California Environmental Law Specialists

Real Property Law Reporter

Volume 26/Number 5

September 2003

 

From Toxic Nightmares to Community Assets

It’s the early 1990’s, and an embattled blue-collar neighborhood in Sacramento faces a toxic nightmare. Fire ravaged an abandoned community hospital releasing friable asbestos; prostitutes and crackheads taking refuge in the cavernous shell at night, often lighting fires and releasing asbestos. A Catholic primary school sits one block from the attractive nuisance. Sacramento police warn the city that the police union is considering legal action because officers are frequently exposed to toxics while making arrests at the site. City and regulatory agency efforts to compel remediation have stalled.

Across town, the city redevelopment agency has purchased a notorious liquor store site in the poorest section of the city. The site had been a magnet for vice and vagrancy. The estimated cleanup costs associated with its former use as a gas station was estimated at $40,000 at the time of purchase. Costs of cleanup now spiral toward $1 million. A large oil company, the former owner of the site, refuses to contribute to remediation. Community activists stage midnight rallies lambasting the redevelopment agency for making a bad situation worse.

To address both problems, the frustrated redevelopment agency turns to an obscure and untested environmental statute. Within months, the agency forces the responsible party to post 24- hour security at the abandoned hospital. Within a year, the building is demolished and a $2.1 million remediation is completed. The agency’s legal fees are less than $2000. Similarly, at the former liquor store site, the agency sues the oil company under the new environmental statute and, after months of heated litigation, the oil company settles. The redevelopment agency recovers all cleanup costs as well as attorney fees and interest.

How did the redevelopment agency turn these toxic nightmares into community assets? How can it happen in your neighborhood? The key is the Polanco Redevelopment Act (Health & Safety Code sections 33459-33459.9) (All code citations below are the California Health and Safety Code, unless otherwise stated.)

How [does a] redevelopment agency turn these toxic nightmares into community assets?

The High Cost of Cleanup Before the Polanco Act

Before the enactment of the Polanco Redevelopment Act, agencies’ options were very limited regarding the redevelopment of brownfield sites; i.e., properties that were underdeveloped as a result of contamination or the perception of contamination. A redevelopment agency could pay for the costly toxic cleanup, acquire the property through eminent domain (at a reduced value based on the presence of toxics), or engage in costly litigation with potentially responsible parties (PRPs). Frequently, the redevelopment agencies were embroiled in all these practices, as well as disputes with numerous regulatory agencies; thus, paradoxically, environmental costs tended to inhibit redevelopment in areas that needed it the most. However, with the advent of the Polanco Act, environmental regulators and redevelopment agencies could pool their resources to achieve cleanup of environmentally-blighted areas.

Unique Aspects of the Polanco Act

The Polanco Redevelopment Act confers unusual powers on redevelopment agencies. It is the most powerful tool agencies have available to address California’s brownfields. For the same reason, the Polanco Act, although it is a necessary and commendable statute, can also be dangerous for unwary attorneys representing a property owner or a PRP. All environmental, real property law attorneys, as well as land use and planning attorneys, should have a firm grasp of its fundamental features.

The Polanco Redevelopment Act was enacted in 1990 as a response to the burgeoning issue of California brownfields. An unfortunate side effect of the numerous environmental statutes enacted over the past 40 years is that many toxic or industrial sites remain underdeveloped. Developers, investors and redevelopment agencies have often been reluctant to become involved in properties that are contaminated or have a suspicious prior use. Nevertheless, despite the drawbacks, in many instances a redevelopment agency may wish to acquire brownfield properties or facilitate redevelopment by a private developer.

The Act allows a redevelopment agency to select contaminated sites for redevelopment. Section 33459.1(a) (1). The agency can then clean up the site and obtain a limited immunity. Section 33459.3(a). Alternatively, the agency can issue 60-day notices to PRPs and negotiate cleanups. Section 33459.1(b) (2). If negotiation fails, redevelopment agencies may pursue litigation, seeking either injunctive relief or cost recovery. Section 33459.4

[T]he Polanco Act can also be dangerous for unwary attorneys.

The legislation is more effective than Federal Superfund (42 USC sections 9601-9675), State Superfund (sections 25300-25395.45) and common law, for several reasons:

• Attorney fees may be awarded to the agency (section 33459.4(a));
• Neither petroleum nor asbestos is excluded (section 33459.4©);
• Immunity attaches to a successful cleanup, which can be passed on to the developer (section 33459.3(e)(2)); and
• The redevelopment agency typically works closely with the regulators to obtain cleanup, and Polanco sites often enjoy high visibility and higher priority.

Elements of Cause of Action Under the Polanco Act

The landmark decision in California brownfields law is Redevelopment Agency v.Salvation Army (2002) 103 CA 4th, 755, 127 CR 30. In Salvation Army, the San Diego Redevelopment Agency implemented the Polanco Act as part of an effort to assemble property for the San Diego Ballpark. During the course of a phase one investigation of the site, the redevelopment agency discovered an underground storage tank and issued a 60-day notice to the Army. After taking possession of the property through eminent domain proceedings, the redevelopment agency also discovered lead contamination and burn ash materials. The agency notified the Army of this development by submitting an amended work plan. The Army failed to submit any work plans pursuant to the 60-day notice and also failed to attend any of the public meetings. Finally, the Army failed to object to the cleanup in any fashion until the cleanup was almost completed.

At trial, the Army contended that the redevelopment agency had failed to meet the statutory requirements of the Polanco Act. Despite the Army’s appeal as a sympathetic defendant, the court ruled decisively in the redevelopment agency’s favor.

Salvation Army is important for two major reasons. First, the case established the elements of a cause of action, i.e., a claim for recovery of costs under the Act, as follows (103 CA4th at 765):

1. The property is located within a redevelopment project area (Health & Safety Code section 33459.1, subd. (a)(1);
2. The presence of a release of a hazardous substance within a project area (Ibid);
3. Reimbursement is sought from a defendant who is a “[r]esponsible party.” (Id., section 33459 subd. (h));
4. The redevelopment agency has provided the responsible party with a 60-day notice requesting a remedial action plan for the property (Ibid., section 33459.1, subd. (b)(2));
5. The responsible party failed to submit a real action plan or failed to submit a plan the redevelopment agency could approve (Ibid);
6. The redevelopment agency reached agreement on a remedial action plan with a regulatory agency overseeing the redevelopment project (Id., section 33459.1, subd (a)(1)); and
7. The redevelopment agency incurred costs to remedy or remove the hazardous substance as necessary to implement the approved plan (Id., section 333459.4, subds. (a) & (c)).

Second, the opinion emphasized the necessity of timely objection to Polanco Act notices. Although the court did not frame the issue as a strict waiver question, the effect is very significant. A redevelopment agency that issues a 60-day notice and receives no response has broad powers to remedy the pollution at the site. A party, such as the Salvation Army, that fails to respond to the 60-day notice, provide alternative plans, or attend public meetings will face a very difficult challenge in contesting redevelopment agency cleanup costs. As the court in Salvation Army stated: “[O[nce Army did not timely respond to Agency’s statutory notice, Agency could probably take any actions that Agency determined necessary and that were consistent with other state and federal laws to ‘remedy or remove a release of hazardous substances’ on the property.” 103 CA 4th at 772.

Implementation at a Typical Site:
The Six-Step Process

In the past, when a redevelopment agency wished to acquire, or facilitate redevelopment at a site that had either a suspicious past use or known contamination, the agency could (1) battle the environmental regulators, (2) pay for expensive cleanup, and/or (3) sue other PRPs to obtain contribution. The obvious drawbacks to all these options resulted in an action and a proliferation of brownfields.

With the tools available under the Polanco Act, the current best practice is to implement a six-step process.

Step One. The redevelopment agency should enter into an oversight agreement with a division of the California Environmental Protection Agency (CalEPA). Oversight agreements are most often negotiated with the Water Board or the Department of Toxic Substance Control. The Waste Management Board and local county health departments are also possible candidates. Although an effort is under way to create a standardized form, oversight agreements are currently still drafted on a site-by-site basis.

Failure to Respond within the 60-day [notice]
Period waives the right to protect the scope
Of the cleanup at a later date.

Step Two. Sixty-day notices are issued to PRPs. The PRP must respond within 60 days and submit a cleanup plan within another 60 days. Sections 33459.1(b) (2). This presents the most dangerous aspect for an unwary practitioner representing a PRP: Failure to respond within the 60-day period waives the right to protest the scope of the cleanup at a later date. 104 CA 4th at 772.

Step Three. At this stage, either an agreement for cleanup is reached or litigation is initiated. This step involves the greatest number of variables:

• A PRP may agree to clean up the site; or
• The redevelopment agency may initiate cleanup and later seek reimbursement; or
• The redevelopment agency may forego remediation and instead pursue injunctive relief compelling cleanup. See section 33459(4) (a). The elements of the case of action for cleanup under the Polanco Redevelopment Act are laid out at length in Redevelopment Agency v. Salvation Army, supra, (see Elements of Cause of Action Under the Polanco Act above). All practitioners involved with the Polanco Act sites should consult this case in detail.

Step Four. The cleanup plan is approved. Although the statute envisions that a cleanup plan will be submitted within 60 days and approved within another 60 days (section 33459.1(b)(2), the reality is that cleanup plans typically evolve through a long process, similar to the process for cleanup plans under other statutes. Again, efforts are under way to streamline this process and legislation has been proposed for a dedicated brownfields response unit. See SB 559 (2003).

Step Five. Cleanup is completed. This step can usually be completed quite quickly when only soil contamination is involved. Groundwater sites may drag on for a much longer period of time. In soil cases, redevelopment of the site is typically completed shortly after cleanup of the soil. In groundwater sites, redevelopment of the site often occurs while the groundwater is still being remediated.

Step Six. The Department of Toxic Substance Control or regional water quality control board issues an immunity letter to the redevelopment agency. See Section 33459.3. If the site is cleaned up pursuant to a preapproved remedial action plan, the state will issue a letter verifying that the state will not seek further action to remedy or remove a hazardous substance release on, under, or from the property. Section 33459.3(b). Immunity conferred on the redevelopment agency by this letter can then be passed on to others, such as subsequent purchasers, developers, and lenders. Section 333459.3(e). This feature has been quite attractive to developers of brownfield sites. Although the immunity is not protection against third parties or Superfund enforcement, the practical results have been quite favorable. Polanco Act sites have closed and stayed closed. The practical results obtained under the statute have far exceeded the expectations of all observers.

Experienced Polanco Act attorneys reiterate one golden
Rule more than any other: Work closely with the regulators.

Practice Tips

Representing the Redevelopment Agency

Cooperation with Regulators

Experienced Polanco Act attorneys reiterate one golden rule more than any other: Work closely with the regulators. Historically, cooperation between public entities and CalEPA, although hardly the rule, has been the hallmark of successful redevelopment of brownfields in California. Conflicting agendas arise because redevelopment agencies, on the one hand, need a better resolution of brownfield problems, but CalEPA, on the other hand, faces a tremendous workload (and looming budget deficits are unlikely to improve the situation). The Act offers an opportunity for redevelopment agencies and CalEPA to work together. Any attorney representing the redevelopment agency should contact CalEPA while projects are still in the planning stage. The sooner the redevelopment agencies and CalEPA work together, the better the odds for success.

Consult Experienced Agencies

Agency counsel should also take advantage of available work product. Currently, oversight agreements are negotiated on a site-by-site basis, and experienced redevelopment agencies are usually willing to share samples. The California Redevelopment Association (http://www.ca-redevelopment.org) can assist in putting new practitioners in contact with experienced Polanco Act counsel.

Educate PRPs

Counsel for the redevelopment agency should always attempt to educate PRPs about the potential mutual advantages in cooperating with the agency in a Polanco Act remediation. Because the Act can be used to compel clean up and make a site more attractive to developers, agency counsel should inform PRPs of potential cleanup resources, such as the Leaking Underground Storage Trust Fund (http://www.epa.gov/oust/ltffacts.htm), federal brownfields grants and old insurance policies that may still cover PRPs. Historical commercial general liability policies often cover the cost of cleanup. See Montrose Chem. Corp. v Admiral Ins. Co (1995) 10 C4th 645, 42 CR2d 324.

[T]he Act can be used to leverage assets
That will turn an unusable site into a
Financially viable site

Private property owners will understandably be suspicious of overtures from the government, but the Polanco Act can provide a winning solution for both the agency and private property owners. In fact, the Act can be used to leverage assets that will turn an unusable site into a financially viable site. It can be extremely good news for the owners of contaminated property.

Flexibility of Act in Application;
Use in Conjunction with other Statutes

Under the Polanco Act, a redevelopment agency can consider a wide variety of potential sites. The Act has been used on small cleanups involving such everyday problems as leaking tanks and lead-impacted soil. The Act has also proven successful in large-scale projects such as the San Diego Ballpark. The act works well for small agencies and large agencies. It has been useful in leveraging cleanups that small agencies would often be reluctant to tackle. Flexibility and innovation have greatly contributed to the Act’s success story.

The Polanco Act is most effectively used in litigation
When combined with the other common law
And statutory causes of action

The Polanco Act is most effectively used in litigation when combined with other common law and statutory causes of action. For example, many practitioners wish to avoid the delays of federal court and, thus, may forego actions under the Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) (42 USC sections 9601-9675) or Resource Conservation and Recovery Act (RCRA) (42 USC sections 6901-6992k). The Polanco Act, however, may be safely combined with public nuisance or State Superfund causes of action. This tactic increases the flexibility of the case and increases the odds for success.

Representing a Responsible Party

Timely Response Crucial

Counsel’s most important duty in representing a PRP is to avoid waiving rights by failing to respond in a timely manner. For example, the matters of scope and cost of a cleanup are very crucial issues for a responsible party. In Redevelopment Agency v. Salvation Army, supra, the court held that the defendant PRP, by failing to respond within the statutory 60-day period, had waived its right to test the scope of cleanup. Similarly, although courts are often reluctant to award full cleanup costs to the agency if they find that a cleanup could have been cheaper or more limited in scope, this argument may be inadvertently waived by failure to respond.

Work With Agency

After inadvertent waivers, the second biggest mistake is to fail to work with the redevelopment agency. The Polanco Act has proven to be quite difficult to attack head on. Redevelopment agencies, however, are sensitive to local business issues in a way that other regulatory agencies may not be. Agency counsel may also be aware of resources that can lessen the sting of cleanup costs, and ideas for minimizing the costs are frequently welcomed. Attendance at public meetings is a good idea, as it increases the dialogue and allows participation at the various stages of cleanup.

The immunity afforded by the Act is transferable
To a subsequent purchaser or developer.

California developers have recently become more aware of the Act and its benefits. A party interested in a brownfield site would be well advised to contact the local redevelopment agency for a discussion of the Act. The immunity afforded by the Act is transferable to a subsequent purchaser or developer. See sections 33459.3(e) (2)-(3). Developers with a particular use in mind should make sure that cleanup plans do not prohibit or inhibit the prospective use. For example a developer interested in residential development may wish to ensure that the cleanup plan is not contingent on a deed restriction prohibiting residential development.

High-Profile Success of Polanco Act

The notable success of some recent projects will undoubtedly spur more widespread use of the Polanco Act. The Act featured prominently in the redevelopment of two sites that received the Phoenix Award for 2001 and 2002, which is given by the federal EPA to the best brownfield sites in a region. In Region 9, the 2001 award went to Emeryville, where the Polanco Act allowed the Emeryville Redevelopment Agency to redevelop several contaminated properties into retail properties, which have been a tremendous boost for the agency and the city. In 2002, the Stockton Redevelopment Agency won the Phoenix Award for a waterfront redevelopment project, for which the Act provided the critical legal vehicle. The site has been a catalyst for redevelopment throughout the downtown Stockton area, and the Stockton Redevelopment Agency continues to implement the Polanco Act in those projects. The back-to-back victories for the Polanco Redevelopment Act reflected by these awards, which represent the highest achievement in brownfield redevelopment, confirm that the Act is California’s state-of-the-art brownfields statute. For further information on the Emeryville and Stockton projects, visit the Phoenix Awards at www.phoenixawards.org.

POSTSCRIPT: On August 28, 2003, a California court of appeal decided an important issue regarding injunctive relief in favor of the redevelopment agency. In Redevelopment Agency v. San Diego Gas and Elec. Co. (Aug 28, 2003) the Fourth District Court of Appeal held that, when redevelopment agencies apply the Polanco Act to compel responsible parties to clean up contaminated sites, they do not have to prove damages to maintain standing. In this case, the redevelopment agency transferred its risk of exposure to financial liability to another agency by way of contract. By so doing, the redevelopment agency could not be injured. The defendant argued that, because the redevelopment agency could not prove injury, it did not have standing to bring a cause of action for injunctive relief.

The court of appeal disagreed, citing the policy under which “all appropriate means” may be employed to redevelop blighted areas. Health & Safety Code section 33037(a). The court then used this policy to support its conclusion that the express provisions of the Polanco Act permit a redevelopment agency to undertake an action to clean up a site or to require others to do so, including compelling a responsible party through a civil action. Health & Safety Code section 33459.4(a). If there were any lingering questions as to whether the 1998 amendments to the Polanco Act give a redevelopment agency standing to seek injunctive relief, without injecting itself into the chain of title or subjecting itself to the possibility of financial injury or damages, this decision provides a clear answer and extinguishes any doubt as to the construction and application of the Act.

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