Case Study of How NOT to Run a Voluntary Cleanup Program

The Prospective Purchasers Conduct

Their Due Diligence

In 1995, three successful businessmen (who were also brothers) considered buying an expensive (by local standards) 10-acre piece of developed commercial property (“the Site”) on the outskirts of a medium-sized city in Upstate New York.  The three brothers—named Placido, Luciano and Jose—called their real estate business “PLJ Realty, LLC” (hereinafter, PLJ).  The Site, known as “Dilapidated Plaza,” contained a deteriorating, partially vacant, 65,000-square foot strip shopping center building.  The building was rectangular, with the front of its longer face directed across a large parking lot toward a north-south State Road (SR 666).  Along Route 666, which connects to the Interstate about a quarter of a mile to the north and carries commuters to the nearby city to the south, were other shopping centers, used car lots, fast food restaurants, individual stores, offices, banks, and motels.

Behind Dilapidated Plaza to the east was a fast-moving, interstate stream, the Swanee River.  To the south, was a creek of more modest and variable dimensions, known as Fortress Creek.  Fortress Creek, while usually carrying limited but ample volumes of water into the Swanee River, would go through periodic cycles of raging intensity after heavy rains and snowmelts. Along Quandary Road to the north, and overlooking the Plaza from a ridge, were a handful of single-family homes, the nearest of which approached within 100 to 150 feet of the shopping center building.  No playgrounds, nurseries, old age homes, hospitals, elementary schools, or sanitoriums were present within at least a mile-radius in any direction.

The site had been a farm until 1944.  Dilapidated Plaza was built in 1962 or 1963 following a period of occupation by a number of homes and small businesses.  Agent Orange herbicide and PCB capacitors—or other heavy duty and long-lived industrial toxicants—were never manufactured or disposed of on the site.  Unfortunately, as would become apparent, a far more insidious environmental hazard was present: a succession of dry-cleaning stores had occupied a few thousand square feet in the central area of the shopping plaza building between the early 1960s and the late 1990s.  Until 1989, when the shopping center was connected to a municipal sanitary sewer, sanitary wastes and other effluents from the center were discharged (with DEC approval under SPDES permits) into three generations of septic systems, including tanks and leachfields, in the eastern part of the site (between the building and the River).

The U.S. Geological Survey, in a 1982 report, identified the direction of groundwater flow at the site as being to the south and east.  PLJ’s environmental consultant, Impeccable Environmental Experts, Inc. (“IEE”), confirmed this result in 1998, after extensive monitoring of water table levels, showing that the flow gradient was to the southeast, toward the confluence of Fortress Creek and the Swanee River.

PLJ wasn’t exactly sure what it would do with Dilapidated Plaza, which was not in the best condition and had a number of vacancies, but since it owned another shopping center nearby, it figured it could more easily manage the Plaza than its current absentee owners, Deadwood Realty Corp.  If PLJ could keep the Plaza fairly well-tenanted, the investment hopefully would hold its own.  And, who knew, perhaps the real estate would be worth enough in the future to allow PLJ to resell it and make a modest profit.

So, PLJ entered into a Purchase and Sale Agreement with Deadwood in mid-1995, contingent on the results of various environmental and geotechnical investigations.  PLJ retained IEE to perform an Environmental Site Assessment.  A Phase I ESA was completed in February 1996.  This Report flagged as a Recognized Environmental Condition the presence of Ralph’s Cleaners, which currently used and stored the common dry-cleaning solvent, perchloroethene (“PERC”),[i] also known as tetrachloroethene or tetrachloroethylene, at the site.  It noted that other dry cleaners/laundries had previously occupied the site, that Dilapidated Plaza had formerly held a SPDES permit to discharge waste to an on-site septic system, and that dry cleaning solvents may have been discharged to the septic system.

Included as an attachment to the Phase I report was a September 1995 letter from a groundwater management specialist on the staff of the local Old County Health Department.  The letter indicated that the surrounding area had been served by public water utilities dating back several decades, but that there were still some commercial, institutional and industrial facilities that maintained dual water supply systems.  In such cases, while potable water usually came from the municipal system, on-site wells might supply process or air conditioning water.  The letter commented, citing the 1982 USGS study, that “the site lies within the calculated cone of depression formed by the North Forty Municipal well, the closest active public water supply”—located about 1,100 feet to the southwest of the Site (south of Fortress Creek).  The letter described the site as being within the boundaries of a Sole-Source Aquifer (meaning that development might be subject to review by U.S. EPA if federal dollars were involved—which they weren’t), within the limits of “a NYSDEC-designated primary aquifer,” and as being subject to strict regulation of chemical storage practices under the town of North Fork’s aquifer protection ordinance.

Based on the results of the Phase I ESA, PLJ asked IEE to conduct a limited Phase II study.  Six of seven attempted probe holes were successfully advanced to groundwater.  Five (P-1, and P-4 through P-7, at groundwater depths of approximately 12 feet below grade) were placed within the area of former leach fields.  The sixth (P-2, at groundwater depth of about 17 feet below grade) was placed behind the building unit occupied by Ralph’s Dry Cleaners.  High part-per-billion concentrations of PERC were found in the probe holes behind the Dry Cleaners (356 ug/l at P-2) and in the leachfield immediately downgradient of the Dry Cleaners (49.9 ug/l at P-1).  Low- (1 to 3.1 ug/l) or undetectable levels of PERC were found in the other probe holes. 

When these results were submitted to Sam Suave of DEC (local field office) on March 8, 1996, he suggested that PLJ consider entering into the Voluntary Cleanup Program, which “would eliminate exposure to potential future open-ended cleanup costs, set pre-determined cleanup objectives and give assurance to financial institutions regarding their own lack of liability.”  Since PLJ would be considered a non-PRP (given its prospective purchaser status), it would be responsible only for remediating on-site contamination to pre-determined levels and eliminating sources of onsite contamination that could cause offsite impacts.

Also at Mr. Suave’s suggestion, and in an attempt to further identify the extent of contamination associated with the dry cleaning operations, the scope of the Limited Phase II was expanded to include locating and sampling two septic tanks depicted on a 1985 site survey plan.

Liquid from 5,000-gallon Septic Tank #1 was found to contain trace levels (below 5 ug/l) of three volatile organic compounds (VOCs), but sludge from this tank contained part-per-million levels of two PERC degradation products (cis-1,2-Dichloroethene at 44,400 ug/l and vinyl chloride at 2,780 ug/l).  Septic Tank #2 (2,500-gals) and an accompanying concrete siphon chamber were located.  The tank contained no liquid and only about 2 inches of sediment, had no staining along its inside walls, and appeared never to have been used.  It was therefore not sampled.

IEE surmised that chlorinated residues in other septic tanks “are… likely to be limited in quantity and localized in their distribution with one exception.”  That exception was a possible PERC-containing septic tank located between the building and Septic Tank #1.  (Such a tank would later be identified and referred to as Septic Tank #3.)

In a March 1996 letter to PLJ, IEE explained to its client the potential financial implications if PLJ decided to complete the purchase of Dilapidated Plaza.  It was estimated that disposing of the septic tanks and their contents would cost in the range of $16,000 (if deemed non-hazardous—as was considered likely).  IEE was confident that the septic tank contents would not be considered a “listed” hazardous waste under 6 NYCRR Part 371.  (However, limited amounts of stockpiled soils associated with the excavation of Septic Tank #3 had to be disposed of as “characteristic” hazardous waste because leachable PERC exceeded TCLP regulatory limits by an order of magnitude.)  IEE also noted that, because elevated concentrations of chlorinated solvents had been detected in the Site’s groundwater—at levels in excess of DEC’s 5 ug/l regulatory limit for groundwater used as a drinking water source,[ii] it was possible that DEC might classify it as an inactive hazardous waste site.

Although neither of the worst-case scenarios envisioned in 1996 ever materialized, the ever-escalating demands of DEC, spurred ever upward by DOH, would soon result in a staggering increase in PLJ’s costs.  (Not including construction-related costs or attorney’s fees, investigation and remediation costs arising out of the Dilapidated Plaza VCA will total close to a-quarter-of-a-million dollars—a sum more than 1,400% higher than originally anticipated by PLJ and its consultants.)