In a report published February 14,
2011, the
EPA Office of Inspector General (“OIG”) flunked 35 of the 35 Phase I
Environmental Site Assessments (“Phase I ESAs”) prepared by environmental
professionals. The reports had been used
by EPA in support of approximately $2.1 million in brownfields grants. Is this sampling typical of Phase I ESAs? In our experience, yes. And these deficiencies could place the
landowner, purchaser or tenant at risk of incurring liability for the purchase
or use of brownfield properties. They
could also lead to bad business decisions and improper or even dangerous
decisions regarding uses of brownfield properties, possibly threatening human
health and the environment.
In 2002, Congress amended CERCLA (the
federal Superfund statute) to provide certain statutory defenses to liability
for releases or threatened releases of hazardous substances that may endanger
public health or the environment. These
so-called “brownfield defenses” are dependent upon the undertaking of an “all
appropriate inquiries” (AAI) evaluation by an environmental professional, and
for most of the defenses, a conclusion that there is no reason to believe that a
release of hazardous substances has taken place and that there is not likely
the potential for environmental contamination. These reports are known commonly as Phase I ESAs
and are a staple in commercial real estate transactions. However, as the OIG recently reported, every
single one of the Phase I ESAs they reviewed were deficient in some way.
The main problems that the OIG found
were:
- None of the 35 reports included the
required statement certifying the qualifications of the Environmental
Professional (EP) who conducted the investigation and prepared the report. Sixteen of the 35 reports (46 percent) had a
statement, but it deviated from the one specifically required by federal law. Among the 16, either no statement was included
or the required statement was abbreviated or modified. The remaining 19 reports (54 percent)
generally contained all three required sentences of the statement, but included
inconsistent wording. For example,
several statements used the terms “we” and “our” when only one EP signed the
qualifications statement.
- Seven of the 35 reports (20 percent)
did not include a statement regarding data gaps, which could result in the
erroneous conclusion that there were none.
- All 35 reports failed to include the
required EP opinion statement in the conclusion section of the report. Of these, 33 reports (94 percent) included
deviations from the required opinion statement, such as missing, abbreviated,
or modified sentences (“I” instead of the name of the environmental firm, or
“general” conformance statements rather than definitive ones). The remaining two reports generally contained
all parts of the statement, but also included some minor deviations, such as rewording
or additional wording and omissions that do not alter the meaning of the
statement.
- Most baffling of all, 9 of the 35
reports (26 percent) were not even signed by the responsible EP.
Users of a Phase I ESA usually just want
to know if they have a “clean environmental report.” They are placing a tremendous amount of reliance
on the environmental professional to get it right. As the OIG’s report illustrates, however, many
EPs are not “dotting their I’s and crossing their T’s” when it comes to the Phase
I ESA reports. What if the EP gets the
conclusion wrong? What if there is,
indeed, hazardous waste on the property?
Or what if the user knows there is contamination the property and purchases
it anyway, expecting to take advantage of the bona fide prospective purchaser
defense after conducting a risk assessment without digging anything up, only to
find years later that the EP missed a massive plume of the same contaminant?
Is
it the EP’s job – and ultimately their responsibility – to get these Phase I
ESA reports right? Absolutely. However, if the EP is uninsured or
underinsured, that may well be of little to no help to the user of the
report. In addition, most EPs attempt to limit their
liability to a fixed amount in the fine print of their contracts, many times
attempting to restrict their potential exposure to the amount paid for the
report. Whether these attempts by the
EPs are successful or not is a topic for another day. Nevertheless, it seems that users relying on
these AAI reports are taking a risky gamble without a thorough review by an
environmental attorney. To be fair, most
environmental professionals do a thorough job.
Most of the time, there was nothing wrong with the investigation they
conducted or the conclusion they reached; but their reports were technically
insufficient. In some instances, the OIG
was clearly nitpicking the reports, but lawsuits have been known to turn on
less. With these reports increasingly
becoming a commodity, it is good for all concerned to have a trained set of
eyes to review the work. The cost of
missing something could be crippling.
