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U.S. EHS Compliance and COVID-19: What EHS Executives Can Do Now (and as soon as the Dust Settles)

Written by Christopher Clare and Patrick Larkin, Clark Hill PLC

On April 2, 2020, the US EPA issued a letter to each member of Congress that makes our point that published Enforcement Discretion policies may require case-specific demonstrations of Force Majeure.

Greater certainty may be obtained under self-disclosure and penalty immunity policies.

On April 10, the US EPA also issued “Interim Guidance on Site Field Work Decisions Due to Impacts of COVID-19.” As in its March 26th Enforcement Discretion Guidance, EPA affirms that it will require actual evidence of “impracticability” to excuse or mitigate non-compliance with remedial activity obligations.

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Act now – assume there will be gaps in compliance programs.

The COVID-19 pandemic will have (hopefully) once-in-a-lifetime impacts on all of us, including unavoidable and widespread non-compliance with regulatory obligations and deadlines. To help manage enforcement liability, the U.S. EPA and numerous state counterparts have issued new enforcement discretion guidance, and are emphasizing existing penalty relief mechanisms. To qualify for discretionary penalty mitigation, Environmental Health and Safety executives should actively participate in their companies’ resource-triage decisions, and take steps now to ensure self-audit penalty immunity. These steps include:

Take short term actions that, above all, prioritize the physical security of human health and environmental receptors (HH/E).

  • As Hurricane Alley companies (and their EHS managers) have learned, in weeks and months after the disaster, governments will use 20/20 hindsight and expect environmentally significant operations to have prioritized human health and the environment.
  • Where actual harm to HH/E occurs and arguably arises from a resource allocation decision, State and federal agencies may have limited discretion and less inclination to mitigate maximum statutory penalties (and equally existential economic consequences).
  • When making decisions on how to prioritize limited company resources, EHS managers may present their claim to company resources in terms of preserving reputations and avoiding criminal sanctions and/or catastrophic civil liability.

Take the required steps to qualify for state and federal enforcement discretion guidance.

  • These guidance documents recognize that the numerous executive orders restricting travel and calling on citizens to shelter in place will make compliance and agency interactions difficult and tenuous. These documents have thus far focused on: (1) force majeure recognition and self-documentation; and (2) online “registration” of force majeure events.
  • Many permits, consent orders, and remediation agreements contain so-called “Act of God” or force majeure provisions that arguably excuse or defer actual or timely performance of these legal obligations.
  • Establishing the criteria for force majeure typically requires a nuanced demonstration of the elements of eligibility, including:
    • Near-immediate notice of intent to assert force majeure;
    • Demonstration that nonperformance was unavoidable, cause unforeseeable; and
    • Extremely rigorous, arguably unreasonable, levels of mitigation efforts.

Key provisions to look for in enforcement discretion guidance documents include:

  • Specific eligibility criteria for force majeure / enforcement discretion.
  • Waivers/penalty mitigation likely will be subject to a case-by-case analysis.
    • Companies will need to “make their case” for relief.
    • Documentation of direct causal connection between COVID-19 pandemic and impacts on the company will likely be necessary.
    • It is unclear if rigorous force majeure demonstrations will be required. (e.g. non-foreseeability) by most agencies.
  • Violations which could have “practicably” been prevented are likely ineligible.
  • Intentional criminal acts will be ineligible (“knowing but unavoidable” are likely eligible).
  • Discretion policies will likely not apply to non-compliance with cleanup/enforcement orders.
    • Orders are quasi-contractual and often include force majeure terms.
    • For rule-based obligations, the agency may need additional authority to use force majeure defenses to waive enforcement.
  • Most importantly, these exclusions emphasize that EPA guidance provides only a first step:
    • Guidance is an invitation to apply force majeure concepts to rule obligations.
    • No blanket immunity is provided.
  • EPA’s enforcement discretion guidance can be found here. Examples of state agencies with similar guidance include TexasPennsylvaniaMichigan, and California.
    • State enforcement discretion policies may provide broader waivers of state-specific regulatory requirements and state enforcement of federally delegated programs.
    • When requesting relief from a solely-federal requirement (e.g., EPCRA Tier II, SPCC or Toxic Release Inventory reporting), the EPA’s guidance should be used.
    • Several states’ guidance emphasizes self-reporting and appears to set a lower bar to secure enforcement discretion, e.g., Texas, linked above, and Ohio.

Do not assume these defenses will apply, or be applied consistently, in the future.

  • Many eligibility decisions will not be made until 2021 or later and may be made by agency management from a new Administration or revised post-pandemic roster.
  • It may be prudent to view agency enforcement discretion guidance as offers to apply force majeure principles if/when you can show it is appropriate.
  • Optimistically, a company may consider the guidance as an acknowledgment that one or more of the force majeure elements are generally satisfied.
  • Guidance seems to imply that “un-foreseeability” elements of force majeure are satisfied.
  • The (next) most difficult prerequisite to satisfy is likely to be the adequacy of mitigation efforts.

Use Self-Audit/Self-disclosure Policies to seek full immunity or minimized enforcement responses. 

  • A company’s chance to enforce discretion is greatly enhanced by invoking agency authority to grant penalty immunity: self-audit and self-disclosure programs.
  • Prerequisites and protocols for audit-based immunity vary across agencies, but can generally be optimized by planning and for some, pre-negotiation of terms with the agency.
  • Negotiating a pre-planned audit/disclosure can provide flexibility in the satisfaction of penalty immunity deadlines and criteria. Moreover, the EPA and state agencies are likely to show audit agreement flexibility while the pandemic continues.
  • More information concerning EPA’s self-audit program can be found here.
  • Many states have similar audit/disclosure programs, but eligibility nuances and “trap-doors” require careful attention to detail. See TexasPennsylvaniaCalifornia, and Michigan.

About the Authors

Christopher B. Clare is a Senior Attorney in the Environment, Energy & Natural Resources group in Clark Hill’s Washington, DC office. Chris concentrates his practice on environmental litigation, regulatory compliance matters and business transactions involving environmental issues.

 

Pat Larkin practices exclusively in environmental law, including regulatory compliance, litigation, administrative law, and  environmental counseling in business transactions. Pat regularly represents industrial, transportation, real estate and retail clients in air, water and waste permitting, compliance counseling and audits, voluntary site cleanups, government enforcement actions, and in agency rulemaking and associated stakeholder and guidance writing work groups.

Canada: COVID-19 – Impact On Environmental Compliance And Due Diligence

Written by Bryan J. Buttigieg, Miller Thomson LLP
As these strange times continue to evolve, it is important to ensure that all companies whose operations raise environmental compliance issues try to think through and plan for what might happen in the coming weeks and perhaps months. In particular, both self-imposed and regulatory quarantine protocols may have a significant impact on critical staff levels at a facility. While we are all deep into implementation of directives about working from home when we can, there are, of course, a number of essential jobs that require physical presence for a plant to operate properly.

Despite all the dramatic changes going on in our lives, all conditions of operating permits such as Environmental Compliance Approvals remain in full force, and all obligations such as spill prevention, spill remediation, spill reporting and regular compliance reporting continue to apply. It is never an excuse to say something happened due to a staff shortage. If there are insufficient resources to conduct an operation in full compliance of environmental obligations, there is an obligation to revise operating plans including if necessary, reducing production levels, rather than continuing business as usual in the expectation that regulators will somehow turn a blind eye to non-compliance.

Care needs to be taken to ensure that all safety and regulatory requirements continue to be met. Careful thought should be given as to what minimum staffing would be needed to keep a facility operating safely and in full compliance. Consideration will have to be given as to whether production changes are needed to reduce the risk of an undesirable incident due to unexpected staff shortages. There may, in turn, be impacts on supply chain and customer obligations. While cross border closures are not supposed to impact the movement of goods, what happens if border screening is in place and a driver with essential supplies is refused crossing? Consider communicating regularly with any spill response contractors who are on retainer or may be needed: Are they adequately staffed? Will they be in a position to respond if needed? If not, what other steps need to be taken? We are at the stage where these are becoming foreseeable events and as such planning is required in order to ensure as orderly and safe a transition as possible.

Consider creating a dedicated COVID-19 Environmental Compliance Team whose main purpose is to review all applicable environmental obligations and try to anticipate internal compliance risks in the event of reduced staffing levels. Ensure that if employees are asked to step into temporary roles due to the absence of others, proper training is given on all obligations including spill detection and reporting. Be prepared to make quick decisions and make changes as the situation evolves. Communicate decisions to all affected clearly and concisely and ensure there is a channel for employee feedback and comments as quite often, those in the field will be the first to identify practical difficulties with any changes to long standing work practices.

Proactive communication with the regulators might be a useful step to consider. While many government employees are also working from home, they continue to enforce regulatory obligations. Proactive communication with a local abatement officer might be a useful way to ensure there is awareness of any special steps you are taking and an ongoing dialogue to ensure any concerns raised by the regulator are addressed.

Similarly, industry organizations might have put some thought into protocols applicable to all members that would assist you in ensuring you are exercising the appropriate level of diligence. Consider the need for community communications with neighbours or neighbourhood groups at this stage.

As the current situation continues to develop, vigilance to ensure ongoing environmental compliance is going to remain of utmost importance in order to minimise any additional disruption to daily business operations beyond that being caused by events that cannot be controlled or foreseen.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.


Bryan Buttigieg is recognized as one of the leading practitioners of environmental law in Canada and is certified by the Law Society of Ontario as a specialist in Environmental Law. His practice includes a combination of litigation and transactional advice involving civil litigation and regulatory defence representation in environmental and occupational health and safety matters.

Practical Tips for Managing Environmental Issues During the Coronavirus Pandemic

Written by Sheila McCafferty Harvey and Reza Zarghamee, Pillsbury Law

Due diligence and compliance challenges require flexible approaches and creative solutions.

Practical Tips Regarding Due Diligence

The COVID-19 pandemic already has created significant disruptions to daily business and governmental activities, as employees across industries have been encouraged to practice social distancing and work from home. Moreover, an increasing number of states have issued shelter-in-place orders and nonessential business shutdowns, which may last for several months.

Among the challenges facing companies in these circumstances is the practical matter of how they may satisfactorily conduct environmental due diligence under such conditions for corporate and real estate transactions. To explain, in transactions involving the transfer of title to real property or the creation of a leasehold interest (since the 2018 BUILD Act), prospective purchasers and lessees must satisfy the requirements of the All Appropriate Inquiries (AAI) Rule (40 CFR Part 312) to obtain innocent status and, thus, qualify for one or more affirmative defenses to liability under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. 9601, et seq. (CERCLA). The baseline level of environmental due diligence under the AAI Rule is the performance of a Phase I Environmental Site Assessment in accordance with the ASTM E 1527-13 standard. An ASTM-compliant Phase I also has become the industry standard for environmental due diligence required by financial institutions and insurers for purposes of project financing and obtaining insurance coverage, respectively, although such companies tend to allow somewhat greater flexibility in terms of strict adherence to the standard.

A Phase I contains many components, some of which may be performed on a “desk-top” basis. Environmental Data Resources LLC, the provider of the EDR Radius Map Report that accompanies the majority of Phase I reports, is committed to providing its services during the pandemic. As a result, between the services of EDR and the Phase I author, assuming responsive information is available online, the expectation is that environmental consultants should be able to continue to perform these tasks, despite the new paradigm of working at home. However, an essential component of the ASTM standard is a site visit of the subject property. Non-essential business shutdowns and shelter-in-home orders may prevent consultants from performing such visual inspections in certain states. Although the ASTM standard allows for the specification of “data gaps” and “limiting conditions/deviations,” the site visit is such a core requirement of the standard that, in the ordinary course, failure to perform one within 180 days of the closing date of a transaction renders a Phase I inadequate for purposes of qualifying for CERCLA defenses.

EPA has yet to give any indication about how it will treat the failure to perform a site visit due to COVID-19-related disruptions in terms of Phase I user’s eligibility for the CERCLA defenses. A distinct possibility thus exists that a Phase I consisting of a desk-top only review will be deemed inadequate, regardless of the exigent circumstances preventing a site visit. Therefore, to the extent possible, companies should schedule Phase I ESAs to occur after the expiration of non-essential business shutdowns or shelter-in-home orders. If a Phase I cannot be delayed, then companies may wish to consider creative means of performing the site inspection, e.g., perhaps using drones to examine interior and exterior site features or using FaceTime to direct any facility personnel onsite to perform the site surveillance.

For a Phase I intended to satisfy a business purpose (e.g., securing a loan, obtaining insurance coverage), failure to satisfy the ASTM standard could have undesirable consequences. However, because agreements between private parties are negotiable, the party commissioning the report has, in theory, greater flexibility in terms of working around the COVID-19-related obstacles. Specifically, the inability to obtain firsthand information regarding a site may be excused or addressed in business agreements. To this end, the party commissioning the report is encouraged to proactively engage the other parties seeking to rely on the report to discuss whether a report without a site visit would suffice and, if not, what possible alternatives would be acceptable for purposes of obtaining the business objective.

Practical Tips Regarding Environmental Compliance Obligations

Proactiveness is also necessary to ensure continued compliance with environmental cleanup obligations, permit conditions, and environmental due diligence standards during the COVID-19 pandemic. In evaluating options and implementing measures to ensure continued compliance with environmental legal requirements, businesses are encouraged to take a systematic approach, which may entail all or some the following steps:

  • Develop an internal team responsible for the COVID-19 response: The establishment of clearly defined roles and a chain of command can be tremendously useful to ensuring that the tasks needed to maintain compliance are expeditiously performed.
  • Consult existing plans and internal policies: Some businesses already may have in place plans and policies that have been triggered by the current crisis or are otherwise useful. For example, environmental management systems, hazardous waste contingency plans and risk management plans may contain specific protocols for exigent circumstances that may prevent compliance with legal obligations (e.g., the inability to remove hazardous waste within the 90-day threshold specified for large quantity generators) or trigger certain preventative measures (e.g., the securing of extremely hazardous substances regulated under Section 112(r) of the Clean Air Act as part of a risk management plan).
  • Identify what tasks and deadlines are required or coming up in the near-term and whether they are at risk of being impacted: Businesses should develop lists of upcoming environmental tasks and deadlines, including scheduled remedial activities, sampling, submittals to agencies, commitments to private-parties under environmental indemnities, etc. For items due in the next few months, an assessment should be made about the degree to which the requisite task may be affected by COVID-19-related disruptions. A broad view of how current conditions may affect the ability to discharge obligations should be taken in this regard. For example, it may be useful to ascertain which tasks require outside vendors or subcontractors and the likelihood that they would be available to assist.
  • Review relevant statutes, regulations, guidance, and other documents for authority that might excuse or delay performance: Applicable laws, regulations, and legal instruments such as permits and orders should be consulted to determine if they contain provisions that afford relief from the obligations discussed in the previous bullet. The EPA has policies and guidelines regarding governmental expectations during emergency situations, and an increasing number of states have issued guidance on how businesses may invoke enforcement discretion during the current crisis. Pillsbury is closely monitoring these developments and tracking them on its website. Where such agency guidance is vague or off-point, businesses are recommended to consult the specific documents establishing their legal obligations, as many consent orders, cleanup agreements, private-party indemnities, and permits contain provisions that bound parties may invoke to obtain relief from requirements that may be difficult or impossible to perform because of COVID-19-related restrictions. “Force majeure” clauses are a good place to start, as these provisions serve to excuse or delay performance under exigent circumstances. Some such clauses explicitly designate pandemics and governmentally declared emergencies and shutdowns as force majeure events. However, they often also have time limits, so they should be reviewed as soon as possible.
  • If legal authority affording relief is identified, follow the specified procedures for invoking the authority and providing notice. This should be done as early as possible, especially if the applicability of specific guidance or provision is questionable, to ensure enough time to react if a third party (e.g., governmental agency) disagrees about the existence of an adequate basis to excuse or delay performance.
  • Document efforts to comply and reasons impeding performance. The legal landscape is extremely fluid right now, giving rise to a heightened potential for legal disputes over failure to perform. For this reason, as well as the fact that many force majeure clauses require it, businesses should document all efforts to comply, as well as information supporting the contention that COVID-19-related disruptions have prevented compliance, as such information may be useful in supporting petitions for enforcement discretion.

Key Takeaways

  • The COVID-19 pandemic is impeding the ability of businesses to perform transactional environmental due diligence and usual compliance activities.
  • How courts and businesses (e.g., lenders, insurers) will value attempts to perform All Appropriate Inquiries that, because of COVID-19-related orders, may not include such activities as physical inspections of the subject property is uncertain. Though we may see various guidance emerge in the coming days, much like the numerous hastily promulgated stay-home orders, we can expect a patchwork with ample ambiguity and unanswered questions.
  • In such a dynamic and unprecedented legal and business climate, proactive and creative compliance strategies, and effective strategies to document parties’ efforts to comply with existing obligations, can help hedge against transactional and compliance risks.

About the Authors

Sheila Harvey, Pillsbury’s Energy Industry Group leader, is an accomplished adviser on environmental and energy policy and regulatory issues and their impact on transactional and litigation matters.

Reza Zarghamee advises U.S. and international clients on a vast array of environmental matters, including the strategies for performing compliance audits, transactional due diligence, remediation, and SEC disclosures.