49impactofenvironmental.pdf

The

Impact

of

Environmental

Liability

on

Land

Use

Planning

John

Buckley

The

threat

_of

environmental

liabilitydiscourages theresale

and

reuse

of

industrial

and

commercial

property.

Thisarticlediscussesthe

source

of

environmental

liability

and

reviewsitseffects

on

purchasers, lenders,

and

insurers.

Planners

must

understand

thepervasive

and

potentiallydevastating

impacts

of

environmental

liability

on

developed

and

virgin land.

Freealienationofreal property has alwaysbeena

rea-sonablywell achieved goal.

With

the passage ofvarious

environmental statutesby Congress, however,a

new

bar-rierhas sprung up to slow the purchase and sale ofreal estate. Thisbarrierisenvironmentalliability,andithasits largestimpact

on

existing industrialand commercial

prop-erty.

Historical

Perspective

on

Real

Property

Law

Inrecentyears,the laws affectingownershipof landinthe

United States have fundamentally changed.

Under

the

common

law generally adopted by the individual states

fromthe oldEnglishsystem oflaw,propertyconsistedofa

bundle ofrights.

The owner

of propertywas an

owner

of

rights,whethertheyweremineralrights,waterrights,orthe

righttoexclusivepossession oftheland. Propertyentailed rights.

Early in the twentieth century the law recognized the

abilityofthegovernmenttoregulate theuse oftheserights

withoutcompensatingtheowner. Thisregulation,largely

expressed through zoning, permitted restrictions

on

the useof land so longastherestriction didnot

consume

the

entirebundle ofrights. Ifthe regulation didin fact

consume

thebundle, thenthe regulation constituted a"taking"and hadtobecompensatedforbythegovernment.

In 1980,Congressestablished a

new

bundle of property

rightswhichentailedresponsibilities. This

new

bundlehad beendevelopingfor

some

time,because ofdissatisfaction

with the remedies available underthe

common

law and

zoning. Whilethe

common

lawhadrecognized responsi-bilitiesattachedtotheuse ofland,therehadneverbeen an

omnipresent bundle ofresponsibilitiesassociatedwithits

ownership(except possibly the responsibility topaytaxes).

The

market's perception of land ownership is changing,

whichaffectsthe potentialforreuseof

many

forms ofreal estate.

The

landuse plannermustfactor this changing perceptionintoproposals.

The Comprehensive

Environmental Response,

Compensation

and

Liability

Act

(CERCLA)

In 1980,duringa lame-ducksession,Congresshastily

enactedanenvironmentalstatute

known

asthe

Compre-hensive Environmental Response, Compensation and

LiabilityAct

(CERCLA

or"Superfund").

At

thetimeit

washeraldedasoneofthemostfrighteningand

promis-ingof environmentalstatutes. Bothofthese descriptions

have proven true. In part, the strength of

CERCLA

residesinitsinitiallyvaguedrafting,sinceclarifiedbythe

1986 amendments.

The

statuteearnedawell-deserved"quirkynotoriety"

with judges

who

attemptedtointerpretitsextensive lia-bilityscheme.

The

legislativehistoryofthe statuteisone

ofalmost comical contradiction,making interpretation

difficultat best.Still,thisvaguenessandcontradiction are theelementsthathave

made

the statutesostrong.Courts havebeengivenwidelatitudein fashioningliability for

environmental harm.

And

they have been liberal in

findingliability.

How

CERCLA

Works

CERCLA

establishedaHazardResponseTrustFund,

the so-called "Superfund."

The

government uses this

contaminat-ing thesites.

The

ideaistogetthesitescleanedquicklyand

litigateover

who

istoblamelater.

Variousstateagencies andthe Environmental Protec-tion

Agency (EPA)

identifytheSuperfundsites.

The

EPA

has the task ofranking these sites in priority order for cleanup.

Once

thesitesare catalogued, the

EPA

attempts

toidentifythe parties

who

wereresponsiblefor

contami-natingthesites.

The

statute establishes

who

willbeliable as responsible parties subject to limited defenses.

The

parties the

EPA

initiallyidentifiesare

known

asPotentially

ResponsibleParties (PRPs). Ifthe

PRPs

arewilling,

ca-pable,andcircumstancespermit,the

EPA

may

allow

them

to clean

up

thesitethemselves.

Even

iftheyarenotwilling,

the

EPA

may

select

one

or

more

ofthe

PRPs

andorder

them

tocleanthesite.

Who

is

Responsible

There are sixdifferent classes of parties

who may

be

responsibleforthecleanupcostsofacontaminated Super-fundsite. Theseare: (1)currentownersofthereal estate, (2)currentoperatorsofactivities

on

the_{real estate, (3)}past

owners, ₍₄₎ past operators, (5) those

who

transported hazardous substancestothesite,and(6)those

who

gener-atedthehazardous substances transportedtothesite.

These parties are "jointly and severally liable."

The

partiesarejoinedwithrespect tothetotalcostofcleanup

(thatis,theycannotjustclean their share). Moreover,any

oneparty

may

beseveredfromtherestandrequiredtopay

the entirecleanupcost. Jointandseveral liability

means

thatoneparty

who

contributed minimallyto

contaminat-ingasite,yet

who

has"deeppockets,"

may

berequired to

cleanthesite.

Many

peoplefindthe"deeppocket" theory ofliabilitymanifestlyunfair,especially

when

coupled with

true"strictliability."

The

Elements

of

Liability

Strict liability,simplyput,isliabilitywithoutfault.

Under

strictliabilityone neednot

show

negligenceonthe partof

thedefendanttorecoverfromhim.

The

classictortliability

schemeconsistsoffourelements.First,thedefendantmust

have

some

legallyrecognizedduty. Second,hemustbreach

that duty. Third, his breach ofthe duty must cause the

injury. Fourth, the injurymust result in

damage

to the plaintiff.

Forexample, takethe simplified caseofan automobile

collision.

Person^

runsastopsignandcollideswithB.A's dutyistoobeythe stopsign.

By

failingtoheedthesign,,4

breachedalegallyrecognizedduty. IfB's carorpersonare injuredinthecollision,

B

can recoverdamages. B'sburden

ofproofis notdifficult. Assume,however,that

A

hasno money,but

A

admitsthathewasdistractedbyCwalkingher

dogwithout a leash in anareawhere dogs must be

on

a

leash.

C

has also breached a duty, but that breachwas

probably notacause ofB'sinjury,at leastnotaforeseeable

or"proximate"cause. Inacase torecoverdamages fromC, B'sburden wouldbedifficulttocarry. Finally,assuming

C

alsohasno money, whatiftheentireepisode occurredin

D's parkinglot?

Does

D

haveadutyin thissituation? In a case against D,

B

would have troublewithall ofthe

ele-ments oftheclassic tort:duly,breach,causation,and damages.

CERCLA

eases theburden

on

theplaintiff,usually the

EPA,

foralloftheseelementsinthecaseofSuperfundsites.

The

statute imposes a duty

on

any ofthe six classes of

partiesany time theydealwithhazardoussubstances.

The

dutyissimplytocontrolthehazardous substancesand keep

them

from beingreleased to the environment.

A

party

breachesthatduty

when

areleaseor"threatofrelease" to theenvironmentoccurs.

The

dutyis"strict"becausethere is no need for the plaintiff to prove negligence.

The

plaintiffonly needsto

show

that thethreatoccurred.

Why

it occurred is irrelevant in a strict liability scheme. In

comparisontotheabove autocollisionexample,if

A

proved that thestopsignhad beenknockedover or obscured by

trees, he might not beliable for negligence, but a strict liabilitytheorywould hold

him

liableregardless.

Fortu-natelyforyl,driversarenever heldstrictly liable.

The

releaseofahazardous substanceneednot causeany harm;infact,releaseneednotoccur,onlythreatofrelease.

The

threat,however,mustcause

EPA

or

some

otherparty

(perhaps a state, city, or private individual) to react by cleaningthesite.

The

clean-upcostrepresentsthedamages

EPA

may

recover.

The

following sectionwillexaminethese four elements

more

closely and discuss

why

CERCLA

liabilityisso easytofallintoand

why

itissodevastating.

Duty:HazardousSubstances

CERCLAimposes

aduty

on

those

who

handle,

orunwit-tinglyhandledinthepast,acategoryof chemicals

now

(or

sometimeinthe future) designatedashazardoussubstances.

At

firstblush,thissoundsreasonable,but

when

onerealizes

therelativeharmlessness of

some

ofthechemicalslisted, therange of

CERCLA's

effectcanbequitestartling.

Many

hazardous substances are in routine household

use. While

some

hazardous substanceswillkill,or cause mutations orseriousinjury,

many

arerelativelyinnocuous.

And

whether innocuousor not, the public'sexposure to

some

ofthesechemicalsisextremely

common.

Infactitis easy toimaginethateveryone hashandledanddisposed of

some

product containingahazardous substance. For

ex-ample, acetoneis amajor ingredientin fingernail polish

remover;benzeneisamajorconstituentof unleaded gaso-lines;phosphoricacidisaningredientinCoca-Cola. Allof

thesechemicalsarehazardoussubstances.

hazardous substances encompasses so

many commonly

used chemicals, almost all manufacturing industries are

majorusers.

Breach: Threat of Release

Anotherkeytocomprehendingtherange of

CERCLA's

applicationisan understanding ofwhatconstitutesabreach ofthehazardous substanceduty.

The

breach occurs

when

there is a threat ofrelease to the environment of

some

hazardoussubstance.

The

threatismerely ofrelease,not anythingto do with danger or healtheffects. Danger is

presumedsince

we

aredealingwithhazardoussubstances.

A

release is

movement

ofa hazardous substancefrom

anythingintotheenvironment.

The

environmentincludes air,water, soil,and groundwater. Ifthesubstance spills

froma barreltotheground,itisarelease;ifitseepsfrom

alandfillintothesoil,itisarelease;ifitevaporatesfroman

opencontainer,itisarelease. Releasesoccurconstantly,

andanyone

who

handles ahazardous substancewillhave

theimpossibletaskofkeepingtrackofitall.

Causation

Causationinthesense ofphysicaldanger orinjuryisnot

required.

What

is

more

startlingisthat causationin the

sense ofrelease is not required either. Ifthedefendant

placesahazardous substanceina landfill,he

may

be held

liableevenifthehazardous substance threateningrelease isdifferent.

The

defendantneednot causetherelease.

He

must onlybeone ofthesix parties described earlier, for

example,thepropertyowner.

Damages

Damages

include the cost of response and remedial

action to clean thesite. Thesecostscanbequite substan-tialsince thesitesmust becleanedtoexceedinglylowlevels.

The

averagesitecleanupcost in1984and 1985 exceeded

twelve milliondollars.

Defenses

Thereareonlyfive real defenses to

CERCLA

liability,

and

none

of

them

arevery good.

An

actof

God

oranactof

war is the first defense. Theseare both closely

circum-scribed. Ithasbeenargued bythe

EPA

that afirestartedby

lightning striking awarehouseisnotanactof

God

because

itisforeseeableandpreventablebylightening rods.

The

second defenseisthatthe

EPA

grantedapermitfor

therelease.

The

EPA

isnotlikelytograntpermitsforthe releaseofhazardous substances withoutsubstantial

assur-ance ofnopossibleharm. This defenseisavailable to very

few property owners.

The

third defense is that the release is not a release.

Thereare four categories ofreleases thatare specifically

excluded. These are releases solely from the workplace

(regulatedbytheOccupationalSafetyandHealth

Admini-stration),releases from

some

engine exhausts, releasesof

some

nuclearmaterials(regulatedby the Nuclear

Regula-tory

Commission

and Department of Energy), and the

normalapplicationof fertilizer. This exceptionalso

ap-pliestoa very limitedclassof property owners.

A

fourthdefenseisavailableifthehazardous substance

arrived

on

thepropertybecause ofactsofa third partywith

whom

the

owner

hadnodealings. Thisisavailableonlyif the

owner

took reasonable precautions to prevent such occurrence. This defenseisfairlygoodiftheowneristhe victimof"midnightdumpers,"butiftheownerinanyway

agreedto receivethe materialor

knew

thatitwascoming,

thedefenseisnot good.

Finally,thefifthdefenseisthatofaninnocentlandowner

orinnocentpurchaser. Ifthe

owner

came

intopossession ofthelandwithoutknowledgethatitwascontaminatedand

made

"all appropriate inquiry" without discovering its

contamination,thenhe

may

be

deemed

innocentand

with-outliability.Allappropriateinquiryinthe caseof

commer-cial property requires an extensiveenvironmental audit.

This audit must be performed by professional engineers

(evaluatingfacilities,chemicalsanddischarges), geologists (evaluatingsoiland groundwaterconditions),and

attor-neys(performingtitlehistorysearches, includingleases).

Environmental audits are expensive and invariably un-covernegativeinformation.

EffectofLiability

The

effectofliabilitycanbesummarizedvery simply with

actualcasehistories.

A

company

purchasedatractofland

for$48,000andtheestimated cleanupbillwas$2million.

Inanother case, Maryland

Bank

&

Trust

Company

fore-closedonapieceof propertyandlearnedthattheyhadnot onlylosttheirsecurityinterest,butwouldalso havetopay

for the site'scleanup as its owner. Finally, insurers are

beinghitwithcoveragesuitsfromtheirinsureds.

UTC,

for

example,sued240insurersforpollutioncoverage regard-ingitsproperties. In

many

casesthepoliciesarestandard

Comprehensive General Liability policieswritten before

CERCLA,

whichdidnotanticipateitsabsoluteand

retro-activeliabilityscheme.

Insurers

Whileinsurancecompaniesarenotsubjectto

CERCLA

liability, their reaction to it is important. If insurance

companiesreasonthat potentialliabilityisgreat,theywill

charge highpremiums. If,as

many

insurerscontend,

envi-ronmental impairmentisnota

random

insurableeventand

Insurancecompanies haveincurredsubstantial,

unantici-patedlosses forenvironmental damages.

To

reducetheir losses,insurancecompaniesare generally refusingany

envi-ronmentalimpairmentliabilityinsuranceandauditing

poli-cyholders tominimizerisk. This hascreated a direshortage ofneededinsurance.

Where

therearecompaniesgranting

environmental policies, the policies are limited in scope, usuallycovering onlysuddenoccurrences.

Lenders

Lendersareoftenplacedina Catch-22position.

On

the

one hand, they do not want to foreclose

on

potentially

contaminatedproperty.

On

theother hand,theywantto protecttheirsecurityinterest. Ifbankshavealreadyloaned

money, theymight considerimposing restrictions

on

the

activities oftheir borrowers to reduce the likelihood of

CERCLA

action. Thisactivity,however,would be

consid-eredoperation ofthesiteandsubjectthelendertothe

same

liabilitythatforeclosurebrings.Generally, abank's

involve-ment

inthebusinessaffairsofa

company

handling hazard-ous substancesissuicidal.

The

besttackfor

money

already

lentistowaitandsee,and

hope

forthebest.

With

new

loans,however,banksareina better position to protect their investments. All financial institutions are

expandingthemethodstheyusetoidentifyenvironmentally

high-risk borrowers. Pre-loan environmental audits are

common

place.Soiltestsare frequentlyrequiredfor existing

industrial facilities. Costsarebornebythe potential

bor-rower,notthebank.

Many

bankswillrequire bor-rowers to perform continuous environmentalauditsduringthe lifeofthe loan to ensure

envi-ronmental compliance. This

treadsclose tomeddlingin the

affairsoftheborrower, butmost banksonlyrequirean

independ-ent auditor to report the audit resultstotheborrower'stop

man-agement, forcing the borrower

tostayinformed.

Finally,

many

lending

institu-tionswillrequire theborrower

tosecureenvironmental

impair-mentliabilityinsurance.

As

noted above, however, insurance is scarce.

And

when

itisavailable,

insurancecompaniesput policy-holders through anotherset of

hurdles. For

many

borrowers

the insurance requirement es-sentially

means

thatnoloanwill

beavailable.

State

Government

Some

stategovernmentshave steppedintothe

CERCLA

landtransactionproblemand addedtothe confusion.

New

Jersey,forexample, passed thelandmark Environmental

Clean-up Responsibility Act

(ECRA).

The

transfer of

industrialpropertywillnotbe approvedbythestate

envi-ronmentalagencyuntilthesiteiscleaned ofall

contamina-tion. Delays ofseveral

months

inthetransferof property

are

common. The

wholethrustof thestatuteistoprevent

acquisitionofliabilityby innocentpurchasers.

Fortunately,statespassing

ECRA

typelegislationhave

beenrestrictedtothenortheastandCalifornia. Itseems unlikely that eitherNorthorSouthCarolinawillpropose suchlegislationgiventhe

New

Jersey experience.

Purchasers

CERCLA

liabilitysubstantiallydeterspurchasersofexisting industrial property.

The

liability itselfisfrightening: the

averagesitecleanupcostsover$12million.

In addition, the acquisition of loans and insurance is difficultandexpensive,ifnotimpossible. Finally,there are often substantial delays in acquiring loan

money

to the

point where the transaction

may

no

longer beworth its original value.

The

lengthofdelays,thesizeofthe additional transac-tioncosts, andtheviability ofthe saleitselfwillall bea functionofthe likelihoodoffindingcontamination

on

the

site. Ifthesiteis anexisting industrialfacility,itis

more

likely to have hazardous substances than if it is virgin

property (although

some

property that appears clean is not).

The

higherprobability leads to greater scrutinyofthe sitebythe lender, purchaser,andinsurer,whichincreases the costsofthesiteregardlessofwhetherthesiteisclean to

beginwith.

Industrialsitepurchasers areincreasinglysubjecttomarket

pressures that force their selection of unspoiled, virgin

property for commercial development. Virgin property

must becleared, landscaped, and developed. Moreover,

suchpropertyisoftenfarfromdesirablebusinessdistricts.

Because ofthe threats ofenvironmental liability, virgin

property will be selected over existing land with viable structuresandsuperiorlocation.

The

consumptionofthis virgin property is actually being propelled by the most

powerful of environmentalstatutes.

The

ironyisstriking.

What

the

Planner

Can

Do

Plannersmust be awareofthedifficultysurroundingthe reuseofindustrial and commercial property. Projected

developmentintooutlying areasshould excludeland that has already had commercial uses. In addition, a higher percentage ofoutlyinglandshouldbezonedfor

commer-cialorindustrialdevelopment; asbusinesses

come

andgo, theywillnot reuseexistinglocations nearlyasoften asthe

plannermightanticipate.

Anotherconsideration istheacquisition offormer in-dustrialorcommercialproperty bylocalgovernmentsfor

infrastructureor otheruses. Cityandcountygovernments

are not excluded from liability (except through escheat

from tax delinquency). If local governments purchase propertyoutrightorthrougheminent domain,theycanbe

heldliableforcleanupcosts. Therefore,planners should

not rely too heavily

on

projected reuse of commercial

propertiesbythelocalgovernment. Suchproperties,once

audited,

may

turnouttobehighly undesirable.

The

ability ofthe planner to affect legislation

may

be

limited; however, the following suggestions

may

prove

valuable.

Local:CovertheCost ofAudits

Atthelocal level, theplanner

may

beable to institute

regulations thatwillsubsidize environmental auditing of

commercial property designated for continued business

use. Thissubsidycanbeintheformofanactualpayment

topotentialpurchasers

who

commissiontheaudit,oritcan

beperformed bythelocalhealthandenvironmentalagency.

Ineithercase,thelocalgovernmentshouldretainaccess to the report and permit its use by subsequent potential purchasers. Inthis

way

thelocalgovernmentwillimprove

itsland planningstrategywhilegainingvaluable

environ-mental informationforthecommunity.

State:Use Conversion Tax

At

thestatelevel,planners should

make

legislatorsaware

ofthe problems encountered by

New

Jersey under the

ECRA

statute. Legislation to protectinnocent purchasers should be drafted to prevent the transactional barriers createdby

ECRA

Inaddition,aone-time use conversiontaxwouldprovide anincentivetocompaniestoreuseexisting industrial

prop-erty. Thistypeoftaxwould be imposed

when

non-indus-trialpropertywasconvertedto industrialuse. Industrial

usewould be defined as a particular level ofhazardous substanceuse.

The

sizeofthe taxcouldbegearedto the typeofeffect

desired. If,ontheonehand, thedesiredeffectissimplyto

encouragecompanies toconsiderexisting locations,then

thetaxshouldbeequivalent tothe additional transaction costs associated with existing industrial property. This

wouldbe approximated by thecost ofanenvironmental

auditofa similarly sized tract. If,

on

theother hand, the desiredeffectistostronglyencourageuse ofexisting

com-mercial propertyover undevelopedland,thenthetaxshould

reflecttherelative riskbetweenthetwoalternatives.

The

sizeofthistaxwould bequite substantialandcoulddrive

companiesout ofstate.

Federal:

CERCLA

Amendments

Amendments

to

CERCLA

will probably not occurfor

severalyears. But

when amendments

are passed,planners shouldbe preparedtosuggest taxesor otherincentivesto offsetthemarketincentives to

consume

undevelopedland.

This

may

preventflighttoneighboringstates,butitmight

not preventflighttooverseaslocations,whichhasalready occurred.

Conclusion

CERCLA

liabilityhas propelledanundesirable

environ-mental and land use

phenomena:

the consumption of

undevelopedlandforcommercial andindustrialuses.

The

plannermustunderstandtheeffectsof

CERCLA

liabiltyin

orderto pursue legislation atthestate and local levelto

alleviate the development pressures

on

virgin land and

permit cost effectivereuse ofcommercial and industrial

property.