Source: http://acoel.org/2011/02/default.aspx
Timestamp: 2019-04-20 02:38:13+00:00

Document:
Today, a drive through Georgia will present dozens of half-developed abandoned residential subdivisions, many having been graded and with various degrees of erosion control in place. However, the erosion control devices have not been maintained and are in disrepair. Such protection measures, if they even exist, fail to prevent Georgia red clay and other soils from rushing down the streets, causing damage to the proposed development as well as to neighboring down-gradient properties, and running off into nearby streams causing elevated turbidity and other problems.
Both federal and state environmental agencies are struggling to address this problem and have begun to develop regulations and guidelines to assign responsibility for reconstruction and continued maintenance of the soil and erosion control devices. Under a standard stormwater regime such as Georgia’s, prior to land disturbance activities, a developer must submit a Notice of Intent (NOI) to discharge stormwater under the state’s General Permit. Such permit is required for land disturbance of greater than one acre due to construction activities. Failure to obtain coverage under the General Permit or violation of the requirements of the Permit may result in daily fines. Typically, the developer is responsible for any violations or resulting fines. However, due to current economic conditions, many developers have abandoned their projects and are nowhere to be found, or have filed bankruptcy.
Thus, lenders are finding themselves left with loans secured by these properties and if they hope to recover on the collateral, they will have to confront the problems associated with them. The standard Phase I assessment does not consider stormwater compliance. Yet, many lenders foreclose on such properties without considering the consequences. The Clean Water Act under which the General Permit is issued does not have a secured creditor exemption and therefore, after foreclosure, lenders may be responsible as either an owner or operator. Lenders can then be liable for any permit violations and fines, which can range from hundreds to thousands of dollars. In addition, lenders may face the cost of maintaining continued compliance with soil and erosion control requirements and claims from down-stream property owners. Perhaps most importantly, savvy buyers will not relieve lenders of these problems, resulting in steep discounts at sale that may over-penalize relative to the real risk.
Georgia is in the lead among states in taking specific steps to impose stormwater liability upon lenders. In 2008, Georgia EPD issued new General Permits for Storm Water Discharges Associated with Construction Activity for Stand Alone Projects, Infrastructure Projects, and Common Developments. Under these new General Permits, a lender who acquires title to the construction site is directed to file a new NOI either seven days before beginning work at the construction site or thirty days from acquiring legal title to the property, whether the lender intends to carry out any land disturbance construction activities at the property or not. Under the permit and related regulations, EPD’s position is that a foreclosing lender essentially steps into the shoes of the former Permitee, assumes that Permitee’s obligations and must continue to comply with the General Permit. Obviously, this has serious implications for lenders, which are all too often discovered after it is too late.
However, it can be argued that these provisions of the new Permits stretch the boundaries of EPD’s authority. A defense to this broad assertion of liability for lenders lie in the fact that the lender (which may have to hold the property for years) does not intend to conduct any “land disturbance of one acre or more” on the property. It is that activity which would make the provisions of the General Permit applicable. Further, the General Permit does not specifically impose such obligation on a successor purchaser of the property who does not intend to carry out land disturbance activity. Why, then, should a foreclosing lender be treated differently than any other entity in Georgia solely because it has foreclosed on a property to protect its financial investment. The validity of this new provision has not been tested in court, but arguably would be subject to legal challenge.
Obviously, a lender who finds itself in this position would ideally undertake appropriate due diligence before foreclosing. The lender should determine what the actual status of the property is and whether foreclosing, and stepping into the shoes of the Permitee as EPD asserts, is worth the risk. For low value properties it may be better for the lender not to foreclose but instead to implement other strategies to realize on the collateral like note sales. On the other hand, if the lender does foreclose it certainly should take appropriate steps to protect itself from a number of risks, particularly claims from downstream property owners. Regardless of whether taking title makes sense, it may also be appropriate to take certain actions to stabilize the property, which could have the twin benefits of defusing regulatory scrutiny and removing a topic for negotiation with potential purchaser. In any event, following the General Permit provisions by filing an NOI and voluntarily stepping into the shoes of the previous Permitee may not be the wisest decision. A lender who does not take steps to preserve the ability to assert its defenses may be left holding a property for many years before it can be sold, and having to maintain soil and erosion control installations and continually monitor such devices for a significant period of time at a substantial cost. At a minimum, appropriate analysis needs to take place prior to foreclosure regarding which approach to use for recovery against the collateral in order for a lender to assess its risk and determine the best course of action.
Last month, the Alabama Department of Environmental Management (“ADEM”) gained the Environmental Protection Agency’s (“EPA”) long-awaited approval of its proposed stormwater pollution regulations. EPA’s approval ends the looming threat it would take over Alabama’s stormwater permitting in the event ADEM did not cure certain deficiencies contained in previous draft regulations. EPA’s primary concern with ADEM’s previous draft regulations was that the regulations did not make clear exactly what obligations a local government had with respect to stormwater management. This issue has sparked intense debate from various groups over the last several months. One constituency, primarily builders and developers, argued that increasing local governments’ role in stormwater pollution prevention is unnecessary and wholly duplicative in light of ADEM’s existing regulations. On the other hand, various environmental groups contended that ADEM is simply ill-equipped to handle monitoring and enforcement responsibilities at the local level. Under the proposed regulations recently accepted by EPA, local governments must adopt local regulations to control runoff, conduct site inspections, and must have enforcement authority. EPA’s recent approval settles this dispute for the time being, but just as importantly, ends the threat that it would take over stormwater permitting in Alabama. It should be noted that the proposed regulations will not become final until ADEM has completed its review of and responded to the comments received during the rule making process.
Although EPA’s threat to take over Alabama’s permitting could be viewed as a strategic maneuver designed to hasten ADEM’s action, such a threat should not be taken lightly given EPA’s recent actions in Texas. EPA issued a series of rules and regulations that would bring greenhouse gases under the permitting programs of the Clean Air Act beginning January 2, 2011. To bring about these changes, EPA asked each state to revise and submit new state implementation plans to account for greenhouse gases. Several states publicly voiced their concern and disagreement with the rulemakings, but only Texas persisted in completely refusing to cooperate with EPA. After Texas failed to meet EPA’s deadline for submitting a revised plan, EPA sent Texas a letter stating that it would proceed with taking over Texas’s air permitting program. In response, Texas filed two petitions asking the Fifth Circuit Court of Appeals and the U.S. Circuit Court of Appeals for the District of Columbia to stay the EPA takeover. On December, 25, 2010, the Fifth Circuit denied Texas’s request for an immediate stay. While the D.C. Circuit issued a short-lived administrative stay, the court lifted the stay on January 12, 2011, determining that Texas had failed to meet “the stringent standards required for a stay pending court review.” While these rulings represent just one battle in the war between EPA and Texas, it remains to be seen how they will shape Texas’s strategy moving forward. Regardless of the ultimate outcome in this litigation, one thing is clear – the current EPA has demonstrated that it is not adverse to stepping in to take over state environmental regulatory programs in circumstances where EPA determines that the state agency is either unwilling or unable to implement federal law.
HOW MUCH MORE ARE YOU WILLING TO PAY FOR ELECTRICITY TO SAVE FISH FROM COOLING WATER INTAKE STRUCTURES?
EPA MAY SOON BE ASKING YOU!
On January 21, 2011, EPA published a final information collection request (ICR) as the first step in assessing the benefits of imposing what industry fears to be severe and costly measures to control fish being crushed against cooling water intake screens (impingement) or trapped in the cooling water as it flows through an electrical facility’s cooling water system (entrainment). 76 Fed. Reg. 3883. In early life stages, many fish that support commercial and sport fisheries are small enough to pass through screens installed to prevent the entrainment of larger individuals. The ultimate impact upon fish stocks, caused by the loss of juvenile and larval forms of many fish species, may be incalculable.
Long prior to the Clean Water Act and the existence of EPA, much of the nation’s energy needs was met through waterfront electrical facilities with large pipes and pumping systems referred to as cooling water intake structures (CWIS). The 1972 amendments to the Federal Water Pollution Control Act addressed the issues of impingement and entrainment with a single sentence requiring that “the location, design, construction and capacity of cooling water intake structures reflect the best technology available for minimizing adverse environmental impacts.” 33 U.S.C. § 1326(b); CWA § 316§(b). When EPA or an approved state issued a point source discharge permit under the National Pollutant Discharge Elimination System (NPDES), the permit writer would apply best professional judgment (BPJ) to assure that the CWIS of an electrical facility met that narrative standard in § 316(b) of the Clean Water Act. Some facilities were allowed to offset the presumed impacts upon fish populations with programs designed to restore fisheries such as constructing hatcheries and stocking juvenile sport fish species into nearby waters. Always at issue was the fundamental tension between growing energy needs and the potential impact the CWIS would have upon fish populations.
In 1993, environmental interests filed a citizen suit alleging that EPA had violated the Clean Water Act by failing issue regulations implementing § 316(b). Cronin, et. al. v. Reilly, 93 Civ. 0314 (S.D.N.Y 1993). EPA resolved that case by consent decree (and amendments) which ultimately allowed EPA to perform three phases of rulemaking: Phase I addressing new facilities, Phase II addressing existing facilities, and Phase III which applied to existing facilities not captured within the scope of Phase II. EPA’s Phase I and Phase II rules were challenged by Riverkeeper, Inc., and others, resulting in the Riverkeeper I decision of February 2004 and Riverkeeper II decided in January of 2007. Riverkeeper, Inc. v. EPA, 358 F.3d 174 (2d Cir. 2004); Riverkeeper, Inc. v. EPA, 475 F.3d 83 (2d Cir. 2007).
EPA’s Phase I rule, for the most part, survived judicial challenge. A provision that would continue to allow restoration measures to offset potential losses was struck down as inconsistent with the Clean Water Act. Very little of the Phase II rule survived the Riverkeeper II litigation, with the court remanding the rule back to EPA for another try. A key issue in that case, whether EPA was precluded from weighing environmental benefit against costs in implementing § 316(b), was taken to the United States Supreme Court. On April 1, 2009, a majority of the Court ruled that § 316(b) of the Clean Water Act does not preclude EPA from comparing costs to environmental benefit in determining the best technology available for minimizing adverse environmental impact from cooling water intake structures. Entergy, Inc. v. Riverkeeper, Inc., 129 S.Ct. 1498 (2009).
To date, EPA has not issued its new Phase II rule. In November of 2010, EPA executed a settlement agreement with parties to the original 1993 matter (“Cronin Plaintiffs”) and the Riverkeeper II parties dismissing the cases so long as EPA proposes new Phase II regulations by March 14, 2011, and then issues its final rule by July 27, 2012.
The ICR published January 21, 2011 will ask individuals from U. S. households whether or not they would support policies that would increase their cost of living “in exchange for specified multi-attribute changes” in (a) impingement and entrainment losses, (b) commercial fish populations, (c) long-term populations of all fish, and (d) condition of aquatic ecosystems. EPA estimates that is will poll 9,533 respondents by telephone while another 2,288 will be mailed questionnaires. EPA asserts that statistical analysis will result an estimate of Willingness-To-Pay (WTP) “for the quantified environmental benefits of the 316(b) rulemaking.” In a nation of approximately 312 million individuals, EPA intends to poll less than 12,000 respondents. There is no guarantee that all of those who are asked will participate in EPA’s survey. How this information will translate as support for EPA’s Phase II rule remains to be seen. Another round of litigation come July 2012, when EPA issues its final rule, may be on the horizon.
Written by: William Green and Winston Borkowski.
Upcoming Federal Trade Commission Revised "Green Guides"
In the environmental area such claims can attach to a product, package or service in its labeling, advertising, promotional materials or other forms of marketing or sales paraphernalia, in any medium, expressed or implied, and including words, symbols, logos, depictions, brand names, etc. To avoid being deceptive, there has to be a reasonable basis to substantiate a claim which often requires competent, reliable scientific evidence, often based on tests, analyses, research or studies.
The original Green Guides were issued in 1992, and were amended in 1996 and 1998. The FTC began its current review of the Guides in 2007, proposed revisions in October 2010 and closed the public comment period on December 10, 2010.
Although the proposed Green Guides are voluminous and people should refer to the proposal in the October 15 Federal Register, suffice to say that they now intend to cover not only the products and services within a building, but the proposed Guides, if adopted in their current form, would be interpreted to apply to buildings themselves, which was contrary to the former belief that product liability did not attach to buildings. According, in addition to concern for environmental disclosures, regulated by the Securities Exchange Commission, the FTC would now constitute a second regulatory review agency.
New Rapanos Guidance Coming--Third Time's the Charm?
On December 20, the Environmental Protection Agency and the U. S. Army Corps of Engineers submitted draft guidance to the Office of Management and Budget to determine when wetlands are subject to regulation under the Clean Water Act. This will be the third attempt to provide guidance on implementing the conflicting standards announced by a fractured Supreme Court in Rapanos v. United States.
In an opinion written by Justice Scalia, a plurality of the Court declared that Clean Water Act jurisdiction extended only to wetlands of a semi-permanent nature that abut open water. This is a test that many wetlands, previously thought to be jurisdictional, would fail to meet. A concurring opinion offered by Justice Kennedy announced a wholly different standard: A water or wetland is jurisdictional if there is a “significant nexus” between the wetlands and navigable waters, focusing on whether there is “a reasonable inference of ecological connection” between the two. The dissent written by Justice Stevens and joined by three others, finds both tests wanting and suggests that jurisdiction is present when either is met.
Agencies and courts have since strained to reconcile these opposing views. EPA and the Corps have attempted to provide guidance on when and how to apply each test, the first in June 2007 and the second in December 2008. Courts have dutifully tried to discern clarity in the Court’s opinions and have given the joint agency guidance Skidmore deference, meaning they use the guidance to the extent it is persuasive. Considerable uncertainty remains in determining when permits are needed in many cases, causing obvious problems for the development community.
The Obama Administration favors a legislative fix, but Clean Water Act reform seems unlikely just now . . . or during my lifetime. There have been a lot of cases decided since the 2008 guidance was released, so the new guidance perhaps will distill that experience and give us something useful to work with. OMB review can take up to 90 days, so look for the guidance no later than the end of March.

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