The National Law Forum

An important consideration for purchasers of US commercial property is establishing Bona Fide Prospective Purchaser (“BFPP”) liability protection to mitigate the risk of liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. § 9601 et. seq.   Because the current owner of a property where a release of hazardous substances has occurred may be liable under CERCLA for the costs of responding to the release simply by virtue of having acquired title to the property (even if the owner was not aware of the release), obtaining status as a BFPP is a valuable safeguard against CERCLA liability since the protection can apply even if the purchaser had knowledge of existing contamination at the time of acquisition.

Although there are several requirements that must be met to achieve BFPP status, one of the less-discussed BFPP requirements is having “no affiliation” with a liable party.¹  While this may seem a fairly straightforward concept, purchasers can create unnecessary risks by failing to give this requirement due consideration.

More specifically, purchasers seeking to avail themselves of the BFPP liability protection must meet the following requirement:

NO AFFILIATION—The person is not—(i) potentially liable, or affiliated with any other person that is potentially liable, for response costs at a facility through— (I) any direct or indirect familial relationship; or (II) any contractual, corporate, or financial relationship (other than a contractual, corporate, or financial relationship that is created by the instruments by which title to the facility is conveyed or financed or by a contract for the sale of goods or services); or (ii) the result of a reorganization of a business entity that was potentially liable.

CERCLA § 101(40)(H)(emphasis added).

The multiple scenarios provided for in the requirement can apply in unique, fact-intensive ways and may focus on diverse aspects such as corporate formation and structure of the entities to a deal to transaction-based relationships established prior to a particular deal.

Caselaw construing the requirement is very limited.  However, a pair of recent cases have addressed the requirement and arrived at different conclusions regarding the applicability of the BFPP liability protection based upon the non-affiliation requirement.

In Ashley II of Charleston, LLC v. PCS Nitrogen, Inc., 791 F. Supp. 2d 431, 502 (D. S.C. 2011), the court held that a current owner of a parcel formerly containing a fertilizer plant was potentially liable as a result of its contractual relationship whereby the owner at the time of acquisition had released the potentially liable prior owners from environmental liability for contamination at the Site.  Although EPA had initiated a cleanup action, the owner attempted to persuade EPA not to take enforcement action to recover for any harm at the Site caused by the potentially liable parties from which the site was acquired.  However, the court held that the owner took the risk that these parties might be liable for response costs and that the effort to discourage EPA from recovering response costs from the parties “reveals just the sort of affiliation Congress intended to discourage.”

More recently, in SPS L.P. LLLP v. Sparrows Point, LLC, 2017 U.S. Dist. LEXIS 144740 (D. Maryland, 9/6/2017 ), the Plaintiff owners of a shipyard sued the owners of a former steel mill on an adjacent property under CERCLA for recovery of costs relating to the operation and maintenance of a benzene treatment system.  The system addressed contaminated groundwater that is pulled from the coke oven area of the steel mill onto the shipyard property during operation of a “graving dock” (where ships arrive in the dock area after which the river waters are pumped out, leaving the ship accessible for repairs).  The purchaser of the steel mill argued that it should be afforded BFPP status.  In contrast, the Plaintiffs argued that the Defendant was affiliated with liable parties “through a web of corporate partnerships” with the prior steel mill owners to “scrub the environmental liabilities from the Steel Mill Property.”  The Court, however, rejected the argument despite the ownership interest of a common parent company, noting the ownership interest is limited (15% stake) and the parent’s interest was limited to certain above-grade assets.­­

As these cases illustrate, the inquiry can be quite fact-specific.  In an attempt to provide a framework for assessing the requirement, in 2011, US EPA issued enforcement guidance regarding the non-affiliation language that outlined scenarios where EPA would consider an affiliation established or not established.  In doing so, US EPA observes that the non-affiliation requirement was intended by Congress to prevent a potentially responsible party from contracting away its CERCLA liability through a transaction to a family member or related corporate entity.  In accordance with that objective, US EPA identified certain specific relationships that do not appear to be disqualifying, including:

1. Relationships at Other Properties: Relationships that occur between an entity seeking BFPP with a PRP for properties other than the one impacted by the contamination or the source property.
2. Post-Acquisition Relationships: Relationships between the purchaser and a PRP that arose after the purchase and sale of the property.
3. Relationships Created During Title Transfer: Contractual or financial documents or relationships that are often executed or created at the time that title to the property is transferred.
4. Tenants Seeking to Purchase Property They Lease: Relationships established between a tenant and an owner during the leasing process.

EPA concluded that these relationships are generally not created to avoid CERCLA liability and therefore EPA generally intends not to treat them as prohibited affiliations that would prevent a purchaser from possessing BFPP liability protection.  On the other hand, even with these defined categories and examples, the guidance does not come close to covering the full universe of potentially problematic relationships that may arise.

Because the burden of proof for establishing that all BFPP requirements are met is placed upon the person seeking the liability protection, it is important to understand that whether a party may successfully rely upon the BFPP liability protection is an issue that is only tested once a CERCLA claim is raised in court, which may be many years after acquiring a site.  Accordingly, thoughtful consideration of the non-affiliation requirement should be considered prior to site acquisition.  The engagement of competent environmental counsel as part of the real estate due diligence team can help navigate through these requirements and ensure that all BFPP requirements are sufficiently addressed or planned for in advance of the transaction, which can avoid headaches later on.

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1. The full set of requirements for having BFPP status are:  (1) The disposal of hazardous substances occurred before acquisition of the property; (2) the purchaser must have undertaken “all appropriate inquiries” into the previous ownership and uses of the property; (3) all legally required notices are provided; (4) the purchaser exercises “appropriate care” by taking reasonable steps to stop continuing releases, prevent any threatened future release, and prevent or limit exposure to any previously released hazardous substance; (5) the purchaser fully cooperates with and allows access to the site for ongoing response action by others; (6) the purchaser complies with any land use restrictions and does not impede any institutional controls; (7) the purchaser complies with requests for information and/or subpoenas; and (8) the purchaser is not potentially liable and has no affiliation with any potentially liable parties.  42 U.S.C. § 9601(40).

This article was written by Gary L. Pasheilich of Squire Patton Boggs (US) LLP

WASHINGTON  – The U.S. Environmental Protection Agency (EPA) is seeking nominations from individuals who represent small businesses, small governments, and small not-for-profit organizations to provide input to a federal panel on a proposed rule by June 2019. The proposed rule seeks to reduce exposures from five persistent, bioaccumulative, and toxic (PBT) chemicals.  The five PBT chemicals are:

• decabromodiphenyl ether (decaBDE);
• hexachlorobutadiene (HCBD);
• pentachlorothiophenol (PCTP);
• phenol, isopropylated phosphate (3:1) (PIP (3:1)); and
• 2,4,6-tris(tert-butyl) phenol.

The Regulatory Flexibility Act requires agencies to establish a Small Business Advocacy Review (SBAR) panel for rules that may have a significant economic impact on a substantial number of small entities. The SBAR panel will include federal representatives from the Small Business Administration, the Office of Management and Budget, and EPA.

This is a request for Small Entity Representatives (SERs), which will be selected by the SBAR Panel to provide comments on behalf of their company, community or organization and advise the panel about the potential impacts of the proposed rule on small entities. EPA is seeking self-nominations directly from entities that may be subject to the rule requirements. Other representatives, such as trade associations that exclusively or at least primarily represent potentially regulated small entities, may also serve as SERs.

Self-nominations may be submitted through the link below and must be received by March 22, 2018. For more information on how to apply, visit: https://epa.gov/reg-flex/potential-sbar-panel-regulation-persistent-bioaccumulative-and-toxic-chemicals-under

 More about the Small Business Advocacy Review process: http://www.epa.gov/sbrefa/faq.htm

Read this article on the EPA’s website here.

This article was written by EPA

On March 8, the European Commission issued a press release unveiling a 23-step action plan on how to harness the opportunities presented by technology-enabled innovation in financial services (FinTech). The European Commission identifies two goals: (1) capitalizing on fast-moving progress in technology to improve the European Union’s economy, and (2) incentivizing a more competitive and innovative European financial sector.

The action plan’s steps fall under the three categories listed below; the most notable steps are highlighted under each category:

Enable innovative business models to reach EU scale

• Presenting a proposal for EU passporting in relation to crowdfunding;
• Considering the relevance of the current EU regulatory framework to cryptocurrencies and initial coin offerings, with a Q2 2018 roundtable and report later in 2018 as a further step;
• Establishing foundational steps for a European open banking eco-system; and
• Continuing the use of “regulatory sandboxes” (i.e., experimentation frameworks for innovative firms). As a separate step, the EC will present a blueprint with recommendations for regulatory sandboxes by the Q4 2018.

Support the uptake of technological innovation in the financial sector

• Establishing an expert group to review the EU financial services regulatory framework by Q2 2019 for the use of disruptive technologies, such as distributed ledger technologies (DLT) and artificial intelligence;
• Removing existing obstacles that hinder the greater use of outsourcing to cloud services;
• Considering increased digitization of regulated information on EU-regulated market-listed companies; and
• Hosting an EU FinTech lab where EU and national authorities can engage with technology solution providers in a neutral, non-commercial space during targeted sessions.

Enhance security and integrity of the financial sector

• The European Commission will hold a public-private workshop in the Q2 2018 and consider existing practices, with a view to increasing information sharing on cyber threats among the financial sector by addressing existing barriers; and

• Conducting a cost-benefit analysis of developing a coherent cyber threat testing framework for significant market participants and infrastructures across the EU financial sector.

The action plan is available here.

The press release is available here.

A fact-sheet summary of the action plan is available here.

This article was written by John Ahern, Carolyn H. Jackson, Nathaniel W. Lalone and Neil Robson of Katten Muchin Rosenman LLP

For more global news, follow @NatLawGlobal

A decision this week from a New York federal district court ruling that the U.S. Commodity Futures Trading Commission (CFTC) had jurisdiction to regulate a cryptocurrency business represents the first opinion from a federal court affirming the CFTC’s jurisdiction to regulate virtual currency spot and derivative markets.

The decision raises the possibility of jurisdictional tension between the CFTC and the SEC, which has recently brought a number of civil enforcement actions against virtual currency issuers premised on the theory that the virtual currency in question is an unregistered security.  A finding that a given virtual currency is, in fact, a commodity—rather than a security—could deprive the SEC of jurisdiction over that issuer, and vice versa with respect to instances in which a currency is deemed a security.  Another possibility is that a particular virtual currency with limited or no early utility might constitute a security at the time of its issuer’s initial coin offering but later evolve into a commodity once its utility is established, thereby creating the prospect that both the SEC and CFTC could have jurisdiction over a single virtual currency at different times in its market lifecycle.

This article was written by Marjorie J. Peerce of Ballard Spahr LLP

For more news on virtual currency, check out @NatLawFinance

Rheumatologist Ephraim Engleman practiced medicine until he died at age 104 in 2015. Although Dr. Engleman’s story is atypical, as our colleagues who attended the American Health Lawyers Association’s 2018 Physicians and Hospitals Law Institute reported, and the Association of American Medicine Medical College’s November 2017 State Physician Workforce Data Report confirms, an increasing number of physicians are choosing to work past traditional retirement age. Today, nearly one-third of all physicians in the United States are over the age of 60.

While senior physicians can be an invaluable resource to the medical community, this demographic shift poses a number of challenges for health systems and hospitals, especially as medical practice acquisition and physician employment remains strong. One such challenge is ensuring late age physicians remain mentally and physically capable of providing safe, up-to-date care. To address this issue, a growing number of health systems and hospitals have adopted policies requiring older physicians to undergo cognitive and physical testing. Also, the American Medical Association’s Council on Medical Education is working on developing standards for age-based evaluation.

Although many healthcare employers are exploring late age testing as one means to ensure quality care, employers must be careful not to run afoul of the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA), and related state laws when implementing this testing. There is uncertainty here because courts have yet to weigh in on their application to physician age-based testing policies.

The ADEA restricts an employer’s ability to make age-related employment decisions unless the employer can establish that age is a “bona fide occupational qualification” (BFOQ). This generally means the employer must show there exists a trait that precludes safe and efficient job performance that cannot be ascertained by means other than knowing the employee’s age and that it is appropriate to treat all employees of a certain age the same because it is “impossible or highly impractical” to deal with older employees on an individualized basis.

At first blush, it may appear that a blanket late age physician policy would easily pass BFOQ scrutiny. After all, patient safety is at stake. However, rulings by courts examining age-based testing policies in other professions create some doubt as to how late age physician testing will fare under judicial review. For example, in the airline industry, courts have found mandatory retirement age policies pass BFOQ muster as to pilots, but not flight attendants; and in another case, a court found the New York City Transit Authority’s policy of requiring certain individuals over the age of 40 to have an EKG did not satisfy the requirements for a BFOQ.

Applying the reasoning from these and other decisions regarding BFOQ, a court may find that because physicians’ duties vary widely by practice area, a per se physician testing policy is discriminatory. However, employers may have a stronger argument if they apply late age testing to a subset of physicians, i.e., to neurosurgeons versus a family medicine practitioners.

While the ADEA presents certain challenges, employers concerned about the competence of specific physicians (regardless of age) are not without recourse under the ADA. For example, employers may make disability-related inquiries or require that an employee undergo a medical examination when the employer has a reasonable belief that an employee cannot perform the essential functions of the job or poses a direct threat due to a medical condition.

Of course, this is not the end of the inquiry because an employer must remember that if it learns a physician has a disability, in most circumstances, there will be a subsequent obligation to engage in the interactive process with the physician to determine whether there is a reasonable accommodation that will allow the physician to perform the essential functions of his or her job. Towards these ends, stay tuned for a future post where we will examine special considerations to keep in mind when engaging in the interactive process with licensed healthcare professionals.

This article was written by Mary M. McCudden of Jackson Lewis P.C

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OSHA was scheduled to begin enforcing its new beryllium rule for General Industry March 12, 2018.  That enforcement date has been delayed 60 days.  In a March 2, 2018, memorandum from Tom Galassi to OSHA’s regional administrators, Galassi instructed, “[n]o provisions of the beryllium final rule may be enforced until May 11, 2018.”

Galassi explained the reason for the delay:

OSHA has been in extensive settlement discussions with several parties who have filed legal actions challenging the general industry standard. In order to provide additional time to conclude those negotiations, we have decided to delay enforcement of the general industry standard by 60 days until May 11, 2018. Furthermore, to ensure employers have adequate notice before OSHA begins enforcing them, as well as in the interest of uniform enforcement and clarity for employers, we have decided to also delay enforcement of the PEL and STEL in the construction and shipyard standards until May 11, 2018. No other parts of the construction and shipyard beryllium standards will be enforced without additional notice. In the interim, if an employer fails to meet the new PEL or STEL, OSHA will inform the employer of the exposure levels and offer assistance to assure understanding and compliance.

This article was written by Daniel R. Flynn of Dinsmore & Shohl LLP

For more information on OSHA, follow our twitter @NatLawEnviro

A corporation ordinarily is not liable for the debts of other entities or for the debts of its owners in the absence of an express agreement, such as a guarantee. However, a creditor of one company may try to impose liability on one or more non-debtor entities under “alter ego” or “successor liability” theories in certain circumstances.  In these circumstances, a creditor often alleges that there has been a transaction between a predecessor debtor entity and successor non-debtor entity through which: (1) the successor expressly or impliedly has assumed the liabilities of the predecessor; (2) the transaction has resulted in a de facto merger between the entities; (3) the successor is a mere continuation of the predecessor; or (4) the transaction is a fraudulent effort to avoid liabilities of the predecessor.  If the creditor is successful, a non-debtor entity may then become liable for debts that it did not incur in its own name and that non-debtor entity’s assets also may be reachable to satisfy the debts.

In Longo v. Associated Limousine Services, Inc., a District Court of Appeal of Florida recently addressed a creditor’s attempt to hold certain non-debtor entities and individuals liable for payment of a debt owed to the creditor.  Creditor, Frederick Longo, had obtained a judgment of more than $620,000 against debtor, Associated Limousine Services, Inc.  When Associated Limousine did not pay the judgment, Longo sought to implead (bring into the case) Robert Boroday, as sole officer of Associated Limousine, three other members of the Boroday family, and eight business entities connected to the Boroday family (collectively, the “impleader defendants”).

Longo alleged that the impleader defendants “were operating a business that was a continuation of the judgment debtor’s business” and that the eight business entities were “alter egos” of American Limousine. In support of this claim, Longo alleged that the impleader defendants:

• Conspired to organize and operate alternate business entities that would acquire the accounts and clients of the judgment debtor, while avoiding creditors;
• Comingled assets with each other and the judgment debtor;
• Acted and operated as a single business entity;
• Used fictitious names that were similar to and substantially the same as the judgment debtor; and
• Profited from the judgment debtor’s business, procured the judgment debtor’s clients for their own benefit, and attempted to conceal the transactions to prevent existing creditors from collecting from the judgment debtor.

The trial court denied Longo’s request to bring the impleader defendants into the case on the basis that Longo failed to file an affidavit describing the property of the judgment debtor that allegedly was in the hands of the impleader defendants, as required by an applicable Florida statute. On appeal, the District Court of Appeal reversed that decision and remanded the matter to the trial court. The Court of Appeal’s order provided that, on remand, Longo would be allowed to submit an affidavit describing any property of any impleader defendant that allegedly should be available to satisfy the judgment under an alter ego theory.

In support of its decision, the Appeals Court stated “[t]he concept of alter ego or continuation of business ‘arises where the successor corporation is merely a continuation or reincarnation of the predecessor corporation under a different name.’” The Court further noted that a third party’s liability is “premised on the notion that the judgment debtor and third party should be treated as the same entity.” The Court left it to the trial court on remand to determine, on a more fully developed record, whether sufficient grounds for successor liability existed in this case, so as to subject the impleader defendants’ assets to further collection efforts.

Outcomes of successor liability claims will vary from state to state, depending on how the law in each state has developed.

However, common factors that courts typically consider in evaluating potential successor liability include: continuity of directors, officers, stockholders, personnel, physical location, assets, and general business operations between the predecessor and successor corporations; whether the predecessor corporation has been dissolved; the continued existence of only one corporation after the transfer of assets; and the assumption by the successor corporation of those obligations necessary for the continuation of normal business operations of the predecessor corporation.

In the context of family-owned businesses that may have multiple operating entities, steps should be taken to maintain both the appearance and the reality of separateness. To the extent one entity intends to acquire the assets of another entity, the parties also should document the transaction appropriately to identify the consideration provided for any assets and should be able to justify any continuity of business operations, ownership and management between the entities. It may be impossible to avoid all claims of successor liability by creditors. But having clear separation between entities and documentation of the value conferred and received in any transfers of assets to a successor corporation may be instrumental in the defense of such claims.

This article was written by Michael P. Connolly of Murtha Cullina

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