Over a year ago, I commented on the continuing discovery of new commercial uses for nanomaterials—particles at the scale of one billionth of a meter—and the continuing delay in developing better means of governmental oversight to manage any health and environmental risks.  Since then, several new steps in regulatory oversight have been taken, most notably in Europe. 

Here in the United States, EPA has employed the significant new use rule or SNUR under Section 5 of the Toxic Substances Control Act with respect to a number of nanomaterials undergoing premanufacture (PMN) review, its most recent pronouncement being the proposed application of SNURs to 14 carbon nanotube materials as published in the February 25, 2013 Federal Register.  78 Fed. Reg. 12684-12701.  Such SNURs can impose restrictions and conditions on the production, import, and use of a pmn chemical containing nanomaterials.  These requirements generally address worker protection and may also limit production unless releases to water are prevented or further testing of health or environmental impacts is performed.  See, e.g. the December 28, 2011 proposed rule establishing SNURs for seven nanomaterials.  76 Fed.Reg. 81447-81462.     

European regulators have traditionally been less reluctant to request chemical information or regulate chemical constituents than their U.S. counterparts.  The European Union’s REACH law governing chemicals, both new and in use, illustrates the EU’s willingness to impose significant information reporting.  The EU is also more inclined to require broader disclosure of information to the public in the form of product labeling, and the European Commission has set labeling requirements for the use of nanomaterials in food.  The new rule, effective in 2014, adds a definition for “engineered nanomaterials” at Article 2(t), and Article 18.3 requires that all ingredients in the form of engineered nanomaterials be clearly indicated with the word “nano” in brackets after the ingredient name.  Paragraph 25 of the rule’s preamble also notes the possibility that nanomaterial content will result in a “novel food” under the current rule generally known for its coverage of genetically modified organisms.  (Revision of the novel food rule has been delayed by an interesting dispute over whether food from the offspring of cloned animals should be categorized as “novel.”  Further delay is likely while EU regulators grapple with exotic equine ingredients.)

France has taken another step in the regulation of nanomaterials by adopting the first mandatory reporting scheme beginning in January 2013, with the initial annual report due May 1.  The French decree (Decree No. 2012-232) requires manufacturers, importers, distributors, and research and development laboratories using quantities of 100 grams or more to submit an annual declaration identifying the quantity and use of substances with “nanoparticle status” under the EC’s definition set forth in the REACH (Registration, Evaluation, Authorization and Restriction of Chemical Substances) regulations.  Companies exporting to France presumably will have to provide the information so that importers can comply with the new requirement.

Implementation of the French reporting program may well provide valuable information to U.S. regulators on whether and how a reporting rule can strengthen governmental oversight without unduly burdening commercial introduction of new and potentially beneficial materials.

The Environmental Protection Agency (EPA) is planning a rulemaking to expand its Toxic Release Inventory (TRI) program in March 2013. Will the oil and gas extraction sector be included in the program’s expansion?

As part of the Emergency Planning and Community Right-to-Know Act (EPCRA), the TRI program gathers and makes public information about chemical and waste management activities at a wide variety of facilities. EPA touts TRI reporting as one mechanism to reduce the release of chemicals into the environment. It claims that the information gathered helps companies keep up with competitors’ efforts to reduce and recycle waste, and that the public dissemination of information can lead to citizen and EPA enforcement.

EPA considered including the oil and gas extraction sector in TRI in 1997, but decided against it due to technical issues in determining whether individual wells spread out over large geographic areas would be considered a “facility” under EPCRA. A petition filed by environmental groups claims these technical issues are resolved and points to the basin-level definition of facility in EPA’s greenhouse gas (GHG) reporting rule as an example of how oil and gas production operations can be aggregated. Meanwhile, the GHG reporting rule is still under administrative reconsideration and the definition of facility under that rule is a key point of contention between EPA and industry.

As recently as last week, EPA’s Inspector General “recommend[ed] that EPA develop and implement a comprehensive strategy for improving air emissions data for the oil and gas production sector.” If oil and gas production is included in TRI, how will it affect the sector? Will it be a way to get at chemical ingredients used in hydraulic fracturing that are otherwise protected from disclosure as trade secrets? Will the aggregation of data for TRI purposes spill over into air and waste permitting decisions? At a minimum, TRI would require industry to gather more information on chemicals, wastes and emissions and make it publicly available. Thus, industry should prepare for the corresponding public attention and regulation that may accompany TRI expansion.

For Toxic Substances Control Act (TSCA) aficionados, a new federal legislative session holds the promise of long overdue legislative reform.  Among the oldest environmental laws, it is also the most neglected.  While hope springs eternal, the odds are against reform any time soon.  A deeply divided Congress makes any environmental measure contentious.  Pile on other Congressional priorities, including immigration reform, gun safety, and climate change, and we have the makings of more Congressional inaction and gridlock.

It is against this backdrop that we await introduction of Senator David Vitter’s (R-LA) TSCA reform bill, expected this month.  As the new ranking Republican on the Senate Environment and Public Works Committee, Senator Vitter’s much-awaited bill marks the first Republican alternative to Senator Frank Lautenberg’s (D-NJ) long-standing TSCA reform measure, the Safe Chemicals Act.

Among many contentious issues is the TSCA safety standard.  Senator Lautenberg’s bill contains a “reasonable certainty of no harm” standard to replace the current “unreasonable risk” standard.  This language is found in the 1996 Food Quality Protection Act and defines the applicable standard for pesticide exposures in food.  A key area of controversy is whether such a standard for food safety is appropriate for chemical exposures, or otherwise represents a “zero risk” standard that likely would inspire epic regulatory costs for questionable improvements in true risk reduction.  In the void left by Congressional inaction, state measures are gaining ground.  The California Safer Consumer Products Regulations are expected to be issued in final form sometime this year.  This game-changing approach to assessing the safety of chemicals in consumer products by requiring chemical “alternative” assessments may well become the default safety standard in the absence of federal legislation.

2013 will be a watershed year for domestic chemical management initiatives.  Even if federal inaction continues, a California initiative, like so many others in the past, may prevail and take domestic chemical product safety to places and levels Congress declines to go.

Those environmental lawyers who had a two- or three-day “vacation” due to Hurricane Sandy now return to the office to face a workload that will in many cases be trebled. First, there’s the work you didn’t get to when your office was closed and now has to be finished post-haste. Second, there’s the work that you would have been doing the next few days had there been no hurricane. And third, there’s the urgent work that you now have to help your clients assess new issues that are present precisely because of the storm.

Wind and water mobilize even structures, equipment and materials that were always meant to be stationary. Storage tanks, waste ponds, drums, hazardous materials and other previously contained environmental hazards have now been released, flooded, or overtopped, often releasing reportable quantities of material. Clients will need to quickly assess the nature and magnitude of releases at and from their facilities to determine their environmental obligations.

The prudent environmental lawyer will immediately begin working with clients to determine whether there are spills and releases that must be reported to federal, state and local environmental agencies. Potential liabilities may depend upon whether under the applicable laws “Act of God” is or is not a defense.  Surprisingly, a major hurricane is not, in the eyes (pun intended) of some agencies interpreting some statutes, an Act of God. Clients also need to verify that their pollution control systems – wastewater treatment, air pollution, etc. – are functioning correctly post-storm, even if there were no reportable releases during the storm.

Clients are undoubtedly attuned to the need to submit insurance claims for business interruption and damage to their own property, but now is a good time to begin surveying what kinds of claims might be coming from neighbors and others damaged by releases from the client’s facility. This is particularly so given that we are nearing year-end and many policies no longer have “tails” for notices of claims received after the policy year has run.

2012 marks the 50th anniversary of Silent Spring, one of the first books to point out the environmental dangers associated with pursuing technological and scientific advances without fully understanding their possible negative side effects. Silent Spring was a revolutionary environmental exposé published in 1962 by an unassuming author, Rachel Carson.  Her book inspired a powerful social movement that continues to impact environmental law and American society today.

A scientist and ecologist, Carson was a former editor of U.S. Fish and Wildlife Service publications and a feature writer for the Baltimore Sun who eventually dedicated herself to writing books that taught people about the fragile beauty of Earth’s ecosystem. Silent Spring was written in the wake of post-war lethargy, new affluence and during a time when Americans were confident science had all the answers.  Disturbed by the proliferate use of synthetic chemical pesticides after WWII, Carson challenged this practice and sounded a loud warning about the use of chemical pesticides, a reminder of the responsibility of science and the limits of technological progress.

Critics called Carson an alarmist, and Silent Spring was met with intense rebuttals from the scientific establishment and some major industries.  Regardless, Carson was steadfast in her resolve to show the need for new environmental policies and regulations necessary to protect human health and the environment.

Silent Spring is proof of the power of public opinion, and despite scientific skeptics, the book sparked a major environmental revolution.  Carson’s exhaustive environmental calculations in Silent Spring brought to light the fact that people were subjecting themselves to slow poisoning by the misuse of chemical pesticides and toxic pollutants that take more than 15 years to break down. In addition, she exposed the fact that these chemicals could cause irreparable liver and nervous system damage, cancer and reproductive issues. 

Carson’s testimony before Congress in 1963 later served as the catalyst for the ban on the domestic production of DDT and sparked a grassroots movement demanding better environmental protection and increased regulation, resulting in the formation of the U.S. Environmental Protection Agency (EPA).

Sadly Carson was not able to enjoy the fruits of her labor. She died after a long battle with breast cancer in 1964, just 18 months after her testimony before Congress.  However, many celebrate the impact of her work on April 22 each year on Earth Day.

So after 50 years, how much has changed?  Today, there is federal regulation of  everything from coastal development to farming practices. Environmental protection includes policies concerning natural resources, human health, economic growth, energy, transportation, agriculture, industry and international trade and all parts of society.   Many would say there is over regulation today.  In many cases, I agree.  However as Rachel Carson showed us, there is a need for some regulation, if just to protect us from ourselves.

Depending on how you count, advocates have led over 25 state legislatures or regulators to consider or adopt bans on certain uses of Bisphenol A (BPA), the recently publicized monomer that is (or was) present as a residual at low levels in some plastic products.  Recently, the U.S. Food and Drug Administration (FDA) accepted a petition from the American Chemistry Council banning use of BPA in baby bottles and sippy cups, because the use had been abandoned by manufacturers. 

For many, FDA’s scientific review of BPA studies and thoughtful analysis on the merits of regulation was too slow, and to those who conclude “I don’t want exposure to any substances of concern” use-by-use regulation did not (and will never) provide comfort.  What started as a concern in baby bottles and sippy cups, and was the subject of numerous state bans several years ago -- before the FDA acted this summer to acknowledge the abandonment of BPA in those bottle and sippy cups -- is more recently the subject of additional state proposals for bans from lids of food cans and containers.  Some ask: “Can you please ban it from any product that may reach my children?”

Because it is difficult to get the federal machine to act quickly, why not seek an audience in your state capital?  It is easier to file legislation in many states than in Congress, easier to get exercised citizens to the state capital, easier to involve local media looking for a controversy, and cheaper for citizens to play at the state level than in Washington.  However, state toxicologists and regulators often don’t have the resources of the FDA, they are often not as well equipped (and certainly not as experienced) in making the necessary risk evaluations and product regulations.  And putting environmental police in the grocery aisles seems to squander limited state environmental resources.  As Maine DEP Commissioner Patricia Aho recently put it: “We’re environmental regulators.  You’re asking us to be the FDA in some regards here.”

Even assuming states are equipped to address those issues, how can national manufacturers (or national or regional retailers) deal with state-by-state regulation of different products using the same materials?  Not very well!  And how are consumers to understand why chemicals in a product present acceptable risks in one state, but unacceptable risks in another?  They don’t.  Why is state-by-state regulation of chemicals in products in the national interest when FDA has jurisdiction?  Maybe it isn’t. 

Congressman Markey has petitioned the FDA for a federal ban on coatings in infant formula packages (arguing abandonment), and the federal agency has sought comment.  But that petition was made after extensive state efforts against use in baby bottles and sippy cups.  The FDA will consider the matter, so it may be some time before the FDA acts.  In the interim, states are still being encouraged to adopt their own bans on certain uses of BPA.

FDA is even more broadly considering BPA safety and its uses under FDA jurisdiction, but in the meantime, keep your eye on your local legislature if you want to watch a messy process that is frustrating for everyone.

The Toxic Substances Control Act (TSCA) regulates chemicals.  It also regulates chemicals in articles, a little known fact that gives rise to big headaches.

TSCA defines an article as a manufactured item that is formed to a specific shape or design.  Articles include an enormous array of items, ranging from car bumpers to electronic devices.  While the U.S. Environmental Protection Agency (EPA) has used its TSCA authority to regulate articles, it has done so sparingly.

As part of its Enhanced Chemical Management Program, EPA recently proposed Significant New Use Rules (SNUR) for five groups of chemicals (certain PBDEs, HBCD, benzidine-based chemical substances, a type of SCCPs, and DnPP).  Three of the proposed SNURs would regulate the chemical substances and articles containing them.

Why is this big news?  Well, when EPA issues a SNUR, it is designating a use of a chemical not already in commerce as “new” and subjecting that use to premarket EPA review.  This means a manufacturer (including importers) wishing to make a product containing the SNUR substance must submit to EPA a significant new use notice (SNUN) at least 90 days before any commercial use.  The uncertain outcome of any SNUN review is the bane of a company’s quest for commercial predictability.  Reviews can take considerably longer than 90 days, and EPA’s TSCA authority can be expressed in the imposition of commercial restrictions or operating conditions, some of which may need to be communicated to downstream customers of the SNUN submitter.

There is also concern with the legal and policy implications of these proposals.  The proposed rules would regulate SNUR chemicals in articles independent of whether any such article actually poses a risk.  EPA notes its concern that if PBDEs contained in articles were exempt, there would be in increase in the amount of PBDEs in commerce in the United States without EPA review as to the implications.  This observation, while accurate, falls short of describing any nexus between the presence of PBDEs in articles and risk.

EPA also places an enormous (and some would argue disproportionate) legal burden on commenters to explain existing uses, and to define terms and use applications with sufficient granularity to avoid being considered “new.”  Given the complexity of imported articles, EPA’s “one size fits all” approach begs the question whether a more refined subset of articles, products that might actually pose risks, is a more fitting candidate for SNUR regulation.

Important threshold questions of whether EPA should even use its SNUR authority in this way, and the practical implications of doing so, are not framed in the proposals.  Whether TSCA’s SNUR authority is the best or only way to address chemical risks, and whether all articles as defined in the proposals present risks worth regulating deserves greater stakeholder discussion.  Comments on Federal Register notices that assume the legitimacy of EPA’s legal and policy approach are a poor surrogate for vigorous public debate.

In Alfiero v. Bertorelli, the Michigan Court of Appeals affirmed a jury verdict holding a real estate agent liable under a theory of silent fraud and negligent misrepresentation for the failure to disclose environmental contamination beneath an abandoned factory that was rehabilitated into condominiums.  This decision raises the duty of care for real estate agents in transactions involving property where there are known past environmental issues.

Plaintiffs sued both the seller and its agent after learning the condominium unit plaintiffs’ purchased had not been properly decontaminated, contrary to statements in a sales brochure and newspaper article the agent provided to plaintiffs in response to plaintiffs’ inquiry about the status of past environmental contamination at the property.  The real estate agent relied upon information provided by seller and argued that although a seller has a duty to disclose to a buyer, that duty does not extend to the seller’s agent, and the agent should not be liable for seller’s misrepresentations. 
 
The unit was located in a former factory that had been contaminated with trichloroethylene (“TCE”).  During the conversion of the factory into condominiums, a TCE vapor barrier was installed, but the site was never properly decontaminated.  Plaintiffs believed that the site had been properly cleaned up because of statements to that effect in the newspaper article and sales brochure provided to them by the real estate agent in response to buyers’ inquiries concerning past contamination.  Plaintiffs purchased the condominium in reliance on those representations without conducting independent due diligence. 

The appellate court ruled in favor of plaintiffs on the grounds of common law fraud or fraudulent misrepresentation, noting that the elements are (1) a false representation of a material fact with the intention of reliance by plaintiffs; (2) defendant knew the representation was false or was made with reckless disregard for its accuracy; and (3) plaintiff actually relied on the representation and suffered damages as a result. (M&D Inc. v. McConkey). The court further found silent fraud is essentially the same except it is based on the defendant withholding or suppressing a material fact that he or she was legally obligated to disclose rather than making an affirmative representation. 

Because both silent fraud and negligent misrepresentation require that a defendant owe a duty to the plaintiff, defendants argued that previous Michigan decisions did not impose on an agent a per se duty of disclosure to buyers and that such duty instead lies solely with the sellers.  The court held that although that is the general rule, when a buyer has expressed a concern about a particular statement, a duty to disclose may arise solely because of the buyer’s expressed interest or direct inquiry to the agent.  Defendants also argued there cannot be fraud if the party claiming to be defrauded had an independent means to determine the truth of the matter.  The court again acknowledged the general rule but held that it is not an absolute rule, stating it is “only applied where plaintiffs ‘were either presented with the information and chose to ignore it or had some indication that further inquiry was needed.’” 

The agents provided plaintiffs with a sales brochure stating that the site had been cleaned up.  When plaintiffs further inquired to the agents about the state of the cleanup, the agents referred plaintiff to a newspaper article reporting that the building had been decontaminated.  Based on those statements, the court found that plaintiffs had no duty of further inquiry and could reasonably rely upon information provided by the agent. 

Nevertheless, the court issued a comparative negligence instruction to the jury, and the jury determined that Plaintiffs’ decision not to obtain an environmental inspection knowing that there had been contamination in the past made Plaintiffs partially at fault. 

This decision reinforces the duties on both sides of a real estate transaction (1) to make adequate and accurate disclosures, on the part of the seller and its agents, and (2) to make reasonable environmental inquiries on the part of the buyer, notwithstanding seller’s statements.  Even though a real estate agent as a general proposition may not be responsible for the seller’s representations concerning a property’s environmental status, a duty is triggered when a buyer makes specific inquiry concerning a factual representation about the property and the agent provides additional information to buttress the seller’s representations. 

The lesson to be gleaned from this case is simple:  a seller’s agent should conduct his or her own due diligence concerning statements about the remediation of environmental contamination when the property has known or suspected past contamination.  Similarly, even for residential properties, buyers have an obligation either to conduct independent verification of seller’s statements concerning environmental conditions or to seek contractual representations and warranties from the seller concerning such conditions. 

SUMMARY
After a failed attempt at the end of the Schwarzenegger Administration, under current Governor Jerry Brown, California is now pushing forward with its new “green chemistry” approach to the regulation of chemicals in consumer products.  These regulations are likely to be formally unveiled early this year and will require extensive risk and life cycle analyses for prioritized products, which are likely to initially include children’s products, personal care products, and household cleaning products. 

The Envisioned Process
The revised California green chemistry regulations will establish a four-step process to identify safer consumer product alternatives.

1.  Chemicals:  The State will publish an initial list of Chemicals of Concern (COCs), likely involving close to 3,000 substances. 
2.  Priority Products:  Next, it will develop a list of Priority Products based on its evaluation of products that contain the identified COCs, as well as the distribution, use, and disposal patterns.
3.  Business Duty to Notify and Evaluate:  Responsible entities will be required to notify the State when their product is listed as a Priority Product and to perform an Alternatives Assessment. 
4.  Product/Chemical Limits/Regulations:  California will identify and impose a “Regulatory Response” to limit potential adverse public health and environmental impacts.

Applicability
As drafted, the regulations will eventually apply to all consumer products containing a COC that are sold, offered for sale, supplied, distributed, or manufactured in California.  There are limited exemptions for:

•    Products exempted by law (specified medical and dental devices, “dangerous” prescription drugs, food, and pesticides) and products used solely to manufacture a product exempted by law;
•    Products manufactured, stored in, or transported through, California, solely for out-of-state use; and
•    Products regulated by other federal or California state regulatory programs or international trade agreements, where the program or agreement provides an equivalent or greater level of protection of public health and the environment than would be provided if the product were listed as a Priority Product (no examples are specified, but EU programs seem likely candidates).

There are de minimis exemptions for products with COCs at concentrations equal to:

•    0.01% by weight for chemicals exhibiting one of nine specified hazard traits (carcinogenicity, developmental toxicity, reproductive toxicity, endocrine toxicity, genotoxicity, immunotoxicity, neurotoxicity, bioaccumulation, or environmental persistence);
•    0.1% by weight for chemicals that do not exhibit any of the nine specified hazard traits and environmental and toxicological endpoints; or
•    A lower or higher concentration if specified by DTSC in the Priority Products list.

The regulations apply to any “responsible entity,” which includes the manufacturer, or, if the manufacturer does not comply, the importer or retailer. 

Alternatives Assessment
This assessment remains at the heart of the Green Chemistry regulations.  Each must be conducted in two stages, with a report sent to State regulators at the end of each stage.

Necessity/Identification of Alternatives:  In the first stage, product criteria are identified (e.g., by function, performance, technical, and legal requirements).  A statement must be provided on whether the COC or a substitute chemical is necessary to meet the product’s requirements.  Next, alternatives to the usage of the COC must be identified and screened, and a work plan proposed for the second stage.   
Detailed Assessment of Alternatives:  The second stage requires a more detailed assessment of alternatives.  The product and each alternative must be evaluated with respect to relevant factors and associated exposure pathways and life cycle segments.  At this stage, the responsible entity selects an alternative that will replace or modify the Priority Product or decides not to modify the Priority Product (or discontinue the distribution of the product in California). 

Regulatory Responses
At a minimum, product information will be required to be provided to consumers if a Priority Product contains a COC above the de mimimis level. Additional possible regulatory responses include mandating implementation of engineered safety measures designed to control access or limit exposure to the COC in a Priority Product and, at the extreme, a potential prohibition on sale of the Priority Product within California. 

CONCLUSION
With reform of the Toxic Substances Control Act stalled in Congress, Governor Brown’s Administration appears more determined than its predecessor to take the lead in product stewardship and chemical regulation through California’s so-called “green chemistry” initiative.

By:    Patrick W. Dennis and Perlette Michèle Jura
         GIBSON DUNN

In the past few years, more than 25 multi-party cases have been filed against semiconductor manufacturers, alleging that employees working in “clean rooms” were exposed to chemicals, such as ethylene glycol ethers, which caused birth defects in the employees’ children.   The majority of these cases have been filed in Delaware state court and seek direct recovery in tort for children plaintiffs, who allege that they were exposed to these chemicals through their employee-parents prior to conception or in utero.   In addition to raising a number of environmental and causation issues, these cases present significant questions about the scope and extent of the duties employers in the non-medical industries have to unborn persons.  They also raise important questions about whether such claims should be addressed through civil litigation, or whether they fall within the exclusive domain of workers’ compensation. 

In a pivotal opinion, on September 30, 2011, Delaware Superior Court Judge Jan R. Jurden (who is presiding over more than a dozen clean room cases) dismissed a clean room case, Peters v. Texas Instruments.  Applying Texas law (where the alleged exposures occurred), Judge Jurden found that the exclusivity provision of the Texas Workers’ Compensation Act (which provides that workers’ compensation is the exclusive remedy for alleged workplace injuries) barred the child’s (and its parents’) civil claims against defendant Texas Instruments, because the child plaintiff’s claims were derivative of and dependent on the parent-employee’s.  Id.  The court also found that, to the extent that the plaintiffs sought to hold Texas Instruments liable for acts predating the child’s conception, Texas courts have not recognized preconception tort liability and it would be improper for Delaware courts to do so when applying Texas law, particularly because expansion of a legal duty falls within the realm reserved to the legislative, as opposed to judicial, branches. It is noted that the Plaintiffs are seeking reconsideration in Peters, but it will be a difficult decision to change from a legal perspective.

The Peters decision may be the first of many dismissals in the series of clean room birth defects cases.  Peters is also an important decision in the developing body of transgenerational tort law and birth defects cases generally.   While a handful of courts have recognized that medical professionals can be liable to individuals for their actions prior to that person’s birth, numerous courts have recognized that imposing duties to unborn children beyond a very narrow set of circumstances would not only prove unworkable, but would also constitute an improper judicial interference in a realm reserved for the legislative branch. An example is the Texas Appellate Court decision in Chenault v. Huie.   Further, employers spend millions on workers’ compensation every year.  One of the benefits that workers’ compensation schemes offer to employers is the promise of exclusive and limited liability: an employee’s recovery for work-related injuries is limited to the amount fixed by the governing workers’ compensation scheme and the employer will not be liable in tort, unless the injury was intentionally caused.  If parent-employees could bring lawsuits on behalf of their minor children for birth defects allegedly caused by preconception or in utero exposures in the course of their employment, it would create a significant loophole in workers’ compensation schemes and disrupt the delicate balance state legislatures have struck between employer and employee interests in the workers’ compensation arena. 

The cover of Time magazine’s recent issue on inventions depicts a motorized hummingbird, a mini-machine, enabled by nanotechnology, that can mimic the bird’s flight capability and conduct surveillance operations.  Other nanomaterial inventions --using particles at the scale of one billionth of a meter-- include an industrious particle that can hunt down and kill cold viruses.  Amen to that.  As the science of nanomaterials continues to amaze, how are we doing on the governance front to be ready to manage its potential risks to health and the environment? 

The departure of Steve Owens, EPA Assistant Administrator for Prevention, Pesticides, and Toxic Substances, concludes a notable effort to address governance issues in the nano realm; but at the end of 2011, major initiatives to obtain the information needed for a credible oversight program remain incomplete. Under the prior administration, EPA  requested voluntary submittal of data from nanomaterial producers.  About 30 organizations submitted data on 130 materials.  Not surprisingly, only a handful accepted the invitation to conduct voluntary testing for EPA.  The results satisfied no one.  Under Mr. Owens, EPA developed a package of proposed rules under the Toxic Substances Control Act (TSCA) including a Section 4 test rule, a significant new use rule under Section 5 addressing nanomaterials based on chemical substances listed in the TSCA inventory and a Section 8(a) information gathering rule.  These proposals have been under review at OMB’s Office of Regulatory Information and Review (OIRA) for over a year.   

Meanwhile, OIRA, along with the Office of Science and Technology and the Office of the Trade Representative, issued a 5 page memorandum in June, 2011, to provide policy guidance for the multiple federal agencies dealing with nanomaterials under legal oversight authorities.  The memorandum describes the many benefits of nanomaterials, while also acknowledging the need for further scientific work on health and environmental issues as a predicate for appropriate risk management actions.  The only sign that the writers recognize any legal issues complicating action under TSCA or other statutes is a statement  that some statutes may limit mandatory reporting or information gathering to circumstances “where a risk or harm has already been identified,” TSCA’s well known catch-22 in establishing test rules.    This observation is followed by a Delphic reference to agencies’ need “to explore other legally available means to obtain the information necessary to assess risk and possible harms.”  What this means for EPA’s pending proposals is anybody’s guess. 

Information reporting rules for nanomaterials are not easy to develop. EPA must define categories of materials to be reported on, the types of products and facilities to be covered, and the level of detail on product composition and potential impacts from emissions or disposal needed to understand exposures while minimizing the burden of reporting.  In other countries such as France and Canada, efforts  to set mandatory reporting rules have been bedeviled by definitional issues.  France has also faced the challenge of, harmonizing its rules with the European Union’s chemical regulation scheme.   Canada’s Health Agency recently issued a policy statement with a working definition for nanomaterial for use in data reporting at some future time under its existing legal authorities.
                                                 
EPA’s ability to obtain basic information on the production and use of important categories of nanomaterials remains a prerequisite for minimal oversight of the nanomaterials industry offering some assurance to the public that if health or environmental risks are identified by research, they can be addressed without undue delay.  The program begun by Mr. Owens ought to move forward for public review and comment. 

Leslie Carothers
Scholar-in-Residence and Adjunct Professor
Pace Law School

The U.S. Environmental Protection Agency (EPA) published on August 16, 2011, the final Toxic Substances Control Act (TSCA) Chemical Data Reporting (CDR) Rule, previously referred to as the Inventory Update Reporting (IUR) Modifications Rule.  76 Fed. Reg. 50816.  The rule authorizes EPA to collect and disclose information on the manufacturing, processing, and use of commercial chemical substances and mixtures listed on the TSCA Inventory.  The CDR Rule also sets the upcoming submission period from February 1, 2012, to June 30, 2012, and will include submission of chemical production information from 2010 and chemical production, processing, and use information from 2011. 

The rule is significant for three reasons.

First, the rule’s impact is enormous.  Thousands of businesses are affected and include, among others, chemical substance manufacturers and importers, chemical substance users and processors that may manufacture a byproduct chemical substance, utilities, paper manufacturing, primary metal manufacturing, and semiconductor and other electronic component manufacturing.

Second, this is not your grandmother’s rule.  EPA is requiring electronic reporting of CDR information, making the compilation, analysis, and release of these data more efficient, more immediate, and definitely more difficult.  Chemical detractors, competitors, and the plaintiffs’ bar will have more rapid and easier access to comprehensive chemical production and use information.

Third, failed reporting consequences are harsh.  CDR/IUR reporting infractions have been a target rich enforcement area for EPA for years.  Omitted chemicals and/or facilities are subject to steep fines that rack up quickly.  Criminal sanctions apply to submitters making “knowing and willful” false confidentiality claims.

Smart businesses see this rule for what it is -- a TSCA compliance obligation and an invitation to competitive and reputational disaster if mishandled.  Read the rule, understand EPA’s objectives, and start now to prepare for the June 30, 2012, deadline.  More information is available here and here.  

Dioxins, a class of chemicals whose most notorious denizen is 2,3,7,8-terachlorodibenzodioxin, a/k/a TCDD, have been of public concern since the 1970's, but their pathway to regulatory consensus has been a series of twists and turns, potholes and dead ends ever since.  Once branded the most potent animal carcinogen ever tested, its human carcinogenicity remains controversial today.  On August 29, 2011, following swiftly on the heels of a Science Advisory Board (SAB) review critical of several aspects of USEPA’s May, 2010 reanalysis of key issues related to dioxin toxicity, USEPA announced  that it would delay the cancer risk portion of its final Integrated Risk Information System (IRIS) assessment and move only to a final non-cancer assessment by the end of January, 2012.  The USEPA reanalysis was in response to a 2006 critique by the National Academy of Sciences (NAS).

TCDD gained notoriety in the 1970s as a contaminant in Agent Orange, the defoliant of choice used during the Vietnam War between 1962 and 1971.  It is a chemical that is not commercially produced; rather it is the inadvertent by-product of numerous processes, including the manufacture of some chemicals, pulp and paper, and most combustion processes, including the burning of household waste.  Because of the ubiquity of the sources from which dioxins are produced, the public may be exposed through eating beef, dairy products, pork or fish, or by living near municipal waste incineration. 

USEPA's first risk assessment of dioxins was issued in 1984; seven years later it began a reassessment in a process that is ongoing.  USEPA's 1994 draft reassessment went through SAB review in 1995, which resulted in a revised reassessment in 2000, a second SAB review in 2000-2001, a second revised draft reassessment in 2003, a NAS review in 2006, a USEPA response to NAS' comments in 2010, and the August 26, 2011 SAB review of USEPA's response to the NAS report.  The beat goes on.

Dioxin levels in the environment, mostly in soil, sediments and biota, have been declining regularly since the early seventies as pollution control efforts have ratcheted down inadvertent production and emissions.  USEPA's reassessment impacts mostly whether and to what extent a site requires clean-up.  A significantly lowered USEPA cleanup target for dioxin in soils raises the specter of reopening hundreds of sites that were remediated under current guidance to a 1 part per billion target for residential soils and a 5-20 ppb target for non-residential soils.  USEPA estimates that 104 CERCLA sites may need to be re-evaluated if it adopts a substantially lowered target.  Even without a cancer risk assessment, USEPA's announcement that it would move forward with its non-cancer risk is likely to result in final guidance that sets a cleanup target for dioxin in residential soil at 72 parts per trillion, a 92.8% reduction from the current target, and a commensurate lowering for non-residential soils to .95 ppb. 

USEPA's decision to split the cancer and non-cancer assessments likely pleased no one, including USEPA Administrator Lisa Jackson, who stated in 2009 that the Agency would complete the assessment by December 2010.  Environmentalists have pushed hard on USEPA for years and are likely not pleased that the cancer analysis has been again derailed by scientific critique.  Many in industry have resisted lowered clean up levels for years, echoing many of the criticisms of USEPA's cancer risk analysis by the NAS and SAB.  SAB's 84 page report issued on August 26, 2011 generally lauded USEPA's efforts in its May, 2010 report responding to the 2006 NAS Report. 

 
Nonetheless, SAB provided additional recommendations "to further enhance the transparency, clarity, and scientific integrity" of the Report.  Two critical elements of TCDD assessment were singled out as deficiencies by SAB: "(1) nonlinear dose-response for TCDD carcinogenicity, and (2) uncertainty analysis of TCDD toxicity."  With everything else going on within and outside USEPA in the legislative, political and regulatory arena, it will be interesting to see if USEPA can or will meet its self-imposed deadline of end of January 2012 for the non-cancer risk assessment; surely the cancer assessment is not now likely to proceed with much haste.

For more information, please contact the author, Michael Rodburg.

Since passage of the Federal Insecticide, Fungicide, and Rodenticide Act in 1972, environmental statutes and regulations have sought to balance legislative mandates seeking disclosure of chemical identities and properties against trade secret protection concerns. This tension can be seen in the labeling of cosmetics, the submittal of test data under the Toxic Substances Control Act (“TSCA”), and the disclosure of chemical additives to fluids used for hydraulic fracturing. In all three situations, efforts to increase access to chemical identity information are likely to create further challenges to trade secret protection.

            On the cosmetics labeling and TSCA front, a bill introduced in the House of Representatives this past July, entitled the Safe Cosmetics Act of 2010, would have required cosmetics labels to identify the name of each ingredient in descending order of its “predominance”, with the same information provided for internet sales. Regardless of the type of sale, the ingredients would not be afforded trade secret protection. While the bill was not enacted, the concerns that kept it alive even in the waning days of the Congressional session may be a harbinger of a new version in the upcoming session.

            A bill to amend TSCA also filed in the House last July would have required a manufacturer to provide an upfront justification for any trade secret claim made in an information submittal under TSCA, with EPA required to evaluate the submittal within 60 days thereafter. While this bill did not pass either, EPA had previously announced its intention toreview chemical identity CBI claims in health and safety studies submitted under TSCA, and it subsequently proposed amendments to its TSCA regulations that would require upfront justification of a chemical identity claim. In addition, EPA has substantially increased the chemical information available on its Envirofacts database, and is now providing free access to its TSCA inventory of chemicals.

            Additives to hydraulic fracturing fluids have likewise been the subject of much attention, and have sparked initiatives in a number of states to require their disclosure. Beginning next year, Arkansas will require disclosure hydraulic fracturing fluids on a well by well basis, although allowing more generic disclosure of proprietary chemicals. The information will be publicly available for review on the website of the Arkansas Oil and Gas Commission. In Wyoming, the additives are reported to the staff of the state’s Oil and Gas Conservation Commission, rather than to the public, and the Commission has granted a number of requests for trade secret protection, although the requests themselves are matters of public record. 

            Colorado requires oil and gas drillers to keep an inventory of the chemical additives at the site of each well, with state regulators getting a copy of the inventory upon request. Pennsylvania requires material safety data sheets covering the fracing fluid materials to be included with each drilling plan submitted for approval, with the MSDS sheets made available to the landowner and to local government and emergency responders. Both Colorado and Pennsylvania are considering expansion of those requirements.

            In September EPA issued letters to nine companies engaged in hydraulic fracturing related activities seeking the identity of the fracing fluid additives and copies of studies about their health and environmental effects. All of the companies have now responded to the EPA request, with Halliburton establishing a public website to disclose information about those additives. In addition, a number of trade associations, including the American Petroleum Institute, have lent their support to a voluntary disclosure registry under development by the Groundwater Protection Council, which includes a number of state officials responsible for groundwater protection, and the Interstate Oil and Gas Compact Commission, with data to be disclosed on a well-by-well basis. 

            How efforts such as those just described will address trade secret issues remains to be seen, particularly given the concerns raised about potential contamination of drinking water supplies by fracing fluids. However, it appears that the day has passed when one could claim trade secret protection and provide support for that claim only when the information was actually requested. And the new riff on that old refrain sung by Johnny Mathis and Doris Day appears more likely to be that “my secret name’s no secret any more”.

EPA has issued an Advanced Notice of Proposed Rulemaking that broadly re-opens the question whether to authorize PCBs in caulk and under what conditions. EPA did not propose any new rules on the issue, but sought comments on what to do.   This balance of this post reviews EPA’s regulatory efforts on this issue and the comments on the ANPRM, and then summarizes some options for building owners while the agency ponders.

            Last year EPA announced that in “recent years” it had learned that many 1950 to 1978 buildings may contain caulking with PCB concentrations higher than 50 ppm, indeed often quite a bit higher. Linda Bochert’s post of November 3, 2009 linked to the EPA’s PCBs-in-caulk website, which the agency established to provide guidance for preventing exposures and conducting safe building renovations. 

            Last year’s guidance conspicuously avoided a central issue: EPA’s position on the legal status of PCB-containing caulk. EPA’s position actually is clear: PCBs at levels above 50 ppm in caulking are not authorized, hence are illegal to maintain. Yet EPA has never mounted a program to identify and remedy PCB-containing caulk, and last year’s guidance tacitly condones leaving PCBs in place indefinitely. So EPA de-emphasizes its legal interpretation. Quite possibly that is because EPA managers have not viewed PCB-containing caulking as causing actual health impacts whereas remediation certainly poses high costs and raises its own health risks.   

            The bottom line?  Clear-cut and sensible regulatory answers remain far in the future. Meanwhile EPA is sending mixed messages – PCBs in caulk are unauthorized but don’t overreact while we ponder. Building owners, prospective purchasers and contractors must sort out their own answers about what to do or not do.

Regulatory Background

            In truth, EPA long has had general awareness of PCBs in old caulk. If the concentrations are below 50 ppm, the caulk qualifies as an excluded PCB product and is not regulated by EPA. If the concentrations are higher, EPA considers the use to be illegal to maintain because EPA has never issued a use authorization for PCBs in building materials. 

            When over-50 ppm PCBs in caulk are reported to EPA, generally EPA has required remediation under TSCA’s rules. EPA New England (Region 1) has had a number of such matters. The Region also insists that cleanups must meet the requirements of the PCB spill regulations, which generally require cleanup in occupied buildings to levels well below 50 ppm.

            Yet there is no obligation under TSCA for building owners to test for PCBs in caulk or to report exceedances to EPA. Many building owners ignore the issue, even if they are aware of the general possibility. So unauthorized caulk persists in many buildings, or goes away during renovations or demolition, awaiting potential discovery in unplanned circumstances. 

            That has led to a number of mini-crises, particularly for public school systems facing growing parental and school staff awareness.   PCBs in schools have been much discussed in New York and elsewhere. In January 2010 the New York City schools and EPA entered into an extensive consent order to evaluate school buildings and study ways to encapsulate or treat PCBs over a period of several years. 

            In practice then, EPA has sent mixed messages. It has commendably - albeit tacitly -recognized that immediate and costly removal of unauthorized PCBs in caulk usually is not warranted. Yet the use remains unauthorized.  Given the strictures of TSCA and the ill repute of PCBs, that remains unsettling for many building owners and prospective purchasers.

            Efforts to authorize PCBs in caulk: the 1994 NOPR

            The mixed messages from EPA and the issues of cost and health risks call out for clear cut regulatory answers, but also hamper EPA from issuing definitive regulations.   It has already tried and retreated before. 

            Specifically, in 1994 as part of unrelated PCB rule changes, EPA proposed to authorize PCBs in pre-TSCA building materials, with conditions, similarly to intact asbestos containing materials.   The NOPR included EPA’s conclusion that continued use at concentrations above 50 ppm did not pose a significant risk as long as the materials were in good condition. 59 Fed. Reg. 62788, 62810 (12/6/94).

The proposed conditions had many downsides from a building owner’s perspective, because leaving the materials in place, once discovered, would have then required:

·        Notice within 30 days to EPA and potentially exposed individuals;

·        Marking in a prominent location;

·        Quarterly air monitoring and wipe sampling for one year and annually thereafter until removal of the material;

·        Removal or containment (by encapsulation with a sealant) if wipe sampling or air monitoring showed exceedances of workplace standards;

·        24-hour notice to EPA of such exceedances;

·        Record-keeping.

EPA’s final rule issued deferred the issue while indicating EPA intended to issue a supplemental notice of proposed rulemaking and asking for further information on how much of a problem this is or not.  63 Fed. Reg. 35383, 35386 (6/29/98)

            The 2010 ANPRM and Comments

            Over a decade later, EPA has issued an ANRPM on unrelated PCB rule changes, and used it to request comments on whether EPA should reconsider the 50 ppm level for excluded PCB products. That request also specifically called for comment on whether EPA should issue a use authorization for PCBs in caulk.  ANRPM, 75 Fed. Reg. 17645, 17664 (April 7, 2010). The ANPRM did not, however, describe any revised levels or conditions that EPA might propose for PCBs in caulk. 

             Many of the comments on the APNRM on this issue call for more study, but otherwise reflect an unsurprising range of recommendations. Comments from the Children’s Environmental Health Network urged EPA to cease any thought of authorizing an increase in the 50 ppm level. Comments from the American Federation of Teachers recommended a “suspension” of the allowance of PCB-containing caulk below 50 ppm while research is done. Massachusetts DPH comments tracked EPA’s position of 1994 by recommending leaving intact caulk alone, and included its own recent guidance to that effect. MIT’s comments proposed a facility-specific and detailed risk management approach. Comments from the National Association of College and University Business Officials recommended issuance of a use authorization for intact materials, perhaps conditioned on an I&M program.

            Overall, the ANPRM attracted relatively few comments on this issue, by contrast with voluminous comments from the utility sector on other issues. The paucity of attention may mean that PCBs in caulk still have not reached a widespread awareness in the commercial real estate community, which provided exactly no comments. Or building owners just may prefer the status quo.

Continued Regulatory Uncertainty: Working Out Own Answers

                It seems likely that EPA will not be providing any new rules on this issue in the foreseeable future.  That leaves the regulated community to work out its own answers as best it can. 

                It appears that many building owners have determined not to look for PCBs in caulk, even in buildings where they might be expected.  There is no requirement to do so and there have been no reports of actual health impacts due to PCBs in caulk. 

                Other building owners have chosen to test for PCBs in caulk in order to reduce regulatory risk, but only when renovations or demolition are undertaken for other reasons.  Only if unauthorized PCBs are found then do they conduct remediation under the health and safety and disposal restrictions under the PCB rules. 

                Some prospective purchasers are including this issue in their due diligence, particularly if renovations are planned, and building attendant costs into the pricing.  But some do not, relying on the absence to date of regulatory requirements, regulatory pressure or health impacts.

                Some owners are writing requirements into construction contracts to make sure that contractors identify and handle any such caulking appropriately, similarly to contractual provisions for asbestos-containing materials. 

                Given EPA’s mixed message – PCBs in caulk are unauthorized but don’t overreact – each of those practices may be sensible. Building owners and prospective purchasers must choose their own paths based on their own policies and risk tolerance.

No one doubts that EPA’s war on lead-based paint serves the cause of mitigating an established health threat. With children being particularly at risk, the regulations to date have focused on lead-based paint in older homes and other “child-occupied facilities.” On May 6, 2010, however, EPA gave notice of its intent to take the battle to an undefined set of commercial and public buildings. Can a full-scale assault on commercial facilities, which will involve a more complex set of regulatory variables and which will venture farther from the core health risk concerns, succeed in achieving a proper balance of competing factors?

EPA’s May 6, 2010 Advance Notice of Proposed Rulemaking announcing the next step in the lead-based paint campaign was published only days after the April 22, 2010 effective date of the controversial Renovation, Repair and Painting Rule (“RRP Rule”). That rule regulates renovation and repair activities disturbing lead-based paint in older homes and child-occupied facilities. The RRP Rule affects contractors, landlords and others who perform RRP work for compensation.

The RRP Rule includes provisions for the required certification (for a fee) of firms performing covered RRP work, the training and certification (at a significant cost) of “Certified Renovators” through EPA-accredited classes, the required use of detailed RRP work practices when performing covered activities, the retention of compliance records, and the verification of compliance with work practice obligations. Even though the RRP Rule has a relatively narrow focus - residences and other child-occupied facilities - its requirements have generated substantial controversy.

Because the RRP Rule applies to numerous trades and contractors, as well as to certain landlords and other persons, issues related to obtaining the required training, safe implementation of the work practice requirements, costs of compliance and the possibility of a $37,500 per day, per violation penalty are only now being confronted by the regulated community as well as the regulators. Small contractors may be forced out of business, impacting competition. Needed RRP work may not be performed due to cost. Lead-contaminated waste disposal will create new environmental/health problems partially offsetting the benefits of the RRP Rule. Suffice it to say, EPA has not yet solved the numerous problems and complexities of implementing even these regulations focused on older homes and child-occupied facilities.

With this background, and setting aside for the moment legal mandates, one can reasonably question whether EPA is prepared to set its sights on a significantly more complex regulatory challenge- the renovation and repair of an estimated two to three million commercial and public facilities constructed prior to 1980. The ANPR includes no proposed language. Rather, the public is invited to respond to over 100 detailed questions and data requests.

At this time, the scope of EPA’s assault on the renovation and repair of commercial and public buildings is unknown. No current limitations on covered “commercial” and “public” buildings exist and both exterior and interior renovation and repair work are included in the ANPR. Unresolved questions include: What renovation and repair work should be covered? What activities create the most risk? Should exposure pathways be broadened to include nearby properties? How should the substantial amount of lead-contaminated waste be handled to avoid creating a different health and environmental hazard?

This much is known. The regulatory variables associated with extending the war on lead-based paint to commercial and public buildings are more numerous and the targeted health risks have expanded. I suggest that there is a real possibility that the regulations could fail to appropriately balance the legitimate interests of contractors, building owners and the public with the known and perceived health risks. Let us hope that the regulated community weighs-in on these issues and that the EPA gives careful thought to this next step in its campaign against lead-based paint.

The public comment period for this proposal ends July 6, 2010.

A number of us in the Pacific Northwest can remember the phone call that came in the spring of 1989 telling us to come to Alaska. There had been an oil spill, the caller said, and we had better get up there right away. We packed up and left, sometimes with just a couple of sets of clothes, and ended up staying for months, or years. We were lawyers, not scientists, and we could neither contain the spill nor predict its impacts. What we could do – or thought we could do – was assess blame and assign damages. That turned out to be harder than any of us imagined.

Nearly twenty years of litigation followed the Exxon Valdez spill, and there was not a single case, but many. By understanding some of the history of the Exxon Valdez cases, one can appreciate what the lawyers working on the Deepwater Horizon case have in front of them. At the same time, the many differences between the two spills suggest that history will not repeat itself. The legal response to the Deepwater Horizon case, like the cleanup response being carried out in the Gulf at this time, is likely to be far more complex, involve even more parties, and possibly even more time. By way of example:

• The federal Oil Pollution Act of 1990 ("OPA 90"), one of the principal laws likely to be invoked in response to the Deepwater Horizon, was enacted after (indeed, in response to) the Exxon Valdez. While the elements of the liability case against responsible parties under OPA 90 are similar to those asserted under the Clean Water Act in the Exxon case, OPA 90 allows plaintiffs to potentially recover a broader range of compensatory damages, including: damages to real or personal property; subsistence use; federal, state, and local tax revenues; lost profits and earning capacity; and the cost of providing additional public services resulting from the spill. In that sense, the law is more complex now than it was at the time of the Exxon Valdez spill, involves more parties and more and different potential claims. There is also very little case law decided under it;
• The causation issues in the Exxon Valdez case were far simpler than in the present spill. There was no question as to the cause of the 1989 spill into Prince William Sound – a tanker hit a reef. In the case of the Deepwater Horizon, on the other hand, press reports and briefings by BP point to a chain of events, each of which may have contributed to the explosion and to the still mounting damages;
• Unlike the Clean Water Act, OPA 90 expressly allows for contribution claims among responsible parties that were not available under the Clean Water Act. Therefore, the party that initially responds to the spill (BP) may have statutory claims that they choose to assert against other responsible parties at some future time;
• The Exxon case involved a single state (Alaska) and the federal government (and Alaska Native corporations). By comparison, several states have already become involved in the Deepwater Horizon spill (including Louisiana, Mississippi and Alabama), raising potential jurisdictional questions and possible conflicting claims among the governmental plaintiffs;
• In oil spill cases, one of the potentially largest claims the government can bring is for natural resource damages. In order to do so, however, the government has to establish a "baseline" of pre-spill conditions. This is much more difficult to do in some of the ports and commercial areas along the Gulf Coast that are already impacted by hydrocarbons, as opposed to the relatively pristine waters of Alaska's Prince William Sound.
   

II. The Exxon Valdez Litigation

Against this backdrop, it may be helpful to review the history of the litigation that began in March, 1989 with the grounding of the oil tanker Exxon Valdez on Bligh Reef in Prince William Sound, Alaska. Estimates of the quantity of oil spilled range from 10.8 million to 30 million gallons. More than 1,200 miles of coastline were contaminated, 250,000 birds were killed, and 330 civil lawsuits were filed.

• Criminal Prosecution

The state of Alaska criminally prosecuted the Exxon Valdez’s captain, Joe Hazelwood. The United States prosecuted Exxon for various environmental crimes, including criminal violations of the Clean Water Act, the Refuse Act, and the Migratory Bird Treaty Act. Exxon Corporation pled guilty to one count of violating the Migratory Bird Treaty Act, and Exxon Shipping pled guilty to one count each of violating the Clean Water Act, the Refuse Act, and the Migratory Bird Treaty Act. The corporations were jointly fined $25 million and were ordered to pay restitution of $100 million.

• Civil Litigation: The Natural Resource Damage Claims

The United States and the state of Alaska sued Exxon for natural resource damages. That litigation was settled by entry of a consent decree under which Exxon agreed to pay $900 million over a period of ten years. The money was used at the direction of the Oil Spill Trustee Council for species and habitat restoration and recovery. The consent decree contain a reopener provision that allowed the governments to make additional claims of up to $100 million for natural resource damages not known when the settlements were reached.

In 2006 the Department of Justice and the State of Alaska asserted a claim against Exxon under the reopener provision, seeking payment of $92 million clean up oil the governments contend remains in the environment from the 1989 spill. Exxon responded that the nearly 350 studies that have been conducted demonstrate that the spill has left no lingering damages in Prince William Sound, and that the governments’ demands do not satisfy the requirements of the settlement agreement. No case has yet been filed.

• The Private Party Claims

Most of the private civil lawsuits were consolidated before Judge H. Russell Holland in the United States District Court for the District of Alaska. The damages trial proceeded in phases: Phase I determined whether Exxon was liable for punitive damages, and held that it was. Phase II determined the amount of compensatory damages owed to the plaintiffs. Phase III determined the amount of punitive damages to award to the plaintiffs. Subsequent proceedings adjudicated the claims of members of the fifty classes of claimants in the consolidated class action lawsuit.
On August 11, 1994, following the second phase of the trial, the jury returned a verdict of compensatory damages against Exxon of nearly $287 million. On September 16, 1994, following the third phase of the trial, the jury returned a $5 billion punitive damages verdict against Exxon. Exxon appealed, marking the start of an additional fifteen years of litigation and three appeals to the Ninth Circuit and, ultimately, the Supreme Court.

In the first appeal, the Ninth Circuit remanded the punitive damage award to the district court to be reconsidered in light of intervening decisions by the United States Supreme Court addressing the constitutionality of punitive damage awards. In BMW v. Gore and Cooper Industries v. Leatherman Tools, the Supreme Court articulated factors a court must consider when reviewing a punitive damage award: the reprehensibility of the defendant’s conduct; the ration of the award to the harm inflicted on the plaintiff; and the difference between the award and civil and criminal penalties in comparable cases. The district court conducted an extensive analysis of those factors, and concluded the actual harm to plaintiffs was more than $500 million and a ratio of punitive damages to harm was 10 to 1, supporting the original $5 billion award. Nonetheless, the court reduced the punitive damages to $4 billion, to conform to what it viewed as the Ninth Circuit’s mandate. Exxon appealed.

While the second appeal was pending, the Supreme Court issued another punitive damages opinion, State Farm Mut. Auto Ins. Co. v. Campbell. State Farm instructed courts to weigh five specific considerations in calculating punitive damages, and “strongly indicated the proportion of punitive damages to harm could generally not exceed a ration of 9 to 1.” Those five factors are (1) whether the harm caused was physical as opposed to economic; (2) whether the conduct causing the plaintiff’s harm showed “indifference to or a reckless disregard of the health or safety of others;” (3) whether the “target of the conduct” was financially vulnerable; (4) whether the defendant’s conduct involved repeated actions as opposed to an isolated incident; and (5) whether the harm caused was the result of “intentional malice, trickery, or deceit, or mere accident.” The Ninth Circuit summarily remanded the second appeal of the punitive damage award to the district court for recalculation in light of State Farm. On remand, the district court again determined actual harm to be $513.1 million and increased the punitive damage award to $4.5 billion, a ratio of just under 9:1. Exxon appealed again, and this time, the plaintiffs cross-appealed, seeking reinstatement of the $5 billion award.

In the third appeal, Exxon argued that all of its settlement and other pre-judgment compensatory payments to the plaintiffs, which totaled approximately $493 million, had to be subtracted from the more than $500 million in actual harm before calculating the ratio of punitive damages to actual harm. As a result, Exxon argued, the measure of damages would be reduced to $20.3 million. Applying what it contended was the appropriate ratio, 1:1, Exxon argued that a punitive damage award should be capped at $25 million. This time, the Ninth Circuit accepted the District Court’s approximation of $500 million as the amount of actual harm, but in determining the appropriate ratio of punitive damages to actual damages, took into account the fact that while Exxon’s conduct (its “reckless decision to risk the livelihood of thousands by placing a relapsed alcoholic in command of a supertanker”) was particularly egregious and the economic damages significant, it was not intentional. And, as a mitigating factor, Exxon promptly took steps to ameliorate the harm. Thus, Exxon’s conduct, “though inexcusable,” warranted a ratio of 5:1 rather than 9:1, resulting in a punitive damage award of $2.5 billion dollars.

The parties then appealed to the United States Supreme Court. In 2008, the Supreme Court reversed the Ninth Circuit and limited the punitive damage claim to a 1:1 ratio, or roughly $507 million. However, the high court declined to decide whether Exxon was required to pay interest on the amount of the award, and sent the issue back to the Ninth Circuit. Two months later, the appeals court held that Exxon was required to pay the interest, dating back to 1996, roughly doubling the amount of the final award. The average award to the 33,000 claimants came to about $15,000 -- roughly 20% of the amount that was awarded by the jury in 1994.

III. What Happens Next

Press reports indicate that a number of economic damage cases have already been filed against BP, Halliburton and Transocean over the Deepwater Horizon spill, and there are almost certain to be many more, depending on the impact of the spill. The government has yet to file litigation, but it can be expected to do so, under a variety of federal laws including OPA, the Clean Water Act, the Refuse Act, and the Migratory Bird Treaty Act, among others. There will be a lengthy and expensive natural resource damage assessment that the defendants will be expected to pay for. There are potential insurance claims, potential shareholder claims, and possibly contractual and statutory contribution claims between the responsible parties, among others. And if the sum of these were not enough to challenge even the most battle-tested lawyers on all sides, there is the reputational and political overlay which can dominate the legal and scientific issues at play, including Congressional hearings. A spill the size of this one not only impacts BP and its partners, but the entire industry. It also will test the legal system and the brightest minds in it.

For more information regarding the legal impacts of the Gulf spill, please contact Brad Marten or any other member of Marten Law’s Energy, Climate Change or Waste Cleanup practices.

We are not going to have Congressional action on a regime for reducing greenhouse gas emissions by the time EPA will feel compelled to respond to the Supreme Court's direction in the Massachusetts case and announce whether CO2 emissions endanger public health or welfare. If endangerment is found under Section 109 or 202 of the Act, it appears to lead to ambient air quality standards for CO2 which are then to be met through state implementation plans. By controlling the sources of CO2 within its borders, no state is likely to be able to reduce CO2 to whatever ambient level is established. This is the practical result of the fact that greenhouse gases are a global problem not a local or regional problem. Moreover, the regulation of CO2 under other portions of the Act will likely follow. Perhaps the chaos likely to ensue from following this course will push Congress to pass legislation addressing greenhouse gases. But relying on Congress to do the sensible thing may well be an imprudent course.

Why not try an endangerment finding under Section 115 of the Act instead? It addresses international air pollution which is what GHG emissions are. It calls for a determination of endangerment in a foreign country from sources in the United States. The determination is deemed a finding under Sec.110(a)(2)(H)(ii) of the Act; that finding may be that the relevant SIP is substantially inadequate to comply with the requirements of the Act but need not be that it is inadequate to attain the NAAQS. The affected foreign country must be invited to appear at public hearings on appropriate revision of the SIP and the United States must be given reciprocal rights by the foreign country. Making the determination and establishing reciprocity would take EPA into comparatively unfamiliar territory; starting GHG reduction through state action would follow the path that the US has already started down.

The advantages of this approach that I see are, first, that it deals with the GHG issue as a global, or at least an international, problem rather than as a local or regional one. Second, it gives the states the opportunity to proceed with cap-and-trade regimes which I think will, in some form, be the Congressional solution. Third, it may be able to avoid introducing GHG regulation into other CAA programs such as New Source Review which may be hard to untangle if and when a cap-and-trade regime is established.

The disadvantages are that it is certainly not a perfect fit with a national cap-and-trade or GHG emission tax scheme which I view as the most rational approaches that Congress might enact (though the rationality of a tax scheme is much greater than the likelihood that Congress would embrace it). If you favor command and control regulation and the complexity of New Source Review, this is not the solution for you. There are also risks in what the courts may do in interpreting Section 115 which has rarely been subjected to judicial scrutiny.

In sum, I suggest Section 115 as the best of the ill-fitting options which the Clean Air Act offers for a rational approach to reducing GHG emissions.  

I.          Introduction

On May 21, 2007, the U.S. Supreme Court, in Bell Atlantic Corporation v. Twombly, 127 S.Ct. 1955; 167 L.Ed. 2d 929, announced a new standard for testing the sufficiency of pleadings in the face of a motion to dismiss. The Court set aside the rule in Conley v. Gibson, 355 US 41; 78 S.Ct. 99; 2 L.Ed. 80 (1957), which held that a complaint should not be dismissed unless it could be shown that it was not possible, pursuant to the pleadings, to demonstrate any set of facts which would support recovery; instead, the Court said that the appropriate test was whether the allegations of the complaint, if taken as true, would support the conclusion that recovery was “plausible.” In overruling Conley, the Court said, of the “possible” standard, “*** after puzzling the profession for 50 years, this famous observation has earned its retirement. The phrase is best forgotten as an incomplete, negative gloss on an accepted pleading standard ****.” 

Bell Atlantic was an anti-trust case based on the Sherman Anti-Trust Act. Many commentators suggested that the Bell Atlantic standard would only apply to matters (such as anti-trust) where the requirements of a statute dictated specific pleading requirements, that the Court had not intended to completely change the standards for testing the sufficiency of complaints.

Shortly after the Bell Atlantic decision, the U.S. District Court for the Northern District of Alabama was faced with the question in Evans v. Walter Industries, case no. 1:05-CV-01017-KOB. The Alabama court held the “plausible” standard applicable to a putative class action toxic tort case and it dismissed the case, with prejudice, against one of the Defendants.

As noted below, this decision could have significant implications in other Superfund cases if the federal courts, generally, reach the same conclusion.

II          BACKGROUND FACTS

This case arises from the extensive environmental concerns in Anniston, Alabama, a city of approximately 27,000 in northeastern Alabama. Anniston was the site where PCBs were first produced in 1927, and continued to be manufactured until 1972. In addition, in the first half of the 20^th century the city was home to numerous iron pipe foundries; indeed, it was once known as the “sewer pipe capitol” of the world. The foundries produced thousands of tons, per day, of waste foundry sand allegedly contaminated with lead and a variety of other heavy metals, solvents, and PCBs. 

Much of Anniston is low lying and swampy, traversed by numerous creeks and open drains, many of which have become contaminated with PCBs. Foundry sand has been extensively used as fill material and top soil in residential yards throughout the city and adjoining communities. This has all led to Anniston becoming the location of two Superfund sites, one for remediation of PCBs and the other a removal action to clean lead from residential yards, extensive contribution actions, and a series of class actions by local residents who claim a variety of injuries as a result of local contamination. 

The concern of the local residents has been exacerbated by the fact that Anniston is immediately adjacent to Fort McClellan, an Army post which was for many decades the headquarters of the Army’s Chemical, Biological, and Radiological Warfare Corps and the Army is now in the process of destroying various toxins stored at the post which have become unstable with the passage of time.

III.        PROCEDURAL HISTORY

Plaintiffs, reportedly representing a plaintiff class of 12,000 to 14,000 people, filed a complaint in state court in 2005 asserting very broad, vague claims of personal injury, trespass, nuisance, and diminution of property value against foundry operators and a number of other, non-foundry companies. The case was removed to federal court pursuant to the Class Action Fairness Act and remains there.

Considerable skirmishing, involving Defendants’ motions attacking what were styled as “shotgun” allegations, and subsequent dismissals without prejudice eventually resulted in the filing of a second amended revised complaint in 2007. Defendants again attacked the complaint as the type of “shotgun” pleading which had attracted much negative comment by the Eleventh Circuit. A few days before argument on those motions, the Supreme Court released the Bell Atlantic decision. Defendants cited that decision as supplemental authority, arguing that the Court now had authority to dismiss the “shotgun” pleading with prejudice.

The Plaintiffs had alleged, and argued, that the foundries had produced thousands of tons of contaminated sand which ended up in Plaintiffs’ yards; further, that all of the Defendants may have released sand, PCBs, and other contaminants in sand that was used to clean up spills, stormwater, and air emissions. The Court was critical of these allegations because they did not specify what each Defendant had allegedly done, but, rather, seemed to treat all releases as a group action. The Plaintiffs argued that they could not be required to specify what each Defendant had done until they were permitted to pursue discovery. They argued that the Conley standard should apply and that their allegations should be found to be sufficient because it was “possible” that, in discovery, they could find specific facts to support their allegations. The Plaintiffs also argued that Bell Atlantic did not apply because the allegations were not made pursuant to a statute which required the averment of specific facts.

The Court rejected the Plaintiffs’ arguments and applied the Bell Atlantic standards. Its decision was based on three considerations. First, it noted that Conley was not an anti-trust case; therefore, even though the Supreme Court struck down the Conley test in an anti-trust case, its ruling was not limited to specific statutory actions.

Next, the Court held that adequate pleadings were necessary to advise not only the Defendants, but also the courts, of the allegations of the case so that discovery could be administered and could proceed in an appropriate manner. The Court styled this as a requirement to advise Defendants and the court of “*** who, what, when, where ***” the actions resulting in the damage complained of occurred. 

Next, the Court focused on the Supreme Court’s discussion, in Bell Atlantic, of the high cost of discovery and the increasing practice of plaintiffs in putative class actions to file suit with vague allegations and then use the high cost of discovery to pressure defendants into settling. 

Based on all these considerations, the Court dismissed the complaints as to all parties, but agreed to give Plaintiffs “one last chance” to file an adequate complaint against the foundry defendants. With respect to the non-foundry defendants, the Court observed that the allegations that there “may” have been discharges of contaminants in sand used to clean up spills and in stormwater and air emissions were entirely too vague and that, if the Plaintiffs could not produce much more specific allegations, those claims would be dismissed with prejudice.

Subsequently, Huron Valley Steel Corporation, a Defendant which is a recycler of non-ferrous scrap metals, moved for dismissal with prejudice and for entry of an immediate final judgment. The Court agreed that, from the face of the complaint, it appeared that this was a foundry sand case, that Huron Valley Steel Corporation had never produced or disposed of foundry sand, and that there were no other allegations against it that were not impermissibly vague. Therefore, the court dismissed the matter with prejudice as to Huron Valley Steel Corporation and entered final judgment for that Defendant. 

The court has yet to rule on the motions to dismiss of the remaining Defendants.

IV.       POTENTIAL IMPLICATIONS OF THIS DECISION

If other federal courts follow the line of reasoning of the Alabama court it could remove a number of complications in the future in Superfund matters. Most important, it may do away with, or at least significantly reduce, the practice of filing vague, broadly worded complaints against PRPs by groups of residents who live in the vicinity of Superfund sites, then seeking to pressure defendants to quickly settle. It could also simplify the task of planning and sequencing remediation activities and documenting Administrative Records to protect against such lawsuits. This could provide an important cost saving for PRPs in many cases.

For further information, contact Jack D. Shumate at shumate@butzel.com or (248) 258-1405.

Jack Shumate is Senior Environmental Counsel in the law firm Butzel Long, Professional Corporation. Mr. Shumate holds a BS degree in Chemical Engineering from Rose-Hulman Institute of Technology and received his JD from the Salmon P. Chase College of Law of Northern Kentucky University in 1962. He is listed in the Best Lawyers in America and is a Founding Regent and Charter Fellow of the American College of Environmental Lawyers.

Butzel Long is a full-service law firm headquartered in Detroit, Michigan with offices throughout Michigan and in Florida, New York City, and Washington DC and alliance offices in China and Mexico.