LEGAL BRIEF for EP’S: Avoiding Negligence Liability

At last week’s DueTrimarche Diligence at Dawn in Orange County, attendees participated in a very interactive session with Gregory Trimarche, an attorney with Ring Bender Law in Irvine, CA. Greg has twenty-five years of extensive trial experience in state and federal courts, with a focus on real estate, land use and environmental matters. Greg’s DDD track followed Anthony Buonicore’s on case studies involving litigation against environmental professionals. As one attendee said, “Anthony put the fear of God in us, and Greg put us all back at ease.” His DDD talk centered around a paper he prepared for attendees, titled “Avoiding Negligence Liability for Environmental Professionals” and he graciously granted permission for it to be published here. EDR Insight wishes to sincerely thank Greg for his valuable contribution to our Orange County DDD, and also to Joanie Burns at Geosyntec Consultants who put us in touch with him.

AVOIDING NEGLIGENCE LIABILITY

FOR ENVIRONMENTAL PROFESSIONALS

Gregory D. Trimarche. Esq. (see note 1)

Presented at “EDR Due Diligence at Dawn”

June 4, 2015

Costa Mesa, California

I.  Negligence under California Law – A Primer

      A. What is “Negligence”?

Negligence is either the failure to do something that an ordinary prudent person would do under the circumstances, or the doing of something that an ordinary prudent person would not do under those circumstances. It is the failure to use ordinary or reasonable care (i.e., that care which persons of ordinary prudence would use).

The basic concept of negligence is centered on the principle that every individual should exercise a minimum degree of ordinary care so as not to cause harm to others. Thus, under California law, everyone is responsible not only for the result of his or her willful acts, but also for an injury caused to another by his or her want of ordinary care or skill in the management of his or her property or person. Cal. Civ. Code §1714(a).

“Negligence is not the act itself, but the fact which defines the character of the act, and makes it a legal wrong.” Stephenson v. Southern Pac. Co., 102 Cal. 143, 147 (1894).

      B.  What are the Elements of a Negligence Claim Under California Law?

Negligence is a “tort” claim (i.e., it is not a contract-based claim, as discussed in more detail below). The elements of a cause of action for negligence are: (I) a duty to use ordinary care; (2) breach of that duty; (3) a proximate causal connection between the negligent conduct and the resulting injury and (4) resulting damage. E.g., Budd v. Nixen, 6 Cal. 3d 195,200 (1971).

       C.  What Constitutes a Breach of Duty by an Environmental Professional?

Any action based on negligence involves a violation of a legal duty, imposed by statute, common law, or otherwise, owed by the defendant to the person injured. Thus, to support a claim of negligence, a plaintiff must show that the defendant breached its duty of care. As mentioned earlier, the breach of the general duty to act reasonably consists of conduct falling below the standard of ordinary care or skill in the management of person or property. Civ. Code 1714(a). The care required must be in proportion to the danger to be avoided and the consequences that might reasonably be anticipated. The duty to act reasonably varies with changing circumstances, and the standard of care usually is measured objectively. Thus, under this “general” duty of care, everyone has a duty to use ordinary care in conducting activities from which harm might reasonably be anticipated.

Environmental professionals often attempt to limit their liability by trying to define “ordinary care” in their standard contracts as “that degree of skill and judgment commensurate with that which is normally exercised by recognized professional firms with respect to services of a similar nature.” However, under California law, professionals have an independent tort duty to their clients – this tort duty exists independent of, and cannot be altered by, the language of their contracts. E.g., Gagne v. Bertran, 43 Cal. 2d 481,489 (1954) (holding that engineers and other professionals have a tort duty to conform their performance to  professional standards used by other members ofthe profession, regardless of contract language). Simply put, professionals owe their clients an independent duty of care which, if breached, makes them liable for malpractice. This professional duty of care specifically has been applied to environmental consultants. E.g., Mission Oaks Ranch, Ltd. v. County of Santa Barbara, 65 Cal. App. 4th 713, 723-725 (1998) (rev ‘d on other grounds).

      D.  To Whom Does an Environmental Consultant Owe a Duty?

To support a negligence claim, a plaintiff must show not only that the defendant failed to exercise the appropriate level of care, but that the defendant owed a duty to the plaintiff to use such care. Thus, the question often arises, to whom exactly does an environmental professional owe a duty, in performing a Phase I or Phase II site investigation? In particular, does an environmental professional have a duty to someone other than his or her direct client – e.g., a party who purchases property from the original client?

As discussed earlier, environmental professionals (like other professionals) have a tort duty to conform their performance to professional standards used by other members of the profession, and this duty exists independent of their contracts – as a result, the scope of their liability is not necessarily limited to the parties with whom they contract (i.e., they may have a duty to third parties). Under California law, to determine whether a professional has a duty to a third party, courts must look to the following factors:

  • The extent to which the transaction was intended to affect the third party
  • The foreseeability of harm to the third party
  • The degree of certainty that the plaintiff suffered injury
  • The closeness of the connection between the professional’s negligence and the injury suffered
  • The “moral blame” attached to the negligent conduct
  • The policy of preventing future harm

Beacon Residential Community Ass’n v. Skidmore, Owings & Merrill LLP, 59 Cal. 4th 568, 578 (2014) (quoting Biakanja v. Irving, 49 Cal. 2d at 647, 650 (1958)). Thus, in Beacon, the court held that a principal architect on a condominium project owes a duty of care to future homeowners (even if the architect does not actually build the project or exercise ultimate control over construction decisions) (see note 2). 59 Cal. 4th at 581. Notably, in reaching that decision, the court focused not only on the close connection between the architect’s negligence and the homeowners’ injuries (i.e., construction defects in their homes), but also on the fact that the homeowners, in purchasing their condos, had no real option to protect themselves from construction defects other than to rely on the architect’s duty of care (i.e., it was not reasonable to expect consumers to hire their own architects or construction defect experts to examine the condos before purchasing them) (see note 3) Id.

This is an important point, in the context of environmental professional liability, because a good argument can be made that, in most instances, it is reasonable to expect a commercial real estate buyer, developer, or other third party to retain their own environmental professional, rather than merely relying on a report produced by someone else’s environmental professional- and, of course, in many cases, they do so.

In any event, at least one court has refused to extend an environmental consultant’s duty beyond its direct client. See Briggs v. Eden Council for Hope & Opportunity, 19 Cal. 4th 1106, 1123 (1999) (the court held that the duty was owed to the direct client (a public agency), but not a developer harmed by the environmental consultant’s work). Again, though, this case does not establish a firm rule barring such liability – rather, it will depend on a case-by-case application of the factors discussed above.

It is worth noting, again, that this potential duty to a third party exists independent of, and largely is unaffected by, contract language. Thus, a provision in an environmental professional’s contract that purports to disclaim any intended third party beneficiaries of the contract will not affect this independent tort duty – a cou11’s analysis will be based on the factors discussed above, and any such contract language essentially will be irrelevant to that analysis. See e.g., Beacon, 59 Cal. 4th at 584.

It also is worth noting that there appears to be very few published cases involving this issue (environmental professional liability to third parties), probably for at least the following reasons: (I) these cases usually are settled by insurers before they reach the point of a published court decision; (2) injured parties often find other ways to redress their injury or loss, such as pursuing claims against the party responsible for the contamination, rather than a malpractice claim against the environmental professional who failed to discover to disclose it; (3) in many (perhaps most) cases, third parties hire their own environmental professionals rather than relying on someone else’s expert.

       E.  Causation – the Concepts of “Cause in Fact” and “Proximate Cause”

For an act or omission to be the legal cause of an injury, it first must be the “cause in fact” (or actual cause) of the injury. Determining whether the defendant’s conduct was a cause in fact of the plaintiff’s injury requires a common sense determination as to whether the defendant’s conduct brought about or contributed in some way to the plaintiffs injury. Under the “but for” rule of causation, the defendant’s conduct is the cause in fact of an event if, “but for” the defendant’s conduct, the event would not have occurred. Thus, if the plaintiff would have sustained the injury anyway, regardless of whether the defendant was  negligent, then the defendant’s negligence was not an actual cause of the plaintiffs injury.

In addition to being the actual cause of plaintiff’s injury, the defendant’s negligence also must be the “proximate cause” of the injury – that is, even where a defendant’s conduct is an actual cause of a plaintiff’s injury, the defendant may escape liability if that conduct was too attenuated from the injury. For example, where after the defendant’s act, an independent “intervening” act that is not reasonably foreseeable occurs, even though the defendant’s act started the chain of causation toward the plaintiffs injury, the intervening act may be considered a “superseding” cause of the injury, which “breaks the chain” of causation. In such case, the defendant’s act or omission cannot be considered the “proximate cause” of plaintiffs injury. The most common intervening causes cited by defendants are natural forces and negligent human conduct, and the key common element is lack of foreseeability (see note 4).

The concept of”contributory negligence” also provides a limitation on liability – i.e., where plaintiff itself is negligent (i.e., conduct which falls below the standard to which he or she should conform for his or her own protection), and both the plaintiffs and defendant’s negligence are actual causes in bringing about the plaintiffs harm. In California, before I975, a plaintiffs contributory negligence was a complete bar to recovery against a defendant whose negligent conduct would have otherwise made him or her liahle to the plaintiff for the harm the plaintiff sustained. California has replaced this all-or-nothing rule of contributory negligence with a “comparative fault” rule that assesses liability in proportion to fault. Thus, in California now, the contributory negligence of the person injured no longer bars recovery, but the damages awarded must be diminished in proportion to the amount of negligence attributable to that person. (In light of this limitation, and the other matters discussed above, an environmental professional sued for negligence by a third party could attempt to reduce its liability by arguing that a third party plaintiff was negligent in failing to retain its own environmental professional.)

II.     Complicating Factors: CERCLA Defenses, ASTM Standards and “AAI”

       A.  CERCLA Defenses

Under the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), past and present owners and operators of contaminated property may be held liable for cleanup (i.e., as “potentially responsible persons” or “PRPs”). CERCLA imposes liability on property owners and operators for the cost of remediation of “hazardous substances,” regardless of whether the owner or operator actually caused the contamination. CERCLA liability long has been viewed as imposing unacceptable risks to prospective purchasers of contaminated properties and, thus, has discouraged property transfers and the beneficial re-use of contaminated properties (often referred to as “Brownfield” projects).

To address this drag on property sale and redevelopment, in 2002, CERCLA was amended with the “Small Business Liability Relief and Brownfields Revitalization Act” (the “Brownfields Amendments”), Pub. L. No. 107-1 18, I 15 Stat. 2356 (January I I, 2002).  These amendments expand and clarify how landowners and prospective purchasers of property can avoid CERCLA liability, provided that they did not cause or contribute to contamination at the property, and they meet certain specific statutory criteria (see note 5). By virtue of the Brownfield Amendments, CERCLA now provides three types of liability protections for landowners and prospective purchasers of real property:

  1. Innocent landowners – persons who can demonstrate that, prior to purchasing a property, they did not know and had no reason to know that a hazardous substance had been released at the property.
  2. Contiguous property owners – persons who own property that is contiguous or otherwise similarly situated to a facility that is the only source of contamination found on the person’s property and, like innocent landowners, can demonstrate that they did not know and had no reason to know that a hazardous substance had been released at the property.
  3. Bona fide prospective purchasers – persons who buy property with knowledge of contamination, provided that they buy the property after January 11,2002, and meet certain additional criteria.

Generally, among other pre-requisites for these defenses (see note 6), innocent landowners and bona fide prospective purchasers are required to conduct “all appropriate inquiry” (or “AAI”) when prior to purchasing the property. As discussed below, the Brownfield Amendments required the United States Environmental Protection Agency (“EPA”) to establish the standards and practices that constitute AAI for purposes of the CERCLA defenses.

      B.  ASTM Standards and the AAI Rule

Shortly after the Brownfield Amendments were passed in 2002, EPA determined that the then-existing “ASTM standard” (i.e., the voluntary consensus standard developed by ASTM International), known as the Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process (ASTM E1527-00), was not consistent with the statutory criteria. EPA then convened a rulemaking committee to develop a consensus AAI standard. 70 Fed. Reg. at 66,081.

The Brownfield Amendments provided that persons seeking to assert the CERCLA landowner defenses would have to comply with the interim federal AAI standard until the EPA promulgated its AAI rule. 42 U.S.C. §9601 (35)(B)(iv). For commercial property purchased before May 31, 1997, the Brownfield Amendments provided that property owners would have to comply with the statutory criteria for establishing the innocent purchaser defense that had been in effect before the Brownfield Amendments.

While a draft AAI rule was under development, the EPA clarified the interim federal AAI standard. 68 Fed. Reg. 24,888 (May 9, 2003). The agency indicated that persons who purchase or occupy property on or after May 31, 1997 would have to demonstrate that they complied with ASTM E1527-00 or the earlier 1997 version (ASTM E1527-97). EPA then published its proposed AAI rule in August 2004 (which received more than 400 comments). 69 Fed. Reg. 52,542 (Aug. 26, 2004). While the rulemaking committee was developing the draft AAI rule, the ASTM Phase I Task Force began working with EPA to revise the E1527-00 standard to ensure that the revised standard would satisfy the requirements of the AAI rule.

On November 1,2005, EPA issued its final AAI rule (the “AAI Rule”), with an effective date of November 1,2006. 40 C.F.R. Part 312, Standards and Practices for All Appropriate Inquiries, 70 Fed. Reg. 66,069. At that time, EPA also announced that it had determined that E1527-05 was consistent with the final rule so that environmental site assessments consistent with ASTM E1527-05 would be considered to be in compliance with the final AAI rule. 70 Fed. Reg. at 66,081. Thus, until the November 1,2006 effective date of the AAI rule, persons seeking the benefit of the CERCLA landowner liability protections could continue to comply with the federal interim standard (i.e., ASTM EI527-00) or could begin to implement the AAI rule or ASTM E1527-05.

In sum, the AAI Rule protects prospective purchasers of property from CERCLA liability if the prospective purchaser conducts an investigation that meets the requirements ofthe AAI Rule. Every Phase I assessment conducted with a view toward satisfying the above-mentioned CERCLA defenses (as well as every Phase I conducted with EPA Brownfields Assessment Grant funds) now must be conducted in compliance with the AAI Rule.

The AAI Rule is a performance-based standard. The objective is to conduct inquiries into past uses and ownerships of a property and visually inspect the property to identify conditions indicative of releases and threatened releases of hazardous substances on, at, in or to the subject property – that is, to identify information relating to current and past uses and conditions that could have led to the release of hazardous substances on the subject property. This information is identified in the following ways:

  1. Interviews: Under the rule, an environmental professional must interview current owners and occupants, current and past facility managers with relevant knowledge of the property, and neighboring owners or occupants if the property is abandoned.
  2. Historic sources: An environmental professional must search historic sources,such as chain of title documents, aerial photos, and land use records. These records should be searched as far back in history as there is documentation that the property contained structures or was placed into use. If documentation cannot be traced back this far, it must be noted as a data gap to the inquiries.
  3. Cleanup liens: The search for environmental cleanup liens can be conducted by the purchaser or the landowner, but must be provided to the environmental professional for inclusion in the report.
  4. Review of federal, state, and local records: The environmental professional must search reasonably ascertainable government records and available lists for  institutional and engineering controls at the subject property. The search also must take into account such records at other properties within specified distances from the subject property.
  5. Visual inspection: The environmental professional must visually inspect the property and adjoining properties.
  6. Specialized knowledge: Any specialized knowledge or experience on the part of the prospective purchaser and/or the environmental professional conducting the investigation must be considered.
  7. Purchase price: The AAI rule requires a consideration of the relationship of the purchase price to the fair market value of the property, if the property were not contaminated. (The environmental professional need not conduct this element of AAI.)
  8. Commonly known information: Commonly known and reasonably ascertainable information should be obtained from the owner or occupant of the property; members of the community, including neighboring property owners, government officials, or local media sources; local libraries; or historical societies.
  9. Degree of obviousness: Persons conducting AAI must consider all of the information obtained during the investigation to determine whether an obvious conclusion can be drawn that there are indications of a release or threatened release of a hazardous substance.
  10. Timeframe: All appropriate inquiries must be conducted within one year prior to the date on which a person or entity acquires a property. Prior investigations may be updated within one year of acquisition to satisfy the AAI standard, but several components of the investigation must be updated within 180 days prior to the passage of title (including interviews with past and present owners, operators, and occupants; searches for recorded environmental cleanup liens; reviews of federal, tribal, state, and local government records; visual inspections of the facility and adjoining properties; and the declaration by the environmental professional).

      C.  The AAI Rule Amendment and the new ASTM Standard EIS27-13

On December 30, 2013, the U.S. EPA formally recognized a new standard (ASTM Standard EI527-13) to demonstrate compliance with the AAI Rule; then, on October 6, 2014, EPA formally amended the AAI Rule to clarify that, going forward, the newly approved ASTM E1527-13 standard would be the only acceptable standard with which to satisfy the AAI requirement (to eliminate the confusion caused by its prior practice of allowing either ASTM EI527-13 or ASTM E1527-05 to satisfy the AAIR requirement).

That amended AAI Rule has a delayed effective date of October 6, 2015, to allow completion of investigations currently being conducted under the old standard. Thus, although exclusive use ofASTM E1527-13 is not required until October 6, 2015, it probably is advisable to discontinue reliance on ASTM E1527-05, and use only the new standard going forward.

The new ASTM E1527-13 Standard (the “2013 Standard”) is very similar to the previous ASTM EI527-05 Standard but, as discussed in more detail below, the 2013 Standard has stricter requirements relating to indoor air concerns, particularly with respect to vapor intrusion risks (which have come under ever increasing scrutiny by both regulators and litigators). The 2013 Standard also has more stringent requirements regarding the review of government agency files. In sum, there are three primary changes in the new 2013 Standard (each discussed in more detail below): (I) changes to the definitions of”recognized environmental condition” (“REC”) and “historical recognized environmental condition” (“HREC”), and introduction of the new term “controlled recognized environmental conditions” (“CRECs”); (2) clarifications concerning the assessment requirements for vapor migration and intmsion; and (3) heightened requirements relating to regulatory agency file reviews.

  1. REC, HREC, and CRECs

The 2013 Standard simplifies the definition of a REC, to align more closely with the AAI rule, as a release, a likely release, or a material threat of a release of hazardous substances to the environment on the property. The 2013 Standard also modifies the definitions of “release” and “environment” to better track the CERCLA definitions of those terms. (Most practitioners believe that the changed definition of REC will have little practical impact.)

The definition of an HREC also has been changed to make clear that the term applies only to historic releases which have been remediated to the satisfaction of regulatory authorities for unrestricted use. Thus, HREC now applies only to past releases that do not subject the property to any use restrictions, activity and use limitations (“AULs”), or other engineering or institutional controls. The new definition also requires an evaluation of whether releases that were addressed in the past may be subject to revised cleanup criteria that could require further remedial action (e.g., if a relevant cleanup cliteria has become more restrictive, the HREC could become a REC). Thus, the 2013 Standard expressly requires an analysis of current regulatory cleanup standards as they may apply to HRECs.

The 2013 Standard also creates the new term CREC to describe releases that have been addressed to the satisfaction of regulatory authorities, but where residual contamination remains subject to the implementation of AULs or other institutional or engineering controls on the property. Because a CREC is a new type of REC, that condition must be identified as a REC in the conclusions section of the Phase I report (in contrast to HRECs, which no longer are considered a REC). Under the prior standard, these types of controlled, known conditions were often characterized as HRECs (because regulatory closure had been granted), but these conditions now are considered RECs (and, thus, could impact transactions by prompting demands for financial holdbacks, insurance coverage, or other transactional concessions).

  1. Vapor Migration and Intrusion

The 2013 Standard requires consideration of the potential for vapor migration. The definition of “migrate” now expressly includes subsurface vapor migration. Thus, if there is subsurface soil or groundwater contamination at or near the subject site, a Phase I assessment now must assess possible indoor air quality impacts from vapor intrusion (though, notably, the 2103 Standard expressly provides that a Phase I assessment need not satisfy the comprehensive vapor migration assessment requirements set forth in ASTM E2600).

  1. Government Agency File Reviews

If a property, or an adjoining property within the required search distance, appears on a federal, state or tribal record, the standard requires, within the environmental professional’s discretion, the review of “pertinent regulatory files and/or records associated with the listing.” If the environmental professional chooses not to conduct a file review, they must document any reasons for this decision in the Phase I report. Since agency file reviews often can take several weeks (or even months) to complete (particularly in light of Public Records Act and “FOIA” requirements), the file review requirements could add significant unexpected costs or risks to the Phase I assessment process. Perhaps most important, the file review requirement could create a risk that a Phase I assessment could be deemed incomplete at the time of closing because of the unavailability of agency files within the time frame of the assessment (see note 7).

III. Case Studies

  1. Amcal– buried brick structures containing 75+ yr old lead glaze residue (or, it’s important to know the difference between brick and rock).
  2. Torrance commercial property – undiscovered tank farm history (the AAI rule requiring historical records review as far back as records are available should prevent this type of mistake now).
  3. So Cal gun range – why “wiggle room” and “lawyerly weasel” language have their place on gun ranges and in environmental reports (or, be careful when you say that lead pellets and target debris “should not be viewed as a major environmental concern”).

About Ring Bender LLLP

Ring Bender is a “boutique” law firm specializing in environmental and complex litigation matters. We operate a national practice, staffed by attorneys in six offices strategically located in the Northwest, California, the Northeast, and southern Florida. Most of our attorneys spent significant portions of their careers at major “Am Jur 100” firms before joining Ring Bender. We have extensive experience handling major environmental cleanups from coast to coast, including multi-party sites (and complex multi-party litigation). Similarly, we have experience defending clients against environmental enforcement actions under virtually every major federal environmental statute, as well as their state law counterparts throughout the country. We also have considerable experience in representing buyers, sellers, and lenders in transactions involving contaminated sites, particularly the cleanup, transfer and redevelopment of such sites (“Brownfield” projects). Finally, we have significant experience in obtaining insurance coverage for our clients in a wide range of complex matters (including but not limited to environmental liabilities) via litigation, arbitration, and otherwise.

 

NOTES FROM THE AUTHOR:

  1. The author would like to thank Jay Tufano, an associate at Ring Bender, for assisting in the preparation of this outline. Additionally, please note that this outline is not intended as legal advice, and should not be treated as such.
  2. There are many published cases involving the extension of an architect’s duty to third parties, for obvious reasons. For example, in Montijo v. Swift, 219 Cal. App. 2d 351 (1963), a plaintiff who fell and was injured on a stairway in a bus station, sued the architect on grounds that the stairway was negligently designed with an inadequate handrail. The court found that “an architect who plans and supervises construction work . .. is under a duty to exercise ordinary care … for the protection of any person who foreseeably and with reasonable certainty may be injured by his failure to do so….” ld. at 353.
  3. As the court explained, a liability rule that would require homebuyers to hire their own experts would be “less efficient” than a rule that makes architects who design homes liable to homebuyers for failure to exercise due care in their work. 59 Cal. 4′” at 585.
  4. Thus, for example, if a homeowner hired an interior designer who arranged for the delivery of some expensive furniture and then left the furniture outside in a storage lot for two days, and during that time it rained and damaged the furniture, the rainstorm would not be deemed “unforeseeable” and, thus, would not be a superseding cause of the injury – it would not “cut off’ the chain of liability between the defendant’s negligence and the plaintiffs injury. Conversely, if, in the same situation, the furniture was not injured by a rainstorm, but instead was picked up by a tornado and thrown into an adjacent lake, that tornado easily could be deemed unforeseeable and, thus, a superseding cause such that defendant’s negligence was no longer the “proximate cause” of the injury.
  5. Congress originally created an “innocent landowner defense” to in 1986 with the Superfund Amendments and Reauthorization Act (“SARA”). SARA created new CERCLA section 101(35)(B), which provided a defense from strict liability for persons who could demonstrate that “they did not know and had no reason to know” prior to purchasing the impacted property that any hazardous substance had been disposed of or had impacted the property. However, that defense was very narrow (most purchasers were unable to qualify for the defense) and, for that and other reasons, most prospective purchasers viewed it as insufficient to protect them from CERCLA risks.
  6. Even after the conduct of AAI and the purchase of the property, a property owner must satisfy continuing obligations in order to qualify for the CERCLA liability defenses. These obligations include complying with all land use restrictions and reporting obligations; not impeding any institutional controls implemented at the site; exercising “due care” with respect to any remaining contamination at the site, including taking reasonable steps to prevent releases; cooperating with EPA, state, or other parties conducting response actions; complying with CERCLA information requests; and providing legally required notices.
  7. The new ASTM Standard also indicates that review of title and judicial records for environmental liens or AULs now is mandatory, though it may be conducted by either the environmental professional or the client.