Businesses Hit by Superfund Costs

EVEN the Girl Scouts are involved in a Superfund lawsuit.

Dennis Eckart, a former democratic congressman from Ohio who is now working on environmental reform, says he knows of a case where scouts threw out garbage in a campsite dumpster. Someone else had disposed of contaminated waste in the same dumpster, Mr. Eckart says, and now the scouts are in court. In the world of Superfund lawsuits, everyone is a possible plaintiff or defendant, and the Girl Scouts are no exception.

Superfund, otherwise known as the Comprehensive Environmental Response, Compensation, and Liability Act, was created in 1980 to identify and clean up the most environmentally hazardous sites in the United States. The cost and financial uncertainty of the lawsuits have often slowed down the cleanup process. Superfund can draw all parties involved in a site - buyers and sellers alike - into legal battles. There are so many lawsuits because so many people can be held accountable.

Superfund experts say the "litigation flood" has had far-reaching effects on businesses and the economy. At last count, some 25,000 different parties have been named in Superfund lawsuits.

Some analysts say Superfund halts new investments. Others say it is particularly harmful to small businesses. And some blame the law for a trend where landowners abandon their sites rather than face the legal cleanup process.

Those who support Superfund say it sends a strong signal to environmental offenders. With Superfund up for reauthorization at the end of this year, the first priority is to get rid of all the lawsuits, some analysts say.

The legal aspects of Superfund have become so complicated that some involved parties would rather work around it to clean up hazardous sites. Sen. Frank Lautenberg (D) of New Jersey is proposing a bill to clean up toxic sites more efficiently and economically through voluntary cleanup.

Under the plan, owners of contaminated sites would first pay for cleanup. Then they would receive a letter from the state certifying that the property is "clean" according to state government standards. The legislation is designed to remove the fear of litigation, encouraging owners to come forward.

"This legislation will foster the voluntary cleanup of potentially hundreds of thousands of sites around the country for economic development and job creation," Senator Lautenberg said at a June 17 subcommittee hearing.

To date, only about 60 of the 1,200 Superfund sites on the "National Priority List" have been checked off the list. Many other sites around the country are considered contaminated to a lesser degree.

One of the most serious economic effects of Superfund litigation is the so-called abandoned-land syndrome. Some landowners of contaminated property so desperately want to avoid lawsuits which, experts say, often end up costing more than the land value itself, that they abandon the land. If the land is in an inner city, the owner is free to move to a suburb and contaminate another plot of land. This chain results in large areas of undesirable and unuseable land.

A. Blakeman Early, speaking on behalf of the Sierra Club at the June 17 hearing, said Superfund "influences owners of contam- inated sites to avoid cleaning them up and avoid using them for any purpose for fear that they might somehow be caught up in Superfund ... and incur cleanup expense or liability well beyond the value of the property."

Some businesses, on the other hand, when faced with the financial uncertainty of legal battles, hold on to what they own but do not make any new investments.

An uncertain liability climate "has the same negative effect on the willingness of investors to make new commitments as does an uncertain tax environment," said Richard Stroup, professor of economics at Montana State University, speaking at a conference last month in Washington on environmental litigation and bureaucracy. "Investment declines in favor of defensive maneuvering," he said.

Litigation and new investment are entirely separate, says John Pendergrass, senior attorney at the Environmental Law Institute in Washington. Superfund is working to change behavior in the people who are involved with hazardous wastes, he says.

"I would question whether there is a chilling effect," Mr. Pendergrass says.

Harriet James, legislative representative for the National Federation of Independent Businesses, says that she has had letters from many of the organization's members saying that legal costs have forced them into bankruptcy. "The litigation is a drag on the economy and it has the potential for being much worse," she says.

Mary Bernhard, manager of environmental policy at the US Chamber of Commerce, says she gets calls from small-business owners who have just bought land and have discovered that the previous owner has left toxic wastes behind. She asks them why they did not find this out before they bought the land. Although most larger businesses know to do a "Superfund check" before the deal is done, Ms. Bernhard says, many small-business owners have no idea what they are getting into.

"For the small-business guy, once he gets the letter from the EPA declaring his land a Superfund site, the legal bills might be more expensive than the cleanup would be," Bernhard says. "But he is required to be part of the process. He might then turn around to the EPA and say, `You've bought yourself a business.' "

Once a business has been tagged as having a Superfund site, its insurance costs skyrocket, Bernhard adds.

A 1992 study by the RAND Institute for Civil Justice in Washington evaluated hazardous site cleanup data from five Fortune 100 industrial companies and four large insurance firms from 1986 through 1989. In 1989, 88 percent of the money insurers spent on Superfund was for legal and administrative costs. The companies spent 21 percent of their Superfund expenditures on legal and administrative costs, not on cleanup.

The litigation path is "not like a runaway train. A lot of it is unavoidable," says Kenneth Abraham, a University of Virginia law professor. Still, he says, the question of who is responsible for cleanup is not answered clearly enough by Superfund to avoid legal battles. Manufacturers, who are especially hard hit, turn around and sue their insurers, Mr. Abraham says. Superfund needs more realistic cleanup standards, he adds. "Standards should not be so strict that you can eat off the ground" when the sit e is clean, he says.