Holland & Knight LLP
Meaghan A Colligan, Amy L. Edwards, Paul C Sarahan, Nicholas William Targ and Dianne R. Phillips
May 1, 2020
Per- and polyfluoroalkyl substances (PFAS) present a new and potentially expensive environmental risk in real estate and corporate deals. Regulators are focused on developing standards for PFAS across the country. However, it is still uncertain at the federal level, and in many states, how PFAS will be regulated and to what levels. New risk-based research continues to be released showing that certain strands may pose risks to health and the environment. Additionally, many large-scale lawsuits have been advanced in the past several years seeking damages for personal injury, property damage and recovery of remediation costs under federal environmental statutes. At least nine federal enforcement actions and dozens of state enforcement actions have been advanced related to PFAS to date. As such, PFAS poses a major risk in transactions that, if not managed, can result in significant liabilities.
This update from environmental practitioners in Holland & Knight’s PFAS Working Group provides the top 10 things you should know about PFAS, including what PFAS are; the current regulatory landscape; the litigation, enforcement and transactional risks that PFAS pose; what industries and properties may be affected by PFAS; and how PFAS liabilities can be mitigated. In essence, it is recommended that every real estate and corporate deal be reviewed for PFAS liability by an environmental practitioner, particularly because consultants performing Phase I environmental site assessments may not bring this risk to your attention because they are not required to, yet.
WHAT ARE PFAS?
PFAS are a family of more than 7,000 man-made chemicals containing fluorine and carbon atoms that have been used in a variety of industries around the globe since the 1940s. Perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) have been the most extensively produced and studied PFAS compounds. PFAS are frequently used because they have strong surfactant properties, meaning that they reduce the surface tension between a liquid and another liquid or solid, and are thus effective in fire resistant products and products that repel oil, stain, grease and water. They are also used in many manufacturing processes such as plastic extrusion to aid in releasing products from their molds.
WHICH MATERIALS MOST COMMONLY USE PFAS?
The first PFAS were invented in the 1930s and were the main ingredients in nonstick and waterproof coatings. By the 1960s, PFAS were used in architectural resins and aqueous film-forming foam (AFFF) — a foam mixture that rapidly extinguishes petroleum fires and other flammable-liquid fires. Today, more than 7,000 synthetic chemicals are classified as PFAS, and can be found in the following materials, among others:
- petroleum and chemical firefighting foams, utilized on military and civilian ships, airplanes and airports, petroleum refineries and by bulk chemical transportation and storage facilities, for example
- workplace products, including production facilities or industries (e.g. chrome plating, electronics manufacturing or oil recovery) that use PFAS
- food packaging, such as grease-resistant microwave-popcorn bags, pizza boxes, fast-food wrappers, etc.
- commercial household products, including stain- and water-repellent fabrics, nonstick products (e.g., Teflon), polishes, waxes, paints, carpets and cleaning products
WHICH INDUSTRIES USE PFAS?
Primary manufacturing facilities produce PFAS, and secondary manufacturing facilities use PFAS to produce goods and other facilities use PFAS products. The following sectors manufacture or utilize PFAS: airports, military installations, petroleum refineries, bulk chemical transporters or storage facilities, landfills and wastewater treatment plants, as well as textile, leather, paper, plastic and wire manufacturers.
HOW ARE PFAS CURRENTLY REGULATED?
U.S. Environmental Protection Agency (EPA): Neither Congress nor the EPA have designated PFAS individually or as a class as hazardous substances. As a result, EPA’s authority to clean up PFAS is limited. However, last year EPA Administrator Andrew Wheeler announced that the EPA had initiated nine enforcement actions related to PFAS and supported more than 20 state enforcement actions related to PFAS.
Following the issuance of EPA’s PFAS Action Plan in February 2019, the agency initiated the regulatory process for listing PFOA and PFOS as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund). That designation would trigger liability and cleanup requirements for responsible parties at existing Superfund and brownfield sites, and it may create new Superfund liabilities at other properties containing PFAS.
There is currently no drinking water standard promulgated under the Safe Drinking Water Act (SDWA), but EPA issued a drinking water Health Advisory of 70 parts per trillion (ppt) for the combined value of PFOS and PFOA in May 2016. Following the issuance of the PFAS Action Plan, EPA began moving forward with developing maximum contaminant levels (MCLs) for PFOA and PFOS under the SDWA, and in February 2020, EPA announced its preliminary regulatory determination that PFOA and PFOS should be regulated under the SDWA. EPA will be accepting comments on this preliminary regulatory determination for 60 days.
The eight largest manufacturers voluntarily had previously phased out production of PFOA and PFOS by 2015 through the EPA’s 2006 PFOA Stewardship Program. EPA’s 2019 PFAS Action Plan indicates that it may regulate production, import and use of additional PFAS compounds, which could lead to further phase out of additional PFAS substances. In February 2020, EPA issued an update on its progress under the 2019 PFAS Action Plan, tracking its actions over the last year.
Congress: In 2019, the U.S. House of Representatives introduced 13 bills related to PFAS. In January 2020, the House passed H.R. 535, the PFAS Action Act, with bipartisan support. The PFAS Action Act seeks to require EPA to designate all PFAS as CERCLA hazardous substances and to set a mandatory drinking water standard for PFAS. However, Senate Republicans have indicated that they do not intend to pass the PFAS Action Act. To date, the only PFAS provisions signed into law were included in the must-pass National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2020. Those provisions require the U.S. Department of Defense to stop using PFAS in firefighting foam and to begin cleaning up resources contaminated by military PFAS use. Furthermore, the NDAA included provisions related to drinking water monitoring, revolving grants funds for remediation, Toxic Release Inventory (TRI) reporting for certain PFAS compounds, a data call to certain PFAS manufacturers, interim guidance on the destruction/disposal of AFFF, finalization of the significant new use rule (SNUR) on long-chain PFAS by June 2020, and use of federal-state cooperative agreements.
States: At least 23 states have issued or proposed health advisories, guidance or standards for PFAS in drinking water and/or action levels for groundwater, mostly at 70 ppt for PFOS and PFOA or above. Perfluorononanoic acid (PFNA), perfluorohexane sulfonate (PFHxS) and perfluoroheptanoic acid (PFHpA) are the most regulated PFAS, other than PFOA and PFOS. New Jersey is the only state that has a currently enforceable MCL for a PFAS 13 ppt for PFNA. New Hampshire approved new MCLs for PFOA, PFOS, PFNA and PFHxS in July 2019, but enforcement of these new limits was suspended via an injunction as of Dec. 31, 2019. New Jersey and Massachusetts have proposed more stringent MCLs for certain PFAS substances. The following eight additional states have promulgated or proposed standards or guidance for PFOA and PFOS below 70 ppt: California, Michigan, Minnesota, New York, Pennsylvania, Rhode Island, Texas and Vermont. EPA guidance recommends that states use 70 ppt as the preliminary remediation goal for groundwater that is a current or potential source of drinking water if a drinking water standard or other applicable or relevant and appropriate requirement is not in place.
Soil screening levels indicate further investigation and potential remediation might be necessary. Five states Alaska, Maine, Michigan, North Carolina and Texas have promulgated soil screening levels for groundwater protection. Ten states have promulgated soil screening levels for human health, including Alaska, Delaware, Iowa, Maine, Michigan, Minnesota, Nevada, New Hampshire, North Carolina and Texas. In December 2019, Massachusetts promulgated new reporting and remediation requirements for PFAS as part of its state Superfund law, Chapter 21E. While water values have typically been set at parts per trillion (ppt), soil values have been set at parts per billion (ppb). In comparison to groundwater and drinking water standards, these values are significantly higher.
Manufacturing restrictions at the state level tend to focus on firefighting foams, although there is a trend toward states restricting PFAS in food packaging and other consumer products. Fifteen states have either adopted policies or initiated the adoption of policies to prohibit PFAS in firefighting foam. Additional regulatory action related to PFAS is expected to continue.
WHAT ARE THE ENVIRONMENTAL REMEDIATION COSTS RELATED TO PFAS?
PFAS are highly water soluble and resistant to natural degradation. Thus, when PFAS are released to groundwater, their plumes typically migrate larger distances than other contaminants. PFAS’ unique chemical characteristics make them particularly expensive to investigate and remediate. There are estimates that potential nationwide PFAS environmental cleanup liabilities will be between $40 billion and $60 billion, and that drinking water supply remediation costs are approximately $3,000 to $5,000 per customer served.
HOW DO YOU REMEDIATE PFAS?
PFAS are resistant to chemical oxidation and bioremediation, presenting important challenges to traditional methods of in situ remediation. Therefore, typical remediation includes the use of activated carbon or resin filters to pull certain strands of PFAS out of water. The science and engineering communities continue to investigate remedial techniques, but cost-effective in situ remediation is likely years in the future.
Effective ex situ remediation methods including the use of activated carbon filters can also be expensive. The result is that remediation of PFAS could be expected to be complex and extremely costly, resulting in a greater chance of material impact on a transaction.
WHAT ARE THE ENVIRONMENTAL ENFORCEMENT RISKS RELATED TO PFAS?
Increased federal and state PFAS regulations have the potential to significantly increase environmental remediation obligations for responsible parties throughout the country. If EPA lists PFAS as a hazardous substance under CERCLA, potentially responsible parties can expect enforcement action from EPA. Some current Superfund sites are anticipating the prospects of addressing PFAS as part of remediation plans. Some states are already beginning to require active and closed Superfund and brownfield sites to sample for PFAS. New York and New Jersey require all active remediation sites to sample for certain PFAS. New York requires owners or operators of sites that have already received regulatory closure to sample for PFAS. New Jersey has expressed a willingness to reopen closed sites to sample for PFAS. California is requiring a phased investigation of PFAS at sites that are potential users of PFAS. Massachusetts requires investigation of sites with potential PFAS contamination under its Massachusetts Contingency Plan. Other states may follow suit.
WHAT ARE THE LITIGATION RISKS RELATED TO PFAS?
As a result of the regulatory uncertainty related to PFAS, purchasers in real estate and corporate deals could unknowingly take on liability for personal injury, property damage and environmental cost recovery claims in private lawsuits for direct discharges to the environment, legal disposals of PFAS containing products at landfills, and legal discharges to wastewater treatment plants in accordance with permits.
Many lawsuits have been advanced against primary manufacturers of PFAS and secondary users of PFAS during the past several years seeking damages for personal injury, property damage and recovery of remediation costs under federal and state environmental statutes. Settlements entered to date between manufacturers and drinking water users have ranged from $1.6 million to $671 million.
The risk of toxic tort litigation, environmental litigation, enforcement and increased remediation costs will likely increase as more information about the impacts of PFAS are gathered. As a result of these potential liabilities, PFAS pose a major risk in transactions and ongoing operations that, if not managed, can result in significant liabilities.
QUESTIONS FOR DUE DILIGENCE
Corporate and real estate teams should closely review the Phase I report to determine if the property was used by any of the aforementioned industries or if PFAS could be present in any component parts used or manufactured at the property. In addition, the corporate and real estate teams should never assume that a consultant looked into PFAS issues when completing the Phase I because the ASTM standards for Phase I reports, which provide purchasers potential defenses from liability under CERCLA (aka Superfund), do not currently require consultants to assess for PFAS risks. Holland & Knight’s Environmental Team is well suited to assist with this review, as a more detailed review of permits and product inventories may be warranted.
Despite the potential risks to buyers, liability related to PFAS can be mitigated through the following mechanisms:
Liability Defenses: Holland & Knight’s Environmental Team should be consulted to determine if PFAS should be addressed in Phase I reports to provide prospective purchasers an opportunity to qualify for the bona fide prospective purchaser (BFPP) defenses against potential CERCLA liability.
Indemnity Agreements and Reps and Warranties: Consider whether PFAS should be included within the definition of hazardous materials in the purchase agreement and related transactional documents.
Insurance: Although the environmental insurance industry is closely watching PFAS developments, insurance may be available in certain circumstances.
Voluntary Cleanup Programs: Many states do not offer liability protections for releases of hazardous substances. But most states have voluntary cleanup programs that can be utilized to obtain liability protection.
Compliance Programs: When acquiring a new company or business, companies may want to consider conducting companywide internal compliance audits of the acquired entity to assess potential liability for PFAS and if adequate standard operating procedures are currently in place. In some states, these audits can be conducted through programs that provide immunity from penalties that might otherwise be assessed. EPA’s audit policy may also provide some benefits, particularly where a state audit program is not available or would not provide immunity from penalties.
Holland & Knight intern Hannah Coulter also contributed to this article.Learn more about our Energy and Natural Resources Industry Sector Group.Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.
This article is being provided for informational purposes only and not for the purposes of providing legal advice or creating an attorney-client relationship. You should contact an attorney to obtain advice with respect to any particular issue or problem you may have. In addition, the opinions expressed herein are the opinions of Ms. Colligan, Ms. Edwards, Mr. Sarahan, Mr. Targ and Ms. Phillips and may not reflect the opinions of Synergy Environmental, Inc., Holland & Knight LLP or either of those firms’ clients.