March 1999 Volune 12 No3 - Utah State Bar

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Thus, environmental due digence is a broad term. The perfor-
(ri~ce of an environmental assessment is, therefore, merely a
\ component part of the broader task of properly advising clients
in the context of an industrial transaction.
II. IDENTIFICATION AND EVALUATION OF COMPLIACE
ISSUES
The field of environmental law always creates an interesting
"interface" between legal and techncal issues. If properly per-
formed, environmental due digence involves the identifcation
of potential techncal issues
first (through the preparation of
environmental assessment). This identication of techncal
issues (e.g., leakig underground storage tanks ("USTs")) must
be followed by proper identifcation of the corollary legal issue
(i.e. federal and state UST reporting, clean up and corrective
action requirements) and the providing of competent legal
advice in the context of a particular
transaction.
A. Legal Issues
1. Innocent LandownerDefense.
When Congress enacted the Compre-
hensive Environmental Response,
Compensation and Liabilty Act ("CER-
CLA") in 1980 it created only a few
defenses from its sweeping liabilty
scheme. One of these defenses, the so-
caled thid-par defense, was severely
limited in its potential application
because it did not apply if the person
seeking to assist the defense had a
"contractual relationship" with the thid
part whose act caused the contamnation.
In 1986, Congress amended the statutory definition of "contrac-
tual relationship" to alow the third-party defense if the
purchaser acquired title after the release of hazardous sub-
stances and did not know, and had no reason to know, the
propert was contamated (CERCLA §101(35), 42 U.S.C.
§960(35)). This amendment established the so-caled "inocent
landowner defense."
In order to establish he had no reason to know the property
was contamnated, the would-be innocent landowner "must
have undertken, at the time of acquisition, all appropriate
inquiry into the previous ownership and uses of the propert
consistent with good commercial or customary practices in
an effort to mimize liabilty" (CERCLA § 101 (35) (A); 42 U.S.C.
§9601 (35) (A) (emphasis added).
The innocent landowner defense wil be dicult to establish for
two reasons: (1) many, if not al, industrial properties wil have
some contamiation or environmental issues associated with
them; and (2) the "all appropriate inquiry" feature ofthe
defense requires a very thorough, in-depth environmental
assessment of the property leading to the greater possibilty of
discovering some environmental problem.
Nevertheless, prudence and reason dictate that in spite of the
difculty of establishing the innocent landowner defense, a
thorough environmental due diligence effort must be part of
every transaction for the purchase or sale of industrial facilties.
2. Federal and State Notice and Disclosure
Requirements.
( a) FederaL. Under CERCLA, if a property owner
"obtained actual knowledge of the release. . . of a hazardous
substance at (the property J when (he J
owned the real propert and then sub-
sequently transferred ownership . . . to
another person without disclosing such
knowledge," then he shal be liable as a
current owner.
(b) State. State statutes generaly
fall into four categories: (a) Prohibition
on closure of a transaction unti the
state is satisfied either that the property
is not contamiated or a clean up plan
has been approved; (b) Creation of civil
liabilties for transferor unless full dis-
closure of environmenta conditions is
made to purchaser; (c) Various notice
and disclosure requirements relating specifcaly to properly
with hazardous waste sites; and (d) State approval requied
prior to transfer of certn tyes of waste disposal sites.
In the context of a given industrial transaction, the environmen-
ta due digence must identif and highlight such laws and the
environmental attorney must properly advise the parties regard-
ing compliance therewith.
3. Prospective Purchaser Agreements
(a) EPA Prospective Purchaser Policy.
Even though an industrial facilty is known to be contaated
thereby eliminating potential applicabilty of the innocent pur-
chaser defense, there may yet be a way for a purchaser to limit
his future liabilty to EPA. The purchaser may wish to negotiate
with EPA a so-caled prospective purchaser agreement.
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