example, EPA, Region 9 in San Francisco has developed model letters to facilitate this communication between EPA and the states. Additionally, a group is assessing the exclusion from the definition of eligible response site for sites which EPA has determined qualify for listing to see how this exclusion works with the current site assessment and scoring process.

EPA’s Implementation Effort
The Act’s substantial amendments to CERCLA liability and changes to the Agency’s brownfields program have led EPA to initiate a considerable effort to implement the new legislation. EPA has taken a three pronged approach to this effort – developing work products to assist EPA and the public, outreach and communication, and securing an adequate budget.

Both EPA employees and the public need direction, clarification, and guidance on the variety of changes to CERCLA and existing EPA policies. Within EPA, the legislation impacts various programs and offices requiring each to communicate and play an active role in giving effect to the amendments. To implement Title II, EPA has organized a structure to insure cross program and EPA regional participation. A steering committee consisting of senior EPA management leads the effort by setting implementation priorities and resolving significant policy issues. The work of directing implementation efforts falls to an inter-office task force made up of various office and division directors. Actual work products are developed by workgroups, which include representatives from different EPA offices, regions, and in some cases the Department of Justice. EPA has also reached out to a variety of affected stakeholders to seek input and concerns. First, EPA has held a series of listening sessions attended by stakeholders and representatives from different EPA offices. The list of invitees included state, tribal, and local governments; environmental justice, community, environmental, and land use organizations; private sector companies; and professional associations, such as the American Bar Association (for a more detailed list and meeting notes see http://www.epa.gov/brownfields/sblrbra.htp). These sessions helped focus EPA on specific questions and issues that the public believes need to be addressed during implementation, and gave EPA the opportunity to convey its initial thoughts on the Act. Second, EPA has targeted certain state and tribal organizations for ongoing involvement in implementation work. In particular, the enforcement office has communicated with the National Association of Attorneys General, the Association of State and Territorial Solid Waste Managers Officials, and the American Bar Association. Many of the workgroups that are addressing provisions which will have significant impact on the states and tribes, such as the state and tribal funding provisions, hold conference calls with State and tribal representatives acting in their official capacities to give progress updates and seek input. Through these interactions EPA hopes to achieve implementation that is widely understood and accepted by its stakeholders.

Finally, the new brownfields and state and tribal funding programs would prove meaningless without adequate funding. The president’s fiscal year 2003 budget requests $200 million for these purposes. If fully appropriated, this would more than double the funding received for fiscal year 2002.

Conclusion
EPA, including the enforcement office, has long recognized the benefits of putting remediated property back into productive use and the need to ensure equitable application of CERCLA’s broad liability provisions. For nearly a decade, OSRE has embodied these goals in policy and guidance recognized by Congress in enactment of this new legislation. EPA will strive to give effect to the goals and purposes of the new law and do so with significant input from those most affected by these changes.

K.C. Schefski (schefski.kenneth@epamail.epa.gov) is an attorney-advisor in the Office of Site Remediation Enforcement of the EPA. These materials were part of a presentation by Paul Connor, Director, Policy and Program Evaluation Division, Office of Site Remediation Enforcement, EPA, at the 10th Section Fall Meeting in Portland, Oregon on Oct. 9-13, 2002.