04.01.2009 Remedial Dissonance: North Carolina’s Inactive Hazardous Sites Program and Brownfields Program – A Limited Resolution of Liability for Contaminated Sites NC Bar Association Energy & Natural Resources Law Section Newsletter; Vol. 20, No. 2
Reproduced with the express and limited permission of the North Carolina Bar Association. All rights reserved. 

    The recent transfer of many contaminated sites from the Aquifer Protection Section of the North Carolina Department of Environment and Natural Resources (“DENR”) to DENR’s Inactive Hazardous Sites Branch (“IHSB”) has overwhelmed IHSB's staff and created a certain amount of confusion and delay among responsible parties. To address this problem, DENR has suggested that responsible parties consider enrolling contaminated sites in DENR’s Registered Environmental Consultant Program (the “REC Program”). The REC Program allows a responsible party to employ an environmental consultant to serve as a proxy for IHSB and to take action at contaminated sites faster than would otherwise be possible. Given that IHSB’s resource limitations are unlikely to change over the short term, the REC Program is becoming a more attractive option for responsible parties than it has been in the past. 
    Though the REC Program offers responsible parties a way to avoid delaying remedial actions, many parties are reluctant to enter the program due to the number of unresolved questions that surround it. For these parties, the alternatives under state law are either to wait until IHSB decides to require remedial action at a site (a "state-lead site") or to perform an independent cleanup and seek a no further action letter (an “NFA”) from DENR pursuant to N.C.G.S. § 130A-310.7(c).
Regardless of the path a responsible party chooses, the effect of completing a remediation in accordance with state law is limited so far as EPA’s authority under CERCLA is concerned. Moreover, performing a remediation in accordance with state law does not affect the applicability of federal regulatory programs that EPA has not delegated to DENR. Simply put, complying with North Carolina law does not ensure that a responsible party will avoid having to deal with EPA.

EPA’s Authority under CERCLA is Unaffected by State Law-Based Cleanups or Settlements 

    Without a Cooperative Agreement between EPA and a state pursuant to Section 104(d) of CERCLA, a state cannot settle claims under Section 106 or 107 that EPA could otherwise assert. See, e.g., W.R. Grace & Co. v. Zotos International, Inc., 2005 Westlaw 1076117 (W.D.N.Y. May 3, 2005); ASARCO, Inc. v. Union Pac. R.R. Co., 2006 U.S. Dist. LEXIS 2626, 19 (D. Ariz. Jan. 24, 2006) (“Of course, a state is not required to seek authorization from the EPA before entering into settlements concerning environmental cleanups, but in that event, the settlement could not be deemed to resolve CERCLA liability.”). In other words, a NFA from DENR may resolve a responsible party’s obligations to the state, but it does not affect the party’s obligations to EPA nor EPA’s authority to (i) seek recovery of its costs under Section 107 of CERCLA, or (ii) its ability to require an abatement action at a site under Section 106 of CERCLA. In North Carolina, if EPA disagrees with the remedy for a site, there is nothing to prevent EPA from ordering additional work and/or suing a responsible party to recover EPA’s oversight and response costs. Similarly, a monetary settlement with DENR will not be a settlement of CERCLA liability that affords a party contribution protection under CERCLA Section 113. 
    From a practical standpoint, if a PRP Group for a site is able to complete a remedial action under state law, the risk of an EPA action, and additional liability, is minimal. But, in the event that a PRP Group defaults on its obligations to DENR, smaller responsible parties that accepted a cash-out settlement may find themselves back at the table – this time with EPA. The disconnect between federal and North Carolina law also suggests that in transactional documents, environmental practitioners must be careful in identifying the endpoints of a buyer’s or seller’s remedial obligations. Requiring a party to get an NFA from DENR may not be enough in North Carolina. 

State Law-Based Settlements May not Create a Right to Contribution from Other Responsible Parties 

    Absent a Cooperative Agreement between EPA and a state, a responsible party may not be able to seek contribution for clean up costs from other responsible parties. Section 113 of CERCLA gives a party who is subject to a civil action under Section 106 or 107 of CERCLA the right to seek contribution for cleanup costs from other parties who may have contaminated a site. This right also exists if a responsible party has settled its CERCLA claims with EPA pursuant to an administratively or judicially approved settlement. Without a Cooperative Agreement, any civil action or settlement of environmental liabilities between responsible parties and DENR would be based on state environmental laws and a responsible party would not be able to state a contribution action under CERCLA to recover costs from other responsible parties. See, e.g., Consol. Edison Co. of N.Y., Inc. v. UGI Utils., Inc., 423 F.3d 90, 96 (2d Cir. 2005) (“Accordingly, we believe [Section 113 of CERCLA] does not permit contribution actions based on the resolution of liability for state law—but not CERCLA—claims.”).

Cooperative Agreements with EPA 

    Cooperative Agreements can be site-specific or they can be in the form of a Memorandum of Agreement (“MOA”) with EPA. Presently, twenty-three of the fifty states have MOAs with EPA, including Virginia and Florida, but not North Carolina. An MOA defines the circumstances in which a state may settle EPA’s claims under CERCLA, and it represents a finding by EPA that the state’s program is sufficient to implement certain other requirements of CERCLA. So long as a responsible party’s settlement and cleanup agreement with the State is consistent with the MOA, that party will have resolved its liability to EPA and to DENR. EPA has explained the eligibility criteria for an MOA in Guidance for Developing Superfund Memoranda of Agreement (MOA) Language Concerning State Voluntary Cleanup Programs (1997). 
    Site-specific Cooperative Agreements allow states, and their political subdivisions, to exercise the enforcement authorities granted to EPA by CERCLA, such as settlements and approval of remedial actions for a specific site. To be eligible for a site-specific Cooperative Agreement, the governmental entity must submit: (a) a letter from the state Attorney General or the applicant’s chief legal officer certifying that the applicant has sufficient authority to implement CERCLA, (b) a copy and summary of the relevant statutes and regulations, and (c) any additional information that EPA may request. See, e.g., 40 C.F.R. § 35.6145. In addition to providing the states and their political subdivisions with additional enforcement authority, a Cooperative Agreement also allows applicants to apply for funding for certain enforcement activities from EPA. See 40 C.F.R. § 35.6150.

Some Federal Regulatory Requirements are Still Important 

    A state law-based remedial action does not affect the applicability of certain federal regulatory programs, most notably, those programs regulating the investigation and remediation of PCBs. The federal Toxic Substances Control Act (“TSCA”) requires EPA to regulate the remediation and disposal of PCB-contaminated soil and groundwater, and TSCA does not allow EPA to delegate that authority to states. As a result, responsible parties need to be aware of the requirements of 40 C.F.R. Part 761 if their site contains PCB contamination. Among other things, EPA must approve the proposed remedy for PCBs before the remedial action begins, regardless of whether DENR has approved the proposed remedy or not. And, to be clear, Cooperative Agreements do not affect the applicability of non-delegable federal programs such as those under TSCA.

The North Carolina Brownfields Program 

    The critical component of a North Carolina Brownfields Agreement is, of course, DENR’s covenant not to sue the prospective developer (the “PD”), in exchange for the PD’s agreement to take sufficient remedial action at the property to make the site safe for the proposed use. Unfortunately, the effect of DENR’s covenant not to sue on EPA’s rights at a site might not be as open-and-shut as DENR believes.
According to DENR’s website for the Brownfields Program, a PD does not need a Brownfields Agreement from EPA if it has one with DENR. See Program FAQ 11, DENR’s position is that protection from liability to EPA comes “via statute and not via contractual agreement,” as the “[t]he federal brownfields statute defers jurisdiction of such sites to the state so that, in effect, the brownfields agreement is the agreement that governs the liability from the state and federal level.” 
    While DENR is correct that protection from EPA can arise by statute as opposed to a contractual agreement, the parties who are entitled to liability protection under Section 128 are narrower than the parties who receive protection from the Brownfields Program, and many Brownfields Agreements contain language that may limit DENR’s ability to relieve a PD from liability under CERCLA. The critical statutory provision is CERCLA Section 128, regarding state response programs, which Congress added to the statute as part of the 2002 Small Business Liability Relief and Brownfields Revitalization Act. 
    Section 128(b) prevents EPA from taking action under Sections 106 and 107 of CERCLA – subject to a number of exceptions – where:
[A] person is conducting or has completed a response action regarding the specific release that is addressed by the response action that is in compliance with the State program that specifically governs response actions for the protection of public health and the environment.

42 U.S.C. § 9628(b)(ii) (emphasis added). Notably, this protection from CERCLA liability extends only to the person who performs the response action, it does not extend to other parties in the chain of the title. See 42 U.S.C. § 9628(b); Report of the Senate Committee on Environment and Public Works, Brownfields Revitalization and Environmental Restoration Act of 2001, S. Rep. No. 107-2, at 16 (2001) (“The limit on EPA’s authority applies only to actions by EPA against the person conducting the cleanup.”). Thus, in transactions where an intermediary takes title to a property but ultimately transfers title to another party to redevelop the site, the passive intermediary may receive protection under state law, but it would not receive protection from CERCLA liability. Similarly, parties who take title to a property after the remediation is complete do not get protection under Section 128. Given that remedial actions at Brownfields sites are intended to make the property safe for its proposed use – as opposed to protecting the environment generally – it is likely that residual contamination will remain at a site, and owners who do not perform cleanup work, as well as purchasers after the remediation is complete, run the risk of CERCLA liability for that residual contamination. 
    In addition, many Brownfields Agreements from DENR contain the following boilerplate statement:
This Agreement in no way constitutes a finding by DENR as to the risks to public health and the environment which may be posed by regulated substances at the Property, [or] a representation by DENR that the Property is fit for any particular purpose ….

Because CERCLA liability protection under Section 128 only extends to response actions that are intended to protect “public health and the environment,” the presence of this boilerplate in a Brownfields Agreement may limit a PD’s protection from CERCLA liability.


    When viewed as a whole, it seems that DENR’s Inactive Hazardous Sites program has a number of gaps, so far as its ability to create finality and certainty is concerned. Developing an MOA with EPA regarding CERCLA enforcement would go a long way towards closing many of these gaps. DENR would have the ability to settle a party’s liability for a site under state and federal law, it could afford parties contribution protection under federal law, and it could create the right for settling parties to seek contribution from other parties under CERCLA. DENR would also be able to exercise the authority given to EPA under CERCLA, which would increase DENR’s ability to obtain settlements from responsible parties. 
    An MOA would also allow DENR to provide greater protection to parties that obtain Brownfields Agreements. If a Brownfields Agreement included a covenant not to sue under CERCLA, all parties to that agreement, regardless of which one performs the remedial work at a site, would have liability protection under CERCLA as well as North Carolina law. Because an MOA would also allow DENR to issue an NFA that resolves EPA’s claims, subsequent purchasers of brownfields sites could take added comfort in assurances from a seller, or DENR, that a remedial action is complete. 
    The biggest obstacle to obtaining an MOA appears to be the limitations of the Inactive Hazardous Sites program. For example, the public comment requirements for the Inactive Hazardous Sites program are not comparable to public comment requirements for CERCLA. And, EPA may be unwilling to enter into an MOA with DENR, given IHSB’s current resource limitations. 
    Until DENR is able to modify the Inactive Hazardous Sites program, practitioners need to be aware of the limitations of North Carolina’s cleanup programs. They should also bear in mind that DENR cannot supplant EPA in certain regulatory programs, such as the TSCA regulations regarding PCB contamination. Clients should understand the gaps in the program, and transactions need to be structured and memorialized in light of these gaps.