Monster Media 1996 #14/Monster Media No. 14 (April 1996) (Monster Media, Inc.).ISO/business/sba961.zip/F402.SBE

Text File | 1996-01-01 | 17KB | 356 lines

@332 CHAP 9

        ┌──────────────────────────────────────────────┐
        │  ENVIRONMENTAL LAWS AFFECTING YOUR BUSINESS  │
        └──────────────────────────────────────────────┘

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. 136, 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.


NOTE:  Pending legislation in Congress in early 1995 would
repeal or modify a number of environmental laws, including
the Clean Water and Clean Air Acts.