Considering comfort letters and prospective purchasers’ agreements

My response is what it has been for my entire career — Caveat Emptor. Buyer Beware.

Lawyers argue. Actually, it is a function of argument that actually sharpens lawyers’ thinking and enables us better to represent our clients. Often times, after a vigorous internal argument with my partners, I am better prepared to anticipate opposing counsel’s position.

Recently my partner, Matthew Cohn, and I attended a conference discussing the new vapor intrusion (VI) standards and related risked-based cleanup objectives. Matt came away disillusioned, suggesting that perhaps we can no longer rely on historic risk-based closures letters issued by the states. Indeed, most states have risk-based closure programs with local acronyms (e.g., Indiana has the Risk Integrated System of Closure known as “RISC”; Texas has the Risk Reduction Standards).

We can discuss vapor intrusion later, but the point is, the discussion quickly moved to the impact of the recently considered standards to historic comfort letters and agreements. What if those historic comfort letters and agreements involve sites with volatile organic compounds present in the soil or groundwater near the surface with the potential to migrate into occupied spaces in structures? Would those historic comfort letters be void, voidable, or subject to additional review, conditions and standards?

Remember that the purpose of the “Brownfield” program was to promote re-investment in historically contaminated real estate — to provide a market incentive in response to both the stigma associated with contaminated property and the specter of statutory environmental cleanup liability associated with environmentally-challenged commercial and industrial property. New “risk-based” corrective action standards were implemented, and closure was analyzed toward a finding that the site no longer poses an imminent and substantial danger. Incumbent in any such closure is the concept of finality. That is, the historic matter is closed and will not be re-opened for any reason.

Comfort letters come in various forms. Illinois EPA issues No Further Remediation (NFR) Letters after a careful analysis by the agency’s highly-skilled Site Remediation Program. The NFR Letter is a release from the State of Illinois for contaminants of concern and is prima facie evidence that the site no longer poses an imminent and substantial danger. The Indiana Department of Environmental Management, through its recognized Voluntary Remediation Program, issues a Covenant Not to Sue. The Texas Commission on Environmental Quality, through its Voluntary Cleanup Program, issues a Certificate of Completion. The Virginia Department of Environmental Quality, through its Voluntary Remediation Program, issues a Certificate of Satisfactory Completion of Remediation. RCRA programs administered under the auspices of the U.S. Environmental Protection Agency issue closure letters in the common form of No Further Action (NFA) Letter. Each helps ameliorate anxiety in the market associated with buying, selling, lending with security, or leasing land with environmental challenges. Effectively, these letters provide the new owner with some assurance that he/she could operate the business without being embroiled in a state enforcement or cleanup action not of their own making.

Then, enter a new pathway to human health and the environment — vapor intrusion. Is this proof that there no finality? As my partner, Matt, asked: Without finality, what good are historic comfort letters and agreements? Moreover, what good are current comfort letters and agreements if the Agency can later renege on closure?

My response is what it has been for my entire career — Caveat Emptor. Buyer Beware. These comfort letters and agreements, in whatever form and from whatever forum, are just information. It has always been true that these comfort letters and agreements are not any more final than the likelihood that new data will be discovered to replace the information that had been generated to obtain the letter in the first place. If the original information provided to the agency was errant, then the comfort letter or agreement with the agency is revocable based on additional, correct information.

Every comfort letter and agreement says so. Every Consent Order and Settlement Agreement or Compliance Commitment Agreement with any agency has “re-openers” — language that allows the agency to reconsider the closure it reportedly confirmed. Owners of environmentally challenged property, and their lenders, solicit such letters and agreements for their files because they believe that these letters will keep the environmental enforcers away in the same way that garlic keeps vampires at bay.

However, the comfort afforded by these closure letters is only as good as the evidence that was prepared to support it. Was the data that was provided to the agency reasonable, or was it mere eyewash?

While some of our colleagues give remarkable weight to closure letters and agreements, we know that the comfort letter and agreements are not the end of the investigation, but only a part of the investigation. That is, demand the reports and correspondence that had been submitted to the agency with the request for the purported closure. Also, demand copies of the agency’s comments, as well as the applicant’s response(s). Comfort letters are not destinations, but way stations on the road to closing.

Also, keep in mind that comfort letters and agreements may have specific conditions that are essential conditions to maintaining the release or closure provided by the Agency. That is, the document may include institutional controls (deed and land use restrictions) and a description of engineered barriers (e.g., clay caps, impermeable surfaces, slurry walls). Those are conditions that must be maintained in all events, or the release/closure/comfort is effectively withdrawn. Note also, that as these comfort letters and agreements age, blind acceptance of these documents as certificates of anything becomes less and less reasonable. In other words, it becomes more and more relevant to ask if the deed restrictions or engineered barriers been continuously complied with or violated?

Finally, these comfort/closure/agreements are remarkable evidence that the Site was, and may still be, contaminated. Again, Brownfield laws were designed to provide incentive to invest in brownfields, and that incentive is found in an exemption described as the “bona fide prospective purchaser” defense. That is, the current owner of the site is exempt from liability for pre-existing contamination, so long as that owner takes reasonable actions with regard to the pre-existing contamination.

In other words, no one should be satisfied that the new owner simply qualifies as an owner exempt from statutory environmental cleanup liability simply because the contamination was pre-existing. It takes proof, said Voggenthaler v. Maryland, not only that the contamination was pre-existing, but that the new owner acted reasonably.

There is nothing new under the sun — Caveat Emptor.

Contributing Author

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William J. Anaya

Bill Anaya is an environmental Lawyer licensed in Illinois and Indiana and heads Arnstein &...

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