The Remediation Wire - Legal News Regarding The Environment

Final Environmental Approvals: Wait Just a Second — You've Been Audited

April 3, 2011 | No Comments
Posted by Marc Policastro

Let’s face it, when NJDEP was in the business of issuing “No Further Action Letters” (NFA), a developer or party responsible for a cleanup, had some sense of finality and comfort that the NFA signaled the end of the road, and would limit future costs.  Under the LSRP program, the consultant, not DEP, will issue the final approval — a Response Action Outcome (RAO).  Under current law, NJDEP has the right to audit a “final” RAO within three years from issuance of filing.  That begs the question: When is it legal for DEP to invalidate an RAO?

For starters, an LSRP is bound to follow “applicable specific NJ technical standards”.  However, if no applicable standard exists and DEP’s other general guidelines are inappropriate or unnecessary, then the LSRP can, in its professional judgment, turn to (i) federal EPA standards and (ii) standards used in the other 49 states.  This is important.  DEP, in auditing a filing, can therefore invalidate an RAO where the LSRP (A) failed to adhere to DEP technical standards and requirements or (B) failed a reasonableness test in following an EPA or standard from another state.

The attorney’s role just got a little more complicated.

Duty to Remediate: Are You on DEP's Radar?

April 2, 2011 | No Comments
Posted by Marc Policastro

The Site Remediation Reform Act (SRRA) confirmed what I have been counseling clients for years.  In general, if you are a “responsible party” (RP) for remediation, there are just too many ways the State may enforce your obligation to investigate and remediate a release of hazardous substances.  Now, under the LSRP program there is simply no doubt.  The new law creates a clear “duty to remediate” which changes the playing field.

In the pre-LSRP world, an RP under ISRA, the Spill Act, or the Underground Storage Tank Act, could opt to “voluntarily cleanup” a site by entering into a Memorandum of Agreement (MOA) under the Voluntary Cleanup Program. Under the MOA, there were no mandatory time frames for investigating, reporting or remediating.  Now, under the new program, the voluntary MOA route is no longer an option.   The implications are clear from a transactional lawyer’s perspective.  Previously, developers looking to “tie-up” properties prior to obtaining full approvals, or prior to completing due diligence, could enter into the MOA-voluntary cleanup program, and set their own course and time frames for remediation.  Careful maneuvering and planning is now required prior to taking title to property affected by contamination.  Once title passes, the voluntary “wait and see” game is no longer an option, unless the owner contracts with its seller for shared, or some type of shifting of responsibility.  Even where contractually there is a sharing or shifting of liability, NJDEP will continue to look to the RP as the primary target on its radar.

Closing Deals, Environmental Hurdles with Industrial Establishments

March 31, 2011 | No Comments
Posted by Marc Policastro

The Industrial Site Recover Act (ISRA) is not monumentally affected by the LSRP Program.  However, the means utilized to work the ISRA maze and close transactions have been altered and the rules of engagement for remediation have changed for sure.  When confronted with a site qualifying as an “industrial establishment” in NJ, under the new LSRP program there are three primary ways to close a deal when environmental contamination exists: (1) hire an environmental consultant to investigate and remediate the site, to certify that the property is clean and to also issue a “Response Action Outcome” (RAO) (2) file a “Remediation Certificate”, which entitles the responsible party to close the deal first, and then cleanup after closing or (3) file a “Remedial Action Workplan” (RAW) with NJDEP.

The RAO route is basic.  The professional must investigate, and then remediate in accordance with applicable technical regulations.  Under the ISRA statute, the RAO qualifies as an “authorization letter”, which by law permits a closing to occur.  “Closing” may include, for example, a sale of property, sale of assets, sale of a controlling interest in stock or a cessation of operations.

Remediation Certificates replace “remediation agreements” under the old ISRA regulations.   Under the new regulations the consultant prepares and files the Certificate.  Under the prior regulations, NJDEP would approve the form of the remediation agreement.   DEP approval is not required when a Remediation Certificate is in play.  Remediation Funding Sources (collateral securing the cleanup obligation) are required.  Under the new procedures, the LSRP must still provide an estimate for the cost of the remediation.  In practice, NJDEP has been accepting the minimum $100,000 for the funding source.  Under the new law, NJDEP will once again accept a letter of credit as a form of RFS.

Filing of a Remedial Action Workplan may also serve as an “authorization letter” which permits a closing to occur.  Here, the State reserves the right to review and approve the Workplan.  When utilizing a RAW for clearance to close, a Remediation Funding Source is required.

In addition to these three basic clearance vehicles, DEP continues to entertain “De Minimis Quantity Exemption” applications.  In certain cases, approval for closing may be achieved where levels of contamination don’t exceed applicable standards.  The process may also be streamlined where there is an existing cleanup underway.  In that case, the responsible party may be eligible for a “Remediation in Progress Waiver”.  In certain transactions, sellers and purchasers may need one, or several, clearance mechanisms to effectuate closing.

Spill Act Liability and the "Nexus" Test

March 23, 2011 | No Comments
Posted by Marc Policastro

On March 18, 2011, the Appellate Division ruled that under New Jersey’s Spill Act, strict liability for environmental discharges also requires proof of a “nexus between the discharge and the need for remediation and consequent damage”.  New Jersey Department of Environmental Protection v. Dimant, App. Div. (Parrillo, P.J.A.D.).  The court’s discussion and comparison of the State and Federal standards for imposition of liability for a release, or discharge, of hazardous substances is particularly instructive.  Under CERCLA, a less stringent standard applies in proving that a “release” has affected soil or groundwater.  Under New Jersey’s Spill Act, discharge liability will not be imposed from mere passive migration of hazardous materials which are already existing in the soil or groundwater.  In this case, plaintiffs failed to demonstrate that the defendant had some connection to the damages caused by contamination, or that defendant exacerbated contamination which had already been caused by prior operations.

NJDEP Waiver Rule: A Long Time Coming

March 22, 2011 | No Comments
Posted by Marc Policastro

Finally, NJDEP has proposed a development friendly, flexible rule which would permit the State to waive strict compliance with certain environmental regulations.  Under the proposed rule, NJDEP would consider waiver requests if, for example, the regulation at issue conflicts with another applicable State or Federal rule.  The State would also look to advance waiver applications where “strict application” of the rule would be unduly burdensome, or where alternative remedies would achieve the same results but at a “significantly lower cost”.   Public emergencies or situations where a waiver would enhance the environment will also trigger consideration for a waiver.  Welcome to the 21st century.
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Escrows and Response Action Outcomes: It’s Over, When it’s Over

February 9, 2011 | No Comments
Posted by Marc Policastro

Under the new Site Remediation Reform Act (SRRA), in most cases final determinations are made by the Licensed Site Remediation Professional (LSRP).  The LSRP, not the State, issues the final “approval”, now known as a Response Action Outcome (RAO).  In essence, RAOs replace No Further Action Letters which were issued by the State in the pre-SRRA era. 

As a general matter, pre-SRRA contracts frequently required sellers of businesses and real estate to escrow funds until issuance of an NFA, at which time escrowed funds would be released to the seller.  That begs the question:  because the SRRA law subjects RAOs to a 3-year audit period, should purchasers require an escrow to cover the possibility that the RAO issued will be modified, or rejected entirely, within the 3-year audit period?  The answer:  Maybe.  Even in the pre-SRRA world, NJDEP had the right to re-open a case, and lift a previously issued NFA where new information comes to light or misrepresentations are identified affecting environmental resources or health and safety concerns.  However, because the SRRA creates an express 3-year audit window for RAOs, practitioners may be more inclined, for just that reason, to include a post-closing escrow to cover the period of uncertainty.  Although both NFAs and RAOs are subject to a re-opener, in practice, RAOs may require an overtime period to settle purchaser concerns of finality.  Purchasers may now be more inclined to require escrows for the full 3-year period, or, a portion of the audit period, depending on the level of contamination, whether off-site considerations are involved and the purchase price for the deal.  Time will tell.
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Vapor Intrusion? Check.

November 1, 2010 | No Comments
Posted by Marc Policastro

Developers in New Jersey are resigned to the fact that development in this region will frequently require careful maneuvering through the State’s maze of environmental regulations.  New Jersey has some of the most strict cleanup standards in the nation. From the State’s perspective, vapor intrusion has been pushed to the forefront of remediation checklists.  Nonetheless, an approach has been developed to address indoor air sampling that impacts both practical and scientific viewpoints.  From a scientific perspective, the State seeks to minimize or eliminate “potential exposure pathways” which may flow from existing contamination, e.g., groundwater or soil contamination.  The State requires a phased analysis to assess the vapor intrusion risk, including (1) identification of the particular contaminants involved (2) a determination of whether “rapid action” is likely to be required and (3) a comparison of generic screening levels to existing contamination. 

From a practical standpoint, significant increased operational costs may or may not ensue, depending on the results of the vapor intrusion assessment and compliance with the State’s guidance criteria.  Accordingly, at the outset of any development project, consideration should be given to the potential costs and liabilities attendant to indoor air quality concerns.
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Remediation Funding Sources: The Basics

April 17, 2010 | No Comments
Posted by Marc Policastro

NJDEP frequently requires responsible parties to post a Remediation Funding Source (RFS) to secure remediation obligations.  Under current regulations, those conducting cleanups pursuant to the Industrial Site Recovery Act, certain “Spill Act” cases, or those conducting a cleanup under an administrative consent order, must post an RFS.  In contrast, if the responsible party is undertaking an environmental cleanup in an “environmental opportunity zone” or is utilizing an “innovative remedial action technology”, no RFS will be required.  Governmental entities, owners and operators of certain licensed childcare centers, along with certain educational facilities are also exempt from the RFS regulations. Acceptable forms of collateral include (1) lines of credit (2) environmental insurance policies (3) letters of credit and remediation trust funds (4) self-guarantees and (5) applicable loans and/or grants.  Significantly, NJDEP requires that the RFS be increased as the estimated cost of any cleanup increases.  Similarly, a responsible party may also petition NJDEP to decrease the amount of the RFS, based on a revised cost estimate.

NJDEP’s current position does permit responsible parties to draw from the collateral to actually fund a particular cleanup.  In other words, the “collateral” is converted to a source of funds available for expenditure to bring the remediation effort to successful conclusion.  In theory, NJDEP will consider such draw requests no more frequently than every three months.  Interested parties must consult the State’s detailed application requirements for both LSRP and non-LSRP retained cases.

In acquisition mode, purchasers will be best served to avoid sole reliance on the RFS to ensure that remediation is fully and satisfactorily implemented.  Instead, a separate stand-alone escrow may be created, with automatic escalation clauses, requiring replenishment of, or an increase to, the separate escrow amount.  Sellers and purchasers should also take extra care in defining the particular expenditures deemed to be within the ambit of the “cleanup costs”, as defined by the operative escrow agreement.  Appropriate provisions should also be included to address contingency provisions in the event the parties fail to reach agreement on the revised remediation cost estimate.  Specific contractual terms should be included to provide for independent judgment and alternative measures where deadlock is encountered.
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Drinking Water Standard Delayed

March 19, 2010 | 3 Comments
Posted by Marc Policastro

There are currently no Federal or State drinking water standards for perchlorate, a chemical compound detected in certain water supplies in New Jersey and other states.  On March 16, 2010, the NJDEP opted to delay adoption of a proposed rule that would establish a maximum contaminant level (MCL) for perchlorate.  The proposed rule would have amended the New Jersey  Safe Drinking Water Act, N.J.A.C. 7:10, creating a 5 parts per billion standard for this constituent.  The proposal would have also amended the Private Well Testing Act (PWTA) rules to require testing of perchlorate in all wells subject to the PWTA.  N.J.A.C. 7:9E.  In delaying adoption of the drinking water standard, NJDEP reasoned that “scientific evidence and potential economic impacts” warranted deferral in this case.  It is anticipated that the EPA will in the coming months make its own determination on regulation of perchlorate.   NJDEP, therefore, has decided to wait for EPA’s production and analysis of additional data prior to moving on the issue.  What played the largest role in NJDEP’s deferral stance?  Economics?  Science?  Stay tuned.

Permit Extension Act and Environmentally Sensitive Areas

March 15, 2010 | 3 Comments
Posted by Marc Policastro

The Permit Extension Act (PEA) extends the expiration date of  most local, county and state permits, including many environmental permits, to December 31, 2012.  Depending on the facts of each case, certain permits may be extended further, to June 30, 2013.  However, the PEA excludes permit extensions for permits issued for properties located in “environmentally sensitive areas”.  The PEA defines environmentally sensitive areas to include, among several categories, areas designated under the State Plan as “Planning Area 4B (Rural/Environmentally Sensitive), Planning Area 5 (Environmentally Sensitive), or a critical environmental site”.  Properties in “Highlands Regions” which are not areas as “growth” areas under the Highlands legislation.  Non-growth Pineland areas are also generally deemed to be outside of the PEA’s protections.  In assessing the applicability of many of these categories, referencing the State’s iMap sytem represents a good starting point to confirm whether a particular property is within the ambit of the environmentally sensitive exception.   The State’s iMap website can be accessed at: http://www.state.nj.us/dep/gis/depsplash.htm.
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