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Vapor Intrusion and Environmental Liability—Learning from Past Mistakes


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2/12/13 EDR Insight Web event, presented by Joseph G. Maternowski, William C. Wagner & Stuart J. Lieberman

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Vapor Intrusion and Environmental Liability—Learning from Past Mistakes

  1. 1. Vapor Intrusion and EnvironmentalLiability—Learning from Past MistakesPresented by:• Joseph G. Maternowski, Shareholder at Hessian & McKasy, P.A.• William C. Wagner, Partner, Taft Stettinius & Hollister LLP• Stuart J. Lieberman, Esq., Lieberman & Blecher, P.C. © 2012 Environmental Data Resources, Inc. 2011
  2. 2. Vapor Intrusion and Environmental Liability Learning From Past Mistakes Presented by: Joseph Maternowski Hessian & McKasy, P.A., Minneapolis, MN EDR Insight Webinar, February 12, 2013
  3. 3. Vapor Intrusion In the News
  4. 4. Environmental Due DiligenceMeet CERCLA “AllAppropriateInquiries” StandardAssess Liability/RiskFor ProspectivePurchaser or LendersMinimize PotentialLegal Claims
  5. 5. Standard of CareASTM StandardPractice - 2013RevisionASTM VaporEncroachmentScreening
  6. 6. What Is Vapor Intrusion?General Definition:“The Migration of VolatileChemicals Into Structures”
  7. 7. Vapor SourcesDry CleanersGas StationsManufacturingArea-Wide
  8. 8. Migratory Pathways of VOCs into BuildingsDry Cleaners From Groundwater Through Soil Into Buildings Vapor Intrusion Through SoilSoil Contamination Migration of Contamination Leaching Through Soil Groundwater Contamination
  9. 9. Migratory Pathways of VOCs into Buildings
  10. 10. Soil and Groundwater ContaminationSoil gas sampling results adjacent to building can underestimate riskSub-slab sampling requiredGroundwater plume serves as separate source for vapors
  11. 11. How Do You Know If There Is A Vapor Intrusion Problem? Tier 1: Preliminary Vapor Screening (Historical Review, Receptor Survey, Source Area Sampling) Tier 2: Subsurface Soil Vapor Sampling Tier 3: Indoor Air SamplingNeed to Compare Results to Applicable Regulatory Standards[Residential and Commercial/Industrial and groundwater]
  12. 12. Vapor a Concern to Federal and State Authorities U.S. Environmental Protection Agency (EPA) State Environmental Agencies Occupational Safety and Health State or Local Health Authorities
  13. 13. Liability Concerns for Affected PartiesNeighborsTenantsLendersLand Owners
  14. 14. Vapor Intrusion FixesMitigation Alternatives Source Removal Sealing Points of Entry HVAC Modifications Sub-slab Depressurization Systems Vapor Barrier Venting Systems (Active or Passive)Possible Long-Term Monitoring,Operations & Maintenance andInstitutional Controls
  15. 15. Joseph G. MaternowskiHessian & McKasy, 746-5754 Thanks!
  16. 16. Vapor Intrusion and Environmental Liability for EPs and Lenders— Learning from Past Mistakes William C. Wagner Taft Stettinius & Hollister LLP One Indiana Square, Suite 3500 Indianapolis, Indiana 46204 (317) 713-3500 (Bill Wagner Environmental Lawyer Blog)
  17. 17. Today’s Goals• Learn from the mistakes of others, rather than your own• Identify the threats to EPs and Lenders• Provide a real life example of due diligence gone wrong• Provide recommendations to EPs and Lenders
  18. 18. Legal Theories Against EPs for Phase I’s• Breach of contract & breach of warranty• Negligence / professional malpractice – All Appropriate Inquiries, ASTM E 1527, ASTM E 2600 – ASTM 1527, Section 1.6 – “This ASTM standard is not intended to represent or replace the standard of care by which the adequacy of a given professional service must be judged, nor should this document be applied without consideration of a project’s many unique aspects.”• Negligent misrepresentation (duties to unknown third parties who are not your clients)• Constructive fraud• Statutory claims (some states incorporate ASTM E 1527)
  19. 19. Real World Example
  20. 20. Aircraft Parts Manufacturer: 1960s-1990s
  21. 21. 1991 Buyer Purchased Manufacturing Business
  22. 22. 1991 Phase I – Missed Septic Drain in Degreasing Room
  23. 23. 2000 No Phase I – Developer Told Bank “It’s Always Been Farmland”
  24. 24. 2004 Builder’s Phase I – Identified ManufacturerIn Voluntary Remediation Program ½ Mile Away
  25. 25. Solvent Plume Left The Site
  26. 26. Indianapolis Star Newspaper Lawsuits • Three separate class actions lawsuits: – Personal injuries, emotional distress, and medical monitoring damages from vapor intrusion – Property damages (costs to investigate and remediate contamination), stigma damages, and holding costs – Claimed $50+ million in total damages • We defeated motion for class certification • 140+ plaintiffs filed consolidated lawsuit • Defendants included developer, builder, manufacturer/polluter, and realtors • Nonparties – Builder’s EP and Lender • Builder filed separate lawsuit against the manufacturer / polluter, developer, and the EP
  27. 27. Lawsuits • Site specific evidence – No groundwater / soil exposure – Vapor intrusion investigation – Impermeable clay layer over contaminated groundwater – Indoor air testing eliminated vapor intrusion pathway • Cases settled years later very favorably to the defendants
  28. 28. Key Take Aways for EPs – Protect Yourself • Keep your continuing education up to date – Read the relevant federal and state guidance documents* – Read the ASTM standards (E 1527, E 2600) and learn the nuances • Develop and implement: – Standard Operating Procedures – Training Protocols – Quality Control Procedures • Work with your lawyer, insurance broker, and malpractice insurer to: – Review your malpractice and CGL policies for coverages, exclusions, etc. – Review your Phase I proposals – what are you promising to do or not do, e.g. meet AAI, E 1527, etc.; vapor intrusion; recommendations; non-scope items? – Review your contract language, especially your warranty language, to defend negligent misrepresentation claims by third parties / non-clients*; Assessing Protectiveness at Sites for Vapor Intrusion, Supplement to the“Comprehensive Five-Year Review Guidance” (US EPA, OSWER Nov.14, 2012); Proposed Rule to Add a SubsurfaceIntrusion Component to the Hazard Ranking System, sent to OMB Feb. 3, 2012, to be published ~ May 2013.
  29. 29. Key Take Aways for Lenders – Protect Yourself • Don’t make Phase I’s decisions based simply on the amount of the loan • Make sure your EPs carry malpractice insurance • Learn to identify red flags in Phase I’s – Review the federal/state guidance, SBA guidance*, ASTM standards • Review your quality control procedures for Phase I’s • Use your lawyer to direct EPs’ work and to maintain the attorney-client and work product privileges • Have your lawyer review the EP’s contract language, warranties, and disclaimers • Always consider cost recovery – forensic analysis and liability analysis • Don’t be too afraid of the risks for revitalizing industrial sites – consultants are able to mitigate VI risks, and funding opportunities exist through federal and state Brownfield grants and tax incentive financing*SBA SOP 50 57, 7(a) Loan Servicing and Liquidation, Ch. 5 - Environmental Risk Management, effective March 1,2013; SOP 50 10 5(E), Lender and Development Company Loan Programs, Ch. 4 - Environmental Policies, effectiveJune 1, 2012.
  30. 30. ASTM E 1527Vapor as Standard Practice Stuart J. Lieberman, Esq.
  31. 31. Due DiligenceWhere vapor is scientifically likely,due diligence requires analysis of it.
  32. 32. Vapor IntrusionAll appropriate inquiry can not ignorevapor intrusion.
  33. 33. Innocent Landowner DefenseInnocent Landowner Defense appliesto persons who did not know and hadno reason to know
  34. 34. Hazardous SubstancesRecognized environmental conditionsinclude the presence or likely presence ofhazardous substances.
  35. 35. Phase 1 Environmental Site Assessment• The purpose of a Phase 1 Environmental Site Assessment is to reduce uncertainty regarding the potential for environmental conditions…vapor analysis is a must!
  36. 36. Due Diligence AuditorSpecialized knowledge of the user must begiven to an environmental due diligenceauditor, i.e. chemical processingcompanies, platters, dry cleaners.
  37. 37. Site Assessments• Site Assessments – looking for signs of vapor • Exterior and Interior: you cant have one eye closed
  38. 38. Uses of Property• Need to take into account: • Current property uses • Past property uses • Current uses of adjoining property • Past uses of adjoining property • Hydrogeological Conditions
  39. 39. Phase 1 ReportsPhase 1 reports should summarize allrecognized environmental conditions andin certain instances recommend additionalenvironmental testing when required
  40. 40. Testing and Morality• Disease Potential• Water Pollution Potential
  41. 41. Potential PurchasersVapor Testing – critical to protectingpotential purchaser of property
  42. 42. Dry CleanersDry Cleaners area huge problem inNew Jersey
  43. 43. Regional Chlorinated-Hydrocarbon Contamination• Regional Chlorinated-Hydrocarbon Contamination • Example: Union County
  44. 44. Vapor DetectionVapor detection and leakingneighborhood gas stations
  45. 45. LiabilityLawyer and consultation liability toclients and third parties
  46. 46. Thank you! Stuart J. Lieberman, Esq.
  47. 47. Q&A © 2012 Environmental Data Resources, Inc. 2011