Businesses Lose in Cleanups : Lawyer Advises Companies on Environmental Suits : Questions & Answers

Last month, President Bush signed into law the Clean Air Act of 1990, which some experts have touted as the most comprehensive legislation ever enacted to protect the environment. The law requires nearly every major industry to drastically cut its emissions of pollutants by the year 2000.

The law also strengthens regulations regarding land and water pollution. The message to business is clear--clean up your act. The small- and medium-sized business person thinking this call to action applies only to oil refineries and car manufacturers is in for a rude awakening. Those polluting the environment are receiving record fines and even prison sentences if prosecutors can prove criminal negligence.

Robert Stewart has served as an environmental lawyer since the late 1970s. He briefly worked as a chemical engineer at Union Carbide Corp. before attending law school at the University of Michigan. After graduation, he went to work for the law firm of Jones Day Reavis & Pogue. He has worked at the firm’s offices in Cleveland, Dallas, Austin, Tex., and, most recently, in Irvine.

The firm represents General Motors plants in California, Texas, Louisiana and Massachusetts. Texas Instruments is another client. Stewart and his colleagues have litigated cases in all 10 regions of the Environmental Protection Agency involving more than 100 waste cleanup matters, helping companies arrive at the most cost-effective solution. Because one company can be held liable for cleaning up an entire waste dump, environmental lawyers are employed to make sure no parties pay more than their fair share of the damage. Stewart, 39, recently sat down to talk about what companies need to know about environmental laws with Times staff writer Gregory Crouch.

Q. What are the major pieces of legislation that apply to Orange County businesses, both federally and locally?

A. The major federal and state legislation tend to parallel each other because both governments need to deal with the same issues in the environment. Generally there would be both a state and federal Clean Air Act that would regulate any kind of emissions of pollutants or contaminants that go into what we call the ambient air--outside air. Then there are the statutes that regulate waste materials--what results after the manufacturing process--known as the Resource Conservation Recovery Act. The federal regulations in that area have historically focused on hazardous waste whereas the state regulations have historically been broader to focus on both hazardous waste and non-hazardous waste. What we’ve learned over the years is that non-hazardous waste has a lot of very hazardous things in it. And then there are laws about messes made in the past. The principal statute there is something we call Superfund, which imposes strict liability for past disposal of waste and requires companies or individual owners of property to clean up the mess. Finally, there are the Clean Water Acts, both federal and state. Those would regulate discharge of pollution into our waters.

Q. Anything else?

A. Those are the real highlights and there are a lot of laws filling in the gaps. For instance, there’s a federal law called the Toxic Substance Control Act that is designed to regulate anybody who is inventing new chemicals to make sure we’re not producing some more toxic substances.

Q. How do these laws affect relatively pollution-free businesses, such as a travel agency or an insurance firm?

A. Perhaps the biggest impact is in the area of real estate. Everyone must ensure that the property they are purchasing for their business isn’t contaminated in any way because, if it is, they might be held liable for some of the cleanup even if they weren’t responsible for the mess.

Q. You read in the newspaper about somebody getting fined by the EPA or the state for something as seemingly innocuous as dumping a can of motor oil. Why?

A. Perhaps they change the oil in a delivery truck. The engine oil in particular has some very toxic chemicals. They are created during the combustion process in the engine so that the engine oil that you take out of your car is more toxic than regular oil. It has a lot of chlorinated hydrocarbons in it. There has been plenty of effort at the state and local level to set up recycling programs at the local gas stations where people can take their used motor oil and deliver it.

Q. How do regulators know someone has dumped some oil?

A. Typically there are reporting requirements. If you spill hazardous materials on the ground, you need to report that to the local fire department or the local county agency, depending on whether you’re in a city or a county jurisdiction. Probably a lot of small-business owners don’t know about those requirements so they might get caught because a disgruntled employee knows that some dumping went on in the past. But I don’t want to underemphasize the difficulty in enforcement. It’s very difficult to catch.

Q. What common types of pollution emanate from typical businesses?

A. I think we’d be surprised at the number of businesses that do have air (pollution) emissions. For instance, utility boilers used to regulate the temperature in a building. The South Coast Air Quality Management District regulations cover very specific types of sources whether they are furniture builders or printing plants.

Q. Can you think of a business we might not ordinarily suspect of being a polluter?

A. Bakeries have some air emissions. And restaurants have a lot of grease disposal.

Q. Let’s say you’re a bakery. How do you make sure your air emissions are within the limits set by law? Do you have to ask an environmental attorney?

A. The best thing for the very small business to do would be to try to attend one of the South Coast District’s public workshops to become familiar with their rules, just like you might learn about new fire codes affecting your business. I think more small businesses have to realize that the environmental laws are going to be with them forever. Fire codes didn’t exist years ago. People don’t run out and hire an attorney every time there’s a new fire code; they call the fire department. Tell the district what your emissions are and they will tell you the designated amount allowed.

Q. What if your emissions exceed what’s allowed?

A. Hire an air-quality engineer or a land specialist or an expert in whatever area you’re talking about.

Q. So where do environmental lawyers come into the picture?

A. If you get a notice of violation, I think that would be an indication to call an environmental attorney.

Q. Do you think that most small businesses, such as dry cleaners and furniture manufacturers, realize that they need to comply with all of these regulations?

A. I think that they’re still very much in a reactive mode. Rather than developing a relationship with the South Coast district like they have with other regulators, they are simply reacting to another regulation. The regulators aren’t typically as attuned to what a business can and can’t do as the business itself. So getting involved with the agencies will serve two purposes. It will make the regulations more reasonable and increase awareness of those regulations. People become aware of these now in a very roundabout way and at a very late stage. Some become aware of it when they get a notice of violation.

Q. The clean air regulations must be several thousand pages from the looks of your books. Is it becoming prohibitive for manufacturers to do business in Orange County?

A. I know of at least one furniture manufacturer who used to do all its production here. Now, the company uses outside contractors for most of its coating, painting and foam manufacturing. It simply assembles the product here in Orange County. Unfortunately, this is one area where other areas of the country may have an advantage over Orange County because they don’t have the ozone pollution problem. Because there will be no more difficult place than Orange County to do business in terms of air quality regulations, you might see these operations moving to other parts of the United States or to Mexico.

Q. Regarding land pollution, what kind of problems do companies encounter trying to figure out just how much they need to contribute to the cleanup of a dump?

A. As soon as you get a notice that you’re involved with property that has been contaminated, I think you need to get an environmental lawyer involved unless it’s extremely minor contamination. What happens is that the EPA or the state will eventually get around to notifying the companies that sent waste there. These companies are called “potentially responsible parties” or PRPs. The earlier in the process you have a lawyer, the better. One person could be held liable for the whole amount. So you need to be in there talking about the allocation process. Some of these clean-ups can cost $50 million, $100 million or $300 million.

Q. What can a lawyer do in such a situation?

A. The first step is to study the contamination and determine the best way to clean it up. Generally, this involves looking at different options and the feasibility of those options. The lawyer’s role in that phase of the situation is to be sure that the matter is not simply approached as an academic or scientific exercise. You want somebody who understands the importance of this matter to you and your company, particularly if you’re talking about millions of dollars. Because when you’re comparing one remedy that might cost $100 million and another costing $30 million, you want a good practical analysis of what that $70 million is going to buy you.

Q. So you assume that you may be held responsible for cleaning up the whole thing and you want to find out how much that’s going to cost?

A. Right. What you try to do is coalesce a group of similarly situated parties. Everybody has to understand that today we don’t know exactly who’s going to pay for what or how much. What we do know, however, is that it’s in everybody’s interest to make sure this is a technically competent investigation that can lead to not only an environmentally sound result, but a cost-effective result. So that’s the early stage. As it moves along, you’ll get more involved in who sent what and are we going to divide this cleanup cost based on volume.

Q. Is the majority of your work representing companies who contributed to an industrial dump?

A. Only some. For air pollution, we represent any factory, like an automobile manufacturing plant, a refinery, a chemical plant or petrochemical plant. For land pollution, we work with real estate developers who are having to buy and sell land, and financial institutions who are lending money for real estate. And then there’s a range of clients, such as plastics manufacturers and refineries, that have water discharge, processed water that needs to be treated and discharged or sent to a municipal sewage plant for similar treatment.

Q. Besides large corporations weaving their way through this maze of environmental law, are most of the people who come to you in trouble?

A. Yes. For the smaller or mid-sized business, it’s usually the people that have bumped into a problem, receiving a PRP letter from the government that says they were a contributor to a dump or a notice of violation. Another thing that’s occurring quite a bit now is the leaking of underground storage tanks. These are underground tanks that held gasoline or diesel or waste oil and are located at some pretty small businesses like gas stations or equipment and truck rental firms. These steel tanks begin leaking in five years if the soil around them is very moist. If the soil conditions are pretty good, you might get 20 years out of a tank. But a lot of these tanks have been in the ground since 1950 and are leaking like sieves. Many smaller businesses don’t know about the leaks. The major refiners now have a leak-detection program and have actually pulled most of their old tanks and replaced them with fiberglass or steel tanks with corrosion protection.

Q. Is it true that surrounding businesses might be harmed by these leaking tanks?

A. Definitely. What you’ve got then is a piece of property that’s not worth as much because nobody is going to want to buy a contaminated property. You’re going to need to try to get that responsible tank owner-operator to clean up your property.

Q. Besides environmental damage, what is the fallout from all this pollution for a small business? How high are the chances of having to endure a lengthy trial?

A. They usually don’t go to trial because the cases settle once everybody realizes what the facts are and the lawyers have analyzed the evidence and advised their clients. In an environmental problem, there simply is no winner; everybody is a loser. It’s just a question of how much are you going to pay to do an environmentally sound remedy. So it’s not typical litigation in which somebody walks away with millions of dollars.

Q. What are some of the range of fines you’ve seen?

A. I think to date it’s still true that the cleanup costs on the waste side and the cost of installation and maintenance of controls for air and water pollution far exceed any penalties. But penalties and containment costs are rapidly increasing. Typically, with a small business--because of the direct involvement of the officers and directors or stockholders--there can be some personal liability.

Q. What is the range of fines or penalties?

A. Typically, it’s $25,000 a day per violation. Under the Clean Air Act, those have added up to as much as $6 million in one case.

Q. What is the range of cleanup costs?

A. They can range up to hundreds of millions of dollars if you have a large site with a lot of contamination.

Q. What about criminal charges? How often are those filed against company officials?

A. Prosecutors need to show company officials were aware of the pollution. I would think a CEO, who has taken steps to employ a competent, honest environmental manager, wouldn’t have to worry. But the environmental manager might get charged with a crime if there was pollution. Right now the emphasis is on higher fines and actually getting some people in jail. They’re focusing on the very egregious cases of what we call midnight dumping--someone who just goes out and indiscriminately dumps things--or repeated violators.

Q. Is there any insurance available to pay for a cleanup?

A. Insurance is something the small-business person should keep in mind. Many businesses carry what we call comprehensive general liability policies. If you have a cleanup you’re paying for or a problem with underground storage tanks, you should always contact your broker and file a claim under your insurance policy. If you ask your broker or the insurance company, a lot of times they’ll say there’s no coverage. But if the dollars are big enough, it may be worth talking to a lawyer who has expertise in filing environmental claims on general liability insurance policies.

Q. Besides insurance, are there any additional places a company can seek funds for a cleanup?

A. The state of California is setting up a fund for the cleanup of leaks from underground storage tanks. Unfortunately, I don’t think there’s any money in the fund yet, and I know there are no regulations about how you get the money. The majority of states have this fund and you simply have to fill out the applications and be able to verify your expenses. You can get all your cleanup costs repaid.