Transactions Involving Contaminated Property

What are PFOA and PFOS?

Remember when everyone was in a tizzy about using Teflon or other non-stick cookware?  That had to do with the chemical PFOA (perfluorooctanoic acid), which is one of the most commonly found and most studied types of perfluoroalkyl substances (PFAS).  About 15 years ago reports on the toxicity of PFOA, along with resulting class action lawsuits, began hitting the news.  More studies identified other PFAS chemical with toxic effects, including PFOS (perfluorooctanesulfonic acid).

PFAS are manmade chemicals that repel both water and oil, which made them attractive for many commercial and industrial uses since the 1940s including numerous consumer products, such as carpets, clothing, non-stick pans, paints, cleaning products, and food packaging.  Firefighters, airports and the military use them in fire-suppressing foam.  They do not easily break down and are water soluble, so very low levels are found throughout the environment, including groundwater and other potable water sources.  This also means they accumulate in the body over time.  Studies have found that more than 98% of the US population has PFAS compounds in their blood.

They are also toxic, with adverse human health effects ranging from increased cholesterol to effects on infant birth weights to immune system or thyroid disruption and even cancer.  Studies continue to explore more about exposure risks in everyday life.  Most recently, a study found exposure routes associated with dental floss and food packaging.  That being said, the science continues to evolve and there are challenges with figuring out safe exposure levels for setting drinking water and cleanup standards.

What are the Regulators Doing?

Regulators have been paying attention.  In 2016, the United States Environmental Protection Agency (USEPA) released a Drinking Water Health Advisory of 70 parts per trillion (ppt) for either PFOA or PFOS, or when both are combined.  This is not an enforceable drinking water standard, but it has served as a guidepost for actions at the state level.  Around 20 states from across the country have adopted or proposed drinking water and/or cleanup standards, or are considering other actions.  These states include California, Vermont, Florida, New Jersey, New York, Massachusetts, New Hampshire, Texas, Minnesota, Michigan and Pennsylvania.

What Happened Last Week?

New Jersey.  The New Jersey Department of Environmental Protection (NJDEP) has developed draft interim groundwater standards for both PFOS and PFOA and is requesting public input on a number of technical focus questions concerning the availability of data, toxicology, epidemiology or other studies and information.  The proposed standards are for Class II-A aquifers, which means groundwater designated for use as potable water and is subject to health-based criteria that does not take into consideration remediation feasibility, treatability, or cost. This type of aquifer accounts for most of the State’s groundwater, so the impacts of the eventual new standards will be broad.  Comments are due to NJDEP by 5:00 pm on Tuesday February 19, 2019.  

Massachusetts.  The Massachusetts Department of Environmental Protection (MassDEP) held a public meeting last week to consider a petition filed by conservation and community groups requesting, among other things, a drinking water standard of 1 part per trillion (ppt) for each PFAS compound as a class. This is a remarkably low standard as compared to USEPA’s health advisory standard of 70 ppt, and even New Jersey’s preliminary drinking water guidance level of 40 ppt for PFOA and recommended level of 13 ppt for PFOS.   The petition also requests more community involvement and sampling to further advise the public about exposure risks in their communities.  MassDEP plans to issue its decision on the petition on Monday, Jan. 28, 2019.

 What’s Next?

Regulating PFAS compounds is a hot button issue in a lot of states.  Plenty of activity is expected this year in New Jersey, Massachusetts, California, New York and others.  We are already seeing impacts of this new focus on existing remediation projects and on the horizon there is certainly a reopener risk for completed remediation sites.  This is also an important due diligence issue.  Follow our blog for updates and join us for our Environmental Hot Topics CLE in April 2019 for more details.

 

 

On the heels of the six environmental enforcement lawsuits they filed in August, New Jersey Attorney General Gurbir S. Grewal and NJDEP Commissioner Catherine R. McCabe announced eight brand new environmental enforcement lawsuits filed today.  The suits relate to sites scattered throughout the state – Camden, Flemington, Newark, Palmyra, Pennsauken, Phillipsburg and Trenton – mapped out here.  The main focus for this wave of cases is environmental justice, which means environmental enforcement that is focused on addressing pollution and environmental hazards in minority and lower-income communities.  Environmental justice is very much on the Murphy Administration radar.

One of the cases, involving the alleged pollution of drinking water drawn from the Puchack Wellfield in Pennsauken, Camden County, asserts claims for natural resource damages, known as “NRDs.”  There hadn’t been an NRD case filed in New Jersey for almost a decade until this past August, when the state filed three such cases.

The state is seeking remedies across the board from the various defendants – cleanup and removal of contamination, financial penalties, recovery of tax monies spent by the state to clean up polluted sites, as well as NRDs.  The dollar amount of each of these types of remedies can add up very quickly, so we are talking about real money here.  The state just took another big action showing it may very well be a “new day” in environmental enforcement in New Jersey.

Property owners who suffer damages as a result of contamination must be aware of time limitations to recover damages.   A New Jersey appellate court recently upheld the rule that, unlike recovery of cleanup costs in contribution actions under the New Jersey Spill Compensation and Control Act, recovery of other damages under tort theories, such as lost sales, lost rental values and the like, remain subject to the six-year statute of limitations.  In 320 Assocs., LLC v. New Jersey Natural Gas Co., (A-1831-16T2) (June 29, 2018), the Appellate Division, upheld a lower court’s decision dismissing Plaintiff’s claims for money damages as untimely.

The owner of commercial property located near a New Jersey Natural Gas property sued the gas company for damages resulting from coal tar that had migrated onto the owner’s property.  The owner asserted common law claims against the gas company for negligence, per se negligence, strict liability, nuisance and trespass.  It sought damages for a lost sale and lost rental value as well as an order mandating the gas company to cleanup up both properties.

The Appellate Division determined that, since Plaintiff discovered the contamination in 2008, the six year statute of limitations barred all but one claim.  Only the nuisance survived for further fact finding because nuisance is considered ongoing so long as the nuisance can be abated.

The case is a reminder that property owners with common law claims need to be aware that, while environmental statutes permit claims for cleanup and cleanup costs without time limitations, other damages are not recoverable if they are asserted after the statutory limitations periods.

The Tax Cuts and Jobs Act of 2017 makes it harder to take tax deductions for some payments to governmental entities.  The change may impact settlements between private entities and federal, state and local environmental agencies.  In most cases, it will not affect environmental settlements between private parties.

Section 162(f) of the Tax Code has long prohibited deductions for fines and penalties paid to the government.  The new law makes the tests for deduction of certain payments to a governmental agency more stringent.  The amended Section 162(f) substantially limits the tax deduction available for (1) any settlement or other payments, (2) made to or incurred at the direction of a governmental entity, (3) related to a violation of any law or governmental investigation or inquiry into the potential violation of any law.

There is an exception to this rule, which allows a deduction for the following payments: (1) restitution, including remediation of property; or (2) an amount paid to come into compliance with a violated law or involved in an investigation or inquiry.  To be deductible, the payment has to be expressly identified under a court order or settlement agreement as a restitution or compliance payment.  This exception does not apply to amounts paid “as reimbursement to the government for the costs of any investigation or litigation.”

Under the statute, the limitation applies only to payments made to, or at the direction of, a governmental entity.  A deduction, therefore, remains available for remediation expenses paid to private parties without governmental direction.

Finally, a new provision under Sec. 6050X requires government agencies involved in settlements to report to the Internal Revenue Service (IRS) the portions of the settlement payment that are and are not deductible under Section 162(f).

Our tax and environmental groups can advise on the implications of the new law, including factoring into negotiations the potentially higher tax cost of government settlements and ensuring that the settlements reached are well-drafted and as tax-efficient as possible.

On February 12, 2018, the Trump Administration released its much-anticipated Infrastructure Plan. While the bulk of the more than 50-page document proposes a wide array of funding and reforms for various infrastructure programs, as well as ways to streamline and fast-track permitting for infrastructure projects, it also proposes changes to Brownfield redevelopment programs, including the federal Superfund law (CERLCA).  The plan seeks to incentivize the redevelopment of contaminated properties and address related legal and financial risks.

The proposed changes include allowing National Priorities List sites to be eligible for Brownfield revolving loan fund and grant programs, clarifying and expanding the liability protections for state and local governments that acquire contaminated properties through tax foreclosures and the like, expanding EPA’s authority to enter into administrative agreements with brownfield developers, and eliminating restrictions on funding for infrastructure projects that could be integrated with a remediation.  This would mean even more change at EPA, which has been busy implementing the Superfund Task Force Recommendations released last year.