EPA Designates 2 PFAS Compounds as Hazardous Substances

The U.S. Environmental Protection Agency (EPA) on April 19, 2024, announced its Final Rule designating two per- and polyfluoroalkyl substances (PFAS) compounds – perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS), including their salts and structural isomers – as "hazardous substances" under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund). The Final Rule will give the EPA, states, and Tribal Nations and other responsible parties the ability to seek investigation and cleanup costs for PFOA and PFOS releases into the environment from any potentially responsible party (PRP) under CERCLA.

This may expose companies in a wide range of industries to potential Superfund cleanup liability, such as developers and parties directly handling PFAS – including manufacturers, users, transporters, processors, and treatment and disposal facilities. Total PFAS environmental cleanup liabilities have been estimated at $40 billion-plus and that the cost of drinking water supply remediation may exceed $3,000-plus per customer served.

Holland & Knight's Environmental Team developed the Emerging Contaminants and PFAS Team after the EPA issued a 2019 Action Plan indicating that it would designate PFOA and PFOS as hazardous substances, in addition to developing a regulatory approach for their use, storage, transport, manufacture, import and disposal. The remainder of this alert provides an overview of the ramifications of the Final Rule, the industries that the EPA intends to focus on, and a high-level overview of due diligence, compliance and risk mitigation measures that companies should be considering with their legal advisors in light of the far-reaching effects of the Final Rule.

Who Is Liable

Under CERCLA, PRPs include current facility owners and operators, past facility owners and operators at the time PFOA and PFOS were disposed of, parties that arranged for the disposal or transport of PFOA and PFOS, and transporters that selected the disposal site for the PFOA and PFOS.

Superfund liability is retroactive, strict and severe. This means that a PRP can be held liable for PFOA and PFOS releases that occurred before the Final Rule was issued. It is also means that a PRP cannot claim that it was negligent or operating in accordance with industry standards. Any amount of waste identified at a contaminated site that was sent by a party triggers that party's liability. Finally, it means that any one PRP may be held liable for the entire cleanup of the site (when the harm caused by multiple parties cannot be separated).

Nonetheless, as discussed in more detail below, certain defenses to CERCLA liability can be achieved by innocent parties if they take certain steps prior to and after purchasing contaminated properties, as discussed in more detail below. Further, the EPA indicated in its PFAS Enforcement Discretion and Settlement Policy, issued the same day as the Final Rule, its intention to focus on entities who "significantly contributed" to the release of PFAS contamination into the environment, as also discussed in more detail below.

Ramifications of the Final Rule

The likelihood for the designation of PFOA and PFOS was first announced in the EPA's February 2019 PFAS Action Plan, when the agency indicated it would designate PFOA and PFOS as hazardous under CERCLA, the Resource Conservation and Recovery Act (RCRA), Toxic Substances Control Act (TSCA), Clean Water Act (CWA) or Clean Air Act. The EPA ultimately chose to make the listing under CERCLA, utilizing its authority under Section 102(a) for the first time. The EPA supported its designation of PFOA and PFOS as hazardous substances under CERCLA by indicating that "significant scientific evidence [suggests] these substances, when released into the environment, may present a substantial danger to public health or welfare or the environment."

When the Final Rule becomes effective, the following obligations and ramifications will be triggered:

• PFOA and PFOS releases of 1 pound or more in a 24-hour period must be reported.
• The EPA may include an evaluation of PFOA and PFOS in its five-year review of sites included on the National Priority List (Superfund sites).
• The EPA may order investigations and cleanups of PFOA and PFOS and recover such costs from PRPs.
• Private parties that conduct cleanups consistent with the National Contingency Plan may seek to recover cleanup costs associated with PFOA and PFOS from other PRPs and also seek contribution from other PRPs for costs paid.
• Federal entities that transfer or sell property must provide notice about the storage, release or disposal of PFOA or PFOS on the property, as well as guarantee that any PFOA or PFOS contamination has been cleaned up or, if needed, that additional cleanup will occur in the future.
• The U.S. Department of Transportation (DOT) will be required to regulate PFOA and PFOS as hazardous materials under the Hazardous Materials Transportation Act.

Industry should be aware that the EPA's regulatory focus has included PFAS compounds in addition to PFOA and PFOS. For instance, as Holland & Knight outlined in its previous alert, "EPA Finalizes PFAS Drinking Water Regulation," on April 17, 2024, the EPA set Maximum Contaminant Levels (MCLs) on April 10, 2024, for four PFAS in addition to PFOA and PFOS, including perfluorononanoic acid (PFNA) and GenX chemicals hexafluoropropylene oxide dimer acid (HFPO-DA), perfluorohexane sulfonic acid (PFHxS) and perfluorobutane sulfonic acid (PFBS). It is expected that these MCLs will be used in the context of Superfund cleanups and that parties will likely revise or expand previous risk assessments during the five-year review process to address these PFAS compounds. Additionally, on Feb. 2, 2024, the EPA proposed to amend RCRA to add nine PFAS to its list of hazardous constituents: PFOA, PFOS, PFBS, HFPO-DA or GenX, PFNA, PFHxS, perfluorodecanoic acid (PFDA), perfluorohexanoic acid (PFHxA) and perfluorobutanoic acid (PFBA), indicating the possibility for CERCLA liability for other PFAS compounds in the future.

Likely Impacted Industries

On the same day as it issued the Final Rule, the EPA issued a PFAS Enforcement Discretion and Settlement Policy (Enforcement Policy) indicating that it intends to focus on entities who significantly contributed to the release of PFAS contamination into the environment, including parties that have manufactured PFAS or used PFAS in the manufacturing process, federal facilities and other industrial parties. Accordingly, it is anticipated that the EPA will target current and historic private airports, military installations, petroleum refineries, bulk chemical transporters or storage facilities, private landfills and wastewater treatment plants, as well as manufacturers of textiles, leather, paper, cosmetics, household cleaning supplies, semiconducting materials, chrome plating, electronics, food packaging, commercial household products and wire. Facilities that discharge PFAS into drinking water sources or ecologically sensitive water bodies or (that are used for drinking water purposes) will likely also be prioritized.

The EPA indicates that, subject to limitations, it does not intend to pursue entities where equitable factors do not support seeking response actions or costs under CERCLA, including:

1. community water systems and publicly owned treatment works (POTWs)
2. municipal separate storm sewer systems (MS4s)
3. publicly owned/operated municipal solid waste landfills
4. publicly owned airports and local fire departments
5. farms where biosolids are applied to the land

The EPA's Enforcement Policy outlines expectations for each of the industries that should be evaluated to avoid EPA enforcement. Further, the EPA intends to mitigate private party contribution claims that may be advanced outside of the scope of EPA enforcement. In CERCLA settlements with major PRPs, the EPA will seek to require those settling parties to waive their rights to sue parties that satisfy equitable factors typically used to allocate risk among PRPs, such as degree of involvement, care taken with respect to the waste and cooperation with the federal government.

This policy, taken together with EPA's long-standing policy of typically not pursuing owners of land over contaminated aquifers with no responsibility for historic releases and existing defenses to CERCLA liability (e.g. the bona fide prospective purchaser status), should provide meaningful comfort to real estate developers that are acquiring or building on property connected with the manufacture or intensive use of PFAS.

Questions for Due Diligence

Pre-Purchase Phase I Reports and Phase II Testing: When most recently updated, the American Society for Testing and Materials (ASTM) E1527-21 standard for conducting Phase I environmental site assessments (ESA) did not require consultants to investigate or identify potential PFAS contamination on real property on the basis that no PFAS compounds had yet been designated as hazardous substances. That has now changed. As a result of the Final Rule, the potential presence of PFOA and PFOS must now be evaluated as part of a standard Phase I ESA (without the need for further updates to ASTM E1527-21). As a result, corporate and real estate due diligence teams should be updating their due diligence protocols to ensure that their consultants are evaluating whether the property was used by any of the aforementioned industries or if PFAS could be present in any components used or manufactured at the property. Though invasive testing is not part of a Phase I ESA, consideration should be given to Phase II sampling for PFAS during the due diligence process based on historical site use and deal considerations.

Inventory Analysis: To the extent that it is determined that PFAS were historically or currently utilized at a facility, review of permits and product inventories may be warranted.

Tenant Risks: Many commercial leases require tenants to identify which hazardous material they maintain, along with volumes on site, and spill prevention, control and countermeasures. Tenants are also required to update their hazardous materials lists based on changed circumstances. With the listing of PFOA and PFOS as a hazardous substance, it may be prudent for property owners to: 1) identify tenants and practices that are likely to use PFAS, 2) bring the Final Rule to the attention of tenants, 3) request that tenants review and update their hazardous materials inventory lists and practices, and 4) evaluate lease provisions. Based on this understanding, decisions can be made whether, or the conditions under which, PFAS may be used under the lease. It is noted that California's Hazardous Materials Business Plan statute requires an amendment to a facility's plan whenever there is a 100 percent increase in the amount of a hazardous material or waste previously identified. Other states may have additional considerations to be evaluated.

Mitigation Measures

Despite the potential risks, liability related to PFAS can be evaluated and mitigated through the following mechanisms:

Compliance Programs and Evolving Operations: When acquiring a new company or business, or upon identifying a historic or current PFAS risk for current operations, companies may want to consider conducting companywide internal compliance audits of the acquired entity to assess potential liability for PFAS and if adequate standard operating procedures are currently in place. In some states, these audits can be conducted through programs that provide immunity from penalties that might otherwise be assessed. The EPA's audit policy may also provide some benefits, particularly where a state audit program is not available or would not provide immunity from penalties.

Liability Defenses: Holland & Knight's Environmental Team should be consulted to determine if PFAS were historically or are currently addressed in Phase I ESA reports to provide prospective purchasers an opportunity to qualify for limitations to land owner and tenant liability under CERCLA, such as the bona fide prospective purchaser (BFPP) defense. Those parties will have also been required to take certain steps following purchase to maintain a liability defense, such as not adding any new contamination, taking reasonable steps with respect to existing contamination, not impeding the effectiveness or integrity of any institutional controls, and cooperating with the government, for example.

Indemnity Agreements, Representations and Warranties: Consider how to address PFAS in purchase agreement and related transactional documents to minimize risks.

Insurance: Although the environmental insurance industry is closely watching PFAS developments, insurance may be available in certain circumstances.

Voluntary Cleanup Programs: Many states do not offer liability protections for releases of hazardous substances. But most states have voluntary cleanup programs or other risk management tools that can be utilized to manage liability.

For more information or questions, please contact the authors or a member of Holland & Knight's Emerging Contaminants and PFAS Team.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.