Sussman Shank

Sussman Shank
llp
attorneys
Contractual Tools for Allocating Liability
Patrick G. Rowe
2016
1000 SW Broadway, Suite 1400 Portland Oregon 97205 | 503.227.1111 | sussmanshank.com
CONTRACTUAL TOOLS FOR MITIGATING &
ALLOCATING ENVIRONMENTAL RISK
§  GENERAL RULE:
§  Seller who owned property during release of contamination strictly liable for
environmental contamination and will remain liable after selling property
§  Buyer of real property becomes strictly liable for any contamination on the property that
pre-dated the sale, even if it was caused by the seller
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SELLER REPRESENTATIONS
§  Purpose: Protection for purchaser or lender. Can affect or be affected by the
due diligence process
§  Some typical Representations
§  Current and past compliance with environmental laws
§  Disclosure of any pending or threatened regulatory actions, requests for information, etc.
§  Identify known past releases
§  Identify current or prior potential sources of contamination – e.g., ASTs, USTs, PCBcontaining equipment
§  Knowledge qualifiers – reps based on “seller’s knowledge”
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“AS-IS PROVISIONS”
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“AS-IS PROVISIONS”
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“AS-IS PROVISIONS”
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“AS-IS PROVISIONS”
§  “It is hereby agreed that [other than conditions noted in the Representations
section] the premises are sold in an "as is" condition and Buyers hereby
agree to accept said property in its present condition and without any
warranty as to the condition thereof.”
§  Courts consistently require that in order to contractually allocate/shift
environmental liability that intention must be clearly stated
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“AS-IS PROVISIONS”
§  Tips for a strong “As Is” provision:
1.  Expressly allocate environmental liability in clear, unequivocal language
2.  Include a buyer’s signed statement re: environmental conditions
3.  Allow reasonable time for the buyer to inspect, survey and conduct environmental site
assessments
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INDEMNIFICATION PROVISIONS
§  CERCLA § 107(e):
§  “No indemnification, hold harmless, or similar agreement or conveyance shall be effective to transfer
from the owner or operator of any vessel or facility or from any person who may be liable for a release or
threat of release under this section, to any other person the liability imposed under this section. Nothing
in this subsection shall bar any agreement to insure, hold harmless, or indemnify a party to such
agreement for any liability under this section. 42 U.S.C. § 9607(e)
§  Practical Effect:
§  Indemnified party remains liable to the government / can’t require government to pursue the
party providing the indemnification.
BUT
§  Indemnified party can seek indemnification from the other party if government pursues the
indemnified party
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INDEMNIFICATION PROVISIONS
§  Scenario 1
§  SALES AGREEMENT DATED JANUARY 24, 1986: “Seller will also indemnify purchaser
for the cost of additional cleanup, including penalties or fines, required by DEQ or any
Governmental Agency during the next ten years, for existing contamination”
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INDEMNIFICATION PROVISIONS
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INDEMNIFICATION PROVISIONS
§  Scenario 2
§  “For a period of 5 years from the date of Closing [Seller] hereby agrees to defend, indemnify
and hold harmless Purchaser . . . from and against liabilities, claim, fines, penalties and
remedial action costs. . . arising from or relating to the release of Hazardous Material . . .
located on the Premises as of the date of Closing.. . . if such release of Hazardous Materials
is discovered during Purchaser’s preparation of the site for subsequent development, as a
result of any third-party discovery . . . and the release is above the Oregon cleanup standards
requiring remedial activity . . .” //
§  Indemnification included “deductible” of $250,000 and capped Seller’s liability at $4 million
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INDEMNIFICATION PROVISIONS
Issue
Timelimits
Dollarlimits
Indemnifica4ontrigger4edto
governmentenforcement
Tip
Partyreceivingtheindemnifica1onshouldmakesurethe1me
limitisreasonableinlightoftheirplansforthepropertyand
possibledelays
Partyreceivingtheindemnifica1onshouldassess“worstcase
scenario”costsandmakesurethelimitisreasonableinlightof
poten1alcosts
Makesurethetermsoftheindemnityareclearwithrespectto
whatspecificenvironmentalclaimsorlossesarecovered
Doestheindemnitycoverale?erfromthegovernmentormust
itbeaformaldemandorComplaint?
Doestheindemnifica1onincludeanobliga1ontodefend
againstbothgovernmentenforcementandthirdpartyclaims?
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INDEMNIFICATION PROVISIONS
Issue
Tip
Scopeofareacovered
Clearlystateareascovered,includingwhetherindemnifica1on
coversoff-sitecontamina1on
Scopeofcosts
Clearlystatecostscovered–includeoff-sitedisposal,a?orney
fees,consultantfees,businessinterrup1oncosts?
Indemnifica4onsa4sfac4on4edto
regulatoryapproval
Clearlystatewhatcons1tutesapproval(uncondi1onalNFA,
NFAwithdeedrestric1ons?)
Indemnifica4ontrigger4edto
discoveryof
pre-salecontamina4on
Expresslystatewhatdocumentsestablishthepre-closing
environmentalbaseline
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HOLD BACK PROVISIONS
§  Holdback - a deferral of payment of some portion of the purchase price.
§  Example:
§  Hold Back. “Five Hundred Thousand and No/100 Dollars ($500,000.00) of the Purchase
Price shall be held back by the Purchaser (the "Hold Back Amount") pending Seller
obtaining and providing to Purchaser a Washington Department of Ecology WDOE [a]
“No Further Action” certificate . . .”
§  Holdback. “On Closing, Two Hundred Thousand Dollars ($200,000.00) of the Purchase
Price (the Holdback Amount) shall be retained by the Purchaser and applied by the
Purchaser towards any costs that the Purchaser, acting in its sole discretion, incurs in
connection with bringing the Property into compliance with Environmental Laws and/or
removing Hazardous Substances from the Property”
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ESCROW ARRANGEMENTS
§  Escrow funds are available to the purchaser or other indemnified parties as
needed to fulfill remediation or indemnification obligations
§  The escrow may be funded by a set-aside from the purchase price or, in the
case of a remedial cost-sharing arrangement by a contribution from both
parties to the transaction
§  Administered by an independent
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Owner/Consultant “Aligned Interest” Contract
§  Environmental consultant retained to conduct due diligence and remediation
§  Consultant agrees to cap or reduce fees if more contamination needs to be
remediated than expected or discovered in areas not identified in due
diligence
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Sussman Shank
llp
attorneys
Questions?
Thank you for your time!
[email protected]
1000 SW Broadway, Suite 1400 Portland Oregon 97205 | 503.227.1111 | sussmanshank.com