Bishop's Blog - Part 2

What’s the Next Asbestos? Insights From the 33rd Annual Environmental and Emerging Claim Manager Association Conference

In April, I attended a conference on emerging environmental claims sponsored by the Environmental and Emerging Claim Manager Association. The conference was targeted toward insurance risk managers, but I found it very useful to identify potential future environmental liability for clients and what may be “the next big thing.”

Below is a summary of the conference’s take on emerging claims:

PFAs

Technically, PFAs are perfluoroalkyl and polyfluoroalkyl substances. Think of them as chlorinated hydrocarbons but with fluorine attached rather than chlorine. They are not volatile, resistant to degradation, and soluble in water. They are present in many consumer products to resist heat, resist stains, resist water, reduce friction, and as surfactants (here is an informative slide from the FluoroCouncil). Many have been removed from the market (See EPA fact Sheet), but they linger in older products and trash.

Why are PFAS an emerging issue? PFAS in the environment have generally not been regulated. There are few regulatory cleanup levels; however, EPA and state agencies have been taking a closer look at these materials. Expect more agencies to require testing for PFAS in the soil and groundwater as part of a site investigation.

Talc

The plaintiffs’ bar has been initiating a wave of litigation related to talc (baby powder) with some huge verdicts. There are two theories: that when the talc was mined, it was contaminated with a vein of asbestos; and talc allegedly causes ovarian cancer. Although a 2013 study of the Cosmetic Ingredient Review Board found that talc is safe (followed by similar conclusions from the FDA and CDC), since 2013 $806 million has been awarded to plaintiffs in the Johnson & Johnson baby powder lawsuits. Some predict that the stores that sell talc products (talc is in many products in addition to powder) may be the next group of defendants.

Endocrine Disruptors

Endocrine disruptors are chemicals that affect hormones. Examples of endocrine disruptors include PCBs, dioxin, certain pesticides (e.g. DDT, atrazine), phthalates, BPA plastic and mercury, cadmium, and lead. However, agencies have reached different conclusions as to whether current data links endocrine disruptors to health effects in humans. Studies are ongoing and many manufacturers are voluntarily switching to other materials., For example, you now see “BPA-free” water bottles.

Confined Animal Feeding Operations (CAFOs)

This topic is not new, but I was grossed out by the statistics, which fortunately were presented after lunch. (Source: EPA/600/R-04/042 May 2004)

Looking at this figure, a pig generates almost 24 times as much poop as a human does. Yuck. Anyway, the regulation of discharges from animal feeding is still a big issue.

Prop 65

I think Prop 65 is a ridiculous law that highlights how stupid warnings can get. As background, Prop 65 requires manufacturers and sellers of products in California to include a warning if the product contains a chemical from the list of more than 900 Prop 65 chemicals and include the type of health effect (i.e. cancer or birth defects or other reproductive harm). What started out as a consumer protection law quickly got out of control, as practically everything (even Starbucks coffee) required a warning. But the California legislature doesn’t seem to recognize the joke this law has become and instead passed amendments to make it more strict. A major amendment to this California labeling law takes affect August 30, 2018. One of the more notable changes is that the warning must include the yellow triangle warning symbol. In addition, the warning must specify at least one chemical per health effect. No more generic warnings. Here’s a summary from the State of California.

Perchloroethylene (PCE)

Although PCE (or perc), a common dry-cleaning solvent, has been a contaminant in cleanups for years, we are seeing increased personal injury claims from dry cleaning workers against the PCE manufacturers and suppliers. This increase is thought to be due to EPA’s 2012 designation of PCE as a likely human carcinogen.

Diacetyl

Diacetyl is a flavoring agent used in foods such as popcorn, flavored juices and in “vape juice” to flavor e-cigarettes. Although the science is unclear, the plaintiff attorneys are alleging its consumption (by consumers and factory workers) leads to lung damage.

What’s next?

Are any of these the next asbestos? None of these appear to have the science or widespread exposure that asbestos did, but companies, their insurers, and their attorneys should be aware of the potential risks.

Top Environmental Due Diligence Mistakes

It’s time for my annual rant about the lack of respect given to environmental due diligence during the M&A process. It is still the overlooked stepchild of a deal, and buyers, lenders, and investors can get seriously burned by neglecting this critical component.

Identify Surprises Before Your Deal Closes

Dealmakers should be familiar with the term “Phase I,” which is the preliminary environmental report that could protect a buyer from pre-closing contamination and that must follow the guidelines set out in ASTM E1527-13.

But due diligence can be more than just commissioning a Phase I. Here are the top mistakes I already have seen in 2018:

Using the Lowest Bidder on a Phase I Report – You definitely get what you pay for. In addition to typos and poor grammar, I have seen obvious things overlooked (e.g. nearby leaking underground tanks) and non-problems made into problems. Many “cookie cutter” Phase I shops grind out the Phase I reports with the hope of getting the Phase II sampling work that they recommend (and, not surprisingly, charge significantly more for). To prevent this, ask around for consultant referrals. In addition, have the consultant generate a DRAFT report for your attorney to review before issuing the final report to prevent surprises.

Ignoring Potential Issues That Are Outside the Scope of the Phase I – Remember, a Phase I only looks at contamination and not compliance with environmental laws. Does the seller have all necessary permits AND is it complying with those permits? Representations and warranties in the sales contract are only as good as the seller’s continued financial viability.

Only Reading the Executive Summary of the Phase I – Have your environmental attorney read the entire report, including the appendices, to make sure nothing was missed. She should be able to complete this task in one or two hours.

Using an Old Phase I report – A Phase I that is more than 180 days old is considered out-of-date and needs to be updated. (ASTM E1527-13 Section 4.6).

Using the Seller’s Phase I – This is a problem for at least two reasons: First, the buyer has no privity of contract (i.e. no contractual relationship) with the consultant who did the seller’s report, so the buyer could not sue if the Phase I turns out to be wrong. This issue can be resolved by getting a reliance letter from the consultant. Second, the consultant may be biased toward the seller, so frankly, I would not trust their report.

Keep these points in mind when planning your next deal to prevent unwanted surprises.

Another Good Use for Your Environmental Counsel: Bad Cop

When should you call your environmental lawyer? Some reasons are obvious: when you get sued or to review the environmental provisions of a contract, for example.

But here’s another good reason, based on a recent project I worked on: Environmental attorneys can provide oversight of your environmental consultant and be the “bad cop” with the government agency.

I have many friends who are environmental consultants. They do great work but are sometimes reluctant to take an adversarial stance with the government agency or offer cleanup alternatives that are contrary to the agency’s recommendation. Consultants work almost daily with the government agency project managers and want to stay on good terms with them.

But, sometimes, a bit of toughness is required. And that’s where your lawyer can come in handy. Nobody expects us to be nice.

Recently, I worked on a project where the Texas Commission on Environmental Quality (TCEQ) wanted my client to install additional monitoring wells and conduct more sampling to prove that the contamination was sufficiently low to close the file.

I didn’t support their reasoning. There were other businesses nearby with similar contamination, so how would we ensure that we weren’t detecting their contamination? Moreover, TCEQ had granted closure on those similar properties in the neighborhood with higher contamination levels than my client’s.

Our consultant wanted to propose some limited sampling to satisfy TCEQ, but I wanted to push back and say the data were sufficient to support closure. I found TCEQ guidance to back me up and, after a few emails and letters, TCEQ finally agreed with me and closed the file.

Nobody likes to spend money on lawyers, but spending a few hours of my time cost significantly less than installing the additional wells requested.

Attorneys are ethically obligated to act in their client’s best interest, and sometimes that means playing Bad Cop. I’m not saying that consultants are not similarly ethically obligated, but sometimes they are hesitant to push back to a project manager they deal with on a regular basis.

Bringing in a lawyer to play hardball lets the consultants maintain the camaraderie they need to do their jobs without sacrificing the client’s goals or needs.

Be Prepared When the Inspector Shows Up

Most businesses get inspected. Whether it’s EPA, OSHA, IRS, TCEQ, the city health inspector or the fire marshal, the general principles are the same: to be as prepared as possible. I’ve represented a lot of companies during and after inspections, and I’ve seen it all – the good, the bad, and the ugly. In this post, I’ll provide tips on being prepared for and properly responding to inspections.

(Note- this doesn’t necessarily apply to criminal inspections or search warrants) Continue reading Be Prepared When the Inspector Shows Up

Mediation Can Be an Effective Solution to Costly Disputes

Environmental disputes can turn costly quickly: samples, more samples, experts, attorneys, more experts. In my experience, few environmental disputes are worth the expense of going to trial.

I recently completed a 40-hour mediation training class and was reminded how cost-effective mediation can be. I wanted to share these thoughts while they were still fresh in my mind.

Mediation isn’t always the answer. But, not only can it provide an important reality check, it can also encourage more creative resolutions than anything available in a courtroom. Continue reading Mediation Can Be an Effective Solution to Costly Disputes

Understanding Black Mold Assessment and Remediation – Don’t Get Duped

In the aftermath of the 2017 hurricanes, black mold has become one of the most critical issues encountered during building repair and reconstruction. You need to know:

1) what regulations are applicable for your location,

2) what is required and what is not, and,

3) what you can control. Continue reading Understanding Black Mold Assessment and Remediation – Don’t Get Duped

The Best of the Offshore Technology Conference

I attend the Offshore Technology Conference (OTC) last week in Houston. After walking more than 11 miles and visiting almost every booth (thank goodness for the best conference app I have used), here are the coolest things I saw and the best swag I received:

Coolest Products

AbTech makes Smart Sponge that adsorbs oil rather than absorbing it. The result is that oil doesn’t drip from the sponge when squeezed. They sell it for socks and in square blocks to put in subfloor drains. I found it ironic that AbTech is located in arid Scottsdale, AZ
Mont demonstrated a neat Bristle Blaster that removed corrosion from pipes without using grit. Pretty cool.
Noke makes bluetooth-enabled locks that you can open with an app on your phone.
Gaston Mille sells anti-slip and steel-toed slip on shoe covers. This would be more convenient for visitor shoes, and easier to carry yourself if visiting a plant. They are new to the US.

Coolest Swag

Most booths had the usual pens, coozies, mints, and beer (well, isn’t beer is always a a cool swag?). Among the thousands of booths, I found a couple of cool swag items:

Draeger do rag. Who doesn’t want to look like a cool “gansta” with a do rag emblazoned with the Draeger logo?
Moscow Mule copper cup. Although I’m not a fan of the drink (too sweet), the cup is still cool. From Copper State Rubber.
A keychain with a flashlight AND three small tools to fix your eyeglasses. Provided by TTS Group ASA

Best Slogan

As a bonus for those who have read down this far, the best slogan was from a company that makes hydraulic and pneumatic wrenches: “tools for studs with big nuts”

Did I get any business or prospects from OTC? Probably not, but it was quite an experience and worth attending once.

Don’t Underestimate Environmental Due Diligence

I’ve been to a lot of “deal maker” networking events lately. These are the ones with lenders, private equity folks, M&A attorneys and other people who help put deals together. When I introduce myself, many are perplexed about why I am there. “Do you do Phase I’s?” they ask. “No. I review Phase I’s to make sure they are done properly and resolve issues identified in those reports.” I reply, adding “I also make sure the business has the proper environmental permits, authorizations and registrations and that they are in compliance with those requirements.” Then, they get a look that says they didn’t consider those issues in their last deal. Oops.

Environmental Due Diligence is so much more than doing a Phase I on real property. I had a client come to me after he purchased a business. TCEQ inspected the business not long after the deal closed and found that they were operating in excess of their permitted limits. TCEQ shut down the business until they could get the proper registration. Had the client reviewed the permit conditions before closing, he would have seen the noncompliance and could have made the seller remedy it.

Don’t underestimate the environmental requirements of a deal. For example, do your deals involve food distribution businesses? Keep in mind that commercial refrigeration units are regulated by the Clean Air Act. In early 2016 Trader Joe’s agreed to pay EPA a $500,000 penalty for failing to inspect and repair leaks in its refrigeration units.

Environmental due diligence should be more than checking a box. The consequences can be devastating.

You Can’t Make This Stuff Up

How long has lead in soil and groundwater been regulated? Since environmental regulations first came out. So, imagine my surprise when I learned that in December (yes – last month), the FDA issued GUIDANCE for the lead concentration in lipstick.

FDA has suggested that lipstick contain no more than 10 ppm lead, stating “[w]e determined that exposure to 10 ppm lead from incidental ingestion of cosmetic lip products is very small and cannot be measured in routine blood testing.”

Compare that to environmental regulations for lead. TCEQ has set the residential lead concentration in soil to protect leaching into groundwater at 3 ppm.

So, explain to me why it’s okay to have 10 ppm in lipstick that will be ingested, but it is not okay to have 3 ppm lead soil that could leach and then get diluted in groundwater? Is 10 ppm too high or is 3 ppm too low?

Rant over.

Get Your Checkbooks Ready!

Effective August 1, 2016, EPA implemented significant civil penalty increases. These changes will apply to all pending and future cases relating to violations occurring after November 2, 2015. In addition, EPA said it intends to do additional inflation adjustments annually, beginning on or shortly before January 15, 2018.

For example, the maximum RCRA (solid and hazardous waste) penalty increased from $37,500 to $40,779 per violation. EPCRA Section 313 (Form R) maximum penalties increased roughly 63% from 2001 levels.

My takeaway from this is that it is more important than ever to have a solid environmental management program in place and conduct periodic audits to ensure the program is effective. EPA’s e-disclosure policy provides various levels of penalty relief for self-discovered, self-reported, and self-corrected violations. Contrary to recent rumors, the program is alive and well and not being discontinued.

Here’s a link to the EPA memo detailing all of the increases. The specific adjustments are in Table A. Note that OSHA is implementing a similar penalty increase. Link