 Legal Issues
Joel
Burcat is Partner and Vice Chair of the Environmental
Department for Saul Ewing LLP law firm. These
clients have included petroleum distributors, marketers, jobbers,
refiners, transporters (trucking and vessel), pipeline companies
and exploration companies. This representation involves dealings
with state and Federal regulators, litigation in state and
Federal Courts relating to environmental contamination associated
with petroleum facilities, regulatory issues, insurance issues
and general business matters associated with the petroleum
marketing industry. He has represented owners and operators
of petroleum facilities in suits relating to the operation
and management of those facilities. In addition, Joel has
also been involved in transactions involving the purchase
and sale of petroleum facilities. Joel has represented the
Pennsylvania Petroleum Marketers and Convenience Store Association
as counsel in filing amicus curiae briefs and arguing
those cases to Pennsylvania's appellate courts.
Web: www.environmental-law.us
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Recent Questions:
1)
I'd like to sell my petroleum distribution company and retire.
After I retire, I hope to play golf every day and really
don't want to hear about my old company again. What can
I do to protect myself as much as possible?
Liability
arising out of ownership of a petroleum distribution company
(or any other environmentally intensive business) in a real
sense is everlasting. Federal and state laws make it impossible
to avoid entirely liability if there is contamination at
a facility. Nevertheless, there are certain things that
can be done to minimize that liability. At the time of sale
of your facility, the sale agreement should be drafted so
that the buyer has had adequate opportunity to evaluate
the property and buys it "as is." The seller's
warranties and representations regarding the condition of
the property should be minimal, except that known liabilities
should be disclosed. In addition, the buyer should consider
obtaining an indemnification from the seller from and against
all future liabilities, including attorneys fees. Other
protection can be built into the agreement of sale, however,
this will
"cost" the seller by a likely reduced sale price.
In addition, it would be wise to obtain a thorough audit
of your property conducted by competent environmental consultants
and dated close to the date of the sale. The audit should
be designed to determine the level of contamination that
exists at the property, including soil samples and groundwater
analyses, at the time of sale. This audit should be obtained
by the seller and the seller should not rely on the buyer's
audit in this case. It may seem counter-intuitive to obtain
such an audit, however, in the event the buyer causes contamination
after the date of sale, the seller will have a base-line
from which to determine relative liability levels.
It should be possible to purchase insurance to cover the
cost of any potential environmental liabilities. While this
insurance will be expensive, it may add significantly to
the level of comfort that the former owner has following
the sale.
Such protection will be costly and likely will result in
a reduced sale price (for example as the seller negotiates
an indemnification agreement to protect against future liability,
the buyer will expect to pay the seller less for the property).
In exchange for the reduced sale price, however, is increased
peace of mind for the seller. No amount of protection that
is affordable will be perfect, however, significant protection
can be obtained.
2)
We had a gasoline spill yesterday at our terminal. We may
have spilled 500 gallons of unleaded fuel. I know that I
should tell the state environmental agency, but, frankly
I am concerned about what they may find. Do I really have
to notify them or can we just clean it up ourselves and
hope for the best?
A variety
of Federal and state laws require the provision of notice
in the event of a spill of hazardous substances into the
environment. Notice usually involves, at a minimum, a phone
call to the U.S. EPA and the state environmental agency.
Generally, a follow-up letter is due shortly after the phone
notification. A company may also be required to give verbal
notice to local municipalities and local emergency planning
agencies. Often, companies are fearful of giving notice,
because of the proverbial Pandora's Box that may be opened
by giving such a notice.
Depending upon the substance spilled, you should be prepared
to give notice immediately to all relevant agencies (the
agencies will vary depending upon the location of the facility
and the material spilled). Government agencies often find
out about spills and other events from neighbors, fishermen,
disgruntled former employees, disgruntled current employees
and others. When they do find out (and very often, they
will) the penalty for failure to give notice can be significantly
larger than the penalty for the spill itself. Penalties
can involve both a civil penalty and, increasingly, criminal
penalties.
Before any spill occurs, you should have a contingency plan
in hand and you should line up a consultant who can work
with you in the event of a spill. If a spill occurs, you
should quickly coordinate your plan and consultants so that
when you give notice to the agency(ies) you can advise that
you are implementing your plan and you have lined up a consultant
to evaluate the spill and begin clean up. This will allow
the agency to respond to your thorough advance planning,
rather than force you to respond defensively to the agency.
Bear in mind that some environmental laws require that notice
be given "immediately", "as soon as practical" or within two hours.
3)
We had a gasoline spill several years ago and never told
anyone about it. We cleaned it up as much as possible. Now,
my next door neighbor is developing his property and I am
concerned that gasoline will show up when they do monitoring
or foundation digging. What should I do?
This
is a tough situation. As a result of failure to give notice
to government agencies, if the contamination is discovered
you likely will be scrutinized by those agencies and probably
will be penalized. You are better off going to the agency
before they come to you. You should develop a plan so that
when you go to the agency you can provide them with a clean
up plan and timetable, so that they understand you are taking
the situation seriously. If you wait for the agencies to
come to you however, any penalties will be larger than if
you had initiated the contact. By being proactive (then
following through with the clean up program) you will be
minimizing your liabilities.
As to your neighbor, again, you should arrange to meet with
the neighbor and work cooperatively with him. Many states
have "Brownfields" laws that may enable you to
clean up property and to obtain releases form certain liabilities
once clean up goals have been achieved. (You should note
that some Brownfields laws limit protection to those who
are not responsible for the contamination.) By going to
your neighbor, you likely will head off a lawsuit if he
discovers the contamination on his own without your disclosure.
Experience has shown that being proactive is the best way
to proceed.
4)
We have a terminal and sell millions of gallons of product
a year from that terminal. Right now, the only real security
that we have is a chain link fence that is along the frontage
of our property, but not much else. In light of 9/11 and
other security concerns, what sorts of security measures
do we need to take to protect the terminal and the surrounding
community?
As a
result of 9/11 and ongoing security concerns the law is
in a state of flux. What might have been adequate just five
years ago, likely is not adequate today. The facility may
be covered by the Federal Maritime Transportation Security
Act of 2002 (P.L. 107-295), if it has the capacity to transfer
oil or hazardous substances from a sailing vessel with a
capacity of 250 barrels. A facility security assessment
conducted by a facility security officer will be required
to evaluate vulnerabilities and potential physical threats
to the facility. You must also submit a plan to the U.S.
Coast Guard by December 29, 2003. The plan must be approved
by the Coast Guard and implemented by June 30, 2004. Planning
for possible threats from bombing, sabotage, unauthorized
use of the materials on the site, smuggling, cargo tampering,
stowaways, and cyber-tampering must be conducted. Also,
the Coast Guard will be looking for a complete fence perimeter,
remote security cameras, limited access and access control
criteria to verify the identity of individuals and contents
of packages. In addition, security personnel must be adequately
qualified and trained. Regular security inspection of the
facility is required to insure the continuation of security
measures. The plan must be exercised at least annually.
It is likely that inland facilities will be covered by similar
measures in the not too distant future. Also, existing state
laws may require a variety of security controls. Prudence
dictates that you begin upgrading your facility now, rather
than waiting for an unplanned event to happen that will
call into question your planning.
5) I'm a second-generation
jobber. My family has owned our business for quite some
time. I'm getting close to retirement and would like my
daughter to take over the business. What do I need to do
legally in order to ensure a smooth transition?
Succession
planning is critical to your wealth management, the future
success of the company and the relationship that you will
have with your family members. The failure to do proper
planning may result in a loss of income or unexpected failure
to provide income that is expected and anticipated. Also,
excess taxes may be paid by you or your heirs if the succession
planning is not properly carried out. Questions that must
be answered include how will the first-generation owner
transfer ownership to the second generation? Will this be
done over time or all at once? Will there be a purchase
of stock or will some stock be gifted? If it is gifted,
can this be done in such a way as to minimize taxes?
Will the second-generation owner establish a new company
to hold all of the assets or will there simply be a continuation
of the existing company? Is it possible that the first generation
owner will hold certain assets and lease them to the second-generation
owner? Also, in many instances the first generation owner
has valuable information, insight and contacts that the
second-generation owner may wish to utilize. It is not uncommon
for there to be a consulting agreement established to facilitate
this transition.
One of the hardest things to do is to let go of a business
that you have nurtured for many years. At the same time,
you have earned your retirement and the new generation probably
is anxious to begin running the operation. This should be
an exciting time for all of you and will be much more enjoyable
with proper planning.
6) I'm looking at a site
to purchase that has leaking tanks. What do I need to have
the current owner do before I purchase it so I know I'm
not liable for any potential future problems?
If a
facility has existing contamination, it may still be extremely
valuable either because of its location, physical plant,
existing amenities, familiarity to customers, and other
factors. If you determine that a site is contaminated, you
should consider whether you want to have the site remediated
before you take title or afterwards. If the site is remediated
prior to taking title, then the possibility of liability
is virtually eliminated. Unfortunately, this might take
years to accomplish, which may result in a loss of the opportunity
to purchase the facility, the opportunity to purchase the
facility at a reasonable price or the ability to purchase
in accordance with your business planning.
Depending upon the circumstances, you may decide it is to
your advantage to take title to a facility that is contaminated.
Before you would do this, however, you will want to consult
with the state and Federal agencies (U.S. EPA and its state
equivalent) to determine if there is a mechanism that will
enable you to take title, but will relieve you of liability
for the property. This is possible in many instances where
the seller takes on the clean up responsibility and signs
a consent order and agreement. You may also be required
to sign such an agreement.
In addition you will want to structure your agreement of
sale to protect you against liability. To the extent possible,
your consultant should determine for you the likely cost
of remediation. At best, this will be an estimate. This
amount, however, should be used by you in your negotiations
with the seller. If you are going to control the remediation
activities, then you should consider escrowing funds from
the sale to cover unexpected contingencies. Also, obtaining
an indemnification from the seller is helpful. Finally,
you should determine whether the seller has any insurance
assets that you can continue. It may be relatively easy
to transfer the insurance policy to the new company. At
the very least, the existing insurance should be reviewed
and inquiries made.
This article is for informational purposes
only. Nothing herein is intended or should be construed
as legal advice or a legal opinion applicable to any particular
set of facts or to any individual's or entity's general
or specific circumstances. The opinions expressed in this
article are the author's and should not be attributed to
any of the author's or the Firm's clients.
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