PFAS Implications and Perspectives in Due Diligence and Real Property Transactions

Home , Anger, Diligence

PFAS: Beyond the Theoretical and What’s Working Seminar

American Institute of Professional Geologists February 27, 2020

Edward (Ned) B. Witte

1 PFAS – Where Are We?

The Seven Stages of Grief:

2 PFAS – Where Are We?

The Seven Stages of Grief: Shock

3 PFAS – Where Are We?

The Seven Stages of Grief: Shock Denial

4 PFAS – Where Are We?

The Seven Stages of Grief: Shock Denial Anger

5 PFAS – Where Are We?

The Seven Stages of Grief: Shock Denial Anger Bargaining

6 PFAS – Where Are We?

The Seven Stages of Grief: Shock Denial Anger Bargaining Depression

7 PFAS – Where Are We?

The Seven Stages of Grief: Shock Denial Anger Bargaining Depression Testing

8 PFAS – Where Are We?

The Seven Stages of Grief: Shock Denial Anger Bargaining Depression Testing Acceptance

9 Presentation Overview

• How is PFAS handled in due diligence? • What is the significance of U.S.EPA not regulating PFAS as a CERCLA hazardous substance? • Is PFAS in ASTM Phase I protocol/scope? • What are buyers requesting in Phase I’s? What are lenders/investors requiring?

10 Presentation Overview

• If PFAS is identified in due diligence, what are buyers requesting for Phase II’s? What are sellers allowing? • What does a Phase II PFAS detection mean? • How can the PFAS risk be managed in a deal, and in the deal language? • Other tools: VPLE? Insurance? Best practices!

11 Regulation of PFAS by States

Some states adopted 70 ppt EPA HAL as their standard • Colorado • Connecticut • Maine (biosolid limits) • Massachusetts (plus 20ppt gw/dw) • Michigan • Rhode Island Other states are adopting lower standards • California – 14 ppt PFOA, 13 ppt PFOS (also Proposition 65 regulation) • Minnesota – approved MCLs: 47 ppt PFHxS, 15 ppt PFOS • New Hampshire* – 12 ppt PFOA, 15 ppt PFOS • New Jersey – PFOA 14 ppt MCL, PFOS = 13 ppt proposed MCL • New York – 10 ppt • Vermont – 20 ppt PFOA

12 Wisconsin PFAS Regulation

• WDNR currently has authority to regulate PFAS as Wis. Stats. Ch. 292 “Hazardous Substance” − WDNR recently confirmed this interpretation for NR700 rules in a White Paper • NR 720 direct contact RCL for PFOA and PFOS: 16.4 mg/kg – no groundwater protection number • WDNR priorities: Identify major PFAS sources − AFFF − Industrial − Landfills and WWTP − WWTP and Biosolids

13 Proposed Wisconsin NR 140 Standards for PFAS

• On June 21, 2019, DHS responded to WDNR’s request for proposed NR 140 standards for certain PFAS compounds • DHS recommended numbers for PFOA & PFOS: −Enforcement Standard: 20 ng/L (ppt) −Preventative Action Limit: 2 ng/L (ppt)

14 Consulting Firms Interviewed

• AECOM • Geosyntec • GZA GeoEnvironmental • Ramboll • TRC

• Wide range of practices, programmatic approaches, protocols and stages of PFAS specific development

General Topics Discussed

• How is your firm handling PFAS in due diligence? • How is your firm treating PFAS within the ASTM Phase I scope framework? • What are your clients asking for/what do they know about PFAS? What about lenders? • What are you finding in Phase Is/Phase IIs? • How are you managing a PFAS detection in the absence of specific standards?

16 PFAS in due diligence

Looking at specific facilities/businesses: 1. Facilities that produced/handled PFAS 2. Facilities that used/incorporated PFAS to manufacture products – AFFF testing 3. Facilities that utilized PFAS as an element of a manufacturing process – platers 4. Facilities that assembled products that contain PFAS - nonstick cookware • Depending on circumstances, Phase II’s may be a necessity for all 4, at least 1 and 2

17 PFAS in due diligence

• Other possible areas of PFAS concern: −Biosolid spreading/agricultural fields −Surface water conveyances (ditches) and property downgradient of biosolid locations −Airports/military and downgradient sites −Areas where firefighting events occurred and PFAS-containing AFFF may have been employed • Identification of these sorts of concerns triggers needed conversation with Phase I user: “What is your objective?”

18 PFAS = CERCLA Hazardous Substance? • Phase I goal: “all appropriate inquiries” (AAI) • Any party seeking protection from CERCLA liability as innocent landowner, contiguous property owner or bona fide prospective purchaser, or obtaining U.S.EPA brownfields grants for property assessment must meet AAI • AAI final rule (40 CFR 312) provides that ASTM E1527 can be used to satisfy AAI • But PFAS ≠ CERCLA hazardous substance, so protections not available for PFAS

19 PFAS in ASTM Phase I Context

• PFAS is not in ASTM Phase I scope and protocol, like asbestos − ASTM 2021 revision pending − EDR database expanding to identify state PFAS sites • ASTM process of identifying RECs tied to designated CERCLA hazardous substances • State development of PFAS standards influencing Phase I practice around PFAS • So, how are consulting firms addressing PFAS? − Non-scope consideration − Other noteworthy condition − Managing in a side-letter (privileged?)

20 As to PFAS, what is on the minds of Phase I Users? • “All over the board”/ “The full gamut” • Conservative (Buyer): absolutely include PFAS • Municipal clients are sensitive to PFAS • Realist/PFAS Denier (Seller): exclude PFAS (no standards) (“No desire to be trailblazer”/ “Head in the sand”/ “Cannot rely on Seller’s knowledge”) • Consensus on Lenders: “Still getting up to speed”/ “Lenders are not very aware”/ “Calculated ignorance” • But sense that investment bankers/portfolio companies are more attuned to PFAS

21 Due diligence outcomes

• PFAS is “prevalent” and “significant” in deals • Limited experience with Phase I > Phase II’s • However, in cases where Phase II is warranted and performed, PFAS is everywhere: “Wherever we test for it, we find it” • Closed sites? “Hasn’t come up yet, but everyone knows it is coming” (also same comment about CERCLA sites/ five-year reviews)

22 What if Phase II detects PFAS?

• “It depends . . .” −Take Michigan, a state with established standards/GW MCL, detected levels can be compared to same; however, BEA experience has been negative −Take Wisconsin, without standards, and where concern is high, (nearly) any detection can lead to concern and uncertainty and can threaten the deal; WDNR reacting with caution to protect public; as such, Sellers reluctant to allow testing

23 Managing PFAS Risk in Deal

• Traditional approach: “your watch / my watch” • Heightened sense of necessary protections • Buyer’s view: Seller should retain responsibility for any preclosing conditions • Seller’s view: if Buyer had opportunity to conduct due diligence, Seller should be released and Buyer should assume the risk

24 Other tools to save the deal

• Insurance? −Carriers may be willing to write coverage policies for limited terms – highly case specific • VPLE? −Still can play a role in WI deals, but VPLE beneficiaries need to enter the process with full appreciation that WDNR may be reluctant to make final decision/closure

25 PFAS Best Practices in a Deal Setting • Make sure client is supported by informed and experienced team −Environmental consulting engineer −Legal counsel (law firms bringing ‘more savvy’/ ‘greater risk intolerance’ to PFAS in deals) • Wrap PFAS (and CECs) into site assessment process – either in Phase I or as complement • Identify applicable state law and status of federal law • Stay abreast of changes to law affecting PFAS

26 Thank You Edward (Ned) B. Witte Godfrey & Kahn 833 East Michigan Street Milwaukee, WI 53202 414-273-3500 [email protected]

OFFICES IN MILWAUKEE, MADISON, WAUKESHA, GREEN BAY AND APPLETON, WISCONSIN AND WASHINGTON, D.C.

The presentation and materials are intended to provide information on legal issues and should not be construed as legal advice. In addition, attendance at a Godfrey & Kahn, S.C. presentation does not create an attorney-client relationship. Please consult the speaker if you have any questions concerning the information discussed during this seminar.