I. INTRODUCTION
The Texas Legislature has enacted the Voluntary Cleanup Program ("VCP") and the Innocent Owner/Operator Program ("IOP") to encourage development of properties affected by environmental contamination. These programs provide tools for current owners, prospective purchasers, and lenders to obtain a measure of security from the risk of significant environmental liability. This paper is designed primarily to review current issues associated with these programs. The TNRCC has an excellent homepage which provides a summary of these programs, as well as the related regulations.
II. VCP
A. SCOPE OF THE VCP
The VCP removes liability of lenders and future landowners through an incentive for voluntary investigation and remediation.1 A property is eligible for entry into VCP so long as it is not subject to a TNRCC order or permit or a pending agency enforcement action. The property is entered into the program by the filing of an application together with a $1,000.00 fee. In addition, the applicant must sign an agreement describing the schedule of activities necessary to achieve cleanup and confirming the applicant's undertaking to pay the cost of agency oversight for the property. The liability protection afforded by the VCP is accomplished by the issuance of the certificate of completion from the TNRCC which specifically states that all lenders and future landowners who are not otherwise responsible parties for conditions on the property are released from liability to the State for cleanup of the areas described in the certificate.2Through July 17, 1998 the VCP had received 718 applications and of these, 204 have been issued certificates of completion. These applications relate to various types of businesses including dry cleaners, manufacturing facilities, shopping centers, warehouses, auto-related businesses, and other commercial and industrial enterprises. The VCP's appeal is its ability to either eliminate or at least limit uncertainty in a time frame essential to market transactions.
One of the most helpful aspects of the VCP is the way in which the TNRCC has developed its procedures to recognize the reality of transactions. So long as the application is filed and the prospective purchaser and lender are identified as co-applicants on the application, the transaction can go forward. The release from liability will date back to the date of the application, if the buyer is an original applicant, or the date that the buyer is added to the application. Of course, there may still be risks associated with purchasing the property before the scope of contamination is fully defined, including the possibility that cleanup is not feasible and a release of liability will not be obtained.
The VCP does not release the present owner from liability to the State. However, once the conditions on the property have been addressed and a certificate of completion has been issued, the risk or exposure to the owner or present operator is substantially reduced.
The risk of liability under federal environmental laws for conditions addressed under the VCP have been substantially reduced by a memorandum of agreement between the TNRCC and EPA, Region VI. The EPA and TNRCC have agreed that EPA may initiate response actions at sites under the VCP only if the VCP applicant fails or refuses to complete the necessary cleanup and the TNRCC is unable to ensure completion of response actions at the sites or in emergency situations. Both the TNRCC and EPA reserve the right to take necessary response action if, following the issuance of the certificate of completion, conditions at the site which were previously unknown to the TNRCC and EPA indicate that the response action undertaken under the VCP is not protective of human health and the environment.
B. WHERE DO WE GO NEXT WITH THE VCP?
The VCP has proven to be effective for resolving liabilities for prospective purchasers and lenders and has allowed the development of properties that previously had been subject to questions about the scope of required remediation or potential for liability for conditions which might remain on the property. The VCP has made the Brownfields Program in Texas a reality; however, there are at least two areas where an expansion of the VCP could provide a useful further incentive for brownfield redevelopment:1. Use of VCP to Address Solid Waste Management Units ("SWMUs") and Areas Within RCRA "Facilities"
This proposal would not involve the use of the VCP to address a hazardous waste treatment, storage, or disposal unit such as a landfill or surface impoundment. Rather, the concept would be to address properties which might be caught within the sweeping definition of "facility" in both state and federal law because they are contiguous to the units and under common control. Further, under present TNRCC policy, an owner contemplating a sale of a portion of the property unrelated to the hazardous waste unit would not be able to use the VCP to address conditions on that property. Presently, SWMUs must be addressed in the context of the permitting process or under an agency compliance order.
Why not, at the owner or operator's option, allow those units to be investigated and addressed through the VCP? Why not allow the owner to segregate a portion of its property for sale and utilize the VCP to investigate and address any conditions on that property affording protection from liability to prospective purchasers and lenders? The answer seems to lie in a heretofore understandable reluctance to rock the boat with EPA, Region VI. Now, the messages from EPA Headquarters suggest that the agency is anxious to identify innovative approaches to speed the cleanup of industrial sites and specifically how to speed actions addressing SWMUs. These positions are clearly stated in an Advance Notice of Proposed Rulemaking3 published in 1996 and in a memorandum reiterating the policy of encouraging innovation issued by Elliott Laws and Steve Hermann in 19974. EPA is presently circulating an initiative called Cleanup 2000 which will provide further encouragement for innovation. Finally, states and EPA have entered into an agreement calling for development and use of innovative approaches to environmental regulatory programs.5
A meeting has been held between the TNRCC and EPA, Region VI and a joint committee has been formed to consider the possibilities. The test that should be applied is whether there is any policy reason against this innovative step. The issue is one of expediency and the benefits that can be derived for brownfield development.
2. Availability of the VCP for Addressing Discrete Groundwater or Surface Conditions
Presently, voluntary cleanup work plans and reports must include an assessment of the full nature and extent of contamination in all media unless the person demonstrates to the satisfaction of the Executive Director that site conditions warrant a focused investigation.6 This exception is intended to apply where the applicant demonstrates that another media has not been affected. It is presently not possible for an applicant to demonstrate that conditions on the surface did not contribute to groundwater contamination and proceed under the VCP to address the surface contamination alone. From the market's perspective, a cleanup of all media might be a waste of effort. There may be specific conditions on a property that, if addressed to the satisfaction of a prospective purchaser, could allow a transaction to proceed regardless of remaining contamination in another media.
Another reason for allowing a certification of completion for a single media becomes evident when one considers the purpose and scope of the IOP. Obviously, an innocent owner does not wish to address groundwater contamination emanating from an off-site source in order to obtain the protection of the VCP for a prospective purchaser. The difficulty TNRCC staff might encounter in determining whether conditions on the surface and in the groundwater are indeed separable can be answered by simply requiring a clear demonstration of such a separation from the applicant in order to qualify for separate certification. This approach is presently being employed in the IOP context.
III. INNOCENT OWNER/OPERATOR PROGRAM
A. SCOPE OF THE IOP
During the 75th legislative session, the Texas Legislature enacted House Bill 2776 which accomplished a number of superfund reforms, enacted lender and fiduciary liability protection, and provided liability protection to the "innocent owner and operator". Although landowners had some success in obtaining statements from EPA that the agency would exercise its discretion not to pursue a landowner for conditions which the landowner had neither caused nor contributed to7, the TNRCC took the position that such landowners were potentially liable for conditions beneath their property, notwithstanding the fact that they had not caused the contamination, and had little, if any, ability to cleanup the contamination. However, the only cases in which such liability was asserted were those in which the agency sought access to property adjacent to a source of contamination to facilitate the investigation or remediation of the source. The agency's position with respect to liability also seemed to be influenced by whether the owner of the property knew of the contamination at the time of purchase. These agency positions had a profound effect on the ability of landowners affected by an offsite source to evaluate and quantify the risk associated with conditions on their property. While the VCP might technically be available to such landowners, it would require that they commit to cleanup the contamination attributable to another.Attorneys with clients who had experienced this problem, the TNRCC legal and technical staff involved in state superfund and VCP issues, and the general counsel's staff worked together to develop a legislative solution, which was a grant of immunity from liability for an innocent owner or operator. An innocent owner or operator is a person that is an owner or operator of property that has become contaminated as a result of release or migration of contaminates from a source or sources not located on or at the property and who did not cause or contribute to the source or sources of contamination.8
The innocent owner or operator is not liable under the Texas Health & Safety Code or the Texas Water Code for investigation, monitoring, remediation, or corrective or other response action regarding conditions attributable to a release or migration of a contaminant. To avoid the sale of portions of the property on which the source is located without addressing the contamination, a different burden was placed on the buyer. The person acquiring property from the person who caused the release is eligible for immunity only if he did not know or have reason to know of contamination at the time he acquired the property. Further, he must have made an appropriate inquiry consistent with good commercial and customary practice.9
As previously noted, the TNRCC was using liability for the innocent owner or operator to compel access for offsite property. Section 361.752 provides that in order to be eligible for immunity, the owner or operator must grant "reasonable access" to the property for purposes of investigation or remediation to a person designated by the Executive Director. Reasonable access may be conditioned upon an agreement that the designated person may not unreasonably interfere with the use of the property, upon obtaining payment of reasonable compensation for access to the property, and upon receiving an indemnification for an intentional or negligent act of a designated person arising from the person's access to and use of the property. This provision is designed to address access by an adjacent property owner conducting an investigation pursuant to a TNRCC directive. The right of access by the TNRCC or its contractors is afforded by other provisions of the Health & Safety Code10 and the Water Code11.
Since a primary purpose of the innocent owner/operator legislation was to facilitate transfers of property, a certification process was developed for the State to determine that an owner was in fact an innocent owner or operator.12 In order to obtain a certificate, the applicant must demonstrate that it is eligible for immunity under the statute. The statute authorizes the agency to collect a fee in an amount not to exceed the cost of reviewing the application.
B. THE IOP CERTIFICATION RULES
The final rules concerning IOP certification were promulgated by the TNRCC on July 29, 1998. Because the statute does not provide that the certificate "run with the land", as is the case with the VCP, the TNRCC concluded that it could not issue a certificate to a prospective purchaser until that individual had achieved the status of owner or operator. As a result, the regulations adopt an innovative approach allowing a prospective purchaser to apply or join the owner as a co-applicant and obtain the certificate upon filing proof of its status as owner or operator.The rules do not require that the applicant be a current owner or operator of the site in order to apply for the certificate, but the applicant must provide proof of ownership or operation before a certificate can be issues.13 The application must contain general information concerning the owner or operator, a site investigation report, a legal description of the site and the name of the site owner and/or operator as appropriate, and a statement that the owner or operator has not caused or contributed to the offsite source or sources of contamination.14
The Site Investigation Report must include information concerning the potential for human exposure to the release or migration of contaminants at the site and information which demonstrates the site has been contaminated as a result of a release or migration of contaminants from a source or sources not located on the site and that the applicant has not caused or contributed to the offsite source or sources of contamination. It must also include a summary of all known historical and current site uses including a description of areas and activities where potential onsite contamination may be located.15 If the property has been subdivided from the property upon which the source is located, the applicant must demonstrate that he acquired the property after appropriate inquiry consistent with good commercial and customary practice and must not have or have reason to know of the contamination at the time the property was acquired. Finally, the Site Investigation Report must include previously completed Site Investigation Reports within the possession or control of the applicant, a schedule for conducting any additional site investigation activities, and a description of any placement of institutional controls or engineering controls proposed by the applicant.16
In an effort to tailor the IOP to deal with the present limitations of the VCP, the rules allow the applicant to describe onsite contamination that is the same or similar to that being released by the offsite source and propose investigation or remediation or other response action for review by the Executive Director.
If a sale, transfer or change in ownership will occur during the application review process, the rules allow the prospective purchaser to join the operator in the application and provide additional information to qualify the prospective purchaser as an innocent owner/operator.17 In contrast, if a certificate holder contemplates the sale or transfer of property and the prospective purchaser wishes to obtain a certificate, the certificate must first be brought current by updating information demonstrating that the existing owner/operator is still eligible and the prospective purchaser is eligible for innocent owner/operator status. This involves providing the agency with information on activities conducted on the property since the certificate was issued and possibly conducting additional site investigation activities if subsequent land use suggests that onsite contamination may occur.18
Under Section 333.36, the applicant is required to mail notice to adjacent property owners that the application has been submitted within fourteen (14) days of submission. The notice is to advise adjacent landowners of the availability of information in the agency files and request that they submit any additional information which may assist the Executive Director in reviewing the application within fourteen (14) days of the notice. The Executive Director notifies the applicant of any information obtained from adjacent landowners and provides the applicant with an opportunity to review that information.19
Section 333.38 of the rules provides that prior to the issuance of the certificate, the applicant and any co-applicant must file an affidavit affirming their eligibility.
The certificate specifies the contaminants and the media for which the Executive Director has confirmed the applicant's innocent owner/operator status. This is different from the VCP which requires that the application, and ultimately the certificate, address all media and contaminants. As previously noted, the certificate will only be issued to a co-applicant following receipt of proof of ownership or operation. Similarly, if either institution or engineering controls for the site are required, the certificate will only be issued after the Executive Director has received proof of the filing of the restrictive covenant in favor of the agency and the State describing those restrictions.20
The Executive Director may revoke a certificate if the certificate holder acquired the certificate by fraud, misrepresentation or knowing failure to disclose material information or if new information demonstrates that the certificate holder is not an innocent owner or operator. The certificate may also be revoked if the certificate holder fails to maintain institutional or engineering controls or does not pay agency costs. The Executive Director will provide a certificate holder with notice in writing of the facts alleged to warrant revocation and the certificate holder will be afforded thirty (30) days in which to demonstrate that it is in compliance with the requirements of the law.21
The Commission, rather than the Executive Director, may revoke a certificate if a certificate holder unreasonably denies access. However, revocation must be based upon facts and/or evidence presented to the Commission through an enforcement action. The certificate remains valid until so revoked.22
C. ISSUES ARISING REGARDING .THE INNOCENT OWNER/OPERATOR LEGISLATION
1. Access IssuesOne of the most interesting debates concerning the development of rules for the innocent owner/operator program was the issue of access. The staff felt that it lacked the expertise to assess the merits of arguments over access. The statute requires an owner/operator to grant reasonable access but allows that access to be conditioned on an agreement. Eventually, the Commission settled on what might be characterized as an "enforcement" approach. The TNRCC will first confirm that access had been denied by requesting that the designated person provide a copy of the certified letter requesting access. The TNRCC will then notify the owner/operator that the agency has received documentation of that person's reluctance to provide access and that the agency has designated the person requesting access as a person entitled to reasonable access. If the owner/operator continues to deny access, the TNRCC will refer the matter to Alternative Dispute Resolution and ask that the disputing parties be notified of the availability and purpose of mediation as an alternative to possible enforcement. Ultimately, if the owner/operator continues to refuse access, the matter will be referred to the enforcement division. The enforcement action will not only seek access, but also revocation of any innocent owner/operator certificate held by that person. Given that most disputes involving access are commercial disputes where the issue of money and agreement on reasonable restrictions on the use of the property are the only issues, the agency believes that these matters will be resolved in the course of negotiations between the parties.
2. Cross Media Issues
IOP cases have been presented to the TNRCC in which groundwater contamination originates from an offsite source but surface contamination is attributable to past use of the property. While the site owner is eligible for innocent owner/operator status with respect to groundwater contamination, the owner is not eligible for participation in the VCP unless it is willing to commit to cleanup the groundwater. This would defeat the benefit of the innocent owner/operator program. Allowing single media cleanups under the VCP would dovetail the protection afforded by the IOP and the relief available under the VCP.
IV. INNOVATION IN THE USE OF THE VCP AND IOP: SETTLING CASES
The primary benefit of the IOP to the owner/operator is certainty with respect to liability to the State. The IOP focuses the damage debate on whether the conditions interfere with the use of the property, thereby affecting its value. Accordingly, the IOP, together with the VCP, have become tools in settlement discussions. A landowner whose operations have affected an adjacent property owner can offer to conduct a cleanup n the property to satisfy the risk reduction rules under the VCP and at the same time pursue on behalf of the adjacent owner/operator an innocent owner/operator certificate. This not only resolves any potential for liability of the innocent owner/operator to the State, but clarifies any limitations on the future use of the property.
V. CONCLUSION
In some cases, we now find that environmental laws developed to address shortcomings of the market have gone too far and thwart the effectiveness and benefits of the very market they were intended to repair. The VCP and IOP are corrective measures intended to balance the effects of regulation and market. As we have seen, the market can be a powerful and positive force for environmental action. The challenge, as we rediscover the market's importance, is to continue to correct or eliminate impediments to its effectiveness.James C. Morriss has worked in the field of environmental law for over twenty years. His practice encompasses permitting, compliance counseling, legislative lobbying, and administrative and judicial litigation in air, water, and hazardous waste matters before local and state environmental agencies, the Environmental Protection Agency, and state and federal courts. He received his law degree with honors from the University of Texas School of Law and his undergraduate degree in mechanical engineering with high honors from Southern Methodist University. He is a member of the American Bar Association's Section on Natural Resources, Energy, and Environmental Law. He is a member and has served as chairman of the Environmental and Natural Resources Law Section of the State Bar of Texas and the Environmental Section of the Dallas Bar Association.
1 Tex. Health & Safety Code Ann. - 361.602 (Vernon Supp. 1998). 2 For a particularly helpful analysis of the VCP, see the VCP Question and Answer Booklet at www.tnrcc.state.tx.us/waste/pcd/vcp/vcpqa.htm. 3 61 Fed. Reg. 19432 (1996). 4 Memorandum on "Use of Corrective Action Ô Advance Notice' of Proposed Rulemaking" from E.P. Laws and S.A. Hermann, 1997. 5 63 Fed. Reg. 24784 (1998). 6 30 Tex. Admin. Code - 333.7 (1997). 7 EPA Policy Toward Owners of Property Containing Contaminated Aquifers, 60 Fed. Reg. 34790 (1995). See also EPA Guidance on Landowner Liability under Section 107(a)(1) and De Minimis Settlements under Section 122 (g)(1)(B) of CERCLA, and Settlements with Prospective Purchasers of Contaminated Property, 54 Fed. Reg. 34 (1989). 8 Tex. Health & Safety Code An. - 361.751 (Vernon Supp. 1998). 9 Id. - 361.752(b). 10 Tex. Health & Safety Code Ann. - 361.032 (Vernon Supp. 1998). 11 Tex. Water Code Ann. - 12.017, 26.014 (Vernon 1988 and Vernon Supp. 1998). 12 _____ Tex. Reg. _____ (1998) (to be codified at 30 TEX. ADMIN. CODE - 333.34(c)) (promulgated July 29, 1998, with expected publication date of August 14, 1998, Tex. Natural Resource Conservation Comm.). 13 Id. - 333.35. 14 Id. - 333.35(c). 15 Id. - 333.34(c)(7). 16 Id. - 333.35(d). 17 Id. - 333.35(e). 18 Id. - 335.36. 19 Id. - 335.38. 20 Id. - 333.40(c). 21 Id. - 333.40(c). 22 Id. - 333.40(d).