Barg Coffin Lewis & Trapp, LLP Articles

June 1999

The Sun Rises Again for the State Superfund Law

by Brian S. Haughton

Like the mythical phoenix bird arising from the ashes of its immolation, the late state Superfund law now appears certain to be reinstated by the time these words reach print.

The law — formally known as the Carpenter-Presley-Tanner Hazardous Substance Account Act — was originally enacted effective September 25, 1981 and comprised Chapter 6.8, Division 20, sections 25300 et seq., of the California Health and Safety Code.¹ Also sometimes called the HSAA, the state Superfund law was based on the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA," 42 U.S.C. sections 9601 et seq.), which created a "Superfund" to pay for government-run cleanups of the nation's most contaminated sites.

The HSAA contained a "sunset" provision (section 25395), providing that substantial portions of the law would automatically be repealed as of a certain date unless a later-enacted statute deleted or extended that date. Over the years, the sunset clause was amended numerous times to avoid the automatic repeal. The most recent amendment, in 1997, extended the date to January 1, 1999. Representatives of various industry and environmental groups (so-called "stakeholders") worked extensively with legislators and their staff to assemble a compromise bill before the legislative session ended in September 1998. However, at the eleventh hour, several key stakeholders withdrew their support for the compromise, effectively eliminating any chance for reauthorization before the January1, 1999 deadline.

As a result, 86 statutory provisions were erased from the HSAA on New Year's Day, leaving the public, the regulated community and even the California Environmental Protection Agency's ("CalEPA's") Department of Toxic Substances Control ("DTSC," the agency chiefly responsible for administering the HSAA) in the dark as to what would happen next to the many affected programs and cleanup sites.

In the wake of the November election results, State Senator Byron Sher introduced Senate Bill 47 on December 7, 1998 to begin the process of resuscitating the compromise that had died in September. After five months of negotiations, the necessary two-thirds vote has been mustered to support passage of the bill as an urgency statute to take effect immediately. (Passage by a majority of less than two-thirds would have deferred the effective date until January 1, 2000.) Governor Davis signed the bill on May 26.

The good news is that the new statute, unlike its predecessor, does not contain a "sunset" provision. Therefore, the new law is less likely than its forebear to become a casualty of gridlock in Sacramento.

The bad news is that the new law does not include a funding source for its most innovative provision, the new orphan share program. Several options have been identified for the funding mechanism, but the negotiations among the stakeholders have proved thorny enough that they agreed to carve out orphan share funding to expedite the enactment of the balance of the Superfund bill as an urgency statute to take effect immediately.

This article will address (1) the new law's reinstatement of former statutory provisions, (2) its addition of new provisions and (3) what the future holds.

SB 47 Reinstates Much of the Old Law with Little or No Change

The basic structure of the old HSAA has been reinstated essentially intact in the new version. The new law again comprises Chapter 6.8 (commencing with section 25300) of Division 20 of the Health and Safety Code. Most of the old language is reused verbatim. Moreover, because the drafters of SB 47 resisted the temptation to renumber and reorganize the HSAA, it is relatively simple to determine whether a particular section has been changed and, if so, to locate the new language.

DTSC's basic authority, under section 25356, to publish the annual state Superfund list — identifying and prioritizing the more seriously contaminated sites in the State — has been resuscitated without significant change. Also revived is DTSC's authority, under sections 25355 and 25358.3, to order potentially responsible parties ("PRPs") to perform cleanups at listed sites and, if the PRPs fail, to perform the cleanups itself. SB 47 also reinstates section 25354, the continuous appropriation of $1 million per year as a reserve account for emergencies, enabling DTSC to address imminent health risks when there is insufficient time to compel a PRP to do so.

The new HSAA renews the former statute's citizen-participation provisions, generally, and substantially expands them for cleanups at listed sites. The public involvement portions of the former sections 25356.1 (incorporating the relevant provisions of federal law) and 25358.7 have been revived. New language has been added to section 25358.7 contemplating baseline community surveys, multi-lingual fact sheets, notices of public meetings and other opportunities for public involvement. A new provision (section 25358.7.1) has been added authorizing the creation of community advisory groups ("CAGs") and requiring the lead agency (DTSC or the Regional Water Quality Control Board or "RWQCB") to "regularly communicate, and confer as appropriate" with them. Another new provision (section 25358.7.2) directs DTSC and the State Water Resources Control Board ("SWRCB") to establish two new community service offices, one each for Northern California and Southern California. However, because their funding is tied to orphan share funding — which is not a part of SB 47 — there may be some delay before these offices are up and running. Once they are operational, the offices's mission will be to provide technical and logistic support to CAGs. Meanwhile, a new section 25358.8 authorizes CAGs to request technical assistance grants ("TAGs") from PRPs to fund the hiring of environmental consultants to assist CAGs in evaluating and commenting on technical issues relating to cleanups. There is no authorization for public funding of TAGs.

SB 47 also reinstates section 25351.2, authorizing cities and counties to stand in DTSC's shoes and perform cleanups when PRPs fail to do so.

The new law will also revive measures designed to promote private cleanups. For example, the private-site management program (sections 25395.1 through 25394.15) will return to the books, allowing "private site managers" (state-certified environmental assessors) to perform some of the oversight and sign-off functions otherwise reserved to DTSC.

Similarly, the voluntary cleanup program, under section 25355.5, will be renewed, again enabling property owners to expedite cleanup and redevelopment of contaminated sites not included on the state Superfund list. Section 25355 has sprouted a new subdivision, (c)(2), authorizing DTSC for the first time to enter into voluntary cleanup agreements for sites contaminated by petroleum releases. Generally, petroleum products fall outside the HSAA's purview because they are expressly excluded from the statute's definition (in sections 25316 and 25317) of "hazardous substance." Not all petroleum releases are covered by the new section 25355(c)(2), however; releases from underground storage tanks are still excluded. Where water quality issues are implicated, the new subdivision requires DTSC to give the appropriate RWQCB the opportunity to assume oversight responsibility for the cleanup.

The old HSAA's reporting requirements, too, will be revived. Thus, section 25359.4 will again require property owners (with certain exceptions and qualifications) to notify DTSC within 30 days after discovering any release of hazardous substances on their property. Similarly, section 25359.7 will again require non-residential property sellers to notify buyers — and tenants to notify landlords — of releases of hazardous substances on their property.

SB 47 also reinstates the binding arbitration program under sections 25356.2 through 25356.10. As under the former law, the program is to be administered by CalEPA's Office of Environmental Health Hazard Assessment ("OEHHA"), a DTSC sister agency. The scheme contemplates preparation of clean-up plans including Non-Binding Allocations of Responsibility ("NBARs") assigning each PRP a share of cleanup costs. Parties assigned a collective share exceeding 50% may initiate binding arbitration before three arbitrators selected from OEHHA's Hazardous Substance Cleanup Arbitration Panel. PRPs who refuse to participate are subject to suit by the Attorney General, and those who do participate and pay the amount prescribed by the arbitrators receive a release from further state and local governmental claims relating to the contamination.

The reinstatement of several HSAA provisions raises questions about the effect of the law's hiatus. When it became apparent the old law would be repealed, OEHHA canceled pending arbitration proceedings that could not be completed by the end of 1998. Similarly, DTSC began the process of attempting to revise voluntary cleanup agreements, consent orders and unilateral orders so they could continue uninterrupted under alternative statutory authority. In most cases, DTSC sought to shift authorization to the corrective-action program for hazardous waste facilities under the Hazardous Waste Control Law ("HWCL," found in sections 25100 et seq.). However, DTSC's efforts met with mixed success for a variety of reasons (for example, section 25143.1(b) exempts mining waste sites from the relevant portions of the HWCL). There have been no reported court decisions determining the effect of HSAA's repeal on pending DTSC agreements and orders.

Because of language included in an un-codified portion of SB 47 (denominated section 3(b) of the bill), it may be that no court has to rule on these questions. Section 3(b) provides that the January 1, 1999 repeal of portions of the HSAA "shall not terminate, affect, or modify any proceeding, order, or agreement issued or entered into by any" regulatory agency. It also provides that the new law "shall apply retroactively, on and after January 1, 1999, to those proceedings, orders [and] agreements."

Therefore, PRPs should expect OEHHA to reinstate prior arbitration proceedings in the not-too-distant future and DTSC to treat prior orders and agreements as having been continuously in effect during the HSAA's hiatus.

SB 47 Contains New Provisions That Were Not in the Old Law

In addition to reinstating (and sometimes modifying) provisions of the former HSAA, SB 47 also incorporates several new provisions for which the old law had no analogs. Most of these additions essentially codify environmental regulatory policies and practices already in place at various state and federal agencies.

For example, a new subdivision — section 25356(h) — requires the lead agency (again, DTSC or the RWQCB) to coordinate, "as appropriate," the involvement of other agencies interested in or affected by a cleanup action. This has been common regulatory practice for some time.

Similarly, risk assessments have long been used by environmental regulatory agencies as a way to identify appropriately protective cleanup levels. The process is sometimes referred to as "Risk-Based Corrective Action" or "RBCA." Instead of using "off-the-rack" cleanup levels, the RBCA process is designed to "custom-tailor" site-specific levels that are protective of human health and the environment. Site-specific factors that influence the final cleanup levels include contaminant mobility and toxicity, soil lithology, groundwater flow patterns, anticipated site and neighborhood uses and local weather patterns. Section 25356.1.5 of the new HSAA provides the first express statutory authorization in California for this approach.

The new section 25356.1.5(b) requires that established federal (and, to the extent they are at least as stringent, state) risk assessment guidelines must be followed, and that the most current scientific principles, practices and methods must be used. Section 25356.1.5(c) requires that the resulting cleanup levels must be "protective of public health, with an adequate margin of safety." As has also been common administrative practice, section 25356.1.5(d) requires that the risk assessment process take into account both current land use conditions and reasonably foreseeable future land use conditions at the site.

It is not uncommon for a risk-based cleanup to include a long-term operation and maintenance component. For example, where the cleanup plan is based on the conclusion that certain groundwater contaminants will continue to biodegrade, regulators may require periodic groundwater monitoring for several years to confirm this conclusion. Is such situations, regulators have commonly required the PRP performing the cleanup to demonstrate and maintain financial assurance that the long-term plans will be implemented. The new law add provisions expressly authorizing this approach.

Thus, SB 47 adds a new section 25318.5, defining "operation and maintenance" to include those activities following completion of a cleanup action that are necessary to maintain the effectiveness of the action. The new section 25355.2 codifies the current practice of requiring financial assurance for operation and maintenance activities, expressly incorporating several of DTSC's existing regulatory financial assurance mechanisms.² Section 25355.2(c) also authorizes DTSC or the RWQCB to waive the financial assurance requirement for small businesses under certain circumstances.

It is has also long been the policy of both state and federal environmental regulators not to take action against innocent owners whose property has been invaded by a migrating groundwater contamination plume.³ In this context, "innocent" means the owner did not cause or contribute to the contamination and has not done anything to exacerbate the environmental problem. Although SB 47 does not import this policy wholesale, it does codify similar protection for owners of (1) single-family residences on parcels of five acres or less and (2) common areas within residential common interest developments. Under the new section 25360.2(b)(1)(B) such owners are presumed to have no liability under the HSAA for "a release of a hazardous substance to groundwater underlying the property if the release occurred at a site other than the property." This presumption may be rebutted if it is shown that the owner caused or contributed to a release, fails to allow access for cleanup activities or otherwise interferes with such activities.

SB 47 also adds a de minimis settlement program modeled on the federal program authorized under CERCLA section 122(g).⁴ Like its federal analog, the new section 25360.6 allows a so-called de minimis PRP to enter into a settlement with DTSC which protects the settling PRP against non-settling PRPs' contribution claims. Such a settlement may only involve "a minor portion of the response costs at a facility" and is only available if the settling PRP falls into one of two categories. The first category covers a PRP whose hazardous substances contributed only a "minimal" portion of the entire environmental problem at the site. The second category includes the owner of the contaminated facility so long as the owner did not cause or contribute to the environmental problem and did not know or have reason to know of the problem at the time of the acquisition of the facility.

Some of SB 47's new provisions are path-breakers. That is, they are not based on policies or practices already in common application.

One of these, the new section 25356.1.3, requires DTSC orders to name "the largest manageable number of potentially responsible parties" and creates a procedural mechanism for named PRPs to ask DTSC to name additional PRPs. Once the PRPs are identified, the new section 25356.1.3(b) requires DTSC to invite them to a meeting to discuss cleanup planning, costs, scheduling and DTSC oversight.

What was to be the crowning glory of the compromise bill that died last year — the orphan share program — is only half-realized in SB 47. The bones of the program are included in the new law, but the flesh — i.e., the money — necessary to give the program life has not yet been appropriated.

The new section 25390(b) defines "orphan share" as the share of liability for cleanup costs that is attributable to persons who are "defunct or insolvent." The new section 25390.1 recites the legislative concern that, under the federal (i.e., CERCLA's) liability scheme, financially viable PRPs can — unfairly — be forced to pay for orphan shares. The new law is designed to ameliorate that unfairness and, toward that end, establishes the Orphan Share Reimbursement Trust Fund. However, under the new section 25390.9, the article creating the program does not become operative until the operative date of a statute that either appropriates the necessary money to the Fund or establishes a revenue source for the Fund.

Once there is money in the Fund, a PRP may file a claim against the Fund for reimbursement of the portion of the orphan share the PRP has paid. Under the new section 25390.4, a reimbursement claim may be filed only if all of the following apply:

The site is listed.
DTSC or the RWQCB has approved a final remedy.
DTSC or the RWQCB has entered into a cleanup agreement or consent order obligating the PRP to cleanup the site.
The PRP demonstrates that it has sufficient financial resources to complete the cleanup.
The PRP is in compliance with the cleanup agreement or consent order.
The PRP has submitted a "potentially responsible party search report," including a list of all PRPs, the factual and legal bases for identifying them and the proposed orphan share percentage.
The claim for reimbursement covers only costs of cleanup actions conducted under regulatory oversight.

The new section 25390.7 bars reimbursement claims relating to four kinds of sites:

sites listed on the National Priorities List under CERCLA,
sites cleaned up pursuant to the California Expedited Remedial Action Reform Act of 1994 (sections 25396, et seq.),
sites where, prior to January 1, 1999, the PRP agreed to perform the cleanup, and
sites where the cleanup was complete prior to January 1, 1999.

Under the new sections 25390.5(a) and 25390.4(c)(4), the orphan share may not exceed 75%, and the total orphan share reimbursement for any one site may not exceed 10% of the total amount appropriated to the Fund for the year.

The orphan share determination is to be made by the Fund administrator, who is to be appointed by the Governor, subject to confirmation by the state Senate. The new section 25390.5 lays out the procedure for the determination. Upon receipt of the claimant-PRP's "potentially responsibly party search report," the administrator is to invite all other PRPs, together with DTSC and the RWQCB, to submit their own reports. Then, the administrator is to determine the orphan share percentage "based on the volume, toxicity, and difficulty of removal of the contaminants contributed to the site by the party or parties responsible for the orphan share." Under the new section 25390.5(g), the administrator's determination is deemed a "final agency action" which may be judicially overturned only upon a showing of fraud by one of the parties submitting a report.

Finally, any costs reimbursed from the Fund may ultimately be reclaimed from the pocket of the owner of the property that enjoyed the benefit of the cleanup. The new section 25390.8 gives the administrator a lien against the property in an amount not to exceed "the increase in fair market value of the site attributable to the response action at the time of a subsequent sale or other disposition of the site."

What Does the Future Hold?

Informed observers in Sacramento are cautiously optimistic that an orphan share funding bill will be passed into law sometime this year. The funding options that have been considered include general fund appropriations, new lubricating oil fees, redirection of existing corporate environmental fees and an increase in EPA identification number fees. There was even limited discussion of an extension of corporate environmental fees to cover non-corporations. The primary impact of such an extension apparently would have fallen on law firms.

Current funding discussions center on a combination of general fund money and a new waste-water treatment discharge fee that would be imposed on industrial facilities discharging treated water to a publicly owned treatment works pursuant to a pre-treatment permit.

Regardless of whether and when the orphan share funding bill is passed, California's Superfund law appears certain to be back on the books by the time this article is published. Moreover, because the reinstated law, unlike its predecessor, does not contain a "sunset" provision, this time the law should stay on the books, if not for as long as the phoenix was said to have lived — 500 years — then at least until a replacement law comes along.

Endnotes

1. Except as otherwise noted, all further statutory citations are to the California Health and Safety Code.

2. The regulations are found at 22 CCR section 66265.143, subdivisions (a) through (e).

3. See, for example, DTSC Management Memo No. 90-11.

4. 42 U.S.C. § 9622(g).

This article first appeared in the June 1999 issue of Matthew Bender's California Environmental Law Reporter.

The author thanks Eric R. Newman of Kahl/Pownall Companies in Sacramento for his comments on this article.

These materials are provided for information purposes only and are not intended as and cannot be considered legal advice. Before taking action based upon this information, you should consult your legal counsel.

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