Ed Schwartz Spoke to Commercial Real Estate Community

On March 21, 2017, Ed Schwartz spoke to approximately 50 developers and commercial real estate clients of United Consultants, a major environmental consulting and engineering firm in Atlanta, regarding the techniques available to structure a real estate transaction for property that is environmentally impaired.  The presentation included a discussion of mitigating environmental liability through indemnification agreements, remediation agreements, use of brownfield program limitation of liability and tax incentives and environmental insurance.

Ed Schwartz Presented at Annual Georgia Environmental Law Section Summer Seminar

On June 23, 2107, Ed Schwartz made a presentation to the Annual Meeting of the State Bar of GeorgiaEnvironmental Law Sectionheld in Amelia Island, Florida regarding anticipated environmental policy for the Trump Administration.  Extrapolating from his years as an environmental attorney, and specifically from his experiences as Assistant Regional Counsel for the US Environmental Protection Agency, Region 4 during the Reagan Administration, Ed offered projections regarding the anticipated changes in the role of EPA under the new administration including programmatic/regulatory reform, reduced enforcement and greater deference and delegation to states.  The hour-long presentation was attended by over 150 environmental lawyers and consults practicing in Georgia and Florida.

Property Manager in Georgia Liable for Hazardous Waste Disposal of Tenant

In a lawsuit in which this environmental law firm participated, the US District Court for the Northern District of Georgia held that a property manager of a shopping center, although not liable as an owner, was liable as an operator of a hazardous waste disposal facility under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA),42 U.S.C §§ 9601 et seq., and the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. §§6901 et seq.

The case, Scarlett & Associates v. Briarcliff Center Partners, 2009 WL 3151089 (ND Ga. 2009), involved a dry cleaning facility that had caused hazardous waste contamination of a shopping center in Atlanta. The owner leased the shopping center. The interest of the lessee was assumed by a bank, which hired Faison & Associates (Faison) to manage the property on its behalf. Faison managed the property for approximately two years, between September 1995 and September 1997, when the bank sold the lease. The shopping center was listed on the Georgia Hazardous Site Inventory in 1996. Scarlett & Associates (Scarlett), the principal lessee that acquired the shopping center from the bank, sued several past and present operators seeking contribution for remediation costs incurred at the shopping center. Scarlett alleged that Faison was an operator of a facility under CERCLA and was an operator of a hazardous waste treatment, storage, or disposal facility under RCRA. Further, Scarlett claimed that Faison was in violation of RCRA permit or other requirement based on the continued presence of contamination at the shopping center, even though Faison had ceased management of the property many years earlier.

Holding Faison liable as an operator under CERCLA and RCRA, the court concluded that there was sufficient evidence that Faison managed, directed or conducted operations specifically related to pollution. Specifically, the court noted that Faison (i) informed the dry cleaner of certain EPA requirements; (ii) requested documentation that the dry cleaner was in compliance; and (iii) was generally responsible for managing and maintaining the shopping center and performing all acts necessary to effect the bank’s compliance with the laws. Because of these actions, the court concluded that Faison was an operator in violation of RCRA and, therefore, potentially liable for a continuous or ongoing violation by having failed to remedy the past contamination.

It seems counter-productive to hold property managers responsible for contamination that pre-existed their management of the property, especially where the property manager does not participate in the violation and/or cause the contamination. Indeed, this decision is contrary to holdings in other jurisdictions that no valid claim exists against prior operators under the citizen suit provision of RCRA.

Regardless, recognizing this precedent, property managers in Northern District of Georgia would be well advised to take the following precautions to prevent RCRA liability from their operations:

• Avoid performing management activities related to pollution;
• Avoid leasing to tenants with potential environmental issues;
• Insert provisions in management contracts for owner assumption of responsibility for environmental conditions at the property, whether known or unknown;
• Insert provision in management contracts for owner responsibility for compliance with environmental laws and regulations by owner and tenants;
• Insert provision in management contracts for owner indemnification for environmental claims not caused by property manager;
• Avoid leasing to tenants with environmental issues; and
• Ensure proper insurance for environmental claims.

Liability of Corporate Officers In Georgia

Directors and officers are being held liable at an increasing rate for violations of environmental laws and regulations by their corporations. A recent case, in which our Atlanta environmental law firm was involved, from a federal court in Georgia demonstrates the ever-widening scope of personal liability of corporate officers.

In Draper v. Roberts, a case of first impression, the U.S. District Court for the Northern District of Georgia ruled that individual officers could be held personally liable for the violations of the corporation under the Clean Water Act (CWA). In imposing such liability the Court determined liability principally on the basis that the corporate individuals had the capacity to prevent the violations at issue. Thus, an owner or operator of a company in Georgia can be personally liable if that officer has the authority to direct the activities causing or constituting the violations facility has the power to direct the activities of persons who control the mechanisms causing the violation.

Other jurisdictions that had addressed the imposition of personal liability upon corporate officers in the context of the CWA held that the CWA does not impose personal civil liability for prohibited acts simply by virtue of an individual’s corporate position. These courts have generally found corporate officers to be personal liable under the CWA only when they have extensively participated in or were directly responsible for the statutorily proscribed violative conduct.

In the Draper case, the Plaintiffs alleged that the corporate defendant, a small development company, caused sedimentation into their lakes in violation of the CWA. They further alleged that the two individuals that owned and operated the company were liable personally for the violations. The defense contested personal liability on the basis that the individuals lacked actual control over the activities that caused the alleged violations. As it only engaged contractors (i.e. grader and home builder) to perform the land disturbance and other construction work alleged to have caused the sedimentation on the Plaintiffs’ properties, the individual defendants did not direct or control any activities that caused any alleged violation of the CWA.

While agreeing that personal liability cannot be based on corporate status alone, the Court found that both individual had sufficient responsibility for and control over the construction and erosion control at the property subdivision to be held individually liable for the violations of the CWA. Specifically, the Court noted that one defendant was the managing partner who made all decisions for the company that was the primary permittee under the CWA, monitored activities of the contractors and subcontractors, observed erosion and sedimentation control practices and recorded rainfall data. The other defendant was the person that signed the Notice of Intent, thereby holding himself out as an officer of the company, and designating himself as facility contact, and that certified the Erosion, Sedimentation, and Pollution Control Plan, indicating that it would be implemented in compliance with the CWA. Both officers corresponded regularly with regulatory entities regarding violation notices regarding activities at the property. The Court determined that these largely misiterial tasks constituted significant responsibilities related to compliance with erosion and sedimentation control measures and best management practices, violation of which caused damages to the Plaintiffs.

Moreover, the Court held the individuals responsible for their failure to correct violations stating the violations that are the subject of the lawsuit were “at least partly a consequence of their actions or, more importantly, their omissions”. According to the Court, the individuals did not perform the work, but were “ultimately responsible for the performance of the work”. Therefore, under the precedent set by this case, an officer of a company that fails to ensure compliance with the CWA, is just as liable as if the individual had directed the violation of the CWA.

Strong Enforcement of Environmental Laws Anticipated For 2011

In a speech given on January 13, Assistant Attorney General Ignacia Moreno addressed 2011 priorities for the Environment and Natural Resources Division of the US Department of Justice. Ms. Moreno stressed the commitment of the Division to strong enforcement of all environmental laws to ensure the protection of air, water, and other natural resources, as well as the health of all Americans. She further touted the Division’s 2010 successes: securing over $6.5 billion in injunctive relief in civil cases; collecting over $81 million in civil penalties and stipulated penalties; recovering $725 million for Superfund expenditures; obtaining commitments for over $750 million for hazardous waste remediation; and concluding 50 criminal cases against 79 individuals resulting in 28 years of imprisonment and $89 million in fines and restitution. The Division is committed to building upon these significant achievements.

In 2011, the Division will continue its support of an aggressive EPA civil and criminal enforcement program. The Division will prioritize enforcement under the Clean Air Act’s New Source Review Program, including company-wide settlement of these actions; municipal sewage and stormwater treatment and collection cases under the Clean Water Act; cleanup of hazardous waste sites under the Comprehensive Environmental Response Compensation and Liability Act; criminal enforcement, especially with regard to the worker safety initiative to combine environmental and workplace practices; vessel pollution and falsification of ship environmental records; illegal trafficking of wildlife and plants; promotion of environmental justice awareness, policies and ongoing efforts; and the defense of EPA regulatory programs including greenhouse gas emissions.

One would think that in this struggling economy, the government would prioritize compliance assistance with over enforcement of environmental laws. This logic, however, does not resonate in Washington, DC. Instead, EPA and the Division appear intent upon stepping up civil and criminal enforcement of environmental laws against businesses and individual officers responsible for environmental compliance for the business. Companies must, therefore, be more diligent than ever in addressing potential issues under all applicable federal and state environmental laws and regulations. As the consequences of failing to do so may be significant, it is more important than ever that businesses and responsible corporate officers seek experienced environmental attorney in the event of a potential violation of environmental laws and regulations.

Georgia Brownfields Update

In early March 2012, the Georgia legislature passed House Bill 994, which includes an amendment to the Hazardous Site Reuse and Redevelopment Act, O.C.G.A Section 12-8-202(b)(6), commonly referred to as the Georgia brownfields law. The amendment provides that a purchaser of property is no longer required to apply for participation in the brownfields program prior to the purchase of property, at which there has been a regulated release; rather, the purchaser has up to thirty days after acquiring title to the property to apply for brownfields protection. Further, the amendment of section 208(c) makes the limitation of liability received by a purchaser automatically applicable to future title holders, rather than simply transferable to such parties. Finally, changes to the law were made so that, in certain circumstances, existing brownfield purchasers would have an additional up to fifteen years to recover the tax benefits, which is an increase of five years from the current provisions

Each of these amendments were intended to address concerns of purchasers and sellers and facilitate more transactions associated with environmentally impacted properties. It is anticipated that Governor Deal will sign the legislation into law. In the ever shifting climate of environmental regulation it is crucial for developers and owners to be aware of the rules applicable to real property and to have access to experienced counsel in that regard.

Environmental Expertise in Real Estate Transactions Highlighted

On January 10, 2013, Ed Schwartz made a presentation to the Real Estate Section of the Atlanta Bar Association regarding environmental issues in real estate transactions. Ed explained the various environmental laws that may impact the interests of a seller or purchaser of real property such as Comprehensive Environmental Response Compensation and Liability Act (CERCLA) and Georgia Hazardous Site Response Act (HSRA), which hold property owners responsible for environmental conditions on property regardless of their participation in causing those conditions); Resource Conservation and Recovery Act (RCRA), regarding the management of waste and underground storage tanks), Clean Water Act (CWA), regarding property development implications for streams and wetlands, including soil and erosion control measures/best management practices; and the Endangered Species Act (ESA), regarding property development implications for the presence of a protected species.

Ed then addressed the tools that can be utilized by a competent environmental attorney to address these concerns including adequate pre-purchase due diligence; contractual risk allocation techniques such as indemnification agreements, release agreements, remediation agreements and environmental insurance; and statutory options such as the use of the Georgia Brownfields Program and the Voluntary Remediation Program; or any combination of these tools best suited to the needs of the client. Using examples from his own practice, Ed provided practical advice to assist sellers and purchasers in overcoming environmental obstacles in real estate transactions. The presentation was so well received that Ed was asked to provide a summary of the presentation to the Real Estate Section for publication in its quarterly newsletter.

EPA Proposes Changes To Georgia Air Rules

The US Environmental Protection Agency (“EPA”) issued a proposed rule on Feb. 22, 2013, that would require 36 states, including Georgia, to revise the startup, shutdown, and malfunction (“SSM”) rules in their Clean Air Act State Implementation Plans (“SIPs”). As a general matter, the Georgia SIP provides a defense for air emissions exceeding an applicable emission limit during SSM events. The proposed rule would require states to remove SIP provisions allowing exemptions from emission limitations during SSM events. Instead, the proposed rule allows an affirmative defense against penalties (but not injunctive relief) for violations of emission limits during unplanned and unanticipated malfunctions. Under the proposed rule, EPA would issue a SIP-call to states requiring the removal of SSM exemptions.

All facilities should review their air operating permits for SSM exemptions. If such exemptions exist, the permit may be required to be modified under the proposed rule.

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