Purchaser Qualifies for BFPP Defense

In 3000 E.Imperial, LLC v Robertshaw Controls Co, 2010 U.S. Dist. LEXIS 138661 (C.D. Cal. 12/29/10), the purchaser acquired property in November 2006 that had been formerly used to manufacture aircraft and missile valves as well as furniture manufacturing. Plaintiff learned the site had been contaminated during its pre-acquisition diligence. After acquiring title, plaintiff demolished the manufacturing building which occupied 90% of the site and completed additional investigations.

A September 2007 report identified two areas of concern: AOC 1 was the location of former USTs and a former maintenance shed.  AOC 2 was the former manufacturing building and was impacted from TCE. Plaintiff drained the USTs which had residual TCE. The USTs were excavated in 2009. Plaintiff incurred approximately $1.7MM in response costs and sought reimbursement under CERCLA and the California superfund law.

Defendant argued that plaintiff did not qualify for the federal and state Bona Fide Prospective Purchaser (BFPP) Defenses failed to exercise appropriate care. In particular, the defendant asserted that plaintiff unreasonably delayed excavating the USTs until 2009.

Court said  that under the California BFPP (codified at Health & Safety Code 25395.69), "appropriate care" is defined as the performance of response actions directed by the Department of Toxic Substances (DTSC). Since the plaintiff was working under DTSC supevision, the court ruled that the plaintiff satisfied the state BFPP test.

For the CERCLA BFPP, the court noted that the plaintiff sampled the contents of the USTs in May 2007, six months after it acquired title. In September 2007, the plaintiff received its report from its consultants and then drained the USTs in October 2007, placing the contents into 20 drums that were then properly disposed. The court held that the plaintiff taken "reasonable steps" because it  emptied the USTs "soon after learning that they contained a hazardous substances". The court rejected the notion that the plaintiff acted unreasonably when it waited until 2009 to excavate the USTs, noting that there was no evidence the delay allowed additional TCE to discharge into the environment. Moreover, the defendant did not produce any evidence to suggest that plaintiff should have suspected that TCE remained in the USTs.  Indeed, when the USTs were removed, the court said, the contents consisted almost entirely of water. Accordingly, the court found that the plaintiff had satisfied the BFPP defense by taking reasonable steps to prevent further releases of hazardous substances.

This case contrasts with the Ashley II case we discussed two months ago where the purchaser failed to follow recommendations in the phase 1 to clean out sumps and floor drains. In that case, it appears there was some evidence that this failure may have allowed some contamination to migrate into sensitive wetlands and surface waters.

These two cases illustrates that courts are going to scrutinize the actions of a purchaser who is asserting a defense to see if they complied with post-acqusition continuing obligations. I suspect the courts in this process probably engage in some "monday morning quarterbacking" when evaluating the reasonableness of the purchaser's decisions. Decisions will be evaluated in the context of the totality of information known to the court at the time of the lawsuit. Facts that perhaps were not known at the time may in hindsight look like information that a purchaser should have known or considered.

In the Robertshaw Controls case, the plaintiff got lucky when it left the tanks in the ground for another two years until it was ready to develop the site since it was able to drain all of the TCE from the tanks. In Ashley II, the developer did not immediately cleanout the sumps and drains, and there was evidence that stormwater runoff was flowing into the wetlands and surface waters.

Because the BFPP is a self-implementing defense and because parties will be subject to second guessing by a judge who will have the benefit of hindsight, it is important that parties seeking to assert the defense carefully evaluate the risks posed by their sites. It might also be advisable to do the work under a state voluntary cleanup agreement to cloak the work with the presumption of reasonableness and perhaps even consistency with the NCP. Even if the state requires some additional work that a purchaser might not necessarily be REQUIRED to perform to comply with the BFPP, the greater protection that would be afforded by such work will probably be worth it in terms of peace of mind and litigation costs that are avoided.       
     

Ashley II Charleston LLC v. PCS Nitrogen-the most important CERCLA case of 2010?

In the first reported case to interpret the scope of the "appropriate care" requirements of the CERCLA Bona Fide Prospective Purchaser (BFPP) defense, a  federal district court in South Carolina ruled that an entity owned by the brownfield developer Cherokee failed to qualify for the BFPP when it failed to address impacts from RECs that had been identified in a phase 1 report. Ashley II Charleston LLC v. PCS Nitrogen, 2010 U.S.Dist. LEXIS 104772 (D.S.C. 9/20/10)

The phase 1 identified sumps and conrete pads as RECs. When the developer demolished all of the above-ground structures on that parcel, it failed to clean out and fill in the sumps,  leaving them exposed to the elements which may have exacerbated these environmentl conditions.

The court was also troubled by the fact that the developer indemnified the prior owners of the site. The court said this called into question whether the developer had complied with the "no affiliation" requirement of the BFPP defense.

Also of interest was the court's observation that the phase 1 did not strictly comply with the AAI requirements in effect at the time of the acquisition but that the deviation was not significant. Therefore, the court found the developer had complied with the AAI aspect of the BFPP defense.

The facts are dense and complicated. Here are the Key findings of Court:

1. plaintiff failure to perform sampling recommended in phase 1 and failure to address RECs was failure to comply with "appropriate care" requirements. ("Doing nothing in the face of know or suspected environmental hazard" was insufficient to establish appropriate care).

2. Plaintif failure to maintain cover on site. Only added crushed rock when parcel was about to be leased, thereby allowing contamination runoff to spread contaminants.

3. Plaintiff Indemnity provided in purchase agreements coupled with urging EPA not to proceed against former landowners raised "no affiliation" question. ("Ashley efforts to discourage EPA from recovering response costs covered by the indemnification reveals just the sort of affiliation Congress intended to discourage")--DOES THIS MEAN PURCHASERS CANNOT INDEMNIFY SELLERS TO ASSERT BFPP???

4. Defendants could not assert third party/ILO defense because of earth moving/grading activities

5. Distinguished between apportionment and allocation. Harm was indivisible and incapable of apportionment but court allocated liability for purposes of contribution action.

Distressed Debt and Due Diligence

I receive calls every week from consultants asking how they can involved in the due diligence arising out of the sale of distressed loans. It is true that there are billions of dollars of distressed debt and assets, and that there are funds sitting with large piles of cash waiting to pounce on distressed loans or assets. However, the picture is much more complex than the cheerleaders and talking heads are suggesting.

First, one needs to distinguish between distressed debt and distressed assets. The latter involves the hard assets (i.e., real estate) while the former involves the paper evidencing the loans that are collateralized by the hard assets.

When only paper is being exchanged, there is very little environmental due diligence. This is because the debt is being sold at distressed prices-often 20 or 30 cents on the dollar. There may be numerous reasons why the debt may be considered distressed. For example, the seller may be forced to sell the debt because it has to raise cash because of margin calls or redemptions from investors. Similarly, the bank that is holding the note may have been taken over by the FDIC who is dumping the recover as much as the cost of the takeover as possible. Likewise, the paper may have been downgraded and  the institutional investor may be required to sell the notes because it cannot hold such low rated paper. A mezzanine lender may have found its position is worthless and is willing to sell to a more senior investor. And of course, the borrower may be in default or unable to make a balloon payment at the term of expiration of the loan.  

In many cases, the note purchasers are buying deeply discounted paper say at 30 cents on the dollar and telling the borrowers that they will forgive past due loans if the borrower can pay the rest of the loan at 60 cents on the dollar. Do the math. The investor will get a 30% return!

In other instances, the borrower is current with its payments but would be unable to refinance the loan when it expires in two or three years because of tighter underwriting requirements or because the property values have dropped so much that the borrower could not get sufficiently-sized loan to pay off the existing loan. In many cases, the purchaser steps in, buys a deeply discounted note and then collects the remaining interest until the loan terminates. The investor will then walk away from the loan with another 30% or so return.
In the foregoing examples, the investors are only interested in the short-term returns on the notes and do not care about the environmental conditions of the property....provided of course they do not impair the ability of the borrower to pay the remaining or re-negotiated loan balance.

It is primarily when the original lender or an investor will actually take title to the underlying collateral (i.e., real estate) that the environmental issues will come into focus. Thus far, the bulk of the deal flow seems to have been the sale of paper and not the hard assets.

In addition to knowing the nature of the deal, it is important to understand who your client is and where they are in the capital stack or layering of debt and equity since their positioning will influence the degree of tolerance about environmental concerns.  In my next post, we will take our scorecards and check what players are in the lineup for distressed sales.    

Contaminated Roof Runoff Results in $4.5MM Settlement

The defendants in a six-year old lawsuit involving lead contamination of a retention pond have agreed to pay Kane County $5.4MM.

When the Kane County Judicial Center was constructed back in the early 1990s, contractors used roofing materials that contained lead-coated copper materials. The idea was to have a roof that lasted for 30 years that maintained a watertight seal and a uniform look the entire time. 

In the fall of 2003, the roof started leaking and had a rainbow of colors in patches and streaks.  Lad from the roof washing off into an internal stormwater collection system that fed into a retention pond. Sampling of the pond water and sediments found lead as high as 10 times the levels allowed by the Illinois Environmental Protection Agency.

Kane County filed a lawsuit against the architects, general contractors and the manufacturer of the roofing materials when they determined the discoloration stemmed from a lack of uniform lead coating on the roofing panels.  The setlement will pay for the pond cleanup and legal fees. The judicial center will get a new roof.

When A Lender is Thinking of Foreclosure

Many "lenders" (i.e., investors, B-piece buyers, mezz lenders) who never imagined that they would be taking title to property are now finding themselves either commencing foreclosure actions or suddenly holding stock/membership interests in an entities that hold title. Because these "lenders" never thought they would foreclose, they did not take the time to learn about the secured creditor exemption or were told a fanciful story by a non-environmental lawyer or a non-lawyer who was providing legal advice. As a result, these "lenders" are not fully aware of (1) the limitations of the secured creditor exemption) and (2) post-foreclosure obligations to preserve that immunity.

Further complicating the problem is that since the lenders thought they were taking interests in AAA-rated notes, the underlying loan documents did not spell out the foreclosure procedures. At the other extreme are the indentures or trust documents that require trustees to make sure the properties are in compliance with all laws prior to commencing foreclosure.    

Many professionals will tell clients how the secured creditor MAY be able to protect them. However, I think this does a disservice to the client who is already under enormous stress from the losses it has already incurred and who may be willing to grasp at any straws regardless of how illusory or elusive to stop the bleeding.

Instead, I found it more useful to tell them that they should act as if the secured creditor exemption does not apply to them. In other words, they need to make decisions based on the idea that they may be liable simply on the basis of their naked title. 

This approach helps to focus the client on the potential environmental risks. Once the client appreciates the potential risk, we can have a more realistic discussion on its exit strategy, the scope of the diligence, and potential risk mitigation strategies.  

I am not suggesting that one unduly scare or alarm a client. Instead, I am suggesting that one should let the client know that the exemption may not apply for reasons we might not yet know and that their decision-making should be informed by the potential that this line of defense might not be available. The clients can then do what they do every day-evaluate the potential risks of a transaction.

Environmental liability is just one of the risks associated with a foreclosure. Once a client is aware that it might have such liability, it can decide what risk mitigation strategies, if any, they might want to employ based on their own risk tolerance. Sometimes, clients have walked away from the asset because of the uncertainty associated with pre-existing conditions, However, I have also had clients perform additional due diligence to try to develop potential cleanup estimates (based on what passed as an AAI-compliant report during the loan origination, this may be the first time real diligence is done on the property), explore insurance, enroll in a voluntary cleanup program, and sell the note at a reduced price. Sometimes the lender/investors have taken such a "haircut" that they have been willing to roll the dice on possible liability and take title because they think there is inherent value in the property that they or some third party may be able to realize down the road.

An Explanation of the CERCLA Indoor Air Exclusion and its Implications for E1527 and E2600

For years, lawyers and environmental consultants have puzzled over the meaning of the indoor air exclusion of CERCLA. The definition of release excludes  any releases which (1) results in exposure to persons solely within a workplace and  (2) with respect to a claim which such persons may assert against their employer.
This was a puzzling provision since it refers to exposure to persons yet CERCLA does not provide any remedy for personal injury. Over time, the second clause of the exclusion was ignored so that many consultants came to believe that indoor was not covered by a phase 1 unless the client specifically requested such coverage. Indeed, ASTM E1527 provides that indoor air quality along with radon, lead-based paint and asbestos are  non-scope items.

Adding to the confusion is that ASTM E1527 also provides that a recognized environmental condition can include releases into building structures. The uncertainy over the indoor air exclusion was largely ignored until EPA and state remedial programs began focusing on vapor intrusion. Now that vapor intrusion is increasingly becoming a popular tool for toxic tort lawyers, environmental consultants are growing concerned that they may become subject to malpractice actions or breach of contract actions for failing to assess VI during their phase 1 reports.

While doing research on my upcoming article "Playing Poker With Pollution" which calls for revising the CERCLA reporting obligations and  sampling of RECs for owners to satisfy their AAI obligations, I came across language in the preamble to the original section 103 reporting obligations that appears to shed light on the meaning of the indoor air exclusion.

According to EPA, the indoor exclusion was a relic of an earlier House bill that had contemplated that CERCLA would provide a remedy for personal injury. Apparently this section was left in the legislation after Congress decided to drop the provision providing for a remedy for personal injury due to exposure to releases of hazardous substances.  This also explains the second clause of the exclusion referring to workers compensation claims. The old bill would have provided relief to person injured in the workplace from releases of hazardous substances unless they could file a workers compensation claim to avoid duplicate claims.

So, the answer to the decades-long answer is that releases of hazardous substances into indoor air should be covered by phase 1 reports. Of course, whether the applicable standard is the OSHA PELs or levels established for state remedial programs is a discussion for another post.

Lender Liability and Post-Foreclosure

Continuing our third theme on lender liability, this post will discuss post-foreclosure liability. Our prior posts discussed the scope of the liability protection during the life of the loan and during foreclosure.

The secured creditor exemption of CERCLA, RCRA and many state environmental laws provide that a lender may maintain business operations, wind down operations, take measures to preserve, protect and prepare the vessel or facility for sale or disposition, and even undertake response actions under section 107(d)(1) of CERCLA or under the direction of an OSC so long as the lender seeks to sell or re-lease (in the case of a sale/leaseback transaction) and complies with the foreclosure requirements set forth above....

Lenders have encountered their greatest risk of liability when in post-foreclosure activities. Aside from the Fleet Factors case, there are a number of unreported situations where lenders have been issued administrative orders by governmental agencies and have had to pay to perform a cleanup because of the actions they took following foreclosure. These situations have typically taken place when a borrower has gone out of business and the bank takes control of the facility in order to sell off the inventory, fixtures, machinery and equipment of the borrower subject to the bank’s lien. The bank typically does not take title to the property because of fear that it will lose its exemption, but instead hires an auction to conduct the sale of the personal property. Usually, there are barrels or drums of hazardous waste strewn about the facility and the equipment that is being auctioned off may even contain hazardous wastes. In order to avoid any suggestion that the bank or the auction had any control over hazardous wastes, the auction will often rope off the area where the drums or barrels are found. In some cases, the bidders are actually allowed to cherry-pick barrels containing useful raw materials. After the auction is conducted, the drums and barrels are then left in the abandoned facility. At some point, government authorities find out that there are abandoned drums at the facility and order the lender to pay for the removal of the materials.

Lenders will often argue that the drums containing the wastes were not part of its collateral or that the lender never exercised control over the drums because neither it nor its auctioneer ever touched or moved them. However, the definition of “release” under CERCLA includes abandonment of drums. Thus, a lender who has taken control of a facility to conduct an auction and leaves behind drums or equipment containing hazardous wastes could be deemed to have caused a threatened release of hazardous substances.

Moreover, the CERCLA Lender Liability Rule provided that while lenders were not required to take response actions in order to retain their immunity from liability, they had to comply with the law, and any actions that they did take had to comply with the NCP. Abandonment of drums or equipment would not be consistent with the requirements of the NCP and could cause a lender to lose its immunity even where it has complied with all of the aspects of the CERCLA Lender Liability Rule.

The Lender Liability Amendments, however, did not expressly address this issue of post-foreclosure NCP compliance. Thus, financial institutions should exercise extreme caution when conducting auctions and should consult with environmental counsel prior to conducting any auction at a manufacturing facility. It would also be advisable for lenders to retain an environmental consultant or environmental attorney to inspect the facility prior to arranging for the auction and probably even before taking control of the facility in order to evaluate the possible environmental liabilities that might be associated with the auction.

If the lender decides to have the hazardous wastes removed, it should try to have a representative of the borrower execute the waste manifests so that the bank would not be considered the generator of the waste. However, if no such representative is available, the bank or one of its agents would have to execute the waste manifests. Since the bank would be considered a generator of the waste under these circumstances, the lender should have its consultant select a reputable disposal or treatment facility. The financial institution could have its environmental consultant or attorney perform a regulatory review of the facility to minimize the possibility that the lender could incur liability for releases of hazardous substances at that treatment or disposal facility.

More more detailed information on lender liability, please visit my website at http://www.environmental-law.net/

Lender Liability and Foreclosure

Many non-traditional lenders who never thought they would have to foreclose on collateral and now finding themselves confronted with that option. Thus, it is useful to review the scope of the secured creditor exemption under CERCLA, RCRA and similar state environmental laws.

The CERCLA secured creditor exemption provides that a lender who holds indicia of ownership primarily to protect its security interest will not be considered an owner of a property if it does not participate in the management of the facility. If the secured creditor forecloses on the property, it may still maintain its liability exemption so long as it takes steps to sell the property in a commercially reasonable manner so long as the lender attempts to divest itself of the facility or vessel “at the earliest practicable, commercially reasonable time, on commercially reasonable terms, taking into account market conditions and legal and regulatory requirements.”...

When EPA promuglated its Lender Liability Rule in 1992, the rule has a “bright-line test” for when lenders had acted to divest the property in in a commercially reasonably manner. That test required lenders to list the property within a certain period of time and to accept offers for “fair consideration.” Lenders who met the test were automatically deemed to have acquired indicia of ownership primarily for the purpose of protecting their security interest and therefore would fall within the protections of the exemption.

However, those regulations were vacated in 1994 and the 1996 statutory amendments to CERCLA and RCRA that amended the secured creditor exemption did not contain the "bright-line" test. In the absence of such a bright-line test, lenders will not be able to know for certain if their actions are consistent with the exemption and may find themselves subject to scrutiny by individual courts to determine if they acted “at the earliest practicable, commercially reasonable time, on commercially reasonable terms.” Many lenders have established real estate divestiture policies to govern the foreclosure and sale of collateral. It is possible that a lender might be able to point to compliance with its internal policies as evidence that it acted “at the earliest practicable, commercially reasonable time, on commercially reasonable terms.” Because of the uncertainty over what constitutes “the earliest practicable, commercially reasonable time, on commercially reasonable terms,” the real estate divestiture groups of financial institutions and lenders who are not familiar with foreclosures should work closely with environmental counsel to make sure that the lending institution does not inadvertently lose its immunity.

 

The creditor may monitor the borrower's business or take other actions that a prudent lender would typically take without forfeiting its immunity to liability. However, the secured creditor exemption does not apply when the lender exercises decision making control over the borrower's environmental compliance such as the borrower's handling or disposal of hazardous materials. Lenders have found themselves exposed to liability when their monitoring begins to approach control over the borrower’s business. Thus, lenders need to exercise caution during workouts when they become more closely monitor borrower’s operations.

It is important to note that the secured creditor exemption will not apply when the creditor’s primary motive for holding the security interest is an as an investor and not to protect a security interest. Thus, purchasers of discounted or distressed notes who are taking the notes because primarily for the income stream or investment potential could find themselves not eligible for the secured creditor exemption. As a result, note purchasers who exercise control over property such as by conducting auctions of personal property or authorizing repairs can face liability as “operators” if they do not qualify for the secured creditor exemption.

Two years ago, I reported in my newsletter on State of New York v. Fumex Sanitation et al, where the NYSDEC has filed a CERCLA cost recovery action seeking reimbursement of $500,000 in past response costs from the owner and purchaser of a mortgage note. The state also demanded that the parties implement a remedy that is estimated to cost $628,000. The NYSDEC alleged that the note holder was an "operator" under CERCLA and was not entitled to the secured acreditor exemption because it exercised decision-making control over the property by participating in negotiations with the NYSDEC and repairing the roof. The state also claimed that the note holder assumed responsibility for management of the site by collecting rent from tenants and paying real estate taxes, among other things, he repaired the roof of the building.

Thus, it is important for purchases to evaluate the environmental conditions of the collateral prior to purchasing the by note by performing an environmental site assessment report that complies with the EPA’s All Appropriate Inquiries regulation or the ASTM E1527 standard practice for phase 1 environmental site assessments. collateral to limit the possibility of environmental issues. Purchasers should also consult environmental counsel prior to taking any actions that would be suggestive of exercising control over a potentially-contaminated property.

Developer Waits Too Long To File Consumer Fraud Case Agst Consultant for Failing to Identify PCB-Contaminated Concrete

During the real estate boom of the past decade, developers were hard-pressed to find aggregate for their projects. The time pressures posed by tight construction schedules, the enormous profits that contractors could make by shifting around demolition debris and of course the tendency for some aspects of the industry to be occupied by shady characters eventually conspired to expose the weaknesses of the regulatory programs governing solid waste

The poster child for the problems associated with the under-regulation of demolition  debris and fill material is the fiasco involving the deconstruction of the Ford plant in Edison, New Jersey. The lessons learned in this case will no doubt be relevant for other communities, states and developers dealing with abandoned auto plants.

The latest installment in this saga occurred last month when a federal district court reversed an earlier ruling and denied a request to add a consumer fraud case against a consultant in Ford Motor Company v Edgewood Properties, 2010 U.S. Dist. LEXIS 13086 (D.N.J. 12/10/10). In February 2004, Ford entered into a Remediation Agreement with the New Jersey Department of Environmental Protection ("NJDEP") in accordance with the requirements of the New Jersey Industrial Site Recovery Act ("ISRA").Ford contracted with MIG Alberici ("Alberici") to demolish the plant and use the concrete as on-site fill.

In November 2004, NJDEP approved a plan to demolish the plant and reuse crushed concrete at the Plant  provided that the crushed material did not contain unlawful concentrations of PCBs.However, after work began, Alberici realized that that there was more concrete than originally estimated and that  could be used at the site. As a result, Ford sought out buyers for the excess concrete. Ford and Edgewood Properties entered into a contract whereby Ford agreed to provide 50,000 cubic yards of concrete to Edgewood in exchange for Edgewood hauling it off the site. According to NJDEP requirements, concrete with PCB concentrations below 0.49 parts per million ("ppm") could be used for residential areas while concrete with concentrations between 0.50 ppm and 2 ppm could be use at commercial properties but concrete with PCB concentration above 2 ppm could not be reused for any purpose.In June 10, 2005,  Edgewood entered into a subcontract then with EQ Northeast, Inc. ("EQ"), a company that Ford used during the deconstruction Under the agreement, EQ was responsible for sampling crushed concrete. Edgewood, in turn, would then remove all crushed material that was suitable for residential use for reuse as aggregate at other residential development locations in the state. Apparently, the crushed concrete was supposed to be staged into stockpiles according to its PCB concentrations. Indeed, Edgewood later asserted in its lawsuit that in 2005 Golder Associates, Inc., Ford's environmental consultant, provided ELM, Inc., Edgewood's environmental consultant, with a memorandum that stated that only stockpiles of concrete  where the samples exhibited PCB concentrations suitable for residential use cleanup criteria were being staged for potential re-use at appropriate off-site locations while stockpiles where the samples exceeded the residential use criteria were being segregated and properly disposed off-site.

In June 2005, Edgewood discovered that the concrete that it had transported to seven residential development sites contained excessive levels of PCBs. Edgewood complained to Ford who commenced excavation and removal of the contaminated concrete from the various properties. The NJDEP then issued an administrative order ("AO") compelling Ford, Alberici and Edgewood to submit a response plan to completely excavate the sites of all contaminated material and for Edgewood to stop all construction on the contaminated properties. In 2006, Ford filed a lawsuit to recover its costs against Edgewater who, in turn, filed counter-claims against Ford as well as third-party claims against a number of parties including Golder and Arcadis, for for breach of contract, contribution,  negligent misrepresentation,and civil conspiracy.

In 2010, Edgewood filed a motion to amend its complaint to add a claim against Golder for violations of the New Jersey Consumer Fraud Act (NJCFA).  To prevail in a NJCFA claim, a plaintiff must establish that the defendant engaged in "unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing concealment, suppression, or omission of any material fact . . . in connection with the sale of advertisement of any merchandise or real estate. Edgewood alleged that Golder’s memos contained knowing misrepresentations that "Edgewood would receive crushed concrete not exceeding the residential or unrestricted use criteria

Because the request to amend the complaint had occurred after the statute of limitations for filing an NJCFA claim had expired, Edgewood had to show the court that it had not unduly delayed seeking to amend its pleadings.  The court initially granted Edgewood’s motion based on representations that of its counsel that the request to amend had been based on new information that had come to its attention. Golder filed a motion for reconsideration on the basis that the court had relied on erroneous information. Golder pointed out that the information that Edgewood alleged to be new was actually contained in Golder memos that Edgewood had possessed as early as December 2006 and that Edgewood had utilized when it pled the identical claim against Ford Motor Company in 2006. The court conclude that Edgewood has failed to provide any justification for waiting two years to assert the NJCFA claim when it had all of the information in its possession at the time if filed its original action against Golder. Accordingly, the court granted the motion for reconsideration and denied Edgewood’s request to assert the NJCFA count against Golder in 2008. Edgewood has also not provided this Court

Retail Drug Chain Assumes Liability for Historic Dry Cleaner Spill

Back in 1988, the owner of a dry cleaner located at what was then known as the Buttrey Shopping Center in Bozeman decided to pour separator water from her dry cleaning unit into the floor drains. Approximately $25 worth of PCE was poured down the floor drain and launched a two-decades multi-million cleanup saga that continues today and has morphed into a major vapor intrusion case.

Unfortunately, the separator fluid was poured into a floor drain that was connected to poorly designed and particularly leaky sewer system. The sewer had been originally constructed by the owner of the shopping center in the 1960s and was not bedded in sand or gravel so that the line had flat grade in places. The PCE-laden seperator water settled in the low spots of the sewer and easily dissolved the tar that had been used to seal the sewer joints.

The sewer line terminated in a 6,000 gallon septic tank that the city later alleged was undersized. In 1963 the city got a federal grant to extend sewer service to the shopping center. However, when the shopping sewer line was connected to the city sewer line, the contractor apparently not only failed to plug the septic tank but also installed city sewer line 5 inches higher in the manhole than the pipe that still led to the septic tank. This meant that wastewater would flow first into the septic tank until the level reached high enough to flow out to the city sewer, allowing the denser PCE to settle into the septic.

In 1989, PCE. TCE and DCE began showing up in the drinking wells used for drinking water at the Nelson Mobile Home Park (MHP), north of the Buttrey Shopping Center. Subsequent sampling identified the shopping center septic system/sewer line as the likely source. In 1991, the state DEQ issued an order to the owner of the shopping center, Jewel Food Stores. . The City of Bozeman which was deeded the shopping center sewer line in 1970 was subsequently named as a responsible party by the state in a second order. Pursuant to the orders, the septic tank and its contents were removed, the sewer line was replaced, a vapor extraction system was installed in the area near the former septic system and bottled water was provided to the residents whose wells were impacted. Later, the City and Jewel jointly conducted additional remedial investigations, expanded the SVE system along the sewer line and provided a permanent alternate water supply to the impacted residents.

While these actions were being implemented, EPA recommended that state prepare a hazardous ranking system package to have the area scored for inclusion on the federal NPL. However, the state opted to have the shopping center placed on the state superfund list instead as the Bozeman solvent site (BSS) with a "maximum priority" status.

By 1998, the plume had extended approximately two and half miles from the shopping center, and encompassed approximately 700 acres. About one-half of the area over the plume was on city water supply. To protect human health, the state approved a ground water control zone (GWCZ)for the area impacted by the plume. The GWCZ prohibited drilling of wells and use of groundwater without state approval.

In 1999 Bozeman and Jewel Foods Stores settled a lawsuit that had been filed by Jewel whereby Jewel agreed to pay Bozeman $1.2 million for its past costs, the parties agreed to share future costs 50-50 up to $4 million, and Jewel agreed to pay 70% of costs above $4MM. The City agreed to take the lead to fund an alternative municipal water supply to the affected residents and businesses within the BSS. The Bozeman share of the costs were funded by a $2MM sewer surcharge.

In 2000, the feasibility study work plan was finalized and the DEQ drafted the baseline risk assessment work plan (BRAWP). The City and Jewel implemented a groundwater monitoring program and completed the BRAWP in 2004.

At this time, CVS decided to purchase the Osco Drug chain which was owned by the successor to Jewel Food Stores. It is unclear what diligence CVS did for the BSS or perhaps if it assumed the creation of the GWCZ had effectively ended the risks and material liability associated with the BSS. In any event, CVS apparently assumed the responsibilities being carried out by Jewel Food Stores under the settlement agreement with the Bozeman.

Shortly thereafter, the focus at the BSS turned to potential vapor intrusion concerns. The state requested that parties commence a vapor intrusion investigation at the shopping center, draft a revised baseline risk assessment and feasibility study as well as commenced a source area investigation. An Indoor air quality investigation was conducted at the shopping center and was then expanded to the residential neighborhood. 21 years after the release, a ROD still has not been issued and the extent of potential vapor intrusion concerns has only begun to be investigated.

The next time a client asks why you recommend a phase 2 for a former dry cleaner when a prior phase 1 may have not done so, you can point them to the Bozeman Solvent Site or the Maryland Square Shopping Center in Las Vegas where a 4,000 foot plume has extended into a residential area and resulted in the owner of the shopping center being order to implement a remedy under RCRA.