Environmental Committee Newsletter
Winter 2015/2016
Message from the Chair

Developments in environmental laws, regulations, and interpretations that affect businesses flow at a steady rate. 2015 has seen EPA come out with new regulations that have drawn opposition from industry, states, and environmentalists alike. Among the new regulations are those defining "waters of the United States" under the Clean Water Act, potentially limiting development; the "Clean Power Plan" restricting greenhouse gas emissions; and a more restrictive standard for ambient ozone-which have the potential to throw areas of the country into "nonattainment" status for ozone, requiring special plans by states, and triggering new permit schemes. The U.S. Department of Justice has announced that it will more vigorously pursue corporate officers in actions involving corporations. This issue of our newsletter also brings you tips on avoiding common mistakes in environmental site assessments so that the "all appropriate inquiry" requirement for defenses to CERCLA liability can be proven. We also have summaries of significant cases within the last year.

We hope you find this issue helpful to your practice. Please let our newsletter editor, Rory Carlisle, know if there are topics you would especially like to see discussed in future issues of the newsletter. We encourage you to submit articles and summaries directly to her at rory.carlisle@nelsonmullins.com.

Please check our website for case updates as well.

A special thanks to those contributing to this edition, and I hope everyone had a wonderful holiday season.

Bernard F. Hawkins, Jr.

Bernard Hawkins, Chair, Environmental Committee

NAFTA and the Commission for Environmental Cooperation: Environmental Enforcement

By E. Lynn Grayson

Effective January 1, 1994, the North American Free Trade Agreement (NAFTA) eliminated trade barriers and most tariffs to promote more commerce between the U.S., Canada, and Mexico. NAFTA opened new business opportunities by providing non-discriminatory foreign investment, protecting IP rights, establishing dispute resolution procedures for the NAFTA Trade Commission, and opening up government procurement. While NAFTA did not include labor or environmental provisions, the implementing legislation authorized two side agreements, allowing U.S. participation in NAFTA labor and environmental initiatives and providing the necessary funding. Executed in parallel with the NAFTA, the two side agreements, the North American Agreement on Labor Cooperation (NAALC) and the North American Agreement on Environmental Cooperation (NAAEC), promoted cooperation as well as provisions to address a country's failure to enforce its own labor and environmental laws. The NAFTA marked the first time that labor and environmental provisions were associated with a free trade agreement, and, for many, it represented an opportunity for establishing a new type of relationship among NAFTA partners.

The NAFTA, through its NAAEC, created the Commission for Environmental Cooperation (CEC) - an intergovernmental organization addressing environmental concerns and opportunities posed by continent-wide free trade. The CEC includes a Council (cabinet-level representative from each country), Secretariat (technical, administrative, and operational support for the CEC), and the Joint Public Advisory (five citizens from each country advising on NAAEC matters). The CEC is jointly funded by the U.S., Canada, and Mexico through their respective environmental authorities, the Federal Department of Environment, the Secretaría de Medio Ambiente y Recursos Naturales, and the U.S. Environmental Protection Agency.


Game Changer? Or Just a Clarification? New Regulatory Definition of "Waters of the United States"

By Scott D. Hubbard

A broad array of state governments, developers, builders, farmers, industries, trade associations, and advocacy groups have filed suit in multiple federal courts to challenge a new regulation under the federal Clean Water Act ("CWA"). The outcome of this litigation has the potential to dramatically affect the level of federal involvement in the development and use of real property in the United States.

Background. On June 29, 2015, the U.S. Environmental Protection Agency ("EPA") and the U.S. Army Corps of Engineers ("ACE") issued their final regulation defining "waters of the United States," or "WOTUS," for purposes of the CWA. Immediately upon issuance, the "WOTUS Rule" spawned a torrent of litigation.


EPA Revises the Standard for Ground-Level Ozone

By Wendy Wilkie Parker

On October 1, 2015, the Environmental Protection Agency (EPA) promulgated a final rule under the Clean Air Act reducing the primary and secondary National Ambient Air Quality Standard (NAAQS) for ground-level ozone from 75 to 70 parts per billion (ppb). 80 Fed. Reg. 65292. The new standard will increase the number and extent of non-attainment areas around the country, which will in turn increase the permitting requirements and cost for any major new source or major modification in those non-attainment areas.

The new ozone standard reflects a decision by the EPA that the prior standard, issued by the EPA in 2008, no longer protects the public health with an adequate margin of safety as required under the Clean Air Act. Ozone is one of the six (6) criteria pollutants regulated under the NAAQS for the protection of the public health and welfare. The Clean Air Act requires EPA to establish primary and secondary NAAQS for air pollutants. The primary standards are to protect public health, such as preventing respiratory problems, and the secondary standards are to protect public welfare, including visibility and plant and animal life. The ozone standard is intended to protect the human population, particularly children, older adults, and people with asthma or other lung diseases, against the known adverse health effects of exposure to ozone, including reduced lung function, increased respiratory symptoms and pulmonary inflammation. 80 Fed. Reg. at 65294, 65302.


Environmental Due Diligence for Purchasers: Top Ten Phase I Issues

By Mary Ellen Ternes

A critical element for purchasers in completing environmental due diligence involving acquisition of real property is completion of a Phase I environmental site assessment ("Phase I") to identify the presence of "Recognized Environmental Conditions" ("RECs") related to releases of "Hazardous Substances" or petroleum constituents. The Phase I, completed properly, demonstrates performance of "All Appropriate Inquiry" ("AAI") under 40 C.F.R. Part 312, one of the elements of demonstrating the "Bona Fide Prospective Purchaser" ("BFPP") , innocent landowner or contiguous property owner status, the essential landowner defenses to liability under the Comprehensive Environmental Recovery, Compensation and Liability Act ("CERCLA"), also known as Superfund. The Phase I standard required to demonstrate AAI, as defined by CERCLA § 101(35)(B), 42 USC § 9601(35)(B), is the ASTM 1527-13 standard implemented pursuant to 40 CFR § 312.11, which has replaced the ASTM E1527-05 (also see ASTM E2247-08 for forestland or rural property).

As environmental consultants become more comfortable with the current standard, it is important to note the common missteps that could prevent a purchaser from demonstrating AAI, and render the purchaser liable for all contamination on the property under CERCLA. This article summarizes the most common issues observed by environmental practitioners in their combined experience.


Significant Cases

Delta Const. Co. v. E.P.A., 783 F.3d 1291 (D.C. Cir. 2015).

Car purchasers, biodiesel producers, and engine manufacturers combined several challenges to EPA's Clean Air Act regulations for light-duty and heavy-duty vehicles (cars and trucks) based on (1) EPA's failure to consult the Science Advisory Board on the greenhouse gas emissions regulations and (2) assertions that the rules are arbitrary and capricious in failing to account for carbon emissions in the full life-cycle of fuel production, in failing to expand incentives for biodiesel, and in failing to account for economic changes that could increase greenhouse gas emissions. The court held that those who were challenging the rule for the failure to consult the SAB lacked standing, and that the court lacked subject matter jurisdiction as to the "arbitrary and capricious" prong of the challenge because the petitioners had not sought review by the district court for the claims asserted against the National Highway Transportation Administration. As to the claims against EPA, the challengers-competitors to fossil fuel producers--were deemed not to be within the "zone of interests" protected by the Clean Air Act.

United States v. NCR Corp., 2015 WL 6142993 (E.D. Wisc., Oct. 19, 2015).

The U.S. District Court for the Eastern District of Wisconsin on reconsideration set aside its earlier ruling on the allocation of remediation costs at a river and bay into which PCB-laden wastewater were discharged by paper mills. In a decision in May, the court had held that the danger caused by the discharge of PCBs by numerous PRPs was theoretically divisible, and that a calculation of volume of PCBs contributed allowed for an apportionment of the divisible harm under Burlington Northern v. U.S. 129 S.Ct. 1870 (2009). 2015 WL 2350063 (E.D. Wis. May 15, 2015. On reconsideration, the district court held that the expert testimony on which its May 2015 ruling had been based was flawed because it relied on an analysis of remediation costs rather than on the extent of harm, and because it failed to account for all contributions to the contamination.

Am. Farm Bureau Fed'n v. United States EPA, 792 F.3d 281 (3d Cir. 2015).

The court upheld the Total Maximum Daily Load (TMDL) for nitrogen, phosphorus, and sediment for the Chesapeake Bay, rejecting the arguments of agricultural and home construction trade association that the TMDLs exceeded the scope of EPA's authority by establishing standards that allocated among point sources and non-point source sectors maximum daily loads of the substances. The opinion provides both the history of TMDLs and an interpretation of the statutory requirements for TMDLs and specifies the two-step analysis for Chevron deference.

Michigan v. E.P.A., 135 S. Ct. 2699 (2015).

The U.S. Supreme Court held that the EPA's refusal to consider costs in its issuance of the Mercury and Air Toxics Standard in 2012 was based on an unreasonable interpretation of what constitutes "appropriate and necessary" regulation of utilities under § 7412(n)(1)(A) of the Clean Air Act. EPA on November 20, 2015 proposed a revision to the rule, issuing a Supplemental Finding addressing costs of the new Utility MACT for mercury and air toxics. The D.C. Circuit on December 15, 2015 decided that the remanded rule remains in effect pending revisions to comply with the Supreme Court's decision.

Peabody Essex Museum, Inc. v. U.S. Fire Insurance Co., 2015 WL 5172841 (1st Cir. 2015).

The First Circuit ruled on two important issues often raised in continuous or progressive pollution claims asserted under CGL insurance policies. Under Massachusetts law, an insurer is responsible only for the pro rata share of damage proven to have taken place within its policy period which, the court noted, was difficult to actually prove given that the pollution occurred decades ago. Although the insured typically bears the burden of proving coverage, the court found here that, because the insurer breached the duty to defend its insured, the insurer assumed the burden of proving when the pollution began and ended. The court also held that an insurer is responsible for all defense costs (and not just the insurer's pro rata share of those costs) incurred by an insured in resisting pollution claims if any damage is alleged to have occurred within the insurer's policy period.

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