At his confirmation hearing earlier this year, Attorney General Merrick Garland identified the policing of corporate crime and enforcement as a key priority of the Biden administration. In an address at the ABA’s recent National Institute on White Collar Crime, Deputy Attorney General Lisa Monaco announced three significant actions to strengthen the Department of Justice’s (DOJ) corporate criminal enforcement policies and practices. The DOJ memo provides prosecutors with a new, or at least sharpened, set of tools to effectuate DOJ policy. For companies and corporate officers, especially those in heavily-regulated industries, the DOJ’s renewed focus warrants a review of internal compliance programs and procedures.

Evaluating History of Misconduct

When evaluating a company’s compliance history, the policy clarifies that prosecutors are to consider the entirety of the entity’s regulatory and criminal enforcement record, not simply the misconduct at issue.  Prosecutors are encouraged to “start from the position that all prior misconduct is potentially relevant,” and therefore broaden their information sweep. This includes any prior criminal, civil, or regulatory enforcement actions, regardless of how it might relate, or not, to the subject of the present investigation. Organizationally, it also includes the target company’s parent, divisions, affiliates, subsidiaries, and other entities within the corporate family. Especially for large companies and multi-national corporations, this broad scope of review could result in a greater focus on the target’s past misconduct, even if unrelated to the conduct at issue.

Identifying All Individuals

Obtaining credit for cooperating with the authorities can influence, or even determine, the outcome of a prosecution determination. The DOJ has clarified that, in order to qualify for any cooperation credit, “corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct.” This means producing “all nonprivileged information relevant to all individuals involved in the misconduct,” both inside and outside of the company. The new policy takes a broad view of “involved” and effectively removes the company’s discretion in determining which individuals to disclose to the government. Even in the case of a rogue employee falsifying records, the company will be expected to disclose the identity of co-workers, supervisors, and managers, regardless of position or potential culpability.

Using Corporate Monitors

The DOJ has pivoted away from prior policies critical of corporate monitors and has recommitted to imposing monitors where appropriate in corporate criminal matters. While still evaluated on a case-by-case basis, the DOJ will favor the imposition of a third-party monitor where a company’s compliance program has proven ineffective, untested, or inadequately funded. According to the DOJ, monitors can be “an effective means of reducing the risk of repeat misconduct and compliance lapses.” Independent monitors can also be a costly addition to a resolution of a government investigation.

On Friday, the U.S. Court of Appeals for the Sixth Circuit lifted a stay of OSHA’s Emergency Temporary Standard (ETS) on COVID-19 vaccination and testing for employers with 100 or more employees. As we previously posted, the Fifth Circuit almost immediately issued a stay of the ETS after its release. The Sixth Circuit’s ruling puts the ETS back on track as its January 4, 2022, compliance deadline approaches. Multiple parties have already filed emergency motions with the U.S. Supreme Court to eliminate the ETS entirely. The legal ping-pong match will surely continue into 2022.

Meanwhile, OSHA issued a statement on Saturday that no citations will be issued for noncompliance with the ETS before January 10, 2022. OSHA will also exercise discretion and not issue citations for noncompliance with testing requirements under the ETS before February 9, 2022, if “an employer is exercising reasonable, good faith efforts to come into compliance with the standard.” While OSHA’s statement provides covered employers some breathing room, time is running out to put in place the necessary measures to comply with the ETS. That is, if the Supreme Court does not volley in before January 4, 2022.

An important lesson on contracting with environmental consultants recently came out of a federal district court in California in Golden Gate Way, LLC v. Enercon Services, Inc., 20-cv-03077-EMC (N.D. Cal. Nov. 18, 2021).

Golden Gate Way (GGW) hired environmental consultant Enercon to perform a Phase II Environmental Site Assessment in connection with a refinancing of a loan on GGW’s property which had previously been used for a dry-cleaning business. The contract contained a common provision limiting Enercon’s liability to the fee paid to Enercon for work under the contract (which turned out to be about $15,000). At GGW’s request, Enercon agreed to add a provision to the contract making GGW an additional insured under certain Enercon insurance policies.

After Enercon completed the Phase II work, GGW alleged that Enercon exacerbated contamination on the subject property and sought to recover under Enercon’s insurance policies as well as filing suit against Enercon for damages. Unfortunately for GGW, the Enercon insurance policies contained pollution exclusion provisions (excluding coverage for losses in connection with the potential spread of contamination at Enercon job sites). Thus, the GGW insurance claims were denied.

Enercon moved for partial summary judgment in GGW’s lawsuit based on the contract’s limitation of liability provision. The district court granted the motion, holding that the terms of the agreement (including the limitation of liability provision and agreement to add GGW as an additional insured) (1) were the result of an arms-length transaction between sophisticated parties, (2) did not violate public policy, and (3) were not the result of fraud or other malfeasance.

GGW’s experience serves as a reminder when contracting for environmental investigation and remediation services, it is important to pay close attention to contractual provisions such as limitation of liability clauses and, when relying on insurance, to pay close attention to policy terms and exclusions.

This post is part of an ongoing series covering the Biden administration’s efforts pursuant to Executive Order 13990 to repeal and replace regulations adopted during the Trump administration. Prior posts include Catching Up on the 2021 Clean Water Act Releases.

The Council on Environmental Quality (CEQ) recently issued a Notice of Proposed Rulemaking to amend National Environmental Policy Act (NEPA) regulations adopted by the Trump administration in 2020. CEQ oversees federal agencies’ compliance with NEPA, including its requirements to consider environmental impacts and prepare Environmental Impact Statements (EIS) before authorizing or directly taking “major federal actions.” The 2020 amendments were the first significant revisions to NEPA regulations since their implementation in 1978.

The Notice of Proposed Rulemaking initiates Phase I of CEQ’s approach of reconsidering and revising the 2020 amendments in two phases. The Phase I rulemaking focuses on revisions to a discrete set of 2020 amendment provisions “by generally reverting to the language from the 1978 NEPA regulations that w[ere] in effect for more than 40 years.”

In Phase I, CEQ proposes three revisions to the NEPA regulations:

  • Removal of language added by the 2020 amendments that modified the purpose and need section, and related definition of “reasonable alternatives,” of an EIS.
    • When an agency is reviewing an application for authorization, the 2020 amendments require agencies to base the purpose and need of the subject action on the goals of an applicant and the agency’s statutory authority. CEQ proposes to revert to the original 1978 regulatory language for purpose.
  • Clarification that agencies have the discretion and flexibility to develop procedures beyond the CEQ regulatory requirements.
    • CEQ proposes to remove the “ceiling provisions” added by the 2020 amendments, which made CEQ’s regulations a ceiling for agency NEPA procedures. CEQ’s proposed rulemaking would permit agencies to develop environmental review procedures to address their specific programs that go beyond CEQ’s regulatory requirements.
  • Revise the definitions of “effects” or “impacts” to restore the substance of the definitions contained in the original 1978 regulations with changes consistent with the current Code of Federal Regulations.
    • CEQ proposes to restore the definitions of “direct” and “indirect” effects and “cumulative impacts” to the original 1978 language by incorporating them into the definition of “effects” or “impacts” so that each reference to these terms would include direct, indirect, and cumulative effects.

Where Phase I of the rulemaking process generally restores provisions that were in effect before being modified in 2020, it is anticipated that Phase II of the rulemaking process will propose further revisions to ensure the NEPA process “provides for efficient and effective environmental reviews,” and meets environmental, environmental justice, and climate change objectives. The proposed changes could result in increased NEPA review timelines for projects involving agency action regarding federal lands, federal money, or federal permits or approvals.

The comment period for the Phase I proposed rule closes on November 22, 2021. Comments can be submitted through the Federal Register. More than 34,000 comments have been submitted to date. Phase II of the rulemaking is expected to be issued in the next several months.

On November 1, ASTM International (ASTM) released a revised standard for conducting Phase I Environmental Site Assessments (Phase I ESAs). The new standard – ASTM E1527-21 – establishes new requirements for complying with the “All Appropriate Inquiry” (AAI) rule in 40 CFR Part 312. The AAI is an essential element of environmental due diligence used to protect prospective buyers, lenders, and owners from liability related to environmental contamination. E1527-21 will not be a required part of the AAI rule until the U.S EPA adopts it through a formal rulemaking. Nevertheless, those involved in environmental due diligence and transactions should start to become familiar with E1527-21 and begin to incorporate its requirements into Phase I ESAs.

While E1527-21 contains several changes from the prior ASTM standard for Phase I ESAs, these new additions are not as significant as those made the last time the standard was revised in 2013. The following provides a brief summary of several of the more noteworthy updates:

  • The terms Recognized Environmental Condition (REC); Controlled Recognized Environmental Condition (CREC); and Historical Recognized Environmental Condition (HREC) have all been updated with important clarifications, including:
    • Offsite issues without the potential to impact the subject property are now clearly excluded from the definition of REC;
    • The Findings and Opinions section of a Phase I ESA must now include the rationale for finding a condition is a CREC or a HREC; and
    • For each HREC, the environmental professional must also state whether the HREC still qualifies as an HREC.
  • Definitions for “Property Use Limitation” and “Significant data gap” are now available.
  • Emerging contaminants, such as PFAS, are now included on the list of non-scope items, at least until they are classified as a CERCLA hazardous substance. However, the non-scope issues appendix now includes a discussion of emerging contaminants and states that where the Phase I ESA is performed to satisfy both federal and state requirements the environmental professional should consider and discuss these substances if they are considered hazardous under applicable state law.
  • The historical records review section now reflects common industry practice, including subject and adjoining property identification, use, and research objectives.
  • Numerous updates and additions to the appendices, including a flowchart and guidance to help properly classify conditions as RECs, CRECs, or HRECs, a revised report outline, and a discussion of business environmental risks.

If a revised Phase I ESA ASTM standard was not enough reason to remind you of the importance of properly and timely conducted Phase I ESAs, then a recent decision from the U.S. Court of Appeals for the Seventh Circuit should help. In September, the Seventh Circuit affirmed the District Court’s finding that a party was not entitled to assert the bona fide prospective purchaser (BFPP) defense under CERCLA because the party’s Phase I ESAs did not comply with the AAI (Von Duprin LLC v. Major Holdings, LLC, No. 20-1711 (7th Cir. Sep. 3, 2021)).

The District Court had found that the environmental professional failed to make the required inquiries with the property owner and failed to include the necessary certifications in a Phase I ESA for one property. In connection with a second property, the court found that the Phase I ESA was completed within the appropriate timeframe (180 days) prior to the party’s purchase of the property, however the party started a 99-year lease of the same property six years prior to it purchasing the property. Thus, the party became an operator under CERCLA at the start of its lease and had not satisfied the AAI rule at that time because the Phase I ESA the party conducted prior to signing the lease was not completed or updated within the 180 days before the start of the lease, as required by the AAI rule.

All parties involved in commercial real estate transactions, including leases, should continue to familiarize themselves with the AAI rule and the newly revised ASTM standard (E1527-21). Complete and timely Phase I ESAs remain a staple of commercial real estate transactions. Failure to fully comply with the AAI can have long-lasting and significant consequences.

On October 22, 2021, EPA published a proposed rule that would, if adopted, provide a significantly enhanced additional pathway for remediation of sites impacted by polychlorinated biphenyls or PCBs. EPA helpfully included a redline version showing proposed changes to the regulatory text. EPA is receiving comments on the proposed rule until December 21, 2021.

PCBs are a class of chemical substances that had a variety of commercial and industrial uses, and now reveal themselves as constituents of concern in a variety of remediation projects. PCBs were banned for most uses in the late 1970s through the Toxic Substances Control Act (TSCA) and as a result PCB remediation is controlled by PCB-specific federal regulations commonly known as the Mega Rule.

Under the Mega Rule, obligations with respect to historical PCB releases depend upon the medium in question and the date and concentration of release. The regulations separately address “PCB bulk product waste” (items manufactured to contain PCBs, like caulk and other building materials) and “PCB remediation waste” (like soil and other material contaminated with PCBs through a release).

The Mega Rule provides three options for disposing of PCB remediation waste. The regulations on performance-based disposal are very lean and provide off-site disposal options but not standards for PCBs remaining on site. Consequently, the common interpretation has been that essentially no PCBs can remain on-site, which limits the usefulness of this option. At present, performance-based disposal does not require any EPA involvement or notice. An intermediate option, self-implementing disposal, allows PCBs to remain on-site at or below specified concentrations, which vary depending on the use of the property, provided that the applicable regulations are followed. For self-implementing disposal, EPA must be notified of the project thirty days in advance. Finally, the most flexible (but procedurally rigorous) option is risk-based disposal, which involves approval of a risk-based cleanup plan by the relevant EPA Regional Administrator.

The October 22 proposed rule includes significant updates to the regulations on performance-based disposal, including the establishment of explicit (strict) cleanup levels. Unlike the present version of the regulations, post-remediation notice to EPA will be required. Similar to the self-implementing disposal option, the proposed performance-based standards may not be used for sites with more significant risk profiles, like private or public drinking water sources or distribution systems, and residential uses.

The proposed rule also includes other changes worthy of attention. EPA proposes to add flexibility to the regulations concerning cleanup of contemporaneous spills when those spills are caused by and managed in emergency situations like hurricane or floods. EPA also proposes to remove the italicized language from the applicability provisions of 40 CFR § 761.50(b)(3)(ii): “Any person responsible for PCB waste at as-found concentrations ≥ 50 ppm that was either placed in a land disposal facility, spilled, or otherwise released into the environment” at specified concentrations during specified timeframes must dispose of the waste in one of a few specified manners. The present language has led some to conclude that the regulations apply only when PCBs are found in the environment at concentrations at or above 50 ppm, and not otherwise. Removal of that language could cause some to rethink whether the Mega Rule should be followed at sites with PCB concentrations below 50 ppm.

On Friday, November 5, 2021, OSHA’s COVID-19 Vaccination and Testing Emergency Temporary Standard (ETS) was issued (with most of the requirements to go into effect on December 5) and, almost immediately, it faced a number of legal challenges in various courts. The first court to make a ruling was the U.S. Circuit Court of Appeals for the Fifth Circuit, which issued an order on November 6 staying the implementation of the ETS until further notice. The Court ordered the parties to submit further briefing on November 8 and 9; the ordered stay is not a final ruling on the validity of the ETS, but will halt its implementation at least for the time being. Other legal challenges might follow; further confusing the issue of where and when the ETS will go in to effect.

The ETS will require millions of workers to be vaccinated or undergo weekly testing and masking while in the workplace. However, the ETS will not apply to those employers already subject to the following:

For employers subject to the CMS rule, further information on that rule is available here from our colleagues at the Health Law Diagnosis blog

According to OSHA, the purpose of the ETS is to establish minimum vaccination, testing, and face covering requirements to “address the grave danger of COVID-19 in the workplace.” OSHA intends for the ETS to override inconsistent state and local requirements relating to these issues, including those that prohibit or limit employers’ authority to require vaccination, face coverings, or testing.

Generally speaking, the ETS applies to employers with a total of 100 or more employees. For purposes of this determination, all employees are counted across all of the company’s locations in the United States. This includes those employees that are part-time, seasonal, work from home, do not report to a workplace, or work exclusively outdoors. Such employers must develop, implement, and enforce either a mandatory vaccination policy, subject to limited exemptions, or allow unvaccinated employees to test regularly and be subject to a mask policy.

If the ETS survives the pending and anticipated legal challenges, covered employers will have to weigh their options under the ETS and decide whether to allow for the testing and masking exemption. Regardless of which option a company takes, covered employers will need to comply with the other recordkeeping, reporting, and training requirements in the ETS, as well as make certain accommodations for employees receiving the vaccine (e.g., paid time off). The ETS contemplates covered employers having 30 days to comply with most of the ETS and 60 days to comply with the testing requirements. With the ETS’s effectiveness already stayed, it is unclear where the compliance dates will fall.

Be sure to check back here for updates on the progress and implementation of the ETS.

On November 2, 2021, the U.S. EPA announced revisions to its mercury inventory reporting rule under TSCA. The revisions eliminate an exemption for companies that import pre-assembled products containing a mercury-added component. The will result in companies that import certain batteries, switches, pumps, thermostats, fluorescent lights, and other industrial equipment to file reports under TSCA if parts within such products contain mercury.

The EPA’s mercury reporting rule took effect in 2018 and is intended to collect information from a wide range of industries that make or import mercury, add it to products, or intentionally use it in manufacturing. The intent is to use this information in the preparation of a national mercury inventory and serve as the basis for future regulations and other actions aimed at reducing mercury exposure.

The EPA’s revisions to the mercury reporting rule were made necessary as a result of a decision by the U.S. Court of Appeals for the Second Circuit in June 2020 ruling vacating the exemption for entities importing pre-assembled products with mercury-added components. Twelve states and the Natural Resources Defense Council challenged the exemption arguing it failed to protect public health because it excluded too many entities from the reporting obligation without a reasonable basis.

Companies that will now be subject to the mercury reporting rule as a result of this revision have until July 1, 2022, to report 2021 data to the EPA. However, compiling, verifying, and reporting such information can often be a significant undertaking, especially for a company that previously had not otherwise tracked and reported such data. Now that the EPA has announced these revisions, it is a good time for companies begin the process.

Under the Biden-Harris administration, the U.S. EPA has made advancing Environmental Justice (EJ) a leading priority. At times it has felt like EPA releases an EJ-related announcement, policy, or guidance every day. While that may be an exaggeration, EPA has taken numerous actions related to EJ issues over the last nine months. Perhaps the most interesting actions to watch have been EJ-related permitting reviews and enforcement actions. These actions show EPA’s policies and guidance in action and demonstrate how EJ issues can and will have an impact on the regulated community.

In a short period of time, we have already seen numerous examples of EPA inserting themselves into state and local permitting proceedings involving EJ issues. Most recently, on October 21, 2021, EPA’s External Civil Rights Compliance Office (ECRCO) announced it will investigate the EJ concerns with the New York State Department of Environmental Conservation’s actions to advance a natural gas pipeline in Brooklyn, even as several portions of the pipeline have already been constructed. The investigation will be conducted pursuant to Title VI of the Civil Rights Act of 1964 (Title VI), which prohibits any recipient of EPA financial assistance from discriminating based on race, color, or national origin. Meanwhile, earlier this year ECRCO released the partial preliminary findings of its investigation into whether the Missouri Department of Natural Resources’ air permitting program is out of compliance with Title VI. While EPA’s investigation continues, ECRCO determined that the preponderance of the evidence supported a conclusion that the program failed to comply with Title VI.

EPA has also increasingly inserted itself into pending permitting actions. In May, the mayor of Chicago indefinitely delayed a permitting decision by the city’s Public Health Department on the relocation of a metal shredding and recycling facility pending an EJ assessment after EPA expressed concerns over the disproportionate impact the facility may have on the surrounding EJ community. Then, in September, EPA requested Michigan regulators to consider asking an asphalt company to move its planned facility out of the EJ community in which it was planned to be built. This appears to be the first time EPA has made such a request while commenting on an air permit review.

EPA’s actions should not come as a surprise though. They are all consistent with EPA’s Office of Enforcement and Compliance Assurance’s (OECA) April 30, 2021 internal guidance outlining actions intended to strengthen enforcement and advance the protection of EJ communities. In the internal guidance, EPA stated it would advance its EJ goals by increasing the number of facility inspections in EJ communities, increase engagement with EJ communities, and strengthen enforcement by resolving noncompliance through remedies with tangible benefits for EJ communities. EPA also stated that, while it intended to continue working jointly with co-regulators (e.g., state environmental agencies) and would endeavor to perform enforcement and compliance work in partnership with them, “if there is a situation where a community’s health may be impacted by noncompliance, and our co-regulator is not taking timely or appropriate action, we should not hesitate to step in and take necessary action.”

Also, in line with its internal guidance, EPA has focused enforcement efforts on facilities in EJ communities. Earlier this year EPA targeted an Oregon glass recycler for inspection because of its location in an EJ community. The inspection resulted in fines from the Oregon Department of Environmental Quality for repeated air quality violations and from EPA for failing to report information about toxic chemicals under EPCRA. EPA has also highlighted several other enforcement cases benefiting EJ communities involving air, water, hazardous waste, and reporting violations.

EPA is as focused as ever on advancing its EJ goals. EPA is increasingly focusing its investigations and enforcement actions on facilities located in EJ communities. We are also noticing that EPA is focusing on permitting situations where the scope and depth of the state agencies’ consideration of EJ issues may not be aligned with current EPA policies and guidance. While such focus is expected for new permit applications, EPA appears to be equally focused on permit renewals or modifications for facilities in EJ communities.

At a minimum, regulated facilities with upcoming permit applications, modifications, or renewals can try to get out in front of these issues by conducting an EJ risk assessment. Such proactive internal assessments can help a facility understand if it may be impacted by EJ issues and, if so, better understand what EJ risk mitigation actions can be undertaken to proactively address EJ concerns related to the facility or a permitted activity.

On October 26, 2021, the U.S. EPA announced it will initiate two rulemakings that will take significant steps to address PFAS contamination across the country. The first rulemaking will designate four of the so-called “forever chemicals” as hazardous wastes under RCRA. The four PFAS that will be the subject of this rulemaking are perfluorooctanoic acid (PFOA), perfluorooctane sulfonic acid (PFOS), perfluorobutane sulfonic acid (PFBS), and hexafluoropropylene oxide (HFPO) dimer acid and its ammonium salt – more commonly known as GenX. This announcement came the day after EPA released its latest toxicity assessment of GenX. EPA found that GenX is the most toxic of these four PFAS and the agency has committed to reviewing the 2016 toxicity assessments for PFOA and PFOS.

The second rulemaking will clarify EPA’s authority under RCRA to require investigation and cleanup for wastes that meet RCRA’s definition of hazardous waste. EPA’s goal is to make clear that emerging contaminants, such as PFAS, can be cleaned up through the RCRA corrective action process. Regulating PFAS, and other emerging contaminants under RCRA, will have broad implications. For starters, RCRA hazardous wastes are automatically listed as hazardous substances under CERCLA. Active Superfund sites will likely be required to address PFAS contamination, which could result in new potentially responsible parties being identified. However, it is not yet known how EPA will address closed sites where PFAS may be present.

While these rulemakings were announced in response to a petition from the Governor of New Mexico, they build upon EPA’s broader action plan to address PFAS contamination across the country. As we have previously discussed, EPA released a PFAS Strategic Roadmap laying out a comprehensive approach to PFAS contamination through 2024. Meanwhile, many stakeholders are awaiting better guidance from EPA on PFAS disposal and destruction, which according to EPA’s Roadmap may not come out for another year.