Phase I Environmental Assessment Process(es) in Connecticut: Managing a State-Specific Approach to Achieve Transactional Objectives

Christopher P. McCormack
Bloomberg BNA: Environmental Due Diligence News

Note: This article is written by Pullman & Comley attorney Christopher P. McCormack, chair of the Task Group for ASTM Standard E1903-11 on Phase II Environmental Site Assessments.  The article originally appeared in Bloomberg BNA: Environmental Due Diligence News and is reprinted here with permission.

If your corporate or real estate deals cross state lines, you know different jurisdictions do the same things different ways, sometimes maddeningly so. Environmental regulation is a prime example. Even when states manage matters like hazardous waste, water pollution, and air emissions under delegated federal authority, you have to account for local variations in standards and practices.

These vagaries should be less for the Phase I site assessments conducted for most transactions. Practice has long been standardized around ASTM’s E1527 “Phase I Environmental Site Assessment Process,” especially since 2005 when the U.S. Environmental Protection Agency recognized E1527 as a way to conduct the pre-purchase “all appropriate inquiry” necessary to qualify for certain Superfund defenses. So in every jurisdiction, when developers, purchasers, lenders, attorneys, and environmental professionals refer to a “Phase I,” they’re almost certainly thinking of ASTM E1527.

Then there’s Connecticut.

In the Nutmeg State, the term “Phase I” also connotes the first step in a state-defined process of full site characterization and remediation. Like ASTM E1527, it involves review of historical information and matters observable upon site inspection. Because of its function within a comprehensive site remediation framework, however, the Connecticut Phase I analyzes and reports findings in very different ways.

So if you aren’t from Connecticut, your Phase I report on a Connecticut property will contain elements and terminology that are unfamiliar, even perplexing. Yet some of the differences, properly understood and properly managed, can enhance understanding of environmental issues and advance transactional objectives.

1. The Connecticut Site Characterization Guidance Document – What and Why

For outsiders, the first hint of something different often is a statement in the Phase I report that the assessment has been conducted in accordance with ASTM E1527 “and the Connecticut Site Characterization Guidance Document.”

The Site Characterization Guidance Document (SCGD), promulgated by the Connecticut Department of Energy and Environmental Protection (DEEP), prescribes a three-phase sequence of environmental assessment. The sequence begins with “Phase I” review combining historical information research and site inspection and continues through Phase II investigation of actual site conditions by sampling and analysis of environmental media. It concludes at a level designated Phase III at which the site is sufficiently characterized to support remedy selection and remedial action planning.

It is crucial to understand that the SCGD approach isn’t merely a statement of site assessment practice. It is an integral component of the state’s site remediation framework.

The SCGD stands at the intersection of three related areas of Connecticut environmental law: first, a group of statutes governing environmental remediation; second, the Remediation Standard Regulations (RSRs); and finally, the Licensed Environmental Professional (LEP) program. These areas correspond to functional aspects of site remediation. The statutes set up the substantive remediation “programs” that define pathways to regulatory closure. The RSRs set numerical and other criteria for remediation, remedial end points, and alternatives such as use restrictions. The LEP program empowers licensees to make investigation and remediation decisions that otherwise would have to be made by overburdened DEEP staff. The SCGD knits these three areas together by defining the site characterization process from initial review through remedial action planning.

These elements form a system in which a property can follow one of several statutory paths to a final signoff in the form of LEP verification or DEEP approval, either of which signifies that a property is in compliance with the RSRs. Within this system, each step is designed to lay the groundwork for the next, ultimately leading to regulatory closure.

2. What Is Different About a Connecticut Phase I: Constructive Notice vs. “Release Hunting”

Despite the common label and certain common characteristics, Phase I assessments under ASTM E1527 and the Connecticut SCGD serve different purposes and report results in different ways.

The E1527 assessment is a means of conducting the pre-purchase “all appropriate inquiry” (AAI) into prior site use that is necessary to qualify for certain CERCLA defenses. The objective is to enable a prospective purchaser to show that it neither knew nor had reason to know of the presence of a release of hazardous substances (AAI) or hazardous substances and petroleum products (E1527). As such, AAI and E1527 are self-contained and closed-ended. Both expressly provide that they don’t require sampling and analysis of environmental media. In other words, while they may serve as predicates for further site assessment activities, they aren’t by terms meant to do so.

The idea that one “neither knew nor had reason to know” corresponds to the common-law concept of constructive notice or knowledge: when knowledge is a factor in a claim or defense, you are charged not only with what you actually know but also with what you should have known. The “should” may come from inferences based on known facts or from circumstances giving rise to a duty of inquiry.

AAI elaborates on the nature of the required inquiry: a prospective purchaser must validate lack of “reason to know” by conducting “all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial and customary practice.” The federal AAI rule declares an E1527 Phase I an equivalent “inquiry … consistent with good commercial and customary practice.” The concept of constructive knowledge likewise is embedded in the E1527 term “recognized environmental condition” or REC, defined in part as “the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property … under conditions indicative of a release to the environment.” In essence, you have a REC when available information provides constructive notice of (“likely,” “indicative of”) a release. Conversely, when an AAI inquiry concludes that there is no “reason to know,” or an E1527 report lists no RECs, it doesn’t mean all possibility of a release has been ruled out. It only means available information doesn’t rise to the level of constructive notice.

In the Connecticut SCGD, different terminology reflects crucial underlying differences in assessment objectives. An SCGD Phase I looks for “Areas of Concern” (AOCs), defined as “locations or areas at a site where hazardous waste and/or hazardous substances … have been or may have been used, stored, treated, handled, disposed, spilled, and/or released to the environment.” The critical distinction is that unlike the E1527 REC definition, AOC criteria fall well short of circumstances constituting constructive notice. On the contrary, the AOC definition contains no element of likelihood or probability of release and no threshold knowledge triggering a duty of inquiry. The mere presence of regulated materials in any “locations or areas at a site” puts those areas on the AOC list for further evaluation in the SCGD process.

It may seem objectionable that this hair-trigger approach requires further assessment, with attendant cost and delay, even where the potential for environmental issues is remote or even speculative. Actually, that is the point. A significant purpose of the SCGD framework is to constrain the decisions of LEPs acting without direct DEEP supervision. The breadth of the AOC definition reflects an administrative policy judgment about the degree of discretion DEEP is willing to delegate: it leaves LEPs virtually no latitude to make fine distinctions about what is or isn’t worth investigating. And this is doubly important because the SCGD Phase I assessment is the initial step in a process intended to lead to verification that the property is in compliance with the RSRs – which would be impossible if preliminary steps hadn’t fully evaluated all possible release areas. In this context, the breadth of the AOC definition is a feature, not a bug.

The distinction between RECs and AOCs is crucial to understanding and interpreting a Connecticut SCGD Phase I report. E1527 is essentially about release identification – a REC signifies that tangible circumstances provide constructive or inquiry notice of a release, so you can’t later claim you didn’t know. The SCGD essentially involves release hunting – an AOC is a place where releasable material was located, stored, or used. In a process intended to lead to verification of compliance, all such places must be investigated to “prove the negative” – that is, to demonstrate that no release has occurred.

3. Do You Have to Do Phase I the Connecticut Way for a Connecticut Property?

Within the Connecticut system of site remediation statutes and regulations, a party may be under legal obligation to undertake the full sequence of site characterization and remediation defined by the SCGD or commit to do so by entering a voluntary program. Outside that system, the SCGD is technically optional – but for any Connecticut business or property, still relevant in important ways.

The principal source of legal obligation is the Transfer Act, Conn. Gen. Stat. §22a-134 et seq. It applies to transfers of properties falling within a category of “establishments,” primarily defined in terms of whether hazardous waste has been generated in certain quantities or whether certain types of business involving common contaminants have been conducted on-site. For such properties, transfer triggers a requirement that a party associated with the transaction must certify that it will investigate and, if necessary, remediate in accordance with applicable standards and practices. The certifying party then is obligated to follow the SCGD sequence to closure in compliance with the RSRs. DEEP has the option of supervising and approving the work itself or authorizing an LEP to conduct the investigation and verify compliance. On this mandatory track, the SCGD provides the “prevailing standards and guidelines” that must be followed beginning with Phase I.

The same is true for purposes of Connecticut’s voluntary remediation program (VRP), Conn. Gen. Stat. §§22a-133x and 133y, under which a party can undertake essentially the same process on its own initiative. This option benefits property owners by providing a route to regulatory closure that enhances the value and marketability of contaminated property. Again, however, in order to reach verification, the “volunteer” must follow the entire SCGD process (again, under DEEP or LEP supervision) beginning with Phase I. There technically is a third species of “program” under DEEP’s general authority to order responsible parties to take action regarding contaminated properties. In this scenario, an administrative enforcement initiative sets the process in motion, and the profile of investigation and remediation may be modified by negotiated terms of a consent order. In that context, however, the default framework is defined by the SCGD.

Two corollaries are perhaps less obvious. First, for a property not subject to the Transfer Act or on a VRP track, there is no legal requirement to conduct a Phase I assessment in strict accordance with the SCGD. The same technically would be true for subsequent phases of site work, although the more investigation a given property needs, the more sense it makes to adhere to the SCGD framework to lay a foundation for closure. Second, outside a remediation program, there is no free-standing requirement to use an LEP. The Connecticut license is not an academic or professional qualification as such. LEP status confers authority to make decisions and issue approvals (verifications) within the system of site remediation programs. An E1527 Phase I doesn’t implicate decisions of that nature, and many consultants who lack the LEP credential will meet the definition of “environmental professional” for purposes of AAI and E1527.

While a Phase I in Connecticut need not employ the SCGD framework or be performed by an LEP, a plain E1527 assessment is objectively inadequate in Connecticut for one crucial reason: transaction parties need to know whether they have an “establishment” subject to the Transfer Act, and an ASTM E1527 assessment won’t address that issue. So as we will discuss further below, assessment activity to evaluate “establishment” classification must be included as a non-scope objective in any Phase I on a Connecticut property or business. For this reason, too, although a Phase I doesn’t have to be done by a Connecticut LEP, virtually every Connecticut Phase I will be performed or reviewed by an LEP familiar with “establishment” criteria.

Confused? Can’t blame you. But let’s make it worse. We’ve been talking about the “Connecticut approach” to site assessment as outlined in the SCGD. Outside the Transfer Act and the voluntary remediation programs, statutory references imply, and may require, different approaches.

One such approach is found in the general Connecticut innocent landowner defense to liability for contamination, which includes the criterion that the owner “does not know and has no reason to know of the spill or discharge, and inquires, consistent with good commercial or customary practices, into the previous uses of the property.” Conn. Gen. Stat. §22a-452d(a). That resembles AAI, but is actually taken from the CERCLA standard for pre-purchase due diligence before the 2002 amendments that elaborated on AAI requirements and led to the parallel issuance in 2005 of the initial AAI rule and an AAI-compliant update of E1527. Section 22a-452d(a) is still a constructive notice standard and could be understood today to refer to AAI, but Connecticut has never revised it to mirror the 2002 CERCLA amendments that were adopted to cure perceived shortcomings in the same language.

Another is found in the state brownfields program, Conn. Gen. Stat. Ch. 588gg, where criteria for “bona fide prospective purchaser” and “contiguous property owner” do mirror the current federal AAI rule. The BFPP thus must have made “all appropriate inquiries, as set forth in 40 C.F.R. pt. 312, into the previous ownership and uses of the property in accordance with generally accepted good commercial and customary standards and practices, including, but not limited to, the standards and practices set forth in the ASTM Standard Practice for Environmental Site Assessments, Phase I Environmental Site Assessment Process, in effect on the date such person acquired the property.” Conn. Gen. Stat. §32-760(1)(b). The C.F.R. citation is to the federal AAI rule, and the reference to the ASTM standard tracks AAI. This standard is the “release identification” or “constructive notice” threshold discussed above, not the SCGD “release hunting” approach.

Yet another is found elsewhere in the same group of brownfield statutes: an applicant for the Brownfield Remediation and Revitalization Program must submit, among other things, a “Phase I Environmental Site Assessment conducted by or for the bona fide prospective purchaser or the contiguous property owner, which shall be prepared in accordance with prevailing standards and guidelines.” Conn. Gen. Stat. §32-769(f)(2). But “prevailing standards and guidance” is the Transfer Act rubric--- in other words, the SCGD “release hunting” approach.

At this point you may think the only clear conclusion is that it helps to have a sense of humor to practice environmental law in Connecticut. But don’t give up. There are ways to manage the Connecticut approach that are logical and even helpful.

4. Phase I Assessment Concepts in Due Diligence: A Practical Connecticut Synthesis

For any transaction involving a Connecticut business or property, Phase I planning must take into account the potential applicability of a Connecticut program that requires adherence to the SCGD. The answer is obvious if you intend to enter the voluntary remediation program. The most common trigger is the Transfer Act.

The “establishment” status of a property or business is thus the threshold question to be answered in virtually every transaction, but it isn’t within the scope of E1527. So a Phase I assessment must incorporate that question as a nonscope item. If the determination is affirmative and the parties still intend to proceed with the transaction, the Phase I itself should be completed according to the SCGD. Your environmental professional should prioritize collection of information relevant to the establishment determination and then consult with you before completing the assessment.

Consultation is especially important because site information can yield false positives on “establishment” classification. Environmental consultants aren’t always as critical as they should be about explaining or providing qualifying context for the information they develop. The consultation step provides an opportunity to look at waste generation and business practices in depth and possibly conclude that establishment criteria actually aren’t met.

A common scenario illustrates the importance of scrutinizing facts closely. One “establishment” criterion is generation of more than 100 kg of hazardous waste in any given month. Phase I document review often yields one or more manifests above that threshold. Some Phase I assessors will stop there, relying on a long-standing DEEP position that waste is “presumed” generated in the month of disposal. This “presumption” is of dubious legal validity, but it helpfully points toward further inquiry to establish the actual generation rate. For instance, a shipment over 100 kg may consist of waste accumulated over time from a specific operation that produces waste at a consistent, documentable rate below 100 kg per month. Further review also may yield collateral details that bring the waste within an exemption – e.g., that it was from a remediation project or managed in a manner constituting recycling and therefore doesn’t count as a “waste” at all. An investment in additional effort may result in avoiding the Transfer Act altogether – potentially a six-figure benefit.

If there is no legal obligation or voluntary commitment to follow the SCGD approach to Phase I assessment, it still is worth considering whether doing so makes sense, and if so, how.

The obvious negative of the SCGD approach is its hypersensitive approach to identifying AOCs. As we have seen, this designation says little about the probability of a release and doesn’t rise to the level of “constructive notice” of an actual problem. The practical result is that an SCGD Phase I on a property with an objectively benign profile may yield a daunting list of AOCs that could scare a buyer or lender off unnecessarily.

For this reason, sellers typically prefer to complete a Phase I in accord with E1527 and omit reference to SCGD AOCs. Lenders and purchasers often will accept that approach without objection due to the wide acceptance of E1527 as a due diligence staple. An E1527 report should include waste generation documentation sufficient to allow the reader to make a judgment about whether the Transfer Act applies. If the “establishment” determination is included as a nonscope consideration and the conclusion is negative, the E1527 report will “show the work” leading to that conclusion. And because E1527 and the SCGD Phase I require collection of essentially the same information, SCGD conclusions, including AOC designations, almost always can be teased out of an E1527 Phase I report.

If the Phase I is subject to the Transfer Act or within a voluntary program or the transaction parties agree to adhere to the SCGD, results can be reported in accord with both E1527 and the SCGD. In doing so, it is helpful to present all AOCs and RECs in a single table. Doing so makes it readily apparent whether any AOCs are RECs – and in most cases shows that many or most AOCs don’t rise to the “constructive notice” level of a REC. Listing AOCs and RECs side-by-side also provides an opportunity to discuss the differences in purpose and scope between the two designations, which in turn helps the parties negotiate reasonable dispositions of the AOCs.

It then falls to the reader – assisted by legal and technical professionals – to evaluate each REC and AOC for magnitude and materiality. In doing so, there is ample room for judgment about the significance of AOCs that aren’t also RECs. Parties conducting due diligence and negotiating transaction terms have more flexibility than an LEP managing a site toward verification pursuant to the SCGD. In negotiations, one side inevitably will emphasize that the hair-trigger AOC category tends toward over-inclusiveness. But the AOC list also can have value as a cross-check on matters that justify consideration even if they fall short of the REC designation. Parties who understand the distinctions between AOCs and RECs can relate Phase I results to their own risk tolerances and work toward common ground.

Finally, parties dealing with a more complex property may wish to follow the SCGD approach for its intended purpose as an initial step in a systematic process of characterization and compliance. The further parties go in this direction, the more they should consider complying with SCGD Phase I requirements in full to preserve the voluntary remediation option.

The combination of RECs and AOCs – the latter in full as the SCGD requires or in part based on a negotiated consensus about worthwhile targets – also can provide the basis for planning Phase II investigation. A reasonable investment in field work can materially advance the parties’ ability to quantify conditions, identify the need for remediation, and estimate costs and timetables. But by any definition, such work lies beyond the boundaries of a Phase I assessment.


Mark Twain, a beloved adoptive son of the Nutmeg State, famously prefaced Huckleberry Finn with an explanation of the pains he had taken to render diverse Mississippi River dialects – because otherwise, he said, “many readers would suppose that all these characters were trying to talk alike and not succeeding.” Readers of Phase I reports on Connecticut properties can have the same reaction. If they understand the purposes and particulars of the state approach, they will be less confused and better able to manage environmental due diligence, protect their interests, and achieve their transactional objectives.

Christopher P. McCormack, a partner with Pullman & Comley, LLC, serves his clients as counselor and advocate in environmental law, environmental litigation, and complex commercial litigation. Drawing on a wide range of experience and deep familiarity with environmental law, regulation and policy, he works with clients and consultants to find creative solutions to assessment, remediation, compliance, brownfield, environmental insurance and Transfer Act issues. Chris served as Chair of the Environmental Section of the Connecticut Bar Association from 2015 to 2017 and is the Section’s Legislative Liaison. He has served as member and Membership Secretary of ASTM Committee E50 on Environmental Assessment and Risk Management, and chairs the Task Group for ASTM Standard E1903-11 on Phase II Environmental Site Assessments. He also participated in revision of ASTM’s industry-standard practice for Phase I site assessments. Chris has written and lectured extensively on environmental site assessment issues.

The opinions expressed here do not represent those of Bloomberg Environment, which welcomes other points of view.

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