As consultants are called on with increasing frequency to identify, analyze and mitigate environmental concerns, they face a growing threat of liability under both the common law and a variety of environmental statutes. Whether conducting an environmental audit, site assessment or site remediation, environmental consultants need to be aware of their potential legal exposure when problems arise. In light of the increasing number of claims brought by clients and third parties, consultants should also be aware of safeguards that may successfully insulate them in the event of a lawsuit. Theories of consultant liability have developed based on the law of contract and under a variety of environmental statutes, but the most significant developments have come in the arena of tort. This article will identify trends in the types of claims brought against consultants, and offer guidance on how to limit legal exposure.
TORT LIABILITY
NEGLIGENCE
A court considering a tort claim against an environmental consultant will focus on two separate but related questions:
- what was the duty of care owed by the consultant, and
- did the consultant breach that duty.
For environmental consultants, as with other professionals, the standard of care is often defined as the exercise of skill or knowledge normally possessed by members of that profession in good standing in a similar community. Thus, in deciding whether the consultant has breached the duty of care owed to a client or to a third party, a court will determine what the "reasonable consultant" would consider to be an appropriate course of action under similar circumstances. Restatement (Second) of Torts § 299A (1965). Courts frequently cite the Second Restatement when defining the standard of care for a variety of professions.
This "reasonable consultant standard" has been interpreted by courts to require environmental consultants to take advantage of new techniques and methods available within the profession. The consultant's failure to implement those technologies could be all that a court or jury requires to determine that the duty of care has been breached and to hold the consultant liable for professional negligence. For example, in a case involving a consultant retained to provide a chemical analysis of a client's petroleum product, the court found the consultant liable for failing to take advantage of available technology in performing his analysis. The court stated that "the frequency of change [in available technology] does not excuse a failure on the part of the chemist to reasonably keep pace with such changes." Consultants must also be aware that if they represent, in advertising material or elsewhere, an expertise in a particular area, a court will hold them to their representations and likely ascribe a standard of care higher than that of the "reasonable professional." Finally, for consultants performing environmental site assessments, the standard of care is specifically defined by the American Society for Testing and Materials ("ASTM"). The most recent ASTM standard, amended in 1997, requires consultants, among other things, to obtain reasonably ascertainable records and information from standard sources, which include publicly available information.
Having defined the standard of care generally, to whom is the duty of care owed? In other words, who will be permitted to bring a claim of negligence against the consultant? While it is clear that the consultant owes a duty of care to the client, that duty does not extend to a third party unless it was reasonably foreseeable that the third party would be injured by the consultant's conduct. The question of whether a consultant is liable for third-party claims often turns on the scope of the services undertaken. In a case involving a consultant hired by a plant manager to draft a series of drawings of a chemical recovery process, the consultant was found not liable for the death of an employee killed when a unit of the recovery process, the subject of the consultant's work, exploded. The plaintiff argued that the consultant was negligent in preparing plans that were relied on by the decedent, and thus caused his death. The court emphasized that the consultant's task was limited to preparing a basic layout of the process, not evaluating its safety. Therefore, the court concluded that it was not reasonably foreseeable that the consultant's draft of plant plans would result in the plaintiff's death. This should be contrasted with a case involving a consultant contracted to provide safety engineering services to the Washington, D.C. Metropolitan Transit Authority. In that case, an employee working for another contractor at the site was able to bring a successful third party claim after developing silicosis. The court concluded that the consultant had assumed a duty to protect third parties based on the nature and scope of the services provided, and therefore it was reasonably foreseeable that workers would rely on the consultant's report. Vitol Trading S.A., Inc. v. SGS Control Servs., Inc., 680 F. Supp. 559, 567-68 (S.D.N.Y. 1987), rev'd on other grounds, 874 F.2d 76 (2d. Cir. 1989).
NEGLIGENT MISREPRESENTATION
Often paired with a direct negligence claim is a claim for negligent misrepresentation. This claim arises most often when a consultant's report, frequently a Phase I, contains errors or is otherwise inaccurate, causing the party relying on the report to suffer some economic injury. Damages may be available to the claimant who establishes that the environmental consultant "supplie[d] false information for the guidance of others in their business transactions ... if he fail[ed] to exercise reasonable care or competence in obtaining or communicating the information." In addition, the claimant must prove his or her justifiable reliance on the information contained in the report, as well as the consultant's failure to exercise reasonable care or competence in obtaining or communicating the information. In the hypothetical case of a consultant hired by a prospective purchaser to perform a site assessment, if the consultant's investigation fails to disclose contamination on the property that is not discovered until after the purchase, the purchaser may have a cause of action against the consultant for negligent misrepresentation. The elements that must be established for a purchaser to sue a consultant for negligent misrepresentation are:
- the consultant's misrepresentation of the nature of the contamination, either by underestimating or failing to detect contamination;
- the consultant's failure to exercise the standard of care of the "reasonable consultant";
- the claimant's reliance on the consultant's report in deciding to purchase the property; and
- some economic harm proximately caused by the consultant's errors or omissions. Sykes v. Propane Power Corp., 224 N.J. Super. 686, 541 A.2d 271 (1988); Caldwell v. Bechtel, Inc., 631 F.2d 989 (D.C. Cir. 1980); Restatement (Second) of Torts §552 (1977).
In a negligent misrepresentation claim, as with a more basic claim for general negligence, the issue arises of whether third parties may recover for errors and omissions in a consultant's report. Again, the question often turns on whether it was reasonably foreseeable that the third party would rely upon the report. For example, in the case of a Phase I report prepared by a consultant for a lender, it is reasonably foreseeable that the prospective purchaser, a third party, will rely on the report. Likewise, if the consultant's client is the potential purchaser, it is reasonably foreseeable that the lender, again a third party, will rely on the report. In both cases, the consultant may find himself liable to a party outside of the immediate contract.
Even in cases where third party reliance is foreseeable, however, a carefully drafted contract may ward off potential liability for negligent misrepresentation. In Bronstein v. GZA GeoEnvironmental, Inc., 140 N.H. 253, 665 A.2d 369 (1995), GZA was hired by Bronstein to investigate potential contamination as part of Bronstein's purchase of a parcel of property. Bronstein then assigned his purchase rights to another party, BFM, who purchased the property but shortly thereafter sold the property to Cooney. During Cooney's pre-purchase investigation, his consultant detected contamination and Cooney backed out of the deal. Bronstein and BFM sued GZA for, among other things, negligent misrepresentation. GZA claimed that it owed no duty of care to BFM, because it was not a party to the contract. BFM claimed that it was reasonably foreseeable that it would rely on the GZA report in determining whether to purchase the property. The court found for GZA and based its decision on the GZA/Bronstein contract which stated that the report was for the exclusive use of Bronstein and the right to disseminate the report was limited. The court concluded that GZA's investigation was meant to benefit only Bronstein and, therefore, that it was not reasonably foreseeable that a third party would rely on the report to its detriment.
Consultants also should be aware that the liabilities they face in conducting a site assessment extend to environmental audits. Claims of negligence, negligent misrepresentation and breach of contract both by the client and by reasonably foreseeable third-parties may be maintained against the consultant whose audit is not consistent with industry standards. Obviously, it is essential for the consultant to specify in the contract whether he is conducting a site assessment or an environmental audit. A Phase I site assessment focuses on the environmental status of the property or facility, whereas a compliance audit, as defined by EPA, requires a "systematic, documented, periodic, and objective review" of day-to-day facility operations and practices. The consultant conducting an audit, therefore, will be required to undertake a far more searching review, which carries with it the greater threat of liability.
An additional element that must be established as a part of any tort claim against a consultant is a calculation of the damages suffered by the injured party. Damages arising from a consultant's negligence are often calculated based on the diminished value of the property, or the cost of repair. Damages arising from a consultant's negligent misrepresentation are described in the Second Restatement of Torts to include the plaintiff's financial loss as a result of the plaintiff's reliance on the consultant's report, and also the difference between the value of the property and the purchase price. Environmental Auditing Policy Statement, 51 Fed. Reg. 25,004, 25,006 (1986).
THE WELL-DRAFTED CONTRACT
Contractual liability is less of a threat to consultants because often it can be limited by, and defended with, a carefully prepared contract. A properly drafted contract for environmental services clearly defines both the scope of work to be provided and also the scope of liability for failure to perform that work consistent with professional standards. A precise definition both of the scope of the work to be undertaken and of the consultant's potential liability may provide the consultant with protection against allegations of negligence and breach of contract. Contractual indemnifications and hold-harmless protections may insulate the consultant against third party claims based on the client's negligent conduct. To further reduce the risk of third party claims, the contract should state that any reports, advice or opinions are for the sole benefit of the immediate client and not unnamed third parties. Such a provision resulted in GZA's successful defense of the third-party claim in the Bronstein case discussed earlier. Further, the consultant should take care to limit distribution of their work product to clients and specified third parties. As an added protection, the contract should also provide that the substantive law of a jurisdiction limiting third-party liability will govern disputes that arise under the contract.
The contract also should take care to lay out the relevant standards under which the work will be measured. For example, the ASTM standards discussed above provide guidance for environmental site assessments and certain types of audits. Consultants should also consider including language to limit their exposure to damage claims to the consultant's fee or some fixed and measurable amount beyond a nominal sum. These safeguards are not an iron-clad defense to a lawsuit, but a well-drafted contract will help shape the contours of any dispute and may limit the damages available to a prospective plaintiff.
For a good example of the consequences of a failure to adequately define the scope of work and expectations under a contract for environmental consulting services, see Titanium Indus. v. S.E.A., Inc., 118 Ohio App. 3d 39, 691 N.E.2d 1087 (1997), in which a jury returned a verdict of $2.9 million against the consultant for failure to adequately review certain agency files in conducting a Phase I site assessment.
STATUTORY LIABILITY
Environmental consultants working at Superfund sites should be aware of two prongs of potential liability under the federal statute. Although the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") explicitly excludes contractors from the statute's strict liability scheme, CERCLA §119 authorizes a statutory cause of action against a contractor for negligence, gross negligence and intentional torts. The class of potential plaintiffs for such claims includes all potentially responsible parties. For example, in a case involving a consultant whose negligent installation of a well at a landfill caused additional response costs, the court determined that CERCLA §119 creates a cause of action that allowed the PRPs to sue the consultant for negligence even in the absence of a contractual relationship between the consultant and the individual PRPs.
A consultant performing remediation activities at Superfund sites risks possible CERCLA liability as an "arranger." The key to a consultant's arranger liability is whether the consultant had possession and control over the disposal of hazardous wastes, even if the consultant does not conduct the disposal. In Kaiser Aluminum & Chem. Corp. v. Catellus Dev. Corp., 976 F.2d 1338 (9th Cir. 1992), a federal appeals court stated that a contractor who unknowingly relocated contaminated soil at a Superfund site was liable under CERCLA as an arranger. Arranger liability, however, is not unlimited: several cases have imposed a nexus requirement between the defendant and the hazardous waste and a court will independently determine whether the adequate degree of control or possession of the waste is present before imposing arranger liability. As with their service contracts for other projects, consultants working at Superfund sites should draft a contract that transfers the risks of CERCLA liability to the immediate client through indemnification and hold-harmless clauses.
Other federal statutes also open the door to potential consultant liability. For example, in a recent decision by the Environmental Appeals Board, a consultant hired by an Ohio school district to supervise the renovation of an elementary school was held liable as an "operator" of an asbestos removal project where violations of the Clean Air Act occurred. In concluding that the consultant met the definition of an "owner/operator" under the CAA, the EAB determined that the consultant had a sufficient degree of authority over the renovation and asbestos abatement activities. The consultant, therefore, was held liable for violations of federal asbestos removal standards. New Castle County v. Halliburton NUS Corp., 903 F. Supp. 771, 775 (D. Del. 1995), aff'd in part, 111 F.3d 1116 (3d Cir. 1997).
CONCLUSION
Although the reported cases identify trends in the law of consultant liability, those liabilities are still shifting and largely undefined. Disgruntled clients and assorted third parties will continue to devise novel theories of liability to recover damages from environmental consultants. For the consultant, the best offense is a good defense: draft contracts with care to limit exposure, be aware of the standard of care required by the profession, and conduct the work in a professional manner in accordance with those standards. Certain liabilities in the environmental field are inescapable, which is all the more reason to pre-empt those that can be identified and avoided. In re: SchoolCraft Constr., Inc., CAA Appeal No. 97-1, 1998 EPA App. LEXIS 14 (U.S. EPA Feb.9, 1998).