On August 26, 2004, the Environmental Protection Agency published its proposed rule on the “all appropriate inquiries” provisions of the innocent landowner, bona fide prospective purchaser and contiguous property owner defenses under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) as well as persons seeking Brownfield grant monies under Section 104(k)(2)(B) of CERCLA and uses those monies for assessment activities. If adopted, this proposed rule will supercede the interim standards for “all appropriate inquiry” that were established by Congress and became effective on January 11, 2002.

     The proposed rule differs significantly from the interim standard – which adopts the ASTM standard for Phase I Environmental Site Assessments – by its express rejection of a rigid standard and the adoption of criteria requiring consideration as elements of “all appropriate inquiry” and leaving the determination as to whether the standard has been met up to the courts. It is important to note that this proposed rule would apply only to the issue of whether a defendant conducted “all appropriate inquiry” into the environmental condition of property; all other statutory criteria for the three CERCLA defenses must also be met in order to qualify for one of these defenses.

     Some of the more interesting aspects of the proposed rule are described below.

     Environmental Professional. The assessment must be conducted by or under the supervision of an “environmental professional,” which includes: persons holding a current PE or PG license and have the equivalent of three years of full-time relevant experience; persons who are licensed to perform environmental inquiries and have the equivalent of three years of full-time relevant experience; persons with a Baccalaureate or higher degree from an accredited institution of higher education in a relevant discipline such as engineering, environmental science or earth science and have the equivalent of five years of full-time relevant experience; and persons who, as of the date the final rule is promulgated, have a Baccalaureate or higher degree from an accredited institution of higher education and have the equivalent of ten years of full-time relevant experience. While the rule does not preclude persons who do not meet the definition of “environmental professional” from performing the environmental due diligence, those persons must work under the supervision of an environmental professional. The proposed rule would permit the property owner to perform some portions of the investigation instead of the environmental professional (see, below).

     The Report. The results of the environmental assessment must be documented in a written report, signed by the environmental professional and includes the environmental professional’s opinion whether all appropriate inquiries conducted identified conditions indicative of releases or threatened releases of hazardous substances on, at, in or to the subject property. Furthermore, the environmental professional must identify any data gaps in the information collected that affect the ability of the environmental professional to render this opinion. Specifically, the proposed rule would require the environmental professional to declare, on the signature page, that he/she meets the definition of “environmental professional” (“I/We declare that, to the best of our professional knowledge and belief, I/We meet the definition of Environmental Professional as defined in §312.21 of 40 CFR Part 312;” or “I/We have the specific qualifications based on education, training and experience to assess a property of the nature, history, and setting of the subject property. I/We developed and performed the all appropriate inquiries in conformance with the standards and practices set forth in 40 CFR Part 312.”) and, to declare that “I/We have developed and performed the all appropriate inquiries in conformance with the standards and practices set forth in 40 CFR Part 312.”

     The Standards and Practices. The standards and practices that make up “all appropriate inquiry” include:
 

● the results of an inquiry by an environmental professional;

● interviews with past and present owners, operators and occupants of the facility for the purpose of gathering information regarding the potential for contamination at the facility;

● reviews of historical sources, such as chain of title documents, aerial photographs, building department records and land use records, to determine previous uses and occupancies of the real property since it was first developed;

● searches for recorded environmental cleanup liens against the facility that are filed under Federal, State or local law;

● review of Federal, State and local government records, waste disposal records, underground storage tank records, and hazardous waste handling, generation, treatment, disposal and spill records, concerning contamination at or near the facility;

● visual inspections of the facility and adjoining property;

● specialized knowledge or experience on the part of the purchaser;

● the relationship of the purchase price to the value of the property, if the property was not contaminated;

● commonly known or reasonably ascertainable information about the property; and

● the degree of obviousness of the presence or likely presence of contamination at the property, and the ability to detect the contamination by appropriate investigation.
 

The Federal Register notice details the specifics of each of these standards and practices.

     While the proposed rule would allow the environmental professional to rely on prior investigations into the environmental condition of the property (provided that the prior investigations meet the “all appropriate inquiry” standard set forth in the proposed rule), that information must be updated within 180 days of the purchaser’s acquisition of title.

     The proposed rule would allow the purchaser or property owner to perform some of the investigation identified by the standards and practices. For example, the purchaser can perform: searches of environmental cleanup liens, assessment of any specialized knowledge held by the purchaser, the assessment of the relationship between the purchase price and the fair market value of the property and the assessment of the commonly known or reasonably ascertainable information about the site. However, all results of the purchaser’s investigation must be provided to the environmental professional who is overseeing the investigation.

     Data Gaps. As noted above, the proposed rule requires that the environmental professional identify data gaps that affect his or her ability to opine on the environmental condition of the property. A data gap is defined as a lack of or inability to obtain information required by the standards and practices listed in the proposed rule, despite good faith efforts by the environmental professional, prospective purchaser or grant recipient to gather such information. The rule would also require the environmental professional to identify the sources of information that was consulted to address any data gaps and comment upon the significance of the data gaps with regard to the environmental professional’s ability to opine on whether the investigation has identified conditions indicating a release or threatened release at the site. Data gaps may still affect the purchaser’s ability to claim a CERCLA defense when the data gap precludes the purchaser from complying with the other elements of the defense such as the ability to take reasonable steps to stop on-going releases. Obviously, if the data gap precludes the environmental professional from identifying an on-going release, the purchaser cannot meet the “reasonable steps” requirement and may be foreclosed from relying on a defense to liability.

     Potential Impacts of the Proposed Rule. While the proposed rule details the elements of “all appropriate inquiry,” it has the potential to impact all persons involved in the transfer of real property including the following:

● the definition of environmental professional may foreclose certain persons who have performed environmental assessment in the past from continuing to do so.

● the opinions and certifications required of the environmental professional may impact upon professional liability insurance issues.

● the ability of the purchaser or property owner to perform certain aspects of the investigation may muddy or preclude claims raised because of negligence on the part of the environmental professional.

● the proposed rule states expressly that certain portions of the investigation (i.e., the specialized knowledge and commonly known information and the degree of obviousness investigations) will be governed by prior caselaw. Therefore, as to those investigations, the rule adds no further specificity on the extent of investigation is needed to meet the “all appropriate inquiry” standard over the certainty that may currently exist because of judicial interpretation.
 

     The Agency is requesting comments on the proposed rule through October 25, 2004. The proposed rule can be found at 69 Fed. Reg. 52542.

Enola Brown of Enola Brown, P.A., focuses her practice on environmental law with a concentration in soil and groundwater contamination issues.