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Vapor Intrusion and Environmental
Liability—Learning from Past Mistakes


Presented 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
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
Vapor Intrusion In the News
Environmental Due Diligence


Meet CERCLA “All
Appropriate
Inquiries” Standard
Assess Liability/Risk
For Prospective
Purchaser or Lenders
Minimize Potential
Legal Claims
Standard of Care


ASTM Standard
Practice - 2013
Revision
ASTM Vapor
Encroachment
Screening
What Is Vapor Intrusion?


General Definition:
“The Migration of Volatile
Chemicals Into Structures”
Vapor Sources


Dry Cleaners

Gas Stations

Manufacturing

Area-Wide
Migratory Pathways of VOCs into Buildings




Dry Cleaners                                                         From Groundwater
                                                                         Through Soil
                                                                        Into Buildings




                                  Vapor Intrusion
                                   Through Soil
Soil Contamination                                  Migration of Contamination


  Leaching Through Soil




                   Groundwater Contamination
Migratory Pathways of VOCs into Buildings
Soil and Groundwater Contamination

Soil gas sampling results adjacent to building can underestimate risk
Sub-slab sampling required
Groundwater plume serves as separate source for vapors
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 Sampling

Need to Compare Results to Applicable
 Regulatory Standards
[Residential and Commercial/Industrial and
 groundwater]
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
Liability Concerns for Affected Parties




Neighbors
Tenants
Lenders
Land Owners
Vapor Intrusion Fixes


Mitigation 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 and
Institutional Controls
Joseph G. Maternowski
Hessian & McKasy, P.A.

jmaternowski@hessianmckasy.com
www.EnviroAttorney.net

(612) 746-5754

                       Thanks!
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
                   wwagner@taftlaw.com
         (Bill Wagner Environmental Lawyer Blog)
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
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)
Real World Example
Aircraft Parts Manufacturer: 1960s-1990s
1991 Buyer Purchased Manufacturing Business
1991 Phase I – Missed Septic Drain in Degreasing Room
2000 No Phase I – Developer Told Bank
     “It’s Always Been Farmland”
2004 Builder’s Phase I – Identified Manufacturer
In Voluntary Remediation Program ½ Mile Away
Solvent Plume Left The Site
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
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
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

*http://www.envirogroup.com/links.php; 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 Subsurface
Intrusion Component to the Hazard Ranking System, sent to OMB Feb. 3, 2012, to be published ~ May 2013.
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, effective
June 1, 2012.
Vapor Intrusion and Environmental Liability—Learning from Past Mistakes
ASTM E 1527
Vapor as Standard Practice




              Stuart J. Lieberman, Esq.
Due Diligence


Where vapor is scientifically likely,
due diligence requires analysis of it.
Vapor Intrusion


All appropriate inquiry can not ignore
vapor intrusion.
Innocent Landowner
            Defense


Innocent Landowner Defense applies
to persons who did not know and had
no reason to know
Hazardous Substances


Recognized environmental conditions
include the presence or likely presence of
hazardous substances.
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!
Due Diligence Auditor


Specialized knowledge of the user must be
given to an environmental due diligence
auditor, i.e. chemical processing
companies, platters, dry cleaners.
Site Assessments



• Site Assessments – looking for signs
  of vapor
   • Exterior and Interior: you cant
     have one eye closed
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
Phase 1 Reports



Phase 1 reports should summarize all
recognized environmental conditions and
in certain instances recommend additional
environmental testing when required
Testing and Morality


• Disease Potential
• Water Pollution Potential
Potential Purchasers


Vapor Testing – critical to protecting
potential purchaser of property
Dry Cleaners


Dry Cleaners area huge problem in
New Jersey
Regional Chlorinated-Hydrocarbon
          Contamination


• Regional Chlorinated-Hydrocarbon
  Contamination
   • Example: Union County
Vapor Detection



Vapor detection and leaking
neighborhood gas stations
Liability



Lawyer and consultation liability to
clients and third parties
Thank you!




      Stuart J. Lieberman, Esq.
Q&A


      © 2012 Environmental Data Resources, Inc.
        2011

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Vapor Intrusion and Environmental Liability—Learning from Past Mistakes

  • 1. Vapor Intrusion and Environmental Liability—Learning from Past Mistakes Presented 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. 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
  • 4. Environmental Due Diligence Meet CERCLA “All Appropriate Inquiries” Standard Assess Liability/Risk For Prospective Purchaser or Lenders Minimize Potential Legal Claims
  • 5. Standard of Care ASTM Standard Practice - 2013 Revision ASTM Vapor Encroachment Screening
  • 6. What Is Vapor Intrusion? General Definition: “The Migration of Volatile Chemicals Into Structures”
  • 7. Vapor Sources Dry Cleaners Gas Stations Manufacturing Area-Wide
  • 8. Migratory Pathways of VOCs into Buildings Dry Cleaners From Groundwater Through Soil Into Buildings Vapor Intrusion Through Soil Soil Contamination Migration of Contamination Leaching Through Soil Groundwater Contamination
  • 9. Migratory Pathways of VOCs into Buildings
  • 10. Soil and Groundwater Contamination Soil gas sampling results adjacent to building can underestimate risk Sub-slab sampling required Groundwater plume serves as separate source for vapors
  • 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 Sampling Need to Compare Results to Applicable Regulatory Standards [Residential and Commercial/Industrial and groundwater]
  • 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. Liability Concerns for Affected Parties Neighbors Tenants Lenders Land Owners
  • 14. Vapor Intrusion Fixes Mitigation 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 and Institutional Controls
  • 15. Joseph G. Maternowski Hessian & McKasy, P.A. jmaternowski@hessianmckasy.com www.EnviroAttorney.net (612) 746-5754 Thanks!
  • 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 wwagner@taftlaw.com (Bill Wagner Environmental Lawyer Blog)
  • 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. 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)
  • 21. 1991 Buyer Purchased Manufacturing Business
  • 22. 1991 Phase I – Missed Septic Drain in Degreasing Room
  • 23. 2000 No Phase I – Developer Told Bank “It’s Always Been Farmland”
  • 24. 2004 Builder’s Phase I – Identified Manufacturer In Voluntary Remediation Program ½ Mile Away
  • 25. Solvent Plume Left The Site
  • 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. 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. 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 *http://www.envirogroup.com/links.php; 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 Subsurface Intrusion Component to the Hazard Ranking System, sent to OMB Feb. 3, 2012, to be published ~ May 2013.
  • 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, effective June 1, 2012.
  • 31. ASTM E 1527 Vapor as Standard Practice Stuart J. Lieberman, Esq.
  • 32. Due Diligence Where vapor is scientifically likely, due diligence requires analysis of it.
  • 33. Vapor Intrusion All appropriate inquiry can not ignore vapor intrusion.
  • 34. Innocent Landowner Defense Innocent Landowner Defense applies to persons who did not know and had no reason to know
  • 35. Hazardous Substances Recognized environmental conditions include the presence or likely presence of hazardous substances.
  • 36. 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!
  • 37. Due Diligence Auditor Specialized knowledge of the user must be given to an environmental due diligence auditor, i.e. chemical processing companies, platters, dry cleaners.
  • 38. Site Assessments • Site Assessments – looking for signs of vapor • Exterior and Interior: you cant have one eye closed
  • 39. 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
  • 40. Phase 1 Reports Phase 1 reports should summarize all recognized environmental conditions and in certain instances recommend additional environmental testing when required
  • 41. Testing and Morality • Disease Potential • Water Pollution Potential
  • 42. Potential Purchasers Vapor Testing – critical to protecting potential purchaser of property
  • 43. Dry Cleaners Dry Cleaners area huge problem in New Jersey
  • 44. Regional Chlorinated-Hydrocarbon Contamination • Regional Chlorinated-Hydrocarbon Contamination • Example: Union County
  • 45. Vapor Detection Vapor detection and leaking neighborhood gas stations
  • 46. Liability Lawyer and consultation liability to clients and third parties
  • 47. Thank you! Stuart J. Lieberman, Esq.
  • 48. Q&A © 2012 Environmental Data Resources, Inc. 2011