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ROGER D. SCHWENKE

Editors' Summary: Although NEPA requires the preparation of an EIS for every major federal action significantly affecting the environment, federal agencies often decide in particular cases that compliance with NEPA is satisfied by preparation of EAs. The decision not to prepare an EIS is usually based on a finding of no significant impact. When an agency's threshold NEPA decision is challenged in court, what is the appropriate standard of review? The federal courts of appeals answer this question in at least two different ways: some circuits use the "arbitrary and capricious" standard, while others inquire into the "reasonableness" of the agency's decision. Several courts have expressed doubt that there is any genuine distinction between the rival standards, and the Supreme Court has so far declined to settle the issue. The author of this Article surveys the federal case law on this question, exploring the approach of each circuit and taking issue with those who maintain that the difference between the standards is illusory. The vital difference, the author argues, is that courts using the reasonableness standard are more likely to substitute their own judgment for that of the agency, while courts adopting the arbitrary and capricious standard tend not to second-guess an agency's decision. Because he sees an important difference between these two approaches, the author urges the Supreme Court to grant certiorari to resolve the circuit split.

Roger d. Schwenke is a member of the ABA Standing Committee on Environmental Law and an attorney with Carlton, Fields, Ward, Emmanuel, Smith, Cutler & Kent, P.A., in Tampa, Florida.

[18 ELR 10349]

I would like to welcome everyone to the Sixteenth Annual Airlie House Conference on the Environment. Our topic this year — "Burdens of Environmental Regulation on Private Property Ownership and Business Transactions: Reasonable or Unreasonable?" — is one of particular timeliness or, as some in this audience would say, urgency. It is a topic that cuts across many traditional disciplines in the law and affects many different constituencies. In numerous past Airlie House Conferences, the Committee has observed that the topics involved subjects which will impact and touch almost every area of a lawyer's activity. This year's conference continues that tradition.

In recent years, state and federal environmental regulations have resulted in substantial new liabilities confronting real estate ownership and transfer, and corporate acquisitions, financing and corporate structure. Bankruptcy law, the cleanup of hazardous waste sites, and secured creditors' rights have come into increasing conflict.

Included in the program materials is a reprint of an article by Joel Burcat dealing with the environmental liability of creditors. He begins the article with an observation that four years ago, only the most cynical business attorney, or the most optimistic environmentalist, would have suggested that creditors could be held liable for the environmental hazards caused by their borrowers' activities. Today, that is not such a strange thought.

Similarly, three, four or five years ago, there was nothing extraordinary or unusual in a sale of real estate occurring on a purely "as-is" basis, with the buyer accepting all of the risks that the tradition of caveat emptor offered. Again, today such sales rarely, if ever, take place.

In an effort to control the use of property which may have been contaminated by hazardous substances, some states have adopted statutes which prohibit the transfer or closure of businesses and property which may have had exposure to such materials, until levels of cleanup have been demonstrated and governmental officials have certified the cleanliness of the site. Other localities and states are now considering such legislation.

In other states, legislation has been adopted imposing notice, use restriction or liens on property owned by those responsible for contamination, to allow governmental bodies to recover their expenditures for cleanup. Some of these liens take priority over all existing liens and mortgages. These techniques have resulted, already, in changes to the underwriting and financing policies, procedures and philosophies of many lenders and creditors.

Recent judicial decisions have found lenders liable, before and after foreclosure, for the costs of cleanup and investigation for contaminated property which those lenders have financed. In other cases, similar liabilities have been imposed on corporate shareholders, directors, corporate parents and subsidiaries, and on successors in interest through both merger and asset purchase.

Bankruptcy decisions have refused to allow bankruptcy trustees to abandon contaminated property, even if maintenance and cleanup would require the use of bankruptcy estate assets exceeding the value of the property, possibly even to the extent of intrusion into assets which would otherwise belong to secured creditors. Confrontations continue in bankruptcy and reorganization proceedings among creditors, companies experiencing environmental liabilities, and governmental units seeking the cleanup of polluted sites.

Traditional business practices to limit and plan for such contingencies are also becoming increasingly restricted. There appears to be an increasing gap in insurance coverage and insurance availability, despite the apparent historical assumption of many environmental requirement and corporate contingency plans that insurance funding would be available to cover such environmental liabilities.

This Sixteenth Annual Airlie House Conference will examine the issues posed by these developments. Speakers will address such questions as alternative techniques and approaches to governmental restrictions on and monitoring of business and real estate transfers; economic consequences of and the reasonableness of present procedures; the bases for imposing hazardous waste cleanup obligations on creditors, and the potential impact of this approach on investment philosophy and practices; and regulatory and structural alternatives available to resolve, or at least to narrow, the apparent conflict between issues presented in current state and federal bankruptcy protection statutes and environmental regulation laws.

I hope that this conference will illuminate some of these questions, even if we can answer very few of them in any absolute sense. We hope that, in the tradition of Airlie, this examination will clarify the analysis of the questions and the issues which underlie those questions. If we do so, the Committee will have accomplished its objective.

We are pleased to open our program with Roger Marzulla, Acting Assistant Attorney General for the Land and Natural Resources Division of the Department of Justice. Roger came to his present position at the Justice Department with over ten years' experience in real property litigation in California, and two years as the head of the Mountain States Legal Foundation in Denver. That blend of real estate dirt law, and environmental "dirt law" (albeit potentially hazardous dirt) seemed just what we needed to begin our examination of these issues.