@332 CHAP 9 旼컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴커 � ENVIRONMENTAL LAWS AFFECTING YOUR BUSINESS � 읕컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴컴켸 @Q �袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴敲 @Q � Environmental Factoid: The EPA reports that 120 � @Q � million gallons of used motor oil are thrown away � @Q � by do-it-yourselfers who, instead of taking their � @Q � car into a place that catches and recycles the � @Q � used oil, change their own oil, typically dumping � @Q � it on the ground, putting it in the trash or pou- � @Q � ring it down a sewer, so it eventually gets into � @Q � the ground water. This is the equivalent of 11 � @Q � Exxon Valdeez oil spills a year. Actually, it's � @Q � much worse, since used motor oil, which can be � @Q � efficiently recycled into high-grade lubricating � @Q � oil, contains dangerous chemicals and heavy met- � @Q � als, and THE AMOUNT FROM A SINGLE OIL CHANGE CAN � @Q � PERMANENTLY RUIN A MILLION GALLONS OF FRESH WATER.� @Q � So, if you're going to change your oil yourself, � @Q � drain your crankcase into a clean, sealed con- � @Q � tainer, and take it into a nearby service station � @Q � or recycling center. � @Q � � @Q � Recycling a few quarts of oil may not seem like a � @Q � big deal, but ruining a million gallons of fresh � @Q � ground water is. Think about it next time.... � @Q 훤袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴袴� @Q @Q It's a crowded planet.... As the world becomes an ever more crowded place, and as the damaging effects on our environment of two centuries of un- restrained industrial development have become more apparent in recent years, our political attempts to remedy or ameli- orate these problems, particularly problems of pollution and toxic emissions, have resulted in a flood of legisla- tion, regulations and litigation involving environmental matters. While this is certainly all to the good in the larger sense, some of the immediate and unfortunate ef- fects of many of these new environmental restrictions (and the harsh penalties for even unintentional violations) have been to create another whole layer of very intrusive, frightfully complex and often conflicting government regu- lations on business, plus a virtual minefield of legal ex- posure for businesses of all sizes. For small businesses, most of which do not have in-house le- gal staffs and can hardly afford the large legal fees needed for professional guidance through this maze of regulations, the effect of the growing body of environmental laws will be especially harsh. Small businesses are also dispropor- tionately affected by the heavy costs of complying with various mandated emissions requirements, which often re- quire large capital expenditures for sophisticated new pollution control equipment. While we cannot, in this brief space, do much more than scratch the surface of the environmental law exposure and increased operational complexities most firms are going to be faced with from now on, we have outlined below some of the main problem areas that we feel that a small business owner needs to be at least passingly familiar with. We also provide below a capsule description of most of the major areas of federal environmental law that may apply to your business now, or at some time in the future. THE REAL ESTATE TIME BOMB Perhaps the most pervasive of the environmental laws, with the most devastating potential consequences for the unwary, are the environmental cleanup laws, and the legal liability that these laws attach to real estate that has been contam- inated by hazardous substances. The main laws that apply here are the Comprehensive Environmental Response Compensa- tion and Recovery Act (CERCLA or Superfund -- 42 U.S.C.A. Sec. 9601 et seq.), and the Resource Conservation and Re- covery Act (RCRA -- 42 U.S.C.A. Sec. 6901, et seq.). CERCLA and the RCRA apply to virtually every real estate transaction. While RCRA applies primarily to currently generated hazardous waste, including limits on creation of waste and requirements for disposing of it, CERCLA (or the Superfund law) is more focused on cleaning up hazardous substances that have been spilled or dumped in the past. CERCLA (OR SUPERFUND) LIABILITY. CERCLA deals with all kinds of pollution: air, surface water, ground water and soil pollution. It covers virtually every type of "hazar- dous substance" (not necessarily "waste"), as defined un- der CERCLA, the Clean Water Act, the Clean Air Act, or the Toxic Substances Control Act, with the major exceptions of petroleum and certain petroleum derivatives. The main thrust of CERCLA is to impose liability on private owners of property to clean up hazardous wastes that they have either created or that they have "inherited" from prior owners, if the property in question was already contami- nated when it was acquired. In short, even if you were not responsible for creating a contamination problem, if you acquire real estate that is already contaminated, and it later becomes apparent that there has been a spill or dumping that requires an envir- onmental cleanup, possibly at astronomical cost, YOU ARE LIABLE for the costs of the cleanup, if you are the current owner. Doesn't seem very fair does it? Welcome to the 1990's. And worse yet, you can't simply walk away from the proper- ty and let the government take it, in lieu of paying the cleanup costs. You (or your corporation), once you become an owner of the property, are the responsible party, and may be held liable for costs that exceed the value of the property many times over. Note that you may even become liable somewhere down the road if you buy a business (an existing corporation, for instance), if that business once owned contaminated property, and the government eventually institutes environmental proceedings against the current property owner, who then sues all the prior legal owners of the property (including your corporation) for indemnity. Of course, you may be able to sue the prior owner or anyone in the chain of prior owners for indemnification, and if they are still in existence and can be found, and if they have deep enough pockets, you might even be lucky enough to recover some or all of the costs from them. However, since that is a pretty slim thread upon which to hang your finan- cial survival, you need to take precautions up front, be- fore acquiring any real property, to protect yourself from possible environmental liability for cleanup under CERCLA. WHAT CAN YOU DO TO PROTECT YOURSELF FROM ENVIRONMENTAL CLEANUP LIABILITY? There are no foolproof answers, other than to refrain from acquiring any real estate or from buy- ing an existing business or corporation. However, the following are some things you can and should do to reduce your risk in any such acquisition: . Exercise considerable diligence concerning the current condition and past uses of any real estate involved in a transaction. Also, if buying an existing corporation, you need to find out what properties it owned in the past, and to be con- cerned whether any such properties may have been contaminated by hazardous substances. . Be particularly wary of any sites that have been used as gas stations, landfill areas, or as the locations of dry cleaners, chemical or other indus- trial production processes, or for battery produc- tion, recycling, or metal plating. Be extremely cautious if the site contains underground storage tanks. . Consider retaining an environmental audit firm to do detailed site inspections and evaluations to deter- mine if there may be a contamination problem. . In a business or real estate purchase agreement, require written representations and warranties about the site from the seller, and include provisions un- der which they will indemnify you if there is a prob- lem. (And be mindful of the seller's financial via- bility, in case you should be forced to seek indem- nity from them. A promise isn't worth the paper it's written on, if the seller doesn't have the financial wherewithal to make good on it.) Note that, while there is such thing under the Superfund law as the "innocent purchaser" defense, you must be able to demonstrate that you made "appropriate inquiry" before acquiring the property, to determine if there was a pre- existing contamination problem. There is little guidance in the law at this point as to what constitutes an "appro- priate inquiry," so perhaps you should not expect to es- cape liability under that rule. The best defense is to avoid purchasing property that is contaminated, by taking the steps outlined above. Even if such steps fail to dis- cover a lurking environmental problem, you should at least have a much stronger argument to make under the "innocent purchaser" defense if you have done a "due diligence" sur- vey and had an environmental audit performed by a reputable firm. RCRA REQUIREMENTS. RCRA contains a comprehensive set of rules for managing hazardous wastes (including petroleum- based substances), regulating those who generate hazardous wastes, transport them, and store, treat or dispose of them. Penalties for violations include monetary penalties of up to $25,000 a day plus imprisonment. (Congress hasn't enacted a firing squad penalty for environmental law viola- tions -- yet.) One important focus of the RCRA law is on underground stor- age tanks (USTs), many of which are known to be leaking gasoline or other contaminants into the surrounding soil and ground water. Under RCRA, much of the regulation of USTs is left to state governments. Thus, under federal regulations, the owner of a UST must notify the State of the existence of the tank, including tanks that were taken out of service after January 1, 1974. (40 C.F.R. Secs. 280.3(a) and (b)) New USTs must satisfy federal perfor- mance standards, which generally require that they be con- structed of fiberglass-reinforced plastic, or steel that is cathodically protected from corrosion. (40 C.F.R. Sec. 280.20) Furthermore, all existing USTs must be upgraded to federal standards by December 22, 1998 (40 C.F.R. Sec 280.21), which will result in some major expenditures for many small businesses, such as service stations. CLEAN WATER ACT The Clean Water Act (33 U.S.C.A. Secs. 1251-1376) makes the federal Environmental Protection Agency (EPA) and the states watchdogs of water pollution standards, but also allows private citizens to sue to enforce the act. Penalties for violations can be as high as $50,000 a day, and even negli- gent, but unintentional violations, can result in imprison- ment. This law provides for a system of EPA permits for discharging certain amounts of water pollutants, for cer- tain existing facilities. TOXIC SUBSTANCES CONTROL ACT If your business is one that engages in the manufacturing, processing, or distribution of chemical substances, you should be aware that you may be required under the federal Toxic Substances Control Act (TSCA -- 15 U.S.C.A. Secs. 2601-2629) to report certain information to the EPA regard- ing chemical substances and mixtures you use. TSCA re- quires manufacturers to notify the EPA 90 days before pro- ducing a new chemical substance and, in some cases, for older chemicals. The EPA may require safety testing before approval of such a chemical. TSCA also has extensive re- cordkeeping rules regarding use and disposal of toxic chem- icals. There are severe penalties for failing to make the required reports to the EPA, including civil and criminal penalties of $25,000 and up, plus up to a year's imprisonment for each violation. Each day the violation continues is considered a separate violation for purposes of the fines levied under TSCA. PESTICIDE REGULATIONS The Federal Insecticide, Fungicide and Rodenticide Act (FIFRA -- 7 U.S.C.A. Sec. 135, et seq.) which amends the Federal Environmental Pesticides Control Act of 1972 (FEPCA), regulates both the manufacture and distribution of pesticides. ENVIRONMENTAL IMPACT REPORTS The National Environmental Policy Act of 1969 (NEPA -- 42 U.S.C. Secs. 4321-4347) requires an environmental impact report (EIS) to be prepared with respect to major federal actions that significantly affect the quality of the human environment. While this would not at first impression seem to directly affect you, as a small business owner, the EIS requirement also applies in any situation where a federal agency approves some action by other persons, such as a private company. Also, many states have adopted similar EIS requirements, so that, for instance, when a local plan- ning board approves a real estate development, an EIS may be required under state law, if not under federal. WETLANDS DEVELOPMENT Portions of the Clean Water Act require that all proposed development activities which involve the dredging or fil- ling of wetlands must obtain permits from the U.S. Army Corps of Engineers. (33 U.S.C.A. Sec. 1344(a)) Thus, be- fore you acquire real property that you plan to develop in any way, you need to do a careful survey to determine if the property lies within an area that is considered to be a "wetland," or otherwise you may end up "bogged down" with a piece of property which is undevelopable and which can hard- ly be sold at all, even for a huge loss. This has been a trap for more than one unwitting buyer of land in wetlands districts in recent years, since "wetlands" includes much more than swamps and marshes, and many dry-looking parcels may also fall within the regulatory definition. Further- more, be aware that many states have adopted wetlands re- strictions, which may require you to also obtain state development permits. ASBESTOS REGULATION In recent years, as the severe lung disease, cancer and other health risks of exposure to asbestos have come to light, a number of state and federal laws have been enacted to deal with this problem. In addition, huge numbers of individual damage suits for alleged harm to individuals who were exposed to asbestos in the workplace and elsewhere have resulted in enormous judgments against many companies, even driving a giant building materials firm, Johns- Manville Corporation, into Chapter Eleven bankruptcy to protect itself from a host of asbestos-related lawsuits. Recent federal amendments to TSCA (we hope you haven't got- ten lost in this alphabet soup of environmental laws so far), the Asbestos Hazard Emergency Response Act of 1986 (AHERA), have given the EPA power to issue regulations re- garding asbestos in school buildings. In addition, OSHA regulations (29 C.F.R. 1910 and 29 C.F.R. 1926.58) have also been issued to limit asbestos exposure in the work- place and to set construction standards regarding use of asbestos. NOISE CONTROL REGULATIONS Both OSHA (Occupational Safety and Health Administration) and the EPA have issued regulations on noise emission stan- dards, ranging from aircraft noise to protection of workers from hearing impairment in the workplace. CLEAN AIR ACT The Clean Air Act of 1970 (42 U.S.C.A. Secs. 7401-7626), which was substantially amended and strengthened by the Clean Air Act of 1991, among other things, restricts the ability of stationary sources of air pollutants to emit various pollutants into the atmosphere at new or modified facilities. States are allowed to implement their own rules for controlling air pollution levels. Recent amend- ments to this law in 1991 have greatly expanded its impact on small businesses. New requirements, as they go into effect, will require air pollution controls as diverse as vapor-recovery devices on gasoline pumps (as are already required in California); furniture makers may need incin- erators to burn off hydrocarbons released from spray-paint booths; restaurants in smoggy areas will have to install containment units that collect hydrocarbon emissions from charcoal grills; many bakeries will have to install oxida- tion devices or catalytic converters to neutralize the gases produced by fermenting yeast when dough is baked; auto-body paint and repair shops will have to install ex- tremely expensive equipment to catch hydrocarbon emissions from spray painting; print shops will have to neutralize or eliminate use of chemicals that contribute to ozone formation; and much more. As the foregoing examples indicate, the new requirements under the Clean Air Act of 1991 are very pervasive, and will affect many "non-industrial" types of businesses who would never have considered themselves to be "polluters" in the past. Companies that are sources of air pollutant emissions will have to obtain state-issued construction and operating permits under EPA rules. Small businesses will have to apply for permits at least every five years and file reports of their compliance with the law every six months, if they produce more than 100 tons per year of any ozone-forming pollutants, which are the main targets of the new legislation. For many small businesses, once these rules go into effect, the main cost of complying with the clean air regulations is likely to be all the paperwork that will be required, according to some experts on the subject. However, pen- alties for violations are also very severe, with civil pen- alties as high as $25,000 a day for each violation, plus felony imprisonment and huge fines for willful or negligent releases of hazardous air pollutants. In addition, the EPA has set emissions fees of $25 a ton for every ton of regu- lated pollutants that a firm emits, up to $4,000 per year.