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Brownfields: A Calculated Risk Missed by Tribes and South Dakota

Posted on: December 2nd, 2016
by David Ganje

The EPA defines a brownfield as “real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.” The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) mandated that the purchasers of property are liable for any contamination on this property regardless of when they acquired a site. However, CERCLA also created a defense known as the “innocent landowner defense” that can only be used if “appropriate due diligence” was conducted prior to the acquisition of the property. Appropriate due diligence has been exercised if an environmental site assessment (ESA), a thorough investigation of a site’s current and previous owners, has been prepared.

ESA’s have an average cost of about $4,000 for a small business acquisition and can vary depending on variety of factors specific to the job. The typical businesses that leave behind brownfields include gas stations, dry cleaners, railroads, oil refineries, liquid / chemical storage facilities, and steel / heavy manufacturing plants. Typical hazardous materials they leave behind include hydrocarbons, solvents, pesticides, heavy metals such as lead, and asbestos.

What is so dangerous about leaving these brownfields alone? Many of these brownfields are abandoned commercial properties and tend to be an eyesore in the community. Not only can this lead to decreased property values in surrounding neighborhoods, but the property can also pose serious health risks for new tenants and their neighbors.

Once a brownfield has been identified, the EPA provides two options for cleanup, revolving loan fund grants and cleanup grants. The purpose of revolving loan fund grants is to enable states, political subdivisions, and Native American tribes to make low interest loans to carryout cleanup activities at brownfields properties. Cleanup grants provide funding for a grant recipient to carry out cleanup activities at brownfields sites.

Since the cost of cleanup is considerable, the grants may provide several hundred thousand dollars towards the cost of cleanup. This money comes with strings attached, of course. Among other things, the costs are shared with the property owner, by at least 20 percent, and the brownfield site must be cleaned up within a three-year period.

Entities eligible for the EPA’s brownfield grants and loans include state, local and tribal governments; general purpose units of local government, land clearance authorities or other quasi-governmental entities; regional council or redevelopment agencies; states or legislatures; or nonprofit organizations. If you are not an eligible entity, you may still be able to receive assistance through your state or city.

In South Dakota, the agency that provides statewide brownfield assistance is the Department of Environment & Natural Resources (DENR). DENR receives funding from the EPA for assessments and cleanup and have discretion in how to allocate those funds. For example, a national hotel chain looking to redevelop a brownfield site in South Dakota would not be eligible to apply for assistance through the EPA directly. However, the hotel chain could contact DENR for assistance and DENR could use their funds to perform an ESA or help with the cleanup.

In 2015, Sioux Falls received an assessment grant for $400,000 from the EPA. In addition to performing site assessments, they plan to use the money to update the city’s brownfields site inventory, prioritize sites, plan for cleanups at priority sites, and perform community outreach activities. They, like DENR, also have discretion in performing assessments and have made assessments available to entities who would not be eligible to apply for grants from the EPA.

With these options available to assist with brownfield redevelopment, why do so many brownfields remain untouched in South Dakota? In the last 5 years the EPA only awarded four grants in South Dakota. They gave an assessment grant to Sioux Falls and cleanup grants to Standing Rock Sioux Tribe, Cheyenne River Sioux Tribe, and Lower Brule Sioux Tribe. This suggests that other entities are not aware of the grants available to them, they are dissuaded from applying, or they do not have the structure to run a brownfields program.

Since South Dakota is not small Rhode Island, which is about the size of Brown County, businesses and other eligible entities find it is more economical to buy available land than it is to redevelop a brownfield site. This misses the mark. A brownfield site is many times in an attractive location. A brownfield site is often close to business activity and transportation or the prior owner would not have developed it.

Although the grants and other forms of assistance are “competitive,” grants are awarded based on guidelines. The deadlines for applying for assessment and cleanup grants from the EPA is December 20, 2016, so it’s not too late.

View the original article at FarmForum.net

Brownfield Due Diligence – Don’t Get Married, Get Engaged

Posted on: October 22nd, 2016
by David Ganje

Let’s not pretend. We have messed up parts of mother earth. Now let’s use the tools at hand to undo the mess and be good stewards again. Brownfield recycling, that is the brownfields program is one means to that end. If you are looking to start a new redevelopment project don’t get married, get engaged. Do your due diligence and explore the possibilities from exposing a brownfield.

The EPA defines a brownfield as “real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant”. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) mandated that the purchasers of property are liable for any contamination on this property regardless of when they acquired a site. However, CERCLA also created a defense known as the “innocent landowner defense” that can only be used if “appropriate due diligence” was conducted prior to the acquisition of the property. Appropriate due diligence has been exercised if an environmental site assessment (ESA), a thorough investigation of a sites current and previous owners, has been prepared.

What is so dangerous about leaving these brownfields alone? Many of these brownfields are abandon commercial properties and tend to be an eyesore in the community. Not only can this lead to decreased property values in surrounding neighborhoods but the property can also pose serious health risks for new tenant and their neighbors. For example, the Love Canal disaster in Niagara Falls, in the late 70’s. Hooker Chemical Co. dumped over 20,000 tons of chemical waste in the unfinished and abandoned Love Canal. The canal was later paved over and sold to the city. The city then developed residential neighborhoods and schools on top of the contaminated land. About 25 years later, after an unusual amount of rain, a large amount water absorbed by the land upwelled the “entombed” chemical waste. Residents complained of chemical burns, organ failures, mental disabilities, and congenital birth defects. Eventually local families were relocated and the land was cleaned up. However, in recent years, residents on the rebuilt lands have complained of health issues similar to the ones originally reported 35 years earlier and have filed lawsuits against Hooker Chemical Co.’s parent company.

Once you suspect that the land you are planning to purchase could be a brownfield in need of cleanup what can you do? If you have not purchased the land yet you could include provisions in the purchase agreement that can indemnify you from liability for claims associated with existing contamination.

If you have done your due diligence and you know what you are getting into then you should already know that the Environmental Protection Agency (EPA) has set up the Brownfield Cleanup Program (BCP) “to encourage private-sector cleanups of brownfields and to promote their redevelopment as a means to revitalize economically blighted communities.” The BCP provides incentives through, grants, loans, training, and tax benefits to aid with the cleanup. Since the cost of cleanup is considerable the BCP may provide several hundred thousand dollars towards the cost of cleanup. This money comes with strings attached of course. Among other things, the costs are shared with the property owner, up to 20%, and the brownfield site must be cleaned up within a three-year period. In addition to tax incentives and financial assistance provided through the various governmental programs the land developer should be comforted by the fact that his contributions have also helped the environment. Furthermore, awards are given out by the NYC Brownfield Partnership providing public recognition for the most successful brownfield redevelopment projects.

Additionally, taking on a new brownfield project in NYC grants access to special municipal assistance programs through the NYC Office of Environmental Remediation (OER). The OER was established in 2009 to “design, build, and operate a set of world class municipal programs to advance cleanup and redevelopment of brownfield sites.” Since then they have developed over thirty new programs that take some of the most blighted properties in some of the most disadvantaged neighborhoods, cleans them up, makes them safer, and enables new development that brings new jobs and affordable housing.

The OER also distributes a variety of letters to aid sellers, lenders, and prospective buyers of brownfield properties. An “environmental review and assessment letter” is issued after the OER conducts an ESA on the property in question. It is used to provide assurances against liability. A “standstill letter” contains a preapproved remedy plan developed by a seller and the OER. The letter can be used to enroll the property in a brownfield cleanup program so that a prospective purchaser might receive financial assistance. This letter is intended to provide comfort to a prospective purchaser and its lender since the purchaser will be able to better estimate the cleanup costs.

If you have already started a construction on a new project and just learned of contamination, you may still be able to request a “look back letter” from the OER which would grant liability protection. Although a developer can gain liability protection after a project has started, they will not be eligible for brownfield funding incentives.

Many prime redevelopment sites are located on brownfields, don’t get married. Get engaged first and do your due diligence.

David Ganje practices law in the area of natural resources, environmental and commercial law.

Free Land – South Dakota Style

Posted on: October 22nd, 2016
by David Ganje

Water and land do not mix well in South Dakota. In the last few days South Dakota gave up on its disputed claim to a 500 acre three-mile-long island known as Goat Island located in the Missouri River. The state conceded jurisdiction over the claimed island giving control to the federal government. The lack of media coverage analyzing the pros and cons of this recent withdrawal of South Dakota’s disputed Goat Island land claim is disappointing. The state had argued that Goat Island was on the South Dakota side of the river when Lewis and Clark mapped the river in 1804. This is a public matter involving a state claim to land on the Missouri River. What were the reasons for the settlement of the claim? How is it good for South Dakota? The media did not ask. The government press releases did not say. Now the island is in the hands of the feds. The hand of government did this deal, but we know not the reasons for the decision.

Property boundaries matter when your land is next to a river or a body of water. If the river deposits land onto your riverfront by “accretion”, then who owns it? Accretion is the gradual increase to land, notably riparian land, stemming from the movement of water. A meandering river has no master. Certainly man-made law has not corralled a meandering river with anything close to perfection, or to some landowners, with any degree of satisfaction. Questions come up when riverfront boundaries naturally shift due to erosion or accretion.

South Dakota has enacted several laws regarding accretion rights. The first important section states that when land forms from natural causes gradually over time next to a stream or river such land belongs to the owner of the bank, and it does not matter whether the water is navigable or not. The second concerns avulsion, or the violent or sudden carrying away of land by a river or stream to another part of the river or opposite bank. Under the statute the owner of the original land may reclaim the land within one year of the new owner taking possession. And the US Supreme Court has gotten into the act by ruling in the 1970s that the doctrine of accretion applies to changes in the river caused by both artificial as well as natural causes.

One lesson to learn from old man river is: Don’t use fuzzy boundaries for the legal description in your deeds and contracts. That is, do not let your lawyer describe the boundaries of your land by reference to a body of water.

It must be wonderful to be the state. South Dakota can give land away, and it can receive control of newly formed lakes for free. In a recent law case involving a dispute over the ownership of three newly-formed lakes in the state, the state Supreme Court ruled that effective ownership of these three newly formed lakes, all on privately owned land, should be held in the name of the state. The Parks case ruling stated the lakebeds would continue to be owned by the private landowners but the lakes and water of the lakes are to be controlled by the state for the benefit of the people of the state. The result: more than two thousand surface acres of land, now in the form of lakes, would be controlled and supervised by the state and not the landowners. Surprisingly, no mention of compensation to the landowners was made for this taking. The state taketh and the state giveth away. It is wonderful to be the state.

David Ganje practices law in the area of natural resources, environmental and commercial law.

Solid Waste Management In The Dakotas

Posted on: September 26th, 2016
by David Ganje

Municipal Landfills in North Dakota

The operation of a municipal landfill, also known as a solid waste facility, involves legal risk, such as damage caused from a landfill leaking or by landfill contamination of groundwater. Modern landfills are created with liners and other collection systems designed to prevent contamination of the ground, groundwater and the air. Despite good practices, in 2003 the U.S. Geological Survey (citing the EPA) opined that “all landfills eventually will leak into the environment.”

In North Dakota municipalities are required, in the event of a spill or leak, to show their financial ability to take corrective action, but only after the event has already occurred. North Dakota does not require municipal landfills to maintain environmental or pollution liability insurance. Consider a landfill just west of Watford City, which was recently found storing thousands of pounds of illegal radioactive material. The costs to clean up a landfill leak can be beyond the financial capability of a municipality if adequate preparations are not made. An operating landfill is not the only party who might be on the hook to pay for leaks. By way of illustration, Grand Forks has promised to indemnify the operator of their landfill from any and all claims, suits or causes of action that arise from the landfill.

To put this liability issue in financial perspective, the cost to clean up a leaking 150-acre landfill next to a drinking water supply in Burnsville, Minn., was recently estimated by the state at $64 million. These clean up events are the type addressed by landfill pollution insurance, but few municipalities seem inclined to carry the insurance. I am not aware of any North Dakota municipal landfill that carries pollution liability insurance. This is akin to riding a motorcycle without a helmet. Landfills in the state are, in many cases, owned and run by cities and counties. Understand that municipal landfills are dutiful in complying with state and federal environmental regulations. State regulators and municipalities are following relevant statutes and rules. That is not the issue. The challenge is the risk of pollution liability, also called environmental liability – no small matter in today’s world, with costs that can reach into the millions.

Municipalities in North Dakota are not necessarily alone when a leak occurs. North Dakota maintains the Municipal Waste Landfill Release Compensation Fund, which would reimburse municipalities for reasonable corrective costs, including labor, testing, machinery, and consulting fees. However, the owner or operator must pay the first $100,000 for corrective action. Moreover, the Fund will not protect owners and operators who are negligent, or who caused the leak through misconduct, at the sole determination of the State. The Fund will not even reimburse for costs incurred through bodily injury or property damage. It is not a catch-all for landfill environmental liability.

If the Municipal Waste Landfill Release Compensation Fund cannot handle the issue, the release might be enough to trigger the State Disaster Relief Fund, which is there to help deal with a variety of issues, including widespread and severe water or air contamination. A problem on the scale experienced in Burnsville could be met with this State fund to help. A $64 million cleanup would however reduce the Disaster Relief Fund to near-empty, as North Dakota has just over $70 million currently in the fund.

Unfortunately for municipalities, when a serious landfill leak that cannot be handled at the city level occurs, the Environmental Protection Agency may become involved, triggering a Federal cleanup. Once the EPA gets involved, costs can skyrocket for everyone, and the EPA will bring suit against every party, including a negligent municipality, involved in the leak to pay for the cleanup costs. Facing off against the EPA in a million-dollar suit is the last place a municipality wants to be. It would be better to be able to handle landfill leaks with insurance, rather than involving other bureaucratic organizations who will use money inefficiently and then demand repayment.

This fund or ‘security account’ held by the state is not a complete answer, but it is a good start. Compare this with South Dakota which leaves municipalities buck naked to the law. South Dakota leaves municipalities at great legal risk. The South Dakota delegating law states that owners or operators of landfills are forever responsible for any pollution or legal problems caused by stored solid waste. The state has no special fund to deal with this issue. South Dakota’s rules allow a municipality to keep a separate fund (money deposited in a bank account, for example) to protect against the costs of a leaking landfill, or alternatively for coverage of such a leak by purchasing pollution insurance. Nevertheless, to maintain a separate fund large enough to cover a landfill leak is beyond the financial capability of municipalities in both states. Brown County, the third largest county in South Dakota, maintains a separate fund in the amount of $240,000. That is not enough money to cover a possible leak. Brown County is one of the municipalities that does not carry landfill pollution liability insurance. This is a problem, especially considering that the Brown County landfill makes a profit for the county. Yet Brown County will not consider pollution liability insurance to protect the landfill.

Just because the North Dakota has some financial support for landfills does not mean that preventative measures should be ignored. Government operated enterprises should not be so callous. The old concept of sovereign immunity (“the king can do no wrong”) is quickly becoming old law. The growing need for landfills is not going away. To the contrary, solid waste is increasing yearly. While North Dakota is more prepared than its neighbor to the south, there are still things that should be done. The State should protect municipal landfills by requiring landfills to hold insurance covering operating pollution events, and municipal landfills should choose to do so whenever possible.

Waste Water Injection Well

Posted on: March 8th, 2014
by David Ganje

Will Texas Send Another Trend To The Bakken?

Texas often leads the way in American oil and gas law. Currently, the Texas Supreme Court is wrestling with a wastewater injection well case that may send precedential shockwaves across the nation. North Dakota (ND) maintains approximately 470 disposal wells. Oral argument on the Texas case was held in January. This is the second time the Texas Supreme Court has been asked to review the same case. FPL Farming Ltd. v. Envtl. Processing Sys., L.C. involves a landowner bringing a trespass claim concerning a wastewater injection well used to dispose of non oil and gas waste. The landowner alleges the well is causing the migration of the injected wastewater into the landowner’s property some 8,000 feet below the surface. The landowner also claims that migrating wastewater is damaging the quality of the aquifer. The wastewater well was dug about 400 feet from the landowner’s property.

Will this second bite at the Texas apple by the Texas Supreme Court affect the Bakken? I have some comments about such a possible outcome: 1.While not argued actively in the Texas court appeal briefs, the court record in that case shows a settlement payment made to, as well as a signed pre-well settlement agreement by, the landowner. A pre-well settlement was reached based on an objection filed by the landowner at the prior well permit application hearing. 2. ND has an established set of oil and gas regulations and water law that actively manages groundwater. ND law asserts public ownership of much of ND’s water resources including aquifers. By contrast Texas grants more private rights of ownership to subsurface water. 3. ND follows the heaven to hell ownership principal of land in which everything above and everything below the surface is owned by the surface owner. This rule of law is however not absolute. ND has addressed the concept of subsurface trespass in a hydrofracking context in the Farrar case. In that case the ND Court determined that state public policy in favor of the development of natural resources trumped a claim for trespass filed by a nonconsenting mineral rights holder. 4. The alleged harm to the landowner’s aquifer in the Texas case is based upon conjectural extrapolations, and is not in the nature of ‘hard evidence’ as we say on the street. At oral argument one of the judges stated, “I’m having a hard time wrapping my head around the issue of how much would be owed and when it would be owed.”

While ND courts have in the past looked at Texas oil and gas precedent, my comments suggest that ND may not be as eager to follow any new precedent coming out of the FPL case.

David Ganje of Ganje Law Offices practices natural resources, environmental and commercial law in North Dakota and South Dakota. Web: lexenergy.net