Stites & Harbison, PLLC

The EPA Office of Inspector General (“OIG”), in its report issued on February 14, 2011, EPA Must Implement Controls to Ensure Proper Investigations Are Conducted at Brownfields Sites, flunked 35 of the 35 Phase I Environmental Site Assessments (“ESAs”) prepared by environmental professionals drawn from a sample of reports used to support some $2.1 million in brownfields grants. While OIG certainly made EPA look silly for failing to catch these deficiencies itself, there are two real revelations. First, deficient reports based on improperly conducted AAI investigations introduce risk that the environmental conditions of a property have not been properly or adequately assessed, potentially leading to improper or even dangerous decisions about uses of brownfields properties, possibly threatening human health and the environment. Second, as illustrated by the OIG’s sampling, one must wonder about the plethora of Phase I ESAs conducted for the purpose of claiming one of the enumerated brownfields defenses. Could they likewise be deficient, placing the landowner or purchaser at risk of incurring liability for use of the brownfield properties?

Brownfields, defined under CERCLA Section 101, are real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant. In 2002, Congress amended CERCLA to provide statutory defenses to liability for releases or threatened releases of hazardous substances that may endanger public health or the environment. These so-called brownfields defenses are available to individuals who meet the requirements as (1) innocent landowners, (2) prospective purchasers, or (3) contiguous property owners. All of these defenses are predicated on the undertaking of an “all appropriate inquiries” (AAI) evaluation by an environmental professional to conclude that there is no likelihood of a release of hazardous substances or potential for environmental contamination. These reports are known commonly as Phase I Environmental Site Assessments (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 in some way deficient.

While the full text of the OIG’s report is available here, the following is a summary of the findings in the OIG’s report demonstrating deficiencies in the AAI reports it reviewed:

1. Environmental Professional (EP) Qualifications Statement: All 35 reports failed to include the required statement certifying the qualifications of the EP. Sixteen of the 35 reports (46 percent) included deviations from the required qualifications statement. 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.
2. EP Signature(s): Nine of the 35 reports (26 percent) were not signed by the responsible EP.
3. EP Statement on Data Gaps: Seven of the 35 reports (20 percent) did not include a statement on data gaps, which may result in the erroneous conclusion that there are none.
4. EP Opinion Statement (in Conclusion section): All 35 reports failed to include the required EP opinion statement in the Conclusion section. Of this number, 33 reports (94 percent) included deviations from the required opinion statement, e.g., missing, abbreviated, or modified sentences; “I” instead of the name of the environmental firm; or “general” conformance statements. The remaining two reports generally contained all parts of the statement, but also included some minor deviations, e.g., rewording or additional wording and omissions that do not alter the meaning of the statement.

Typically, users of a Phase I ESA simply want to know if they have a “clean environmental report.” They may be unwittingly placing a tremendous amount of reliance on the environmental professional to get it right. As the OIG’s report illustrates, however, what if the EP gets it wrong? The property may contain hazardous waste contamination that not only impairs the property, but also subjects the owner to state and federal Superfund liability. Most environmental professionals often try 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. Thus, it seems that persons relying on these ESAs are taking a risky gamble without a thorough review by an environmental attorney. To be fair, environmental professionals do a thorough job; and perhaps one could say that the OIG was nitpicking the reports; however, with these reports increasingly becoming a commodity, it is good for all concerned to have another set of eyes to review the work.

Bill Penny is a member of the firm's Environmental, Natural Resources and Energy Service Group in the Nashville office. He has more than 25 years experience in environmental law. His practice concentrates on environmental law, including water quality and stormwater issues, RCRA, CERCLA, Brownfield Redevelopment, water law and low level radioactive waste and environmental litigation.

Corinne Martin is an Associate in the firm's Nashville office where she is a member of the Environmental, Natural Resources & Energy Service Group, the Sustainability and Emerging Technologies Practice Group, the Construction Service Group, and the Business Litigation Service Group. Corinne's practice includes environmental and construction litigation, mechanics lien enforcement, general administrative law, and regulatory compliance. She is particularly dedicated to sustainable development, green energy and building initiatives, and issues surrounding ecosystem management and climate change.