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Considerations for Transactions with Environmental Issues
Richard M. Fil, Esq.
Sources of Potential Liability
• Federal CERCLA / state counterparts• RCRA (federal and state)• Common law• Other causes of actions (e.g., public trust)
Types of Damages
• Environmental damage to real property• Bodily injury / personal property damage• Third party claims from off-site impacts• Claims for off-site / non-owned impacts• Operational non-compliance
– Capital costs
– Penalties
– Operational losses
Importance of Allocation
• Seller caused the problem• Buyer owns the problem• Failure to allocate may result in:
– Litigation
– Uncertainty
– Additional costs
Basic Considerations
• Condition of facility (current and historic)• Operation of facility (current and historic)• Divergent interests of buyer and seller
Potential Sources of Concern
• Compliance– Permits
– Reporting / other requirements
• Contamination– On-site
– Off-site
– Former sites
– Neighboring properties (sources and receptors)
Importance of Site Characterization
• Potential compliance needs (e.g., permitting; Transfer Act)
• Identify site history / conditions• Establish baseline• Quantify remediation costs• Allocate responsibility
Types of Site Assessments
• Environmental conditions– Phase I
– Phase II
– Phase III
• Operational practices– Necessary permits in place
– Compliance with permits
– Compliance with reporting / other requirements
Considerations for Retaining a Consultant
• Confidentiality• Generate written reports only on request• Stamp all reports “A/CP” and “Draft”
unless directed otherwise• Product ownership
Considerations for Retaining a Consultant (continued)
• Insurance• Access to all sites• Clearly identify the client• Time and cost issues• Reporting requirements
Potential Reporting Requirements
• CERCLA• C.G.S. Section 22a-450 (spills)• C.G.S. Section 22a-6u (S.E.H.)• RCSA Section 22a-133v-1 et seq. (LEP
Regulations)• C.G.S. Section 22a-134g (termination of
operations)• Federal SEC disclosures• Aquifer Protection Regulations (in draft)
Ethical Considerations
• Identify your client• Watch for conflicts that may arise• Remain aware of divergent interests of
others
Important PSA Elements
• Definitions• Representations and warranties• Schedules of exceptions• Indemnification by buyer and seller
Definitions
• Environmental conditions• Environmental liability• Hazardous materials• Environmental laws
Representations and Warranties
• Potential on-site and off-site contamination• Actual or threatened claims or proceedings• Presence of USTs, asbestos, PCBs• Health & safety• Provision of all relevant documents• Permit status and compliance
Schedules of Exceptions
• Identify exceptions to representations and warranties
• Typical thresholds may include materiality, time period, and seller’s knowledge
• Examples:– Spills
– Orders, NOVs, litigation
– Exceedance of permit limits
Indemnification
• Division of responsibility• Trigger for indemnification• Define compliance• Basket and cap• Limits on notice / time• Independent statutory claims
Considerations for Indemnification
• Define cleanup standards and options• Identify party in control of cleanup and
agency contact• Provide for adequate access• Require cooperation• Define survival period for right to
indemnification
Examples of Buyer- and Seller-Friendly Agreements
• Buyer friendly terms• Seller friendly terms
Other Forms of Protection
• Covenant not to sue• Prospective purchaser agreement• Comfort letter• Environmental insurance
Connecticut Transfer Act
• C.G.S. Section 22a-134 et seq.• “Establishment”• “Transfer”
“Establishment”
• Generation of more than 100 kg of hazardous waste in any month since 11-80
• Handling of hazardous waste generated elsewhere by another person
• Operated at any time since May 1, 1967 as:– Dry cleaner
– Furniture stripper
– Vehicle body repair or painting shop
“Transfer”
• “Any transaction or proceeding through which an establishment undergoes a change in ownership,” with 20 exceptions
• Includes leases of 25 years or more
Transfer Act Filing
• Forms I-IV• RCSA Section 22a-133k-1 et seq.,
Remediation Standard Regulations (“RSRs”)
• “Certifying Party”• Environmental Condition Assessment Form
(“ECAF”)
Transfer Act Non-Compliance
• Strict liability / damages to transferee under C.G.S. Section 22a-134b
• Penalties under C.G.S. Section 22a-134d• Other enforcement actions by DEP
RSRs and ELURs
• RSRs– Soil and groundwater
– GA v. GB
– Residential v. industrial / commercial
• ELURs– Limit site uses
– Impose controls
Other Relevant Requirements in Connecticut
• Termination of operations• Aquifer protection regulations
Hypothetical Transactions
• Consider the sale of a car dealership to:– Another car dealer
– “Big box” retail developer
– Affordable housing developer
Conclusion
• Consider and address potential liability for:– Compliance
– On-site and off-site contamination
• State and federal requirements• Contractual and statutory liability