California Environmental Law Update

California Environmental Law Update

Every real estate attorney needs to keep their toolkit of environmental law up to date.  The following are some new laws, court decisions, and regulations that may help.

A.  New Laws

In the early 1970s, the U.S. Congress and the California Legislature created environmental statutory programs to clean up and preserve water and air; clean up abandoned hazardous wastes; and protect habitat for threatened and endangered species.  But time passes and the election in November 2016 brought significant changes.

Federal agencies are cutting back their roles in these environmental protection programs, as well as reducing or eliminating federal funding for the California programs.  In early 2017 the California legislature made its first steps to fill the void left by federal agencies by introducing three “Preserve California” bills, in SB49, SB50, and SB51.

SB49 is formally named the California Environmental, Public Health, and Workers Defense Act of 2017.  The California Senate passed Senate Bill 49 and as of early March, it was an active bill in the Assembly Rules Committee.  The Governor signed Senate Bill 50 into law in October 2017.  The Governor vetoed Senate Bill 51.  It was intended to protect federal whistleblowers and preserve federal scientific data.

SB50, the enacted bill, imposes a right of first refusal for the State to purchase any federal land the US is transferring out of federal ownership.  (About 47% of the land in California is federally owned.)

Of the three bills, SB49 is the most significant for government environmental protection and clean-up programs.

SB49 is intended to substitute for any federal standards reduced by the Trump Administration or Congress.  The baseline is January 19, 2017 (the last day of the prior administration).   SB49 targets the federal Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, and the Endangered Species Act.  If enacted, the California Air Resources Board (CARB) and the State Water Resources Control Board (Water Board) would monitor changes to federal statutes and regulations.  If CARB or the Water Board determined that a change in these federal programs could negatively impact California’s environment, public health, or welfare, CARB or the Water Board would act – i.e., interpret California’s similar statutory programs (and propose necessary legislation).  The goal of SB49 is to maintain environmental protections in California at least as stringent as the baseline federal standards on the day before the 2017 inauguration.

In another part of SB49, if the federal government delists any species from the federal Endangered Species Act list, the state would consider and list that species on the California threatened or endangered species list.

As for worker protections, SB49 would establish a new state agency.  The new agency would monitor changes to federal health and safety rules and regulations that existed January 1, 2016.  If the federal government reduced standards, the new agency’s mandate would be to maintain and, if needed, establish worker rights and safety standards more stringent than the federal standards.

Finally, SB49 would also establish private rights of action for “citizen suits” to enforce the standards set by state agencies as a result of SB49 (i.e., if federal standards are reduced).

B.  Court Decisions

1. Clean Water Act exposes commercial landlords to litigation

One federal court lawsuit in 2017 may help explain how commercial landlords – and others involved with industrial activities on real estate – can get trapped into Clean Water Act lawsuits.  In California Sportfishing Protection Alliance v. The Shiloh Group LLC, Case No. 4:16-cv-06499-DMR (USDC ND Calif.), a commercial landlord owned a 31-acre light industrial park.  The industrial park has a common storm sewer system.  The storm water discharges eventually reach the Russian River.  The industrial park has 60 to 80 commercial and industrial tenants, who operate a variety of businesses.  The industrial park also has some areas with soils polluted from past activities (the site was originally a single manufacturing facility).

USEPA delegates Clean Water Act authority to the California Water Boards to issue permits for stormwater discharges.  Over a decade ago, the industrial park landlord applied for and received a stormwater discharge permit under the Water Board’s Industrial General Permit program.  Generally, the park’s tenants did not seek such permits.    In 2016, a citizen suit plaintiff group sued the industrial park landlord, alleging, among other things, that the landlord’s stormwater discharges had violated the pollutant limits established in the Industrial General Permit.  When the landlord received from the plaintiff group the prerequisite “60 day notice of intent to sue letter” required by the Clean Water Act, the landlord cancelled its stormwater discharge permit.  But, the plaintiff group filed suit anyway in federal court.

The landlord moved to dismiss based on cancelling its stormwater permit before the 60 days had expired.  But the magistrate judge reviewed the complaint’s allegations and denied the landlord’s motion on various grounds.  The landlord settled, and entered a consent decree with significant requirements for modifying the stormwater system, administering existing leases, and entering new leases.

The federal Clean Air Act, the Resource Conservation and Recovery Act, the Safe Drinking Water Act, and the Endangered Species Act all have citizen suit provisions.  But why are the vast majority of environmental citizen suits filed under the Clean Water Act?  The State’s program for administering permits for stormwater discharges requires permittees to post stormwater sampling data online – which plaintiffs use for early summary judgment  motions.  Defendants are left with the difficult job of proving compliance with fuzzy permit terms.  In addition, the recent amendments to the federal rules of civil procedure favor plaintiffs who allege such online postings are admissions of violations by defendants.

2. Paint Manufacturers Required to Clean Up Lead Paint in Pre-1951 Homes.

The appeals court in People v. ConAgra Grocery Products Co.(2017) 17 Cal.App.5th 51, affirmed a trial court ruling that three manufacturers of lead paint are liable for creating a public nuisance and so will have to remediate lead paint in pre-1951 homes in California.   Also, the 9th Circuit in 2017 directed the EPA to update its 2001 standards for children’s exposure to lead paint dust.  In re A Community Voice (2017) 878 F.3d 779.

3.  What are “Waters of the United States?”

Another court decision that should concern real estate lawyers is the “waters of the United States” decision of the Supreme Court in National Association of Manufacturers v. Department of Defense (Jan. 22, 2018) 138 S.Ct. 617.  The Clean Water Act applies to “waters of the United States.”  This term delineates the geographic reach of:

(a) the U.S. EPA’s permitting program for discharges of water (the National Pollutant Discharge Elimination System, or “NPDES” – which is delegated to the California Water Boards, and was the basis of the federal court lawsuit against the Shiloh Group, supra), and

(b) the U.S. Corps of Engineers’ “dredge and fill” permit program.

The USEPA and the Corps developed in 2015 a rule interpreting “waters of the United States” – and thus the extent of the jurisdiction of the USEPA (discharge permits) and the US Army Corps of Engineers (dredge and fill permits).   Challenges ensued in federal district courts and courts of appeal across the US.  However, the Supreme Court fell short in January 2018. Unfortunately, the Justices did not resolve the issue of what constitutes “waters of the United States.”  Instead, the Court made the narrow ruling that interpretation of the term “waters of the United States” is not within the exclusive jurisdiction of the appeals courts.

So, the term “waters of the United States” – and thus Clean Water Act jurisdiction – will be decided first by individual federal district courts.  (Contra Costa County is in the Oakland division of the Northern District of California.)  In addition, within a week of the Supreme Court’s decision, the Trump Administration suspended the 2015 USEPA/US Army Corps of Engineers interpretative rule, stating that the Administration would publish a new rule later in 2018.

This mess means that real estate attorneys may be unable to advise their clients whether the Clean Water Act requires their development have either (a) discharge permits, or (b) dredge and fill permits.  The stormwater discharge permit problem is reviewed above.  A  California farmer recently ran afoul of the “dredge and fill permit” problem.  The farmer began plowing land that had once been farmed, but for over a decade had been used only for grazing cattle.  The property had temporary seasonal pools of water (called vernal pools) that connected to a creek which ran into the Sacramento River.  The Sacramento River is “navigable” and so is considered to be within the jurisdiction of the Clean Water Act over “waters of the United States.”  But were the “vernal pools” wetlands, that by discharging to “waters of the United States” that required a dredge and fill permit?

The US Army Corps of Engineers believed the seasonal pools did discharge to waters of the United States.  So, the Corps cited the farmer for violating the Clean Water Act for not having a dredge and fill permit.  The farmer settled on the eve of trial for $330,000 in civil penalties, buying $770,000 in vernal pool mitigation credits, and limiting use of about 10% of his property for 10 years.  Duarte Nursery v. Army Corps of Engineers, 2016 WL 4717986 (E.D. Cal. June 10, 2016).

The legal problem for real estate attorneys will continue to be whether a property is within the jurisdictional boundaries of the Clean Water Act.  Until the Supreme Court or the Administration provide more definition, would-be developers of land with seasonal ponds, near creeks, in flood plains, or with potential construction site runoffs, etc., may be facing issues similar to the farmer in Duarte Nursery.  Resolving such questions in federal district court can be expensive.

 4 .  Can Water Suppliers Recover Costs to Clean Up Groundwater Storage Areas?

Water supply districts are watching a lawsuit brought by the Orange County Water District.  The Water District contends that its groundwater storage areas have been polluted by various businesses and other entities.   In June 2017, the 4th District Court of Appeal ruled against the Water District on most of its case.  But, the appeals court also ruled that the private right of action for “indemnity” in the California Superfund Law (Health & Safety Code §25363(d)) is not limited to traditional equitable indemnity, and so includes reimbursement of cleanup costs.  Orange County Water District v. Alcoa Global Fasteners, Inc. (June 1, 2017) 12 Cal.App.5th 252.  Later the same week, the Water District fared better in the US Court of Appeals for the 2nd Circuit (New York City), because that court reinstated the District’s claims against BP and Shell for MTBE contamination from leaking underground tanks in Orange County.  Orange Co. Water District v. Texaco Ref. & Mktg. Inc. (In re Methyl Tertiary Butyl Ether (“MTBE”) Products Liability Litigation) (June 12, 2017) 859 F.3d 178.

5.  Can a Buyer Rely on an Environmental Investigation?

There is one decision in 2017 from the 6th District Court of Appeals that is informative about “due diligence” and the duties of an environmental consultant investigating and preparing a site assessment.  In Mao v. Piers Environmental Services, Inc. (2017) 2017 WL 511853, a buyer of commercial property sued the environmental consultant who had investigated the property for the lender making the purchase loan on the property.  The plaintiff asserted that the consultant had missed significant contamination, which a later investigation found.

The appeals court considered Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, which held an auditor has no duty to a third party relying on the  auditor’s report.  But the court also distinguished Beacon Residential Community Assn. v. Skidmore, Owings & Merrill LLP (2014) 59 Cal.4th 568 (holding the architect liable for design defects to third-party homeowners).  The Mao decision is instructive for real estate attorneys because in ruling for the environmental consultant, the court explains that “Exposing the environmental consultant to a negligence claim for harm arising from later discoveries based on more extensive subsurface investigation conducted for a different purpose (in connection with redevelopment of the property after a fire destroyed the premises) creates the potential for liability substantially disproportionate to fault.”

C.  Some Regulatory Developments

A couple of regulatory developments will affect real estate development.  First, in 2017 the State Water Resources Control Board proposed new rules for wetlands in order to standardize the permitting process for discharging dredge and fill materials.  Among the Board’s reasons is the finding there is “need to strengthen protection of waters of the state that are no longer protected under the Clean Water Act (CWA) due to U.S. Supreme Court decisions…”  See www.waterboards.ca.gov/water_issues/programs/CWA401/wrapp.shtml. Such proposed new rules for wetlands are an administrative law counterpart to SB49, supra.

Secondly, the Department of Toxic Substances Control (DTSC) sets state toxicity standards for assessments of risk to human health.  These are particularly significant in cleanups of hazardous wastes.  The DTSC is developing more stringent standards because of a dispute with the US Air Force in cleaning up old airfields.  The dispute involved the cleanup standards for perchloroethylene (PCE) which is the “dry-cleaning solvent” that is causing trouble for property owners.  (The Air Force applies less stringent toxicity standards for PCE, using the federal Integrated Risk Information System.)

The League of California Cities, which advocates on behalf of cities, has raised concerns with DTSC’s regulations with the proposed standards.  As drafted in early February, the League contends the regulations reduce the flexibility of cities to redevelop formerly contaminated sites, also known as brownfield sites.  The League argues that a “one size fits all” standard for all types of projects, regardless of the proposed end use, will mean cleaning up an area for a parking lot will have to meet the same risk standards as cleaning up an area for a home.  The League is concerned DTSC’s approach risks stifling community revitalization and economic development.  The League believes that cleanup standards should instead continue to be based on site-specific criteria.

Finally, real estate attorneys should be aware of developments from 2017 in Proposition 65 warnings.  As of August 1, 2018, the language as to premises and products in such warnings (with some specific premises categories) is changing.  See 27 CCR §§ 25600 – 25607.3.

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