Considerations for Transactions with Environmental Issues

1. Considerations for Transactions with Environmental Issues Richard M. Fil, Esq.

2. Sources of Potential Liability • Federal CERCLA / state counterparts • RCRA (federal and state) • Common law • Other causes of actions (e.g., public trust)

3. 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

4. Importance of Allocation • Seller caused the problem • Buyer owns the problem • Failure to allocate may result in: • Litigation • Uncertainty • Additional costs

5. Basic Considerations • Condition of facility (current and historic) • Operation of facility (current and historic) • Divergent interests of buyer and seller

6. Potential Sources of Concern • Compliance • Permits • Reporting / other requirements • Contamination • On-site • Off-site • Former sites • Neighboring properties (sources and receptors)

7. Importance of Site Characterization • Potential compliance needs (e.g., permitting; Transfer Act) • Identify site history / conditions • Establish baseline • Quantify remediation costs • Allocate responsibility

8. 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

9. Considerations for Retaining a Consultant • Confidentiality • Generate written reports only on request • Stamp all reports “A/CP” and “Draft” unless directed otherwise • Product ownership

10. Considerations for Retaining a Consultant (continued) • Insurance • Access to all sites • Clearly identify the client • Time and cost issues • Reporting requirements

11. 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 etseq. (LEP Regulations) • C.G.S. Section 22a-134g (termination of operations) • Federal SEC disclosures • Aquifer Protection Regulations (in draft)

12. Ethical Considerations • Identify your client • Watch for conflicts that may arise • Remain aware of divergent interests of others

13. Important PSA Elements • Definitions • Representations and warranties • Schedules of exceptions • Indemnification by buyer and seller

14. Definitions • Environmental conditions • Environmental liability • Hazardous materials • Environmental laws

15. 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

16. 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

17. Indemnification • Division of responsibility • Trigger for indemnification • Define compliance • Basket and cap • Limits on notice / time • Independent statutory claims

18. 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

19. Examples of Buyer- and Seller-Friendly Agreements • Buyer friendly terms • Seller friendly terms

20. Other Forms of Protection • Covenant not to sue • Prospective purchaser agreement • Comfort letter • Environmental insurance

21. Connecticut Transfer Act • C.G.S. Section 22a-134 etseq. • “Establishment” • “Transfer”

22. “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

23. “Transfer” • “Any transaction or proceeding through which an establishment undergoes a change in ownership,” with 20 exceptions • Includes leases of 25 years or more

24. Transfer Act Filing • Forms I-IV • RCSA Section 22a-133k-1 etseq., Remediation Standard Regulations (“RSRs”) • “Certifying Party” • Environmental Condition Assessment Form (“ECAF”)

25. 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

26. RSRs and ELURs • RSRs • Soil and groundwater • GA v. GB • Residential v. industrial / commercial • ELURs • Limit site uses • Impose controls

27. Other Relevant Requirements in Connecticut • Termination of operations • Aquifer protection regulations

28. Hypothetical Transactions • Consider the sale of a car dealership to: • Another car dealer • “Big box” retail developer • Affordable housing developer

29. Conclusion • Consider and address potential liability for: • Compliance • On-site and off-site contamination • State and federal requirements • Contractual and statutory liability