SUMMER SCHOOL: Case Study on Historical Research Intervals

No environmental professional ever wants to be in the uncomfortable position of having a past Phase I ESA report put under the glaring eye of scrutiny in a professional liability lawsuit. Drawing from years of expertise as an expert witness in these cases, Anthony Buonicore, P.E., BCEE, QEP and CEO of The Buonicore Group, delivered a highly-rated presentation at our Due Diligence at Dawn/Dusk series this year in which he guided hundreds of DDD attendees through five real-world case studies. Each case revolved around a particular element of the ASTM E 1527 standard, including a range of technical topics (e.g., non-scope issues, historical research, professional judgment, etc.). The discussion of each case study addressed these questions: Was the “standard of care” provided by the EP deficient? How did the EP’s performance compare with “customary practice”? Did the scope of work meet the requirements in ASTM E 1527? Our first three case studies in this five-part summer series dealt with non-scope issues, vapor migration risk and Phase I updates, respectively. Today’s case study addresses the five-year intervals for historical research in the ASTM E 1527 standard, and what it meant for one consultant who missed a former dry cleaner tenant at a retail property.

DDD-logo_smCASE STUDY: Phase I Updates

 

THE BACKGROUND

  • A prospective purchaser of a shopping center retained an environmental consultant in 2003 to conduct a Phase I environmental site assessment on the property to identify recognized environmental conditions or RECs.
  • The Phase I ESA Scope of Work complied with the ASTM E1527-00 standard in place at the time.
  • The Phase I ESA investigation concluded that there was no evidence of any RECs.
  • The property was acquired.

THE PROBLEM

  • When refinancing was sought four years later, the bank required a new Phase I ESA and used a firm from their “approved” list.
  • The consultant doing the new Phase I ESA for the bank was not the firm that did the original Phase I ESA.
  • The consultant identified that a former dry cleaner existed on the property and recommended a Phase II ESA investigation.
  • The Phase II ESA investigation found PERC contamination in the soil and groundwater on the property, and remediation was required to comply with state cleanup standards.
  • The property was not able to be re-financed.

The PLAINTIFF SAID…

  • The former dry cleaner tenant on the property was not identified in the original Phase I ESA investigation conducted prior to the property being acquired.
  • This resulted in site investigation costs, remediation costs and an inability to refinance the property.
  • The firm that performed the original Phase I ESA did inadequate historical research and did not follow the standard of care applicable to the conduct of Phase I ESAs.
  • This caused harm for which damages were being sought.
  • The damages sought were directly attributable to negligence by the firm performing the original Phase I ESA investigation.

EP’S DEFENSE…

  • The Phase I ESA complied with the ASTM E1527-00 standard.
  • The E1527-00 standard states that “review of standard historical sources at less than approximately five year intervals is not required.”
    • Past tenants were identified by the defendant using a city directory search at approximately 8-10 year intervals (which meets the “not less than five year interval” requirement).
    • The dry cleaner tenant identified by bank’s consultant was a tenant on the premises within this 8-10 year interval.
    • The bank’s Phase I consultant searched city directories more frequently (at approximately a three-year interval), which is beyond what was required to comply with ASTM E1527-00.

Note: For retail shopping center properties, the lender’s consultant made the case that it knew from experience that dry cleaners were often tenants at shopping centers, particularly where there were large food stores, and that they moved relatively frequently. As such, this justified their searching city directories at a more frequent interval (assuming the city directories were available).

DECISION:

  • The case was settled by the insurance company that provides the consultant’s E&O insurance.

WHAT WE CAN LEARN FROM THIS:

  • For retail properties such as shopping centers or industrial tenant properties, knowledge of past tenants is important.
  • Sellers typically only have limited information on all past tenants.
  • Historical city directories can provide insight into past tenants.
  • It may make sense to review all available (“reasonably ascertainable”) city directories for these types of properties.

[Note: This may be beyond the [interval] requirements of the E1527 standard; hence, it would be prudent first to discuss this with the client. You may even be able to charge for the expansion in the scope of work.]

  • For these types of properties, you should make a special request to the client to obtain a list of all past tenants (even though this information typically is not available, and if it is available, it frequently would only be for a limited period of time)

“If you are following the E1527 standard for these types of properties, then your Phase I ESA should include a limitation that the investigation may not identify all past tenants on the property and therefore may miss a high-risk tenant like a dry cleaner.”

~Anthony Buonicore

What Do You Think?

  • How do you view the “not less than approximately five year intervals” in the E1527 standard? Should this be interpreted as “at five-year intervals” if available?
  • Would a 10-year interval comply with the E1527 standard?
  • For certain types of properties, such as shopping centers where it is known that tenants come and go more frequently, should the interval be more frequent, assuming that city directories are available?
  • What present and former tenant research should you do on a shopping center property adjacent to the target property because it may have had for example a dry cleaner tenant in the past?
  • Does the potential for vapor migration drive you to do more today?

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NOTE TO READERS: The final case study in our five-part Summer School series will deal with the degree of obviousness under ASTM E 1527-13. Anthony’s slides from the Spring DDD season are posted in their entirety here.