EPA Designates Two PFAS as CERCLA Hazardous Substances: Major Implications for Transactions, Compliance and Risk Management

With its second recent landmark PFAS rule, the U.S. Environmental Protection Agency (EPA) continues to significantly alter the regulatory landscape concerning per- and poly-fluoroalkyl substances (PFAS) by adding PFOA and PFOS to its list of more than 800 “hazardous substances” under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund). The designation becomes effective July 8, 2024 and comes on the heels of EPA’s first nationwide enforceable drinking water standards promulgated April 26th for PFOA, PFOS and four other PFAS under the Safe Drinking Water Act (SDWA).

The new rule will significantly affect management of contaminated properties, real estate purchase and lease transactions, corporate M&A deals, environmental due diligence and insurance.  Despite EPA’s new “PFAS Enforcement Discretion and Settlement Policy Under CERCLA” (discussed below), this new rule will lead to increased cost-recovery/contribution litigation, expanded investigation and remediation obligations for property owners and other responsible parties — including former owners/operators with residual liability under private allocation or indemnity provisions in transactional documents — and the potential for EPA and states to reopen closed cleanup consent orders/decrees.

For those that are unfamiliar, PFAS are thousands of “emerging contaminants” at the center of increasing health and environmental concerns.  PFAS have been commonly used in numerous commercial and industrial applications where their resistance to water, heat and stains are beneficial.  As a result, PFAS have become ubiquitous in the environment and are now commonly detected in soil, groundwater and surface water globally.  As the trend toward increasingly stringent PFAS regulation continues, owners, operators/tenants, buyers, and sellers of, and investors in, businesses and commercial real estate will need to significantly and proactively increase their efforts to evaluate their potential PFAS risks and liabilities.

Enhanced Due Diligence

To qualify for CERCLA’s liability protections, a prospective purchaser must comply with EPA’s All Appropriate Inquiry (AAI) Rule, which is typically achieved by completing a Phase I Environmental Site Assessment in accordance with the ASTM E1527-21 standard.  A Phase I evaluates the current and former operations of the target site or business, as well as those of surrounding properties, to identify Recognized Environmental Conditions (RECs) and other potential issues, including Historical RECs and Business Environmental Risks that may have resulted in actual or potential releases of CERCLA hazardous substances.

With the inclusion of PFOA and PFOS as CERCLA hazardous substances, PFAS risks will expand the scope of what environmental consultants need to evaluate as part of a Phase I and affect the decision of whether to allow, require or forego sampling for PFOA and PFOS in any subsequent subsurface due diligence assessments (e.g., soil or groundwater sampling), significantly impacting transactions for buyers, sellers and lenders/investors alike. 

As a result, now more than ever, it is critical that clients coordinate with their environmental counsel and consultants when performing (or allowing the performance of) a Phase I to appropriately assess risks and liabilities associated with PFAS generally and PFOA and PFOS specifically, while also balancing the particular business drivers and risk tolerance of the parties involved.  Additional due diligence decisions (e.g., Phase IIs or beyond) that may involve PFAS will also become more critical and costly for all parties to a transaction.

Increased Investigation and Cleanup Obligations at Superfund Sites

CERCLA grants the federal government broad authority to respond directly to releases or threatened releases of CERCLA hazardous substances.  It is a retroactive, joint and several, strict liability regime, meaning each Potentially Responsible Party (“PRP”) is individually responsible, without regard to fault or intent, for costs associated with investigation, remediation, natural resource damages and specific health assessments associated with historical releases of hazardous substances.  PRPs include current owners and operators; former owners or operators at the time hazardous substances were released; those that arranged for the disposal, treatment, storage or transport of hazardous substances; and transporters of hazardous substances.

By designating PFOA and PFOS as CERCLA hazardous substances, EPA now exposes PRPs to “new” liability at federal Superfund sites and analogous state listed sites for costs associated with PFOA and PFOS, which given the trend toward extremely low remediation standards, can be exorbitant.  This change also will significantly alter — and increase the cost of — transactional due diligence, reporting, remediation projects and more.  Additionally, federal CERCLA or analogous state sites that were previously “closed” under cleanup consent orders/decrees may be reopened if potential PFOA and/or PFOS contamination was not previously addressed.

EPA Enforcement Discretion

To offset some of the potential pain, EPA issued a “PFAS Enforcement Discretion and Settlement Policy Under CERCLA” advising EPA personnel to concentrate efforts on parties that have played significant roles in releasing or exacerbating the spread of PFAS into the environment, including businesses and sites with significant current or former PFAS manufacturing or usage as well as federal agencies and facilities. 

Importantly, EPA aims to apply a balanced approach and, where equitable factors do not support enforcement, will likely spare certain entities from stringent enforcement under CERCLA, including community water systems, publicly owned treatment works, municipal storm sewers systems, publicly operated landfills, publicly owned airports, local fire departments and owners/operators of agricultural lands treated with biosolids.  However, how EPA will exercise its discretion and interpret these subjective goals remains to be seen.  Further, each state agency may implement a different enforcement discretion approach.  Notwithstanding any anticipated federal or state enforcement discretion, the established and growing risks associated with PFAS, including third-party claims for cost-recovery, will only increase the scrutiny on PFAS liability, particularly as between private parties to a transaction.

Mandatory Release Reporting

Lastly, in light of the designation of PFOA and PFOS as CERCLA hazardous substances, after July 8, 2024, any facility that has a release of one or more pounds of PFOA or PFOS within a 24-hour period must notify the National Response Center as well as Local, State or Tribal Emergency Response Commission as required under CERCLA and the Emergency Planning and Community Right-to-Know Act (EPCRA).  This release level is far less than reportable quantities for many other CERCLA hazardous substances, which can range up to several thousand pounds.  For certain releases, notices may be required in local newspapers serving the affected area and a written follow-up report may be required within 30 days. 

PFail to Plan, Plan to PFail

Businesses of any size should proactively identify and assess the potential risks and liabilities PFAS may pose to their past, current and future operations.  In light of the ever-evolving legal maze and scientific uncertainty, stakeholders would benefit from engaging a coordinated legal and technical advisory team to develop a PFAS risk management plan to avoid likely pitfalls.

 A risk management plan assessment could involve the following best practices:

• Monitor federal and state legal, regulatory and technical PFAS developments;
• Conduct operational lifecycle assessments to identify potential avenues through which PFAS may enter the facility, manufacturing process, products and waste materials;
• Evaluate non-PFAS alternative supplies and develop phase-out timelines, as necessary;
• Ensure contracts with suppliers include clauses prohibiting the use of PFAS in any materials or processes involved in production;
• Given the haphazard landscape of PFAS regulation and nascent analytical methods, coordinate with experienced environmental consultants and seek the protection of attorney-client privilege when considering voluntarily testing for PFAS;
• Coordinate with an experienced environmental insurance broker and legal team to evaluate whether tailored insurance is available to provide coverage for PFAS-related damages and review historical insurance policies, particularly those older occurrence-based policies, to determine what coverage may be available for PFAS claims associated with prior operations or properties; and
• Prepare communications holding statements for key players including government agencies, suppliers, distributors and customers for potential PFAS issues.

As PFAS risks become more understood, regulations more robust across jurisdictions and litigation more common, it is critical to proactively develop a thoughtful risk management plan. To take poetic license with an old adage, the bottom line for PFAS: “PFail to plan, plan to PFail.”

For any questions regarding PFAS, please visit Shipman's PFAS Resource Center or contact a Shipman environmental lawyer for more information. Our team advises national and international clients in real estate, manufacturing, agricultural, education and other sectors on the potential legal and technical impacts of PFAS on their business operations and/or transactions, as well as assisting in the development and implementation of PFAS-related risk management strategies.