Environmental Protection

Environmental law consists of multiple treaties, conventions, statutes, ordinances, and common law that regulate human activities in relation to the natural environment. The U.S. Environmental Protection Agency (EPA) on the federal level and state environmental agencies within their jurisdictions observe and regulate the impact of businesses on the environment. The objectives of the regulations include pollution control, remediation, resource conservation and management. Business owners need to know their obligations under applicable federal and state environmental laws and possible consequences of noncompliance. Compliance requirements differ depending on the type and location of the business. The main concerns are:


  • Whether a company is going to operate facilities (real property, equipment, machinery);
  • Whether a company is going to release or store substances in nature (air, water, land); and
  • Whether the company will conduct regulated activities for which a government permit is required.


Company owners and managers should work with a legal counsel to identify and address environmental permitting and compliance issues.


Examination of environmental risks should be undertaken before the company actually leases or buys a property, not only in the process of its operation. If environmental agencies find that the property is polluted, both the previous and the present owners will be jointly and severally liable regardless of the time of pollution (meaning, the buyer will be liable even if the property was polluted by the seller or any other third party). Joint and severe liability means each liable person will be held responsible for the total amount of costs to clean up the contamination, even if others are liable as well. If some of the liable people do not have money, the other liable parties must pay full price. The law leaves it to the parties to work out the reimbursement procedure amongst themselves, according to the extent of their involvement.


The federal law, the Comprehensive Environmental Response, Compensation, and Liability Act  (CERCLA or Superfund) holds every party liable in an effort to encourage proper investigations and implementation of preventive measures. Under Superfund, the EPA has power to investigate the parties responsible for any release of toxic substance, make them clean up the site at their expense, impose fines and penalties, and even prevent them from continuing their business operations on the site until all procedures are complete. If responsible parties cannot be found or if they do not have adequate financial resources to clean the site, the EPA will clean it up and put a lien against the property. The lien will remain in place until satisfied and transfers to all subsequent owners of the property. For this reason, even before buying or leasing a property it is necessary to conduct environmental investigation to see whether the lien exists or whether some activities took place, which may give rise to the pollution issues.


Comprehensive due diligence is needed not only to ensure that a prospective buyer is not purchasing a property with attached governmental lien, but also to avoid liability of the present owner if the pollution happened with the previous owner but was found out after the transaction took place. Liability under Superfund is strict and exists even when the person handled the hazardous substances carefully or when the person did not even know there was a release. There are only two exceptions to liability. To claim the exception, a company must take certain preventative steps in advance. The first exception to liability for contamination is a bona fide purchaser, who bought the property without knowing it was contaminated. To qualify as a bona fide purchaser, a person must demonstrate that he or she conducted appropriate environmental investigations, made inquiries, and obtained disclosures before the closing. Accordingly, the property was acquired under reasonable reliance on investigation reports and in good-faith belief that the threat of contamination did not exist. The second exception is when contamination of a property was caused solely by an act of the third party such as a neighbor and the owner of the property took precautions against foreseeable acts or omissions by the third parties and against the foreseeable consequences of those acts or omissions, put reasonable measures to prevent the spread of contamination, did not do anything to exacerbate it, and will fully cooperate during the cleanup process (e.g. allowing the cleanup group on the site as needed).


If, during pre-closing investigations, the issue of contamination arises, parties may negotiate and allocate among themselves the percentage of liability and costs in case of the present threat, as well as for any future possibilities of contamination. It is much more advantageous to do it themselves by means of contractual obligations rather than to wait the decision of the court.


After the property is bought or leased, the property owner or operator falls under another set of laws that regulates the operation of the facility. Under Superfund, state, and local laws, the current owners and operators of the facility may be liable for an actual or threatened release of hazardous substances from that facility. The law requires people in charge to implement special practices and procedures directed on the prevention of the hazardous release. The law also prescribes the methods of generation, storage, transportation, and disposition of the hazardous substances on the facilities. It is important to know what are considered hazardous substances in every state where the company operates. Some substances may not be treated as hazardous under Superfund, but may still fall under state law. Federal, state, and local laws supplement each other, and business owners must be familiar and comply with all regulations applicable to their industry. 


Another big concern is actual business activities to be conducted, whether they are tied to a particular facility or not. Certain activities require permits issued by the environmental authorities before they can be commenced (e.g. construction, usage or storage of petroleum, release of chemical substances in the air, water, land, etc.). Business owners should identify such activities with their business counsel and obtain all necessary permits beforehand. State governments issue most environmental permits.


If a company is buying existing operations, sometimes (though not always), environmental permits can be transferred to the new owner. The possibility to transfer the necessary permits from the seller to the buyer should be verified well in advance of the business purchase, and the transfer should be concluded at closing. Operating with a permit in the former owner’s name can lead to significant liability. If the permits cannot be transferred, a prospective buyer should identify the timeframes and costs of obtaining these permits in his or her name before he or she is able to continue planned business operations.


Once all necessary permits are duly obtained and the regulated activities are commenced, companies also need to be aware of the environmental regulations governing the performance of their activities and those around them. For instance, some laws, in addition to requiring the possession of government-issued permits, also prescribe how a certain activity should be conducted. Companies may have an obligation to report hazardous activities or pollutions that become known to them, even if these are not caused by the companies themselves.


The best practice for companies to keep up with the variety of complex regulations is to prepare environmental management manuals and institute implementation programs at the outset of business activities. A good business lawyer can provide guidance to business owners on every step of the process and advise whether the help of other professionals, such as environmental consultants, inspectors, or laboratory workers may be needed.

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