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My partner Bob Melvin and I recently gave a presentation on environmental, health, and safety considerations in mergers and acquisitions. While it would be impossible to cover our entire presentation in a blog post, I thought it would be good to highlight a few important environmental considerations in developing, negotiating, and finalizing corporate deals.

  • Consider the Scope of Due Diligence. When purchasing a business or division, consider not only properties that are currently owned and operated by that business, but historic properties as well. Phase I Environmental Site Assessments can help you learn about a property’s past and present, but, when conducted properly, they can also help you maintain legal defenses against future liability. It is important to consider the purpose for which you are conducting a Phase I, including preserving your ability to defend against liability, before you develop the scope of the assessment.
  • Liability Associated with the Structure of the Deal. Generally speaking, we think of stock deals as accomplishing a transfer of all assets and liabilities, while liability transfer in asset deals may be more carefully limited. However, legal theories of successor liability may serve to undo even the best laid plans for allocation of liability. You may want to consider the structure of the deal and how it could be interpreted under legal theories that could impose successor liability even in apparently structured asset transactions.
  • Evaluate Potential Risk Transfer Options. In cases where neither the buyer nor the seller is interested in assuming environmental obligations, risk transfer may be an option. An Environmental Risk Transfer (ERT) entity may be willing to purchase environmental liability, including environmental investigation and remediation obligations, as well as to provide an indemnity for environmental and remediation risk. The arrangement may or may not involve land transfer, but it typically involves the ERT entity entering into any required orders and securing all required permits. ERT entities back the indemnity with a number of financial tools, including insurance, fixed price contracts, escrow accounts, and using purchased assets as collateral.
  • Separately Consider Emerging Environmental Issues. Emerging environmental concerns—like PFAS—may need to be treated differently than well-worn environmental issues. Emerging contaminants may not yet be legally defined as hazardous, and discharges may not be a violation of environmental law, just because the statutory and regulatory amendment process takes time. It is important to separately consider emerging environmental concerns, how they play into the deal, and how to address them in the contract documents so that they are not inadvertently excluded.

This is the last of our three-part series of predictions for 2019. First Matt provided our thoughts and predictions in the labor/employment arena. Last week, Jeff gave our outlook for corporate compliance and litigation. Last but not least, this week I am providing our predictions for hot topics in environmental, health, and safety compliance, enforcement, and litigation.

Emerging Contaminants

If you haven’t yet heard of PFAS—per- and polyfluoroalkyl substances—you will. This group of man-made chemicals has been used for decades in all kinds of products, from firefighting foam to aerospace products, from building materials to outdoor apparel. PFAS are persistent in the environment and the human body, and preliminary evidence suggests that PFAS can lead to a variety of adverse health effects.

While the EPA has established health advisories for certain PFAS compounds, these advisories are not enforceable. Instead, the states have been busy developing their own regulatory standards. Some states are also requiring that parties investigate for PFAS compounds at regulated sites, even if there is no evidence that PFAS compounds were used or released at the site. And, as most people will tell you, if you test for PFAS, you usually find it.

PFAS detections are already the subject of a number of lawsuits, and we expect more cases to be filed in 2019. So far, the primary targets of these suits have been PFAS manufacturers, but the cast of defendants could be expanded to manufacturers of products that contain PFAS, landfill operators, and property owners, among others. PFAS are also becoming a hot due diligence topic, with increased attention and investigation focused on them in corporate and real estate deals. In short, these emerging contaminants will really hit the scene in 2019.

Targeted OSHA Inspections

According to its Congressional Budget Justification, OSHA plans to conduct about 1,500 fewer investigations in fiscal year 2019, for a target of 30,840 workplace inspections. While the overall number of inspections might be down, OSHA will emphasize the need for detailed, in-depth inspections in 2019. OSHA intends to focus its inspection efforts on the highest risk workplaces, conducting complex inspections (using drones?) that will aim to have the highest safety impact. OSHA also plans to balance the use of compliance assistance programs with enforcement tools to ensure that “mission critical field activities are given equal measure when compared to enforcement activity.”

Redefining Waters of the United States

At the end of 2018, the Trump administration released its proposed rule to redefine “waters of the United States”, the term that determines the scope of the federal Clean Water Act. The scope of the Clean Water Act impacts a number of manufacturing activities, from process discharges to site development.

As expected, the proposed rule scales back what qualifies as a water of the United States. If the rule is finalized, Clean Water Act jurisdiction would not extend to most roadside ditches, ephemeral streams, or wetlands that do not have a surface water connection to another jurisdictional water. This definition would provide clarity for manufacturers grappling with the current reach of the Clean Water Act. However, it will no doubt be subject to intense public comment and litigation from environmental groups that are looking to avoid any actual or perceived jurisdictional roll back. This will certainly be an issue to follow in 2019.

Continued TSCA Reform

Toxic Substances Control Act (TSCA) reform is an EPA priority, and we can expect that to continue in 2019. With the appointment of Alexandra Dapolito Dunn as the Assistant Administrator of the Office of Chemical Safety and Pollution Prevention, EPA is poised to continue rolling out its draft risk evaluations for the 10 substances prioritized in July 2017 (well, that is, after the shutdown of course). These risk evaluations will likely be subject to scrutiny from the regulated and environmental communities for a number of reasons—the conditions of use evaluated by EPA, the thoroughness of the risks identified, and, potentially, the public nature of the scientific studies addressing potential risks. Manufacturers may want to keep an eye towards the TSCA reform process in 2019 to ensure that they have adequate input into this risk evaluation process.