March 1999 Volune 12 No3 - Utah State Bar

by Steven J Christiansen
i. PURPOSE AN NEED FOR ENVIRONMENTAL
DUE DILIGENCE
A. Rise of Environmenta Regulatory Requirements.
Environmental laws, reguations and requirements are becom-
ing increasingly complex. For example, the 1996 edition of Title
40 of the Code of Federal Regulations (C.ER.) is now com-
prised of 17 volumes of rules, regulations and technical
appendices. As such, Title 40 has far surpassed the six volumes
of Tile 32 of the C.ER. (National Defense) and rivals the nie-
teen volumes of Title 26 (Internal Revenue). With this great
volume and complexity of environmental regulation, owners
and operators of industrial operations face an ever increasing
chalenge to maintain compliance.
B. Nature of Industrial Operations. "Industrial operations"
are those enterprises associated with manufacturing or produc-
tion of certain basic, and essential, products including metals,
chemicals, refined petroleum products, electricity, automobiles,
cement and pulp & paper. Tyicaly, industrial operations can
generate signifcant amounts of by-products and pollution.
Accordingly, industrial operations are the particular objects of
comprehensive and complex federal, state and local environ-
mental regulatory requirements.
C. Interests of Paries Involved with a Transaction for
the Purchase or Sale of an Industrial Operation. When
partes are contemplating the purchase and sale of industrial
operations, a host of business, legal and practical issues arise
which must be carefuy identied and addressed. In the current
regulatory climate, environmental issues may very well emerge
as some of the most important issues in such a transaction. In
the context of a transaction, the parties tyicaly fal into two
groups - those who own the industrial operations which are to
be sold and those who are contemplating purchasing, leasing or
financing the purchase of the operations. The interests of these
two groups of transaction parties is dierent because environ-
mental laws treat current owners dierently than prospective
purchasers, lessees and lenders. Thus, parties to such a trans-
action must investigate and identif the relevant environmental
requirements, problems and issues. In addition, such parties
must understand what their legal responsibilties might be in
order to appropriately address and manage these responsibil-
ties in the context of an industrial transaction.
D. Environmenta Due Diligence. The concept of environ-
mental due dilgence has arisen out of the traditional concept of
due digence in commercial transactions.
During the last 25 years as environmental laws and regulations
have become increasingly complex and potential liabilties have
become more signicant, environmenta due dilgence has
become an absolute necessity in transactions involving indus- .
trial facilties. In broad terms, environmenta due dilgence
protects the paries to such a transaction by assisting the buyers
and sellers (and potential lenders) in identifng potential envi-
ronmental problems in the form of compliance issues,
permitting deficiencies, contamnation remediation responsibil-'
ities, and pollution confcts with adjoining landowners.
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