Business and financing transactions should be structured with careful consideration of the potential and often uncertain environmental liabilities of all parties. These concerns must be properly reflected in transactional documents, including representations and warranties, indemnities, waivers, hold harmless agreements and escrows, risk allocation provisions, and survival clauses.

• Prepare environmental provisions for transaction documents.
• Design transactions so as to eliminate, reduce, or transfer environmental liabilities (including use of baseline studies in appropriate circumstances).
• Prepare environmental disclosures in connection with initial public offerings and other securities transactions.
• Negotiate affirmative covenants and provisions apportioning environmental responsibilities, including environmental reserve and compliance accounts, environmental monitoring provisions, technology-forcing requirements, and notice and survival provisions in loan documents.

Morgan Lewis addresses environmental issues in structuring transactions involving both publicly- and privately-held companies. Howard Shecter, Co-Manager of Morgan Lewis Business and Finance Section, and other Firm lawyers counsel companies on environmental concerns in many merger and acquisition transactions, joint ventures, and financings. Mr. Shecter and several other Morgan Lewis attorneys, including Eric Rothenberg and Kenneth Rubin, routinely recommend to industrial clients how to document properly their contractual relationships with customers, suppliers, subcontractors, and others. Howard Shecter and Lowell Martin also focus on the special needs of the waste management industry. Kevin Gallen is experienced in structuring transactions to address the assessment of responsibility and liability for radioactive contamination.

State Transfer Laws

Laws in some states, such as New Jersey and Connecticut, require notice and remediation of environmental contamination before business transactions involving industrial properties can be completed. The notification statutes of California and several other states require the transferor to notify state agencies and other parties to the transaction of environmental conditions on the property. The New Jersey Industrial Sites Recovery Act requires an owner or operator to investigate possible contamination and arrange to perform necessary remediation prior to closing.

Kenneth Myers, Robert Collings and Eric Rothenberg represent clients in proceedings under the Connecticut and New Jersey transfer statutes and can negotiate consent orders, non-applicability determinations, and negative declarations to allow real estate transactions to be consummated.

Many states have also enacted statutes which provide environmental authorities with a first priority lien over property subject to a remedial action. These liens can often take priority over transfers and other encumbrances, even in the absence of recordation. It is necessary to ensure that all transfer documentation protects against the imposition of such liens.

Under a guidance issued in May of 1995, EPA has shown an increased willingness to furnish pre-transaction covenants and releases to parties who commit to defined remediation or community development undertakings. Several states have also recently enacted laws allowing state authorities to furnish releases and convenants not-to-sue in consideration for certain cleanup obligations prior to the consummation of a transaction. Such statutes reflect a growing trend under national and urban revitalization programs. (See article below.)

Environmental and private authorities have asserted claims in bankruptcy for environmental cleanup costs and penalties. Under emerging case law, such claims are often allowed. Michael Bloom leads an environmental bankruptcy practice group which includes Robert Collings, Eric Rothenberg and Randy Visser.

EPA estimates that there are as many as 400,000 vacant or under-utilized contaminated "Brownfield" industrial and commercial sites in the United States. In January of 1995, EPA announced its Brownfields Action Agenda, a program designed to rejuvenate and expedite cleanup activities at these sites.

To date, the Agency has implemented many of its action agenda items: (1) On September 30, 1996, Congress enacted an amendment to Superfund extending and clarifying the Superfund exemption for non-foreclosing secured creditors or creditors who foreclose on contaminated property and who thereafter seek to convey the property with reasonable diligence (the amendments also adopt the Agency s 1992 Lender Liability Rule); (2) EPA has deleted from its CERCLIS database approximately 25,000 sites which EPA has designated as "no further action;" (3) The Agency has adopted a policy of not seeking enforcement action against owners of uncontaminated land situated above ground water systems which have been contaminated by sources outside the property, (1995); (4) In a May 25, 1995 directive, the Agency indicated its intent to establish lenient, site-specific clean-up standards for sites with a current industrial or commercial use (estimated to account for 70% of NPL sites); (5) The Agency has established a program providing grants of up to $200,000 each to establish Brownfield development programs in qualified urban areas; and (6) In August 1997, President Clinton announced further initiatives under the Protecting All Communities from Toxic Pollution Program, which includes a tax deduction for clean-up expenses at qualified brownfield development sites and $30 million in federal appropriations to support state programs.

EPA has also issued a revised Guidance on Agreements With Prospective Purchasers of Contaminated Property, (1995). Under the new guidance, the Agency has provided over fifty prospective purchasers of contaminated property with releases and covenants not to sue that are assignable to subsequent purchasers. To qualify for such an agreement, parties need either to commit to undertake some (though not all) remediation (or government cost reimbursement) or take other action which will confer an economic benefit on the affected community. Examples would include creation of jobs, establishment of conservation and recreation areas, and improvements in public transit or other infrastructure.

Approximately fourteen states have separately moved to undertake Brownfield initiatives and have also established voluntary cleanup programs (VCPs); programs that allow current owners of contaminated property to receive Agency release or "no action" letters for undertaking pre-approved remedial work plans which typically contain relaxed, risk-based, cleanup standards. In ten states, agencies have signed a memorandum of understanding with EPA which provides that federal actions will not be pursued once a state has approved a VCP work plan. As of September 1997, EPA guidance provides criteria by which state VCP programs can qualify for a federal MOU.

Morgan Lewis attorneys Robert Collings, Eric Rothenberg and Maxine Woelfling have represented parties in federal and state Brownfield negotiations. An example of one such recent negotiation is the Croyden TCE site in Montgomery County, Pennsylvania, for which local, state, and federal prospective purchaser agreements were secured.