Article Law360

Don't Let PFAS Leave a Mark on Your Business Transaction

02 February 2018

Growing regulatory and litigation focus on per- and poly-fluorinated alkylated substances (PFAS), combined with pressure to streamline due diligence, poses a challenge for environmental transactional lawyers tasked with conducting due diligence on industries and properties currently or previously involved in the manufacture, distribution or sale of PFAS or products containing PFAS.

When effectively prepared for a transaction, sellers in PFAS-related industries can minimize the risk of unexpected delays or financial or liability impacts on the sale. Additionally, well-prepared buyers can streamline their due diligence process, as well as more effectively assess and mitigate their risk of PFAS-related liabilities going forward, thereby making their offer more attractive.

To navigate these issues in a transaction, environmental transactional lawyers must first understand what these chemicals are, which industries or properties are most likely at risk of PFAS-related claims and liabilities, the recent and ongoing litigation and regulatory action related to PFAS and the options for assessing and mitigating PFAS risks.

What Are PFAS and What Industries and Properties May Be Affected?

PFAS are a class of chemicals consisting of perfluorooctanoic acid (PFOA), perfluorooctanesulfonic acid (PFOS) and other perfluoroalkyl substances. PFAS are alternatively referred to as perfluorinated chemicals or PFCs. PFAS are man-made substances, which do not appear to naturally degrade in the environment, are persistent in the human body and are difficult and expensive to remove from or treat in the environment.[1]

The alleged human health impacts of PFOA and PFOS include increased rates of certain cancers and other diseases, and reduced fertility and birth outcomes.[2] While the focus has been primarily on PFOA and PFOS, some of the newer generation of PFAS chemicals also face scrutiny,[3] such as North Carolina’s active investigation into Chemours Co.’s use of GenX, a PFOA alternative.[4]

PFAS are fire-, heat-, stain- and water-resistant and, as a result, have been used since at least the 1950s in consumer products, such as nonstick cookware, carpets, upholstery, clothing, footwear and food packaging.[5] PFAS have also been widely used in other industrial processes and products (e.g., firefighting foams, photomicrolithography, film processing, oil drilling, mining, cleaning, metal plating and finishing processes, aviation fluid, semiconductors, paint, cleaners and sealant products).[6]

In 2006, eight major manufacturing companies, including 3M Company and DuPont Co., agreed to join the U.S. Environmental Protection Agency’s PFOA Stewardship Program, which committed the companies reduce PFOA and other PFAS use and emissions.[7] While these companies appear to have met their commitment with respect to PFOA,[8] and the only major U.S. manufacturer voluntarily phased out PFOS production in 2002,[9] PFOA and PFOS may continue to be manufactured or used by other U.S. companies or present in imported products.

Recent and Ongoing Litigation and Regulatory Action Related to PFAS

To date, a majority of PFAS litigation has focused on human health and environmental impacts caused by releases from major PFAS manufacturing sites.

In February 2017, DuPont and Chemours announced a $671 million settlement of 3,550 cases stemming from alleged releases of PFOA into the ground, air and water from the Washington Works plant in Parkersburg, West Virginia.[10] A $5 billion lawsuit remains pending against 3M by the state of Minnesota,[11] under both state environmental statutes and common law grounds, which alleges 3M caused ground and surface water contamination.[12] Notably, Minnesota is seeking punitive damages for its common law claims.[13]

The legal risks may extend beyond manufacturers, to companies using and discharging PFAS in their manufacturing processes and companies distributing or selling products containing PFAS.[14] At the local level, water utilities have been leading the way with a series of cases against manufacturers who discharge PFAS and their chemical suppliers.[15] Utilities in these cases seek damages for groundwater or drinking water contamination allegedly caused by releases from manufacturing processes using PFAS.[16]

At the federal level, even in the current deregulatory climate, PFAS research and potential regulation has gathered bipartisan interest. While the U.S. Department of Defense previously identified PFOA and PFOS as “emerging contaminants,”[17] in December 2017, President Donald Trump signed into law a bill that requires the DOD to report on its development of a PFOA-PFOS free firefighting foam.[18]

This report must include an assessment of how the establishment of a maximum contaminant level for PFOA or PFOS under the Safe Drinking Water Act would impact the DOD's PFOA/PFOS mitigation and research efforts.[19] Around the same time as the bill’s enactment, the EPA announced its intention to further research PFOA issues.[20]

Additionally, some states have taken steps to regulate PFAS beyond the EPA’s health advisory levels (HAL), which were announced in 2016.[21] The EPA’s HALs are unenforceable at the federal level; however, they are influential with state agencies. For example, several states adopted the EPA’s 2016 HALs as guidelines, whereas others issued PFAS groundwater standards or guidelines lower than the EPA HALs (i.e., New York and New Hampshire) or higher (i.e., North Carolina and West Virginia).[22]

State action also extends beyond limiting PFAS concentrations in water. In 2017, Vermont, the home of the Saint-Gobain SA PFOA contamination suit which resulted in a $20 million settlement,[23] enacted a law to allow the state to require corporations to fund the extension of public water lines to private residences should the corporations be found responsible for PFOA contamination.[24]

California recently listed PFOA and PFOS under Prop 65,[25] and introduced a bill to ban PFAS in food packaging.[26] New Hampshire issued guidance in 2016 requiring PFAS sampling at certain regulated sites based on previous PFAS use or exposure and at sites subject to groundwater monitoring requirements.[27]

Assessing and Navigating PFAS Risks in Transactions

Given potential litigation and regulatory risks surrounding PFAS, buyers are wise to scrutinize a company or facility with current or historical PFAS use or impacts. Should a PFAS liability manifest, a company could be burdened with longstanding, expensive and high profile cleanup liability or litigation, which could affect its customer, community and agency relationships.

Such companies could also suffer business interruptions if regulators require product reformulation or impose new permitting obligations. A buyer may find the process of obtaining insurance to cover these risks (i.e., product liability, pollution or representations and warranty) increasingly difficult or costly.

At the same time, buyers and their counsel should not be unreasonably cautious, as these risks can often be managed. It may be many years before the legal liability framework crystallizes or regulatory action is taken. Buyer’s counsel should aim to effectively use the due diligence process to thoroughly assess the risks, communicate the risks to their client and manage the risks through contractual arrangements and insurance.

Buyers’ counsel should consider the following tasks during its due diligence, and in anticipation of a sale, sellers’ counsel should prepare a company to respond to these inquiries:

Engage a qualified consultant to conduct:
A phase I environmental site assessment of the company’s real property aimed at identifying current or former property uses that likely involved PFAS, any major fires at the property, known regional PFAS concerns and proximity to U.S. Air Force bases or former PFAS manufacturing facilities.
A limited product review, including a review of available safety data sheets, to identify any products which are likely to include PFAS.
Inquire about worker injury claims or litigation involving PFAS.
If a company is using, or has used, PFAS in its manufacturing process, identify the company’s disposal practices (i.e., via landfilling or wastewater discharges) and whether any of its customers or suppliers have been engaged in PFAS litigation.
Review any contracts with chemical suppliers and customers, prior transactional documents and existing insurance policies for contractual protections or assumptions of risk.

In light of any due diligence findings indicating a significant PFAS risk, buyers and sellers can have informed discussions about the appropriate allocation for any such risks and assess whether insurance may be available to help manage the risks.

Alexandra Farmer is a partner at Kirkland & Ellis LLP in the firm's environmental transactions practice in Washington, D.C. She focuses her practice on managing environmental compliance and liability issues, primarily as they arise in the context of corporate and real estate transactions, both in the United States and around the world. Laura Mulherin is an associate at Kirkland in Washington, D.C., working in the environmental transactions practice.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] State Water Resources Control Board, Division of Water Quality Program, Groundwater Information Sheet, Perfluorooctanoic Acid (PFOA) & Related Compounds, https://www.waterboards.ca.gov/gama/docs/pfoa.pdf (stating that PFOA has a half-life of 92 years in water and does not degrade in groundwater).

[2] Paul J. Napoli and Tate J. Kunkle, The Emerging Crisis of PFAS Exposure, New York Law Journal (Oct. 6, 2017), https://www.law.com/newyorklawjournal/almID/1202799884652/.

[3] Tiffany Kary, 3M Faces New Cancer Claims in Minnesota’s $5B Lawsuit, Insurance Journal (Nov. 21, 2017), https://www.insurancejournal.com/news/midwest/2017/11/21/471966.htm

[4] GenX Investigation, NC Department of Environmental Quality (last visited Jan. 1, 2018), https://deq.nc.gov/news/hot-topics/genx-investigation.

[5] Paul J. Napoli and Tate J. Kunkle, The Emerging Crisis of PFAS Exposure, New York Law Journal 5 (Oct. 6, 2017), https://www.law.com/newyorklawjournal/almID/1202799884652/.

[6] U.S. Environmental Protection Agency, Drinking Water Health Advisory for Perfluorooctane Sulfonate (PFOS) 15, 24-25 (May 2016), https://www.epa.gov/sites/production/files/2016-05/documents/pfos_health_advisory_final-plain.pdf.

[7] U.S. Environmental Protection Agency, Fact Sheet: 2010/2015 PFOA Stewardship Program, https://www.epa.gov/assessing-and-managing-chemicals-under-tsca/fact-sheet-20102015-pfoa-stewardship-program.

[8] U.S. Environmental Protection Agency, EPA's Non-CBI Summary Tables for 2015 Company Progress Reports (Final Progress Reports), https://www.epa.gov/sites/production/files/2017-02/documents/2016_pfoa_stewardship_summary_table_0.pdf.

[9] See supra note 6 at 15.

[10] Kris Maher & Cameron McWhirter, DuPont Settlement of Chemical Exposure Case Seen as ‘Shot in the Arm’ for Other Suits, The Wall Street Journal (Feb. 13, 2017), https://www.wsj.com/articles/dupont-chemours-settle-teflon-chemical-exposure-case-for-671-million-1486987602; Michael Phillis, DuPont, Chemours Agree To Settle Teflon Cases For $671M, Law360 (Feb. 13, 2017), https://www.law360.com/articles/891239/dupont-chemours-agree-to-settle-teflon-cases-for-671m; Jeff Mordock, DuPont, Chemours to pay $670 million over PFOA suits, DelawareOnline (Feb. 13, 2017), http://www.delawareonline.com/story/news/2017/02/13/dupont-and-chemours-pay-670m-settle-pfoa-litigation/97842870/.

[11] Tiffany Kary, 3M Faces New Cancer Claims in Minnesota’s $5B Lawsuit, Insurance Journal (Nov. 21, 2017), https://www.insurancejournal.com/news/midwest/2017/11/21/471966.htm.

[12] Pl.’s Compl., Minnesota v. 3M, No. 27-CV-10-28862 (Dec. 30, 2010) (The statutory claims arise under the Minnesota Environmental Response Liability Act, statutory nuisance and Minnesota Water Pollution Control Act whereas the common law claims arise under trespass, nuisance and negligence theories).

[13] Pl.’s Amended Compl., Minnesota v. 3M, No. 27-CV-10-28862 (Nov. 11, 2017).

[14] See, e.g., In re Stand ‘N Seal, Products Liability Litigation, 2009 WL 1771099, No. 1:07 MD 1804-TWT, at *1 n.1 (N.D. Ga. June 22, 2009); In re Stand 'N Seal, Products Liability Litigation, 2009 WL 2145911, No. 1:07 MD1804–TWT, at *4 (July 15, 2009); In the Matter of Arbitration Between Roanoke Companies Group Inc. v. Aerofil Technology Inc., 2015 WL 10435764, No. 69-155-Y-000080-12 (Cal. Sup. Apr. 21, 2015); Aebra Coe, Home Depot Supplier Recoups $30M Spent in Sealant MDL, Law360 (Apr. 24, 2015), https://www.law360.com/articles/647843/home-depot-supplier-recoups-30m-spent-in-sealant-mdl.

[15] See infra note 16.

[16] Pl.’s Compl., The Water Works and Sewer Board of the Town of Centre v. 3M, No. 13-CV-2017-900049.00 (N.D. Ala. May 15, 2017); Pl.’s Compl., The Water Works and Sewer Board of the City of Gadsden v. 3M, No. 4:16-cv-01755-KOB (N.D. Ala. Nov. 2, 2016); Chris Marr, 3M, Carpet Industry Face Growing Alabama Water Suits, Bloomberg (May 17, 2017), https://www.bna.com/3m-carpet-industry-n73014451087/.

[17] U.S. Gov’t Accountability Office, GAO-18-78, DOD Has Acted on Some Emerging Contaminants but Should Improve Internal Reporting on Regulatory Compliance (2017).

[18] National Defense Authorization Act For Fiscal Year 2018, Pub. L. No. 115-91, § 1059(a) (2017).

[19] Id. at § 1059(b)(4).

[20] Pat Rizzuto, Floored by Fluorochemicals: What Are The Health Risks?, Bloomberg BNA, Environment & Energy Reporter (Dec. 11, 2017), https://bnanews.bna.com/environment-and-energy/floored-by-fluorochemicals-what-are-the-health-risks.

[21] Scott Kerschner and Zachary Griefen, Next Round Of Water Contamination Suits May Involve CWA, Law360 (Oct. 5, 2017), https://www.law360.com/articles/970995/next-round-of-water-contamination-suits-may-involve-cwa

[22] ABA Section of Environment, Energy and Resources, Environmental Litigation and Toxic Torts Committee, Emergence of PFAS: A Public Health Concern? 28 (July 11, 2017), https://www.americanbar.org/content/dam/aba/administrative/environment_energy_resources/committees_dch/eltt/2017/2017-aba-pfas-program-call.authcheckdam.pdf.

[23] Vermont Seeks Approval of Settlement Over PFOA Contamination, Burlington Free Press (Sept. 8, 2017), http://www.burlingtonfreepress.com/story/news/2017/09/08/state-vermont-asking-court-approve-settlement-reached-company-over-contamination-some-private-water/645831001/.

[24] VT. Stat. Ann. tit. 10, § 6615e(b)(1) (2017); see also Act Summary Act No. 55 (S.10). Conservation and Land Development; Waste Management; Water Supplies; PFOA Contamination; Brownfields, https://legislature.vermont.gov/assets/Documents/2018/Docs/ACTS/ACT055/ACT055%20Act%20Summary.pdf; Lindsay Nielsen, VT Governor Signing PFOA Bill into Law in Bennington, News10 ABC (June 2, 2017), http://news10.com/2017/06/02/vt-governor-signing-pfoa-bill-into-law-in-bennington/.

[25] OEHHA, Perfluorooctanoic Acid (PFOA), Chemicals Considered or Listed Under Proposition 65, https://oehha.ca.gov/proposition-65/chemicals/perfluorooctanoic-acid-pfoa-and-its-salts.

[26] AB-958 Hazardous Materials: Perfluoroalkyl and Polyfluoroalkyl Substances, https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB958.

[27] Letter from State of New Hampshire, Department of Environmental Services to Responsible Party/ Site Owner / Permittee (Oct. 19, 2017), https://www4.des.state.nh.us/nh-pfas-investigation/wp-content/uploads/2017/10/PFAS-Sampling-Clarification-Ltr-10_19_17.pdf.

Alexandra N. Farmer, P.C.

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