FEBRUARY 22, 2024 – Anyone who’s dealt with the sale, purchase, financing, or development of commercial real estate knows that you have to cross the bridge over potentially troubled environmental waters. Back in the day, landowners dumped out the back door—or back 40—pretty much anything they wanted to. A lot of it was very nasty stuff—solvents, petroleum products, chemical compounds, battery acid, and a host of other hazardous substances bearing labels consisting of poly-syllabic names derived from a string of unpronounceable Greek and Latin derivatives. These frightful by-products of economic growth and progress wreaked havoc on soil and groundwater and ultimately human health.
Eventually defenders of the earth, early environmental activists joined influences and stirred up enough outrage to force Congress and “gov’ment” to do something about the problem.
As with many long-neglected wrongs and injustices, once the dragon is poked and prodded from slumber to action, all hell breaks loose. Activists with a puritanical “take-no-prisoners” bent gain the ascendancy, and before you know it, even innocent heads roll, as occurred with the guillotine blades of the French Revolution. So it was in the early days of environmental legislation and enforcement, most notably the Comprehensive Environmental Response, Compensation, and Liability Act, better known as “CERCLA” or “Superfund”—in late 1980.
Initially, courts interpreted CERCLA in the most draconian way possible, expanding liability for environmental conditions far beyond the initial “bad actor” who’d clandestinely and intentionally polluted a given piece of real estate. Now any party figuratively “driving by” the scene of the crime was held liable. This included banks and other lenders that financed a party acquiring the polluted property from the “bad actor”—and even more extreme, from an “innocent” party down the chain of title.
Most states adopted similar legislation imposing harsh remedies on parties that blundered their way—however innocently—into ownership of polluted property. The potential liability for clean-up could easily exceed the market value of the affected real estate, and worse, once a party had walked—or slipped—into the proverbial tar pit, the now tainted party couldn’t just tip-toe away, leaving liability with the bones of previous mastodons.
* * *
It was against this backdrop that I started work in the “Special Assets – Real Estate” department of First Bank Saint Paul in August 1984. I was on a one-year “loaner program” from my law firm, Briggs & Morgan, which did a ton of legal work for the bank. “Special Assets” is an industry euphemism for “bad loans” and foreclosed property. My job was to work on a designated portfolio containing a combination of (1) defaulted loans that needed to be worked out, one way or the other, either by negotiating a modification of terms, or by the pursuit of legal remedies; and (2) properties that had been reclaimed by the bank, via either a negotiated transfer or foreclosure.
One of “my properties” was farm acreage OREO (“other real estate owned” – industry nomenclature for “collateral recovered by the bank”), located on the western fringe of the Twin Cities metro area, that had been foreclosed a couple of years before I’d come on board. Intervening growth of Twin Cities had now given the property considerable value, and the listing realtor had finally snagged a potential buyer.
The prospect was a shell company, which in the normal course of things, was established for the sole purpose of acquiring and holding real estate for a related “end-user.” Not until much later in the process did I learn who that (controversial) “end-user” was to be.
In the meantime, it was up to me and my point-person lawyer (and buddy) back at Briggs & Morgan to negotiate a purchase agreement with the prospective buyer. Given the long shadow of CERCLA, the buyer and its attorney focused on provisions addressing environmental “due diligence.” Whoever at the bank had been in charge of foreclosing on the property hadn’t much worried about environmental conditions, since the more draconian elements of the law had yet to be developed. Besides, the land was “farmland,” after all, not a former gas station, dry-cleaning operation, or manufacturing site. In any event, no one had thought to inspect or test the property for potential environmental hazards.
Before actually retaining an environmental engineering firm to conduct an assessment of the property, I conducted a site visit with the realtor. The farmstead—a house, barn and collection of outbuildings had long been abandoned. All things of human construct had been conquered by the elements, wild vegetation, and local wildlife. A light bulldozer, small “clam-digger” and dump truck could finish the job.
We then waded through wild grass for a wider view of the property. Soon we came upon a shallow gully beyond the dilapidated barn. Partially obscured among the vegetation was a bevy of rusted 55-gallon drums—more than a dozen. Neither the realtor nor I was a farmer, a scientist, or lab technician, but we knew full well that nothing was stored in a 55-gallon drum that wouldn’t kill you if you drank it. We didn’t need to be farmers to know that farmers use tons of insecticides and pesticides on their crops, which meant that much of our nation’s cultivated “countryside” is a giant environmental hazard zone.
“What do you want to do about these?” I remember the realtor asking me about the drums.
“Let someone else handle them,” was my answer. It would be my first practical foray into the arcane world of environmental law. Upon returning to the office, I did two things that would have significant and hilarious consequences.
The first thing was to call my buddy at Briggs. He was a little green (so to speak) in the then burgeoning area of environmental law, but he knew enough to tell me that we needed to alert the authorities, starting with the state Pollution Control Agency, for guidance. A few phone calls later I discovered that we’d need to engage and coordinate what seemed like an army of specialists to remove (very carefully) the drums and transport them to a specially designated site for proper testing and to yet another proper location for disposal. I remember one consultant describing the type of haz-mat suits that the removal team would be wearing. Only then would the real fun begin: testing of the soil and groundwater for contamination by way of leaks from the rusted out drums. The total estimated cost of the whole removal and testing exercise would be well above my expense approval limit.
The second thing I did was chat with Ray, my next door colleague at the office. He was an old hand at the bank. For at least 20 years his specialty had been foreclosed residences. Once the bank had foreclosed on a house, it was his job to fix it up (rarely was a foreclosed home not in need of repairs), list it, and sell it. Given his residential portfolio, Ray had never had to confront troublesome environmental concerns and had little to no awareness of the associated liability.
Ray hadn’t gone to college, which you could tell by the frequent occurrence of double negatives in his otherwise glib and gregarious speech patterns, but what he hadn’t learned by way of a formal education, he’d acquire in abundance through experience. He’d grown up on the East Side of St. Paul, a traditionally blue-collar part of town, and he was very much a salt-of-the-earth kind of guy. People respected his street smarts and raw intelligence, as well as his cheerfulness and sense of humor. Given that our offices were right next door to each other, we’d become well acquainted and enjoyed each other’s company. Ray was full of hilarious stories, both work related and about his many fishing and hunting expeditions.
On that particular day—a Friday—he’d been out most of the time inspecting properties. When he returned—after I myself had returned—he noticed that I too was wearing “property inspection” clothes, not a suit.
“What’s with your outfit?” he asked about my shirt, jeans, and running shoes. “Have you been out looking at OREO too?”
I told him about the farm tour and how the realtor and I had discovered a bunch of ancient 55-gallon drums, which were a problem and would cost a bunch of money to clear out, but I didn’t go into any detail about potential environmental liability. Ray asked about the location of the property. I told him, and with that we cleared the office and went our separate ways for the weekend.
* * *
On the following Monday, Ray entered my office, first thing, and plopped himself down on a chair. “You know those 55-gallon drums on that farm?” he said.
“Yeah,” I said, “what about ‘em?”
“Problem solved.”
“What do you mean ‘problem solved’?”
“This weekend,” said Ray, “a couple of buddies of mine and I drove out there with our pick-ups and loaded up all those drums—every one of ‘em—and hauled ‘em back to St. Paul. They’re helping me build a floating dock up at my lake place, and those drums are perfect.”
“Whoa, whoa, whoa! Ray, you’re killin’ me!”
“What? Did I do something wrong?”
“Holy Jesus,” I said. “If the authorities find out about this the bank is gonna be in major piles of doo-doo, even by dairy farm standards.”
“I thought I’d be killing two birds with one stone—clearing your OREO property of a problem and getting free 55-gallon drums for my dock . . . a win-win.”
“No, sorry, Ray,” I said. “That’s not how this is gonna work out. I can’t call the state, the county, and the department of transportation and say, ‘just kidding.’ Good grief, Ray, what am I gonna do now? The guys in haz-mat suits are lined up to be out their Wednesday with a guy from the PCA [Pollution Control Agency] and one from Hennepin County to supervise the loading and transport of the drums to a special site down by Red Wing. ”
With that, Ray stood up and said, “I don’t want to get you in trouble. Let me see what I can do.”
I was afraid to ask Ray what he had in mind. For the rest of the day, I worried about the trouble his weekend maneuver would create.
The next morning Ray again appeared in my office, this time with a big happy face. “I fixed it,” he said. “I fixed the problem. I called my buddies after work and together we loaded the drums back up and hauled them back to the farm and put them back pretty much where we’d dug ‘em out. We packed ‘em back into the dirt and weeds real good. You can’t tell they were ever moved.”
“You’re too much, Ray,” I said. “Way too much! You hear me?” I couldn’t help but to laugh at the circumstances.
“Yeah, well, sometimes when you get ahead of yourself, you gotta pull the reins back a bit and let yourself catch up. Mum’s the word.” (Cont.)
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© 2024 by Eric Nilsson
