COST RECOVERY PROCEDURES
FOR STATE UST PROGRAMS
TO RECOVER LUST TRUST FUND EXPENDITURES
PREPARED BY
THE EPA REGION IV UST ATTORNEYS WORKGROUP
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COST RECOVERY PROCEDURES
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FOR STATE UST PROGRAMS
TO RECOVER LUST TRUST FUND EXPENDITURES
PREPARED BY
THE EPA REGION IV UST ATTORNEYS WORKGROUP
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TABLE OF CONTENTS
I. Introduction 1
II. The Cost Recovery Program .. *.. .. ....;..... 3
III. Case Selection .................'.............1............... 5
IV. Elements of A Cost Recovery Action .'?» 8
V. Cost Recovery Procedures .................. i 9
A. Timing of the Cost Recovery Action ... 10
B. The Owner/Operator (O/O) Search ...... 1 11
C.. Notice Letter of Liability For Cleanup;/Costs : 13
Di The Demand Letter ,,i............. 14
E. Procedure In Event of Response From Demand Letter .. 17
F. Settlements Agreements . , . 18
G. Procedure in Event of No Response to Demand Letter . 19
VI. Cost Documentation ...../............ 20
VII. Evidence of Costs of Response Action ............... 23
VIII. Assembling A Cost Recovery Action i...' 24
IX. Maintenance and.Coordination of Evidence in Event of
Referral *. .. 25
X. Statute of Limitations .... 26
XI. Documenting Decisions Not To Take Cost Recovery Actions . 26
A. Timing of the Memorandum 26
B. Content of the Memorandum Documenting a Decision
Not To Pursue Cost Recovery ........................ 27
1. Site Description 27
. 2. Work Authorized and Conducted and Associated
Costs . i. .'. .:........,. ...... 28
3. Discussion of Basis not to Pursue! Cost
Recovery 28
4. Conclusion 30
C. New Information 30
v . ' , *
Appendix A (Model Demand Letter) 31
Appendix B (Model Close-Out Memorandum) 33
Appendix C (Outline of CostARecovery Procedures) ............. 36
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Note on Purposes and Use of This Memorandum
The procedures set forth herein are intended solely for the
guidance of UST Program managers, attorneys and other UST program
employees of the States within EPA Region IV. They do not
constitute rule-making by EPA or the States and may not be relied
upon to create a right or benefit, substantive or procedural,
enforceable at law or in equity, by any person including any
owner or operator of a DST system or facility. States may take
any action at variance with these procedures contained in this
memorandum, or which are not in compliance with internal office
procedures that may be adopted pursuant to these materials.
We believe that this memorandum generally covers the subject
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of procedures to be involved.in cost recovery actions under RCRA
Subtitle I, but if you have any questions or problems involving
this subject matter, please call:
James (Jim) G. Stevens
Office of General Counsel
Department 'of Environmental Management
1751 Cong. W.L. Dickenson Drive
Montgomery, AL 36130
(205) 271-7860
(205) 271-7950 FAX
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X. Introduction . '
Section 9003(h)(6) of the Solid Waste Disposal Act, commonly
referred to as the Resource Conservation and Recovery Act of
1976, as amended by the Hazardous and Solid Waste Amendments of
1984 (hereinafter collectively referred to as RCRA), 42 U.S.C. §
6991b(h)(6) provides generally that whenever costs have been
incurred by EPA or a State that has entered into a cooperative
agreement with EPA for undertaking corrective action or
enforcement with respect to a release or suspected release of
!'
petroleum from an UST, the UST owner or operator shall be liable
to EPA or the State for such costs.
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Although it is highly desirable to obtain response actions
in the first .instance by the UST owner or operator,, rather than
by the EPA or the State, there are and will continue to be cases
in which the state agency may respond to release? using LUST
Trust Funds monies for site response actions, and thereafter
'i
attempt to recover those costs from the owner and/or operator who
is liable under Section 9003 of RCRA and other authorities. The
recovery of LUST Trust Fund expenditures through the cost
recovery program should be a part of the state UST program. The
costs associated with such LUST Trust Fund financed response
actions are recoverable from the party or parties who are liable
under Section 9003(h) of RCRA.1 I
^Section 9003 (h)( 6) provides that whenever costs have been
incurred by EPA or a State that has entered into a cooperative
agreement with EPA for undertaking corrective action or enforcement
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Due to the possibility of cost recovery efforts in any case
in which LUST Trust funds are expended, the observation,
documentation and preservation of critical facts and response
costs is important to assure that:
1) potential evidence concerning the facility and the
owner and/or operator is noted and documented before
response activity or the passage of time obscures or
eliminates it;
2) physical evidence essential at trial is collected and
preserved appropriately; and
3) sufficient evidence of total costs and claims paid from
the Fund has been maintained and is available to
support recovery.
This memorandum describes elements which a State UST Program
( .
may probably be called upon to prove in a cost recovery action;
the assembly and maintenance of a cost recovery file; some
examples .of appropriate documentation for each element of the
case; procedures for processing and negotiating cost recovery
claims; and the mechanics of repayment of any recovery to the
Fund. The Workgroup encourages each State UST Program to observe
these procedures when working on a site on which LUST Trust Fund
monies are expended for cleanup of a UST or a facility since each
of these cleanup is the subject of a potential cost recovery
with respect to a release of petroleum from an UST, the UST owner
or operator shall be liable to EPA or the State for such costs.
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action. These procedures should be used in conjunction with
existing EPA Office of Solid Waste and Emergency! Response
guidance policy.
XX. Th.o Coat RiBCQ^*^^
Generally, the objectives of a cost recovery program are: 1)
maximize return of revenue to the LUST Trust Fund; 2) initiate
necessary litigation or resolve ready cases for cost recovery
within strategic time frames but no later than the time provided
under the statute of limitations; 3) encourage settlement by
implementing an effective cost recovery program against
nonsettlers (i.e., recalcitrant) and, 4) use administrative
authorities effectively to resolve cases without unnecessary
recourse to litigation.
In managing the program and achieving these objectives, the
State is encouraged to ensure that each response; action (and
supporting case development activities) undertaken using LUST
Trust Fund monies proceeds in a manner that will optimize its
cost recovery potential. The Workgroup believes that evaluating
each case consistent with this guidance will assist the State in
acheiving its cost recovery objectives.
The stage at which a case becomes ready for cost recovery is
an important concept, A conventional cost recoverjf case is ready
when cleanup activities are completed, although some cases may be
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ready concurrent with the initiation of on-site construction of
the corrective action or the remedial design-.
Since resources available to a State's UST program are
limited, the State should establish priorities consistent with
OUST policy guidance2 and select and plan actions in a manner and
at a time which will provide for the maximum return of LUST Trust
Fund monies to the State. A State should devote its greatest
efforts to cases where the owner or operator is solvent but
recalcitrant or where they fail to comply with financial
responsibility requirements. However, statute of limitations and
other considerations may warrant the immediate pursuit of a case.
To conserve resources, an attempt should be made to settle
cost recovery cases whenever possible. Settlement should result
in cost recovery case resolution for some cases in a shorter time
frame and with fewer resources than traditional litigation. In
many cases, it may be necessary to pursue traditional litigation.
In considering whether to litigate a case, a State should
consider the solvency of the owner/operator (O/O), the cost of
the cleanup, the likelihood of recovery, and the case's
deterrence value.
Finally, the realization of the cost recovery's objectives
depends on the effective management of all aspects of the cost
2 OSWER Directive 9650.10 entitled LUST Trust Fund Cooperative
Agreement Guidelines: EPA memorandum dated August 23, 1991 entitled
Revisions to LUST Trust Fund Policy and Guidelines; and OSWER
Directive 9610.10 entitled Cost Recovery Policy For The Leaking
Underground Storage Tank Trust Fund.
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recovery program. Each State is encouraged to implement a well-
defined process to ensure coordination among its
program/enforcement offices, its financial management office, and
its legal offices. The process should also fosteir the efficient
management of the elements of the cost recovery program including
systems to cover the following:
1) the on-going review, selection, and referral of ripe
' cases; ' v' - - -
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2) the assembly of complete cost documentation;
3) tracking and collection of fund expenditures including
cleanup, oversight and enforcement cost's;
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4) the review and documentation to close-out cases for
which cost recovery will not be pursued;
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5) the effective use of settlement or litigation
procedures;
6) the tracking and follow-through of active cases in
litigation; and, '.,-',
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7) the establishment and collection of accounts
receivable. . i
The Workgroup encourages a State to utilize
recovery enforcement authorities. Cost recovery
incentive for settlement and disincentive for refusal to settle.
An atmosphere of risk of cost recovery litigation promotes
settlement for corrective actions as well as settlements, for cost
reqovery. .
its cost
creates an
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III.
Salaefcion
The following case selection guidelines, when applied to
case candidates, will help States make decisions regarding which
actions to pursue. Moreover, these guidelines will help to
ensure that resources are mainly directed towards those cases
which have the highest potential for replenishing the Fund. This
recognizes that a full cost recovery action, including
litigation, may not be pursued for every case due to certain
factors such as O/O viability and evidentiary reasons as well as
where the.cost of collection is disproportionately high.
Generally, a cost recovery action should be scheduled for ,
every facility or site where a LUST Trust Fund monies have been
expended. For that reason, case preparation activities should
begin early in the process.
EPA guidance3 suggests that greatest efforts be devoted to
cases where the O/O is solvent but recalcitrant and in cases
where they fail to comply with the financial responsibility
requirements. If an owner.or operator or any other responsible
person cannot be identified it is impracticable to pursue cost
recovery at all. Less efforts should be devoted to cases
involving an insolvent or financially distressed owner or
'Cost Recovery Policy For The Leaking Underground Storage Tank
Trusy Fund. Oswer Directive 9610.10.
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operator. But selective.pursuit of low priority cases is
suggested when: -
1) the O/O can afford lesser amount?
2) the O/O is hiding assets;
3) the O/O fails to cooperate; or
4) the O/O was negligent in allowing the release to occur.
In determining the level of effort to apply to a particular
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case, the relevant factors to be considered include:
1) the total amount of costs;
2) the likelihood of the recovery based upon the strength
of evidence connecting the potential defendant to the
release and to the ownership/operation of the UST;
3) the extent of the release and cleanup (expenditures)
documentation; ,
4) the solvency of the O/O (i.e., the financial ability of
the potential defendants to satisfy a judgment for the
amount of the claim or to pay a substantial portion of
the claim in settlement);
5) The deterrent value of the case ys, other cases
competing for resources; and , ,
6) the opportunity costs.
Other reasons for selecting a case for litigation includes
cases where evidence linking the owner or operator to the
facility is good, the case may be used to create good precedent
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(such as a site where the State issued a unilateral order, the
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O/O did not comply, and the State is likely to obtain a favorable
ruling for costs including interest, treble damages and/or
penalties), or the case is otherwise meritorious.
Another category of cases are those where there has been a
partial settlement providing the State less than full relief and
there is another viable non-settler. For example, where the
State has settled with the UST operator but the UST owner refuses
to settle. These actions should be pursued promptly as a
disincentive to a non-settler.
These guidelines do not relate directly to bankruptcy
actions because they often present particularly difficult case
selection and management issues. A State is frequently operating
under time constraints with imperfect information. Nonetheless,
it is important in bankruptcy cases to make reasoned and informed
judgments on whether a bankruptcy action is worth pursuing, given
other demands on State resources. This requires, at a minimum,
an evaluation of the following factors:
1) the amount of funds to be recovered;
2) the evidence against the O/O; .
3) the likelihood of a full or significant recovery given
the assets and liabilities of the O/O;
4) the claims of secured and unsecured creditors; and
5) the likely State resources involved. , ,
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When the likelihood of significant recovery compared to
resource utilization in pursuit of the recovery is high,
bankruptcy actions should be pursued..
Action
To successfully pursue a cost recovery action, a State
should be prepared to introduce evidence demonstrating:
1) there is a release of petroleum into the environment;
2) the release is from a facility;
3) the release caused the State to incur response costs;
4) the Defendant is an owner or operator under the State's
UST statute. '_ '
The financial condition of a responsible party is not an
element of proof of the case. Even so, the financial condition
Of the 0/0 may be considered4 in determining the feasibility of a
cost recovery action. ,
The chief elements of a cost recovery action and the nature
of evidence required to sustain them are discussed below.
4 While we do not believe that it is necessary to introduce
evidence that clean up would not have been done properly by the
owner or operator of a facility or by any other responsible party,
it would be, prudent to have available evidence of efforts by^the
State's UST Program to obtain a response iaction at the facility.
The notice letters forwarded by the State ;to owner or operator and
their responses are examples of such evidence.
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V.
Coat Raeovmr Pro
Specific cost recovery procedures may vary among the various
Region IV States. The workgroup encourages each State to follw
these guidelines as closely as possible for consistency.
Generally, the fundamental procedures for a cost recovery action
are : .
(1) determination of a release;
(2) notification of liability to the owner and operator;
(3) negotiation/settlement of case;
(4) response action (if owner or operator is unable or
unwilling to conduct cleanup) ; .
(5) demand for payment;
(6) negotiation/settlement of cost recovery claim;
(7) cost recovery litigation (if settlement efforts fail) ;
and
(8) collection of cost and case closure.
Although each State has considerable discretion in
prioritizing cases for cost recovery and in determining an
appropriate level of effort to devote to each case, each State,
at a minimum, should make the following cost recovery efforts for
cases in which LUST Trust Fund monies were expended.* These
minimum efforts are:
1) to identify any viable O/Os;
°.CPSt Recovery Policy For The Leaking Underground S
Trust Fundr Oswer Directive 9610.10. Tr___..
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2) to notify O/Os of their liability for enforcement and
corrective action costs; and
3) to demand payment of costs. .
A*Pimi»CT of felia Co>fc Raeovagv Action
' '' ^^^I^HflpHnlBriBbaiJMHB^^^^ABHBMUttiMMHi^^BBl^^^BHii^v^MMMKll^flB^kMEHB ' ,'
Cost recovery actions for expenses incurred in clean-ups do
not have to be initiated until after such response activity has
been completed. However, a cost recovery action need not be
delayed where there is a multi-phase response action being
implemented (e.g., soil cleanup and groundwater cleanup) . A cost
recovery action can begin before completion of the last .phase of
response activity or costs expended to datej and also for
calculable future costs .
Where one stage of cleanup follows another in fairly rapid
succession, cost recovery actions should be initiated, after the
cleanup is fully completed. In situations where there are
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substantial delays between phases, however, the State may decide
to commence a recovery action at an intermediate stage. In these
instances, negotiations regarding recovery of expenditures may be
combined with discussions with the owner or operator over
prospective cleanup activities . At a minimum, all cost recovery
actions should be initiated before the State's statute of
limitations expires .
B . Tha Ownai'/Opoga.toir . CO/Oi Saageh <
The identification of the O/O is central to all cost
recovery actions. The search should uncoveir a party with whom
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the State may negotiate and from whom the State may seek recovery
of costs in the future, as well as develop the evidence of
liability that may be used in litigation. The O/O{search should
be initiated following the initial discovery of a release. The
search may continue throughout the cleanup and cost recovery
process. . . -
At the time of discovery of a release, a preliminary O/O
search should be conducted by the State to identify the O/O of
the DST facility. The completed search should include the
following tasks:
1) history of operations at the UST .facility;
2) verification of the ownership of the facility property;
3) State agency record collection and file review;
4) O/O status and history;
5) records compilation;
6) issuance of information requests;
7) financial status determination;
8) O/O legal name and address updates; and
9) the preparation of an O/O search report.
Any or all of these items should be obtained prior to the
initiation of the cleanup action where time permits. However,
since some cleanups,are of an emergency nature, and there is
often little time prior to initiation of such emergency actions,
there may not be time to obtain, all search items prior to the
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II
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cleanup. Each search should be initiated at the earliest,
possible time prior to the completion of the -cleanup.
Program, enforcement and legal staff should work closely
together in the development of the O/O search from the initial
planning stages through the production of the search report.'
During the cleanup action, the search for the owner or
operator (i.e., responsible parties) should continue. Any newly
identified owner or operator, if any, shouid be issued notice
letters and administrative, orders as appropriate.
At a minimum, after the completion of the cleanup, the O/O
search should be evaluated for completeness. The State's legal
counsel assigned to the case should review; the search for
evidentiary sufficiency. The decision to conduct any additional
search activities not yet initiated should be made on the basis
of the sufficiency of the evidence and consistent with the total
costs of response arid the likelihood of identifying
any additional O/O. The higher the costs Of response, the
stronger the effort should be to locate and link an O/O to the
facility.
If the search has not identified any viable owner or
operator, the case should be closed out by way of a cost recovery
close-out.memorandum. This will provide documentation that the
cost recovery potential has been evaluated and remove the case
from further consideration. j
C.
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One of the first steps in establishing cost recovery
liability is to document that ail parties (all O/Os identified by
the O/O Search) were notified of their potential liability for
the response action and/or the cost of the response action if
conducted by the State including oversight and enforcement costs.
The notice should also give the owner and/or operator the
opportunity to conduct the response action and, if so, to contact
the program staff. In addition, the notice should infbrm the
adressee(s) that, if they do not conduct the response action, the
State may conduct the response action and may seek to recover the
costs of the action from them at a later date. The notice should
be issued to the identified owners and/operators upon the
completion of the O/O Search. .The notice letter should contain:
1) confirmation of potential liability as O/O for:
a) response action; or
b) costs of investigation, planning, response,
oversight and enforcement including interest; and
c) civil penalties
2) reference to the State's UST statute and RCRA Subtitle
I to establish liability;
3) a statement that a release has been documented;
4) information indicating that addressee is O/O of UST
facility;
5) notification of forthcoming response action that O/O
may be asked to perform or finance;
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6)
7)
8)
a description of planned response actions if available;
a statement encouraging O/O to contact Program; and
a statement that the letter is for notification and
I
information purposes and is not a final agency
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decision.
The primary responsibility for preparation and issuance of
the notice letter should be in the State's program office.6
P. Thfl
The first formal step in the commencement of a cost recovery
proceeding will be the issuance of a letter of demand from the
State to the owner and/or operator as potentially responsible
party or parties for payment of costs expended on the site. A
demand letter should be sent to all parties in a case who have
been identified as an owner and operator and should be issued
after all response activity has been completed, or at the
completion of one phase of a multi-phase response where the
entire process will require an extended period of time.
Before a demand letter is sent, the potential case should be
analyzed for the elements in part III above, including ident-
ification of the owner and/or operator and assembly of cost
information. At the time the demand letter is sent, the State
should be able to answer reasonable questions posed by a
' 'Program and legal personnel should consult with their
supervisors to determine who has delegated authority or
responsibility for preparing and issuing demand letters in their
State. . ... '
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recipient of the letter. Program personnel should have referred
the case to the program attorney (or recommended against an
action) and program staff should have resolved their position on
a referral so that the State is prepared to file a complaint if
the response to the demand letter is unsatisfactory.
The letter should be issued where response costs have been
incurred regardless of whether a decision iias been made to
initiate a judicial proceeding for cost recovery.
The demand letter should contain the following points:
1) reference to State's authority to recover costs for the
response activities;
the location of the site;
the presence of petroleum released from the UST;
in general terms, the dates and types of response
activity undertaken by the State at the facility;
any notice(s) given to the recipient prior to or during
the response activity allowing the recipient the
opportunity to undertake the work or pay the expense of
the response action;
the total cost of the response activity7 broken down
t
into general categories;
2)
3)
4)
5)
6)
It is suggested that the amount stated in the demand letter be
the total obligated by the State to be expended on the site, rather
than the amount shown by State records to have been expended on the
sxte at the time the letter is prepared. This is to avoid problems
caused by delays in payment of response costs after a demand letter
has been forwarded to the owner/operator. Even so, available
records should be assembled as soon as possible. Where it is
expected that future costs will be paid (e.g., in the next phase of
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7) a general statement that the State has determined that
the recipient is a responsible party and liable for the
sum, set forth;
8) the demand for payment; <
,S>) a statement that the recipient of the letter should
contact the Sate within a specified period (normally
thirty days) to discuss the account and the recipient's
liability therefore; '
10) a warning that if the recipient faiils to contact the
State within the specified time, a. suit may be filed in
the appropriate court for recover]^ of the costs;
11) a warning that the "amounts recoverable,in an action
shall include interest on all costs incurred by the
State as a result of the cleanup activity. Such
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interest shall accrue from the later of (i) the date
payment of a specified amount is demanded in writing,
or (ii) the date of the expenditure concerned."; and
12) the name, address and telephone number of a
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representative of the State who the recipient should
response activity), the letter should also clearly state that in
addition to the sums already obligated and spent, the State expects
to expend additional sums on the site for which claim will be made
against the owner/operator. Of course, in a proceeding in the cost
recovery action, the State will be required to prove the actual
amounts spent from the LUST Trust Fund.
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contact. [A sample demand letter is attached to this
memorandum, as Appendix A.]
Like the notice letter, the primary responsibility for
preparation and issuance of the demand letter should be in the
State's program office."
In
of ftaf
In many cases, the .recipients of demand letters will contact
the program office and express interest in discussing their
status as a responsible O/O. The State should encourage such
negotiations. These negotiations often lead to the settlement of
the case.
The State has several ways to settle a cost recovery action:
1) a consent decree; .
2) an administrative order; or
3) a memorandum of agreement or inter-agency agreement (if
the responsible O/O is another governmental agency).
In some cases where the party is unable to pay in a lump
sum, or where there is the legitimate reason for delayed payment,
the State may want to allow settlements in which the responsible
O/O agrees to pay the claim in periodic payments. Before
considering installment payments however, it is suggested that
Program and legal personnel should consult with their
supervisors to determine who has delegated authority or
responsibility for preparing and issuing demand letters in their
State.
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,the State review the financial condition of the responsible O/O
to determine if installment payments are warranted.
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F.
> If negotiations are successful, agreements
i
should be formalized in an administrative document9, a judicial
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consent decree. If the settlement involves janother public
'. ' . - ' i ; " . ' '
agency, the agreement should be formalized in an Inter-Agency
Agreement or a Memorandum of Agreement. The State may enter a
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partial settlement with an O/O and seek to recover unreimbursed
costs from other nonsettlers. Where the State does enter into a
partial settlement, any viable recalcitrant O/O should be pursued
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.as soon as practicable for the remainder of the costs.
The settlement agreement should contain a provision which
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describes the manner of determining the amount, the documentation
to be furnished by the State, the schedule for billing by the
State, and payment by the owner or operator of the oversight
costs incurred by the State.
Where a settlement agreement contains a| provision for the
! ' '
reimbursement of oversight costs, the program office should
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establish an account receivable and track re'ceip^ of the
oversight costs. ;
A settlement for the O/O to conduct the cleanup may include
the requirement that the O/O pay for cost incurred by the State
9 The State should determine if the program has the authority
to settle cost claims administratively.
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in obtaining assistance, from third parties in the oversight
including extramural costs (contracts and interagency agreements)
and intramural costs (payroll,' travel and other costs) on a
specified schedule.
(5. Procaduga in Kvaiit of No Siaaponaa to Pommel
If no response is received to the demand letter, the State
should determine whether the facts of the case justify the State
taking further steps to pursue the cost recovery claim . A
decision whether the case should be referred to the program
attorney should be made by the program at the time. Relevant
factors to consider include:
1) the strength of the facts . connecting the potential
defendant (s) to the release and as the O/O of th£ UST;
2) the extent of the release, remedy and expenditure
documentation by the State; and
3) the financial ability of the potential defendants to
satisfy a judgment for the amount .of the claim or to
pay a substantial portion of the claim in settlement;
In considering the ability of the potentially responsible
O/O to pay, the State should assess the financial condition of
!f. ^ < .
each potentially responsible party.
The determination of the program to initiate a cost recovery
action should be forwarded in the same manner as the referral of
other matters for litigation (typically by a memorandum from the
program director to the legal office director) . ;A decision not
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*'.'. .".' 21 '.',' . ' '. -
to initiate a cost recovery action must be reflected in a close-
i ) . - -
out memorandum as is discussed in more detail in this memorandum.
An affirmative decision should be made by the State in each case
in which LUST Trust Funds are expended, whether that decision be
to proceed or not to proceed. This is necessary because of the
> .- - ,.!','
State's accountability for management of the LUST Trust Fund
monies.
VT. CQgtDoeuiaaiita.t3.on
The development of the cost documentation is central to the
Agency's ability to recover costs. If after completion of a
cleanup, a decision is made to file a cost recovery action, the
cost documentation will serve as the basis for the action.
Pursuant to EPA Policy, States must maintain cost recovery
accounting and recordkeeping systems that:
1) documents expenditures;
2) supports cost recovery actions with* specific records;
I
3) demonstrates that recovered monies are retained and
used for additional eligible activities; and
4) conforms to these guidelines and the LUST Trust Fund
Financial Management Handbook.
Documentation for cases should include'the total costs of
the response activity,. These costs may include:
1) State administrative expenditures including personnel
(management and support) payroll cjosts;
2) contract costs;
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3) money paid to other state or federal agencies through
interagency or cooperative agreements;
4) oversight costs10 including personnel payroll costs;
5) enforcement costs; and
6) interest on costs.
The Workgroup encourages State personnel to document all
time and travel associated with a cleanup action. It is
suggested that a site-specific account number be used to document
all of the above costs. Moreover, it is suggested that the site-
specific information regarding cleanup activities be documented.
This site-specific information may include:
1) the facility location and description;
2) the results of investigation (including identification
of O/Os);
3) all enforcement actions taken; ,
4) responses taken and time frames; and
5) all costs with contractor invoices.
Pursuant to EPA policy guidance, site-specific accounting is not
required for every site.
Enforcement costs should be documented. .Enforcement costs
may include:
1) all expenditures reasonably related to inducing a
recalcitrant responsible party to comply;
10 A State may choose not to pursue oversight cost alone as an
incentive to O/Os to cpnduct the cleanup.
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23
2)
2) all expenditures reasonably relatfed to recovering
cleanup expenditureso
3) Salaries and other expense associated with case
development, negotiations, and litigation.
States should establish a cost-effective accounting system
to support recovery of Fund monies in court. Essential features
of such a system are:
1) is adequate for both cost recover]/ and audit purposes;
at a minimum, it should provide paropf that:
a. the work was authorized by the State;
b. the work was completed;
c. the State was billed; and
d. the bill was paid.
assist the State in responding to arguments that the
cost are unreasonable and/or unnecessary.
Additional documentation may be requireid later to respond to
an O/O in negotiation or to prepare for litiigation. The
Workgroup recommends that the documentation of activities and
accounting of costs should occur whether the cleanup is being
conducted by the State or .the O/O under State oversight.
During a LUST Trust Fund-financed cleanup, each State
contractor or other organization should be responsible for
keeping a seperate accounting of its activities and the ,costs
corresponding to those activities/items. Agreements with other
3.
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24 .
State or Federal agencies should include requirements that they
maintain documentation according to standard State procedures for
cost recovery . Cost documentation should be maintained at least
as long as the state's statute of limitations period.
When the cleanup is being conducted by the owner or
operator, the State may document all costs of all Fund-financed
activities associated with the oversight of that action.
Once a case for the recovery of remedial action costs has .
been referred to the State's Legal Division, the Program must
periodically document on-going costs incurred and submit these
costs to attorneys . The litigation team should discuss the
frequency and timing of the periodic cost up-dates.
VJLI f
no of Cocta of Ra
aa Action
Collecting evidence of costs of a response action taken at a
facility is likely to be a time consuming task. Documents must'
be -obtained from a variety of participants in the cleanup
activity including agency contractors and others. The success of
any cost recovery action depends upon the use of good bookkeeping
and record collection techniques .
A variety of mechanisms are available for tracking costs.
Whatever method of accounting is used, it should ensure accurate
record keeping and preservation of all costs attributable to a
particular UST or .facility. To further this objective, contracts
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-'"' " .'V ' - ,'25- ' '' '.
between a State and the contractor for performance of a response
action should specifically require that accounting procedures
used by the contractor be approved by the State.
' - . ' i -
Each State is encouraged to establish an accounting and
expense-tracking system and should be followed closely by all
State agency personnel and contractors working on LUST Trust-
' ' - \ .
funded facilities. This system generally involves the assignment
of a unique accounting number to each specific 'site, and the
charging of time, material and other expenditures to that account
number. i
Evidence of the cleanup costs should be preserved and
available for introduction into evidence. This; could include
*!'.-'''"
such documentation as receipts for money paid for goods or
services; canceled checks; contracts and any amendments thereof;
purchase orders; invoices; records of time spent, where the claim
includes the value of such time;'travel, records and vouchers; and
records of all correspondence or other communication regarding
the actual costs, as well as progress reports oh the work
performed. The names, addresses and telephone numbers of all
persons maintaining the regular business records of contractors
or other persons outside the State agency should also be
maintained for ready reference.
VIII. annomKlJnO A Cogfc
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26
The assembly of evidence for a cost recovery action begins
with the first response action taken under the State's corrective
action authority. The potential for a cost recovery action
should be presumed; accordingly the collection of relevant
documentation is important. Generally, a State should pursue a
cost recovery action when there is a solvent owner or operator.
Where other government action(s) against the owner or operator is
contemplated or pending, such as an action to compel compliance
with applicable UST requirements, i.e., to provide release
detection, a cost recovery count for costs may be added to the
ongoing litigation.
S ' .
\
The State's UST Program has the responsibility of collecting
and maintaining the documents used as evidence in cost recovery
actions. In matters requiring legal.opinions (such as the legal
right of the State to enter a facility) or the preparation of
legal documents, the program manager should consult
with and obtain the assistance of the State's. program attorney or
the appropriate State Attorney General. .
T* V UA 4 v*4
±X« MAa.ni
of Efrri.dancA in
of
There will inevitably be logistical difficulties in \_
maintaining and coordinating the production of the mass of data,
contracts, cost records, and other evidence generated in a
response activity. It is very important to provide for an
orderly method of expeditiously providing that information during
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the course of a cost recovery action for use diiring case
development, discovery, and trial. . - - -j
Records documenting LUST Trust Fund expenditures should be
maintained for a period of not the State's applicable statute of
limitations.
The Workgroup encourages the State to maintain and
periodically update the cost expenditure tracking system for each
facility referred to above, so that an itemizat^ion of all costs
attributable to a particular facility can be quickly obtained.
' t ' ' . : - '
When a determination is made that a case should be referred to
the program attorney for filing (or, if necessairy, during the
time that the demand letter is being prepared o'r the case is
being considered for referral), a request can be made of the
persons, firms or agencies involved in a response activity for
copies of its records. At that tire, a complete file of all
records involved in the particular case can be compiled and
delivered. to the program attorney with copies of the complete
file made available to appropriate State personnel.
X. Statute of
.
Tha Workgroup ancouragas that aach Program attorney research
' . ~ i '
and datarmina if it« atatuta of limitations is lik« or unlike
f«d«ral SOI. lair.
XI. Domimftntina Daeiaiena Mofe Te Take Coafc
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28
If upon review of the case, the State decides not to pursue
a cost recovery action, the decision should be documented in a
cost recovery close-out memorandum. A close-out memorandum (See
Appendix B) provides documentation for why the State has not
pursued cost recovery in a particular case. Moreover, this
memorandum will provide information necessary for predicting
revenues for fund-lead cleanups in future years.
AqMmJLnrr of tb* Memorandum
. ^jyQjiQt^M&^^MjBBUI^^SEHIIIflUiAttaBlaliB
When to prepare a cost recovery close-out memorandum will
depend upon the specifics, of the case. Normally, the decision
not to pursue cost recovery should b^ made some time after the
case would be ready for referral of an action to the program
attorney for cost 'recovery. Cleanup actions are ready for
referral immediately .following completion of the cleanup. The
close-out memorandum may be prepared as soon as the State is
reasonably sure that information developed later has no bearing
' **
on viability of a cost recovery action. For example, if a
thorough O/O search is conducted prior to the commencement of a
LUST Trust Funded cleanup but no viable O/Os are found, a cost
recovery close-out memorandum may be prepared while the cleanup
is underway. If there is a settlement for less than all costs
and the State does riot intend to recover the remaining costs
fe.g^f where there are no viable O/Os), this should be addressed
in the close-out memorandum.
B Co.nfc0nfc of thfi MfCTPriinClyP. PPffmfr^ufcJ-**1? * DaeJ-g3-O]ft Mot To
Pumua Co«fc
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,-' - ' ''' 29 ' '.'' . '-.
.If all available -enforcement information on a site points to
a recommendation not to pursue cost recovery, SL cloise-out
memorandum should be written by the program stsiff with program
manager approval and, where legal,issues are involved, in
j
consultation with the program attorney. The Memorandum and its
! , '
supporting documents if any should be placed in the permanent
site file.
The memorandum should include four sections:
1) Site Description;
2) Work Conducted and Associated Costs;
3) Discussion of Basis not to Pursue Cost Recovery; and
4) Conclusion.
Bl. Site Description
This section should briefly identify the s^Lte and its
ir
location, and an identification number, if any. It should very
briefly describe the environmental condition ofjthe site.
B2. Work Authorized and Conducted and Associated Costs
This section should briefly describe the action(s) taken by
the State or a contractor at the Facility and the initiation and
completion date of the response action(s) taken. In addition,
'i
this section should provide an estimate of the amount of money
spent or expected to be spent for all past and future response
actions. This section should also note any previous settlements
(whether for work or cost recovery) and the dollar value of the
settlements. , |
B3. Discussion of Basis not to Pursue Cost Recovery
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This section should include the information that leads the
Program Director to the conclusion that further cost recovery
efforts should not occur. The memorandum must clearly state £he
reason that the decision was made not to pursue cost recovery at
the facility. Possible reasons include:
1) No O/O was identified for the facility. The O/O search
report or other documentation of the completed O/O
search effort should be referenced. ,
2) The O/Os identified in the O/O search are not
financially viable. A written evaluation of the
ability of any identified O/O to pay a judgment for the
amount of the claim or to pay a substantial portion of
the claim in settlement should be conducted during the
O/O search." The close-out memorandum should
reference the results of the evaluation.
3) The available evidence does not support one or more
essential elements of a prospective case and there is
no reason to believe that such evidence can be
discovered or developed in the future.
4) The total costs of cleanup at the facility does not
exceed projected litigation costs and settlement
efforts have been exhausted. While such small cases
"A CERCLA guidance document entitled The Potentially
Responsible Search Manual, (OSWER Directive No. 9834.6) provides
information on how to go about collecting information on the
financial status of companies and individuals.
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- - " '' '''' 31 :: :'. .
i ' ,
should not automatically be closed out for this reason,
some may have to be.
5) There may be reasons, not identified'above, that form
' ' . i
the basis for making a decision not to pursue cost
: ! . '' '
recovery (or further cost recovery) &t a particular
facility. One example is the existence of an agreement
' ' - , ' ' '
by the Q/O (in the form of a consent iorder or decree)
to conduct the response action(s) approved by the
State. While the Agency may not haves waived explicitly
in the settlement some or all of oversight costs
': , ' ' .!",,.''
incurred, the Agency may decide later not to pursue
those costs because the O/O has been [cooperative in
agreeing to conduct work. In this example, if there
are nonsettlors, the close-out memorandum should
analyze the case against them based upon the factors
j. " !
delineated above. A low dollar threshold should not
, - I . -
necessarily apply to a case where there are
recalcitrant O/Os or nonsettlors.
Each close-out memorandum prepared should contain at least
one of the above reasons but should contain all the reasons that
exist.
B4. Conclusion
The conclusion should restate the amount -o1f the' total
response costs expended or projected for the site not previously
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- - . / ; 32 ..
recovered. It should also briefly restate the basis for not
pursuing cost recovery at the site, " ,
C. Nay Inf engirt Jl OH
In the event that a Cost Recovery Close-Out Memorandum has
been issued and new relevant, information comes to light, the case
should be re-examined to determine whether the decision not to
proceed with cost recovery efforts is still valid. Factors to be
reviewed include:
1) the total dollar amount of funds expended or to be
expended; .
2) any changes to.the strength of the case resulting from
new information; or
3) the financial condition of the O/O changes.
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Appendix A
(Model Demand Letter)
XYZ Corp.
Someplace, State 00000
Re: Name, location of site
Dear Sir or Madam:
On or about
into the environment of petroleum from the
located at or about
199_/ there!,were releases
facility
[In addition,
4-KA~~t n ~~T : - LJ-ii.aaait.ion,
there were releases of petroleum that may present an imminent and
substantial danger to the public health or welfare ]
On or about , 199_, the State of :] " ' .
Department of __ __ . (the Department1) gave [oral]
notice to you (which was confirmed by letter of ' 199
advising you regarding the referenced facility and that you ar4 a
oLWS°Kmayube liable as an owner and/or .operator for money
expended by the government to take corrective action at the
facility. We offered you tlie opportunity to discxiss with
_ your voluntarily taking corrective action necessary to abate
SX*S!ir0r«.J:leanUp any releases from the facility. You did not
undertake the necessary corrective actions.
In accordance with (insert State statutory! authoritv) and
.Section 9003 of the Solid Waste Disposal Act, commonly^ referred
to as Subtitle I of the Resource Conservation and Recovery let of
llll' S r*"1?1^ «by<^he 5anard°US and Solid Was^e Amendments of
1984, 42 U.S.C. Section 6991b, the (name of the State agency),
pursuant to an agreement with and funding by the United States
Environmental Protection Agency (EPA), undertook a response
action using Federal, LUST Trust Fund monies provided for such
actions at the above facility. The action began on or about
, 199_, and continued to on or about ' ' ' 199
The State's response action entailed the (describe generally'what
WoS QOZ1G j . . ,
The cost of the response action [performed] (caused to be -
performed by the Department at the facility] (was) [is currently)
approximately $ _ _^_ [The, Department anticipates *&n^yJ
expending additional funds in the future under authority of
loofwrt State's statutory authority) and RCRA § 9003, 42 U.S C
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34
Pursuant to the provisions of (insert State's statutory
authority) and Section 9003 of RCRA, we have determined that you
are liable for the payment of all costs expended at the facility
to the LUST Trust Fund established pursuant to Section 9003 ;of
RCRA, 42 U.S.C. 6991b, which is administered by the Department in
the State of : through an agreement with EPA.
We hereby request that you, as the [owner][operator] make
restitution by payment of the herein stated amount plus interest
pursuant to (insert State's statutory authority) [together with
any sums hereafter expended by the Department at the facility
pursuant to authority of RCRA). [The names of other responsible^
owners/operators receiving this request for payment are enclosed
with this letter to facilitate organization among the identified
parties concerning payment.) If you desire to discuss your
liability with the Department, please contact the person named
below in writing not later than thirty (30) days after the date^
of this letter. We will otherwise assume that you have declined
to reimburse the LUST Trust Fund for the facility expenditures
and will subsequently pursue civil litigation against you.
Sincerely,
Contact Person:
[Name]
[Title]
[Address)
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35
App«ndi.x B
(Model Close-Out Memorandum)
MRMORANDTTM
DATE;
SUBJECT:
ABC Manufacturing Plant UST Facility
Case #
FROM:
TO:
[Name of program staff responsible fox preparing the
memorandum]
memorandum]
[Name of the UST Program Manager]
- The purpose of this memorandum is to detail the reasons that
form the basis of the Division's determination that the recovery
of LUST Trust Fund monies expended at the above referenced UST
facility should not be pursued.
1) Sit« Description
The ABC Manufacturing Company (the company) is commercial
textile manufacturing facility located at 345 Main Street in
Mountain City, Tennessee. The company is the owrner/operator of
five (5) underground Storage tanks (USTs). All 5 USTs are located
at the company's above manufacturing facility. The USTs,are used
to fuel the company's truck fleet.
The Division of Underground Storage Tanks (ithe Division)
received a complaint on May 13, 1993 concerning Ithe domestic
water well at the Elmer Brown residence located adjacent to the
company's facility in Mountain City, Tennessee. On May 17,> 1993
Division personnel from the Johnson City Field Office
investigated the complaint. A water sample was 'collected from
the Brown's water well. Analysis of this sample indicated the
presence of petroleum constituents above the Division's drinking
water limits. The Johnson City Field Office contacted the
company on May 21, 1993 and talked with the company's president,
informing him of the results of the analysis of the Brown's well
water. During this phone conversation, the Johnson City Field
Office requested that the company provide an alternate water
supply to the Brown residence and the company deplined the
request. :
The Division required the company to perform a site
assessment at their UST facility. Soil and ground water
contamination was found on the company property, I however, no
petroleum constituents were detected in ground water samples
collected from two (2) monitoring wells installed between the
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36
contaminated zones on the company's UST site and the Brown's
property. Therefore, no direct connection was established during
the assessment between the contamination found at the company's
UST facility and in the Brown's water well. There have been
numerous meeting between the company and the Division attempting
to settle this case. All settlement attempts have been
unsuccessful and the company will not admit any liability for the
contamination discovered in the Brown's water well.
2)
Work Conducted and Associated Costa
On May 26, 1993, the Johnson City Field Office requested
approval from the Division's Contract Management Section to use
LUST Trust Fund monies to provide the alternative water supply
for the Brown residence. On May 28, 1993, the Contract
Management Section sent a Notice to Proceed to the Division's
Emergency Response Contractor, XYZ Environmental Engineering,
Inc., requesting the installation of a filtration system to the
Brown's water well and the, delivery of bottled water for human
consumption. The Division provided ;these services at the Brown
residence for approximately six months expending $11,741.22 from
the LUST Trust Fund. In November of 1993, the Company had the
Mountain City water supply line extended and connected to the
Brown property.
3) Discussion of Basis not to Pursue Cost Recovery
The Division has decided not to pursue cost recovery of the
$11,741.22 expended from the LUST Trust Fund at the above UST
facility. This decision is based on the following reasons:
1. The Division was unable to establish a direct
connection during the assessment between the
contamination found at the company's UST facility and
in the Brown's water well.' Therefore the Division
believes that the available evidence does not support
the elements of a cost recovery case and there is no
reason to believe that this evidence can be discovered
or developed in the future. All settlement efforts
have been exhausted. The only avenue left to pursue
cost recovery is through litigation. Considering all
the evidence of this case, the Division believes that
pursuing cost recovery through litigation is not a wise
use of the Division's mone'y or resources.
2. The total projected costs to litigate this case will
exceed the $11,741.22 expended from the LUST Trust Fund
at the above UST facility. Due to the lack of
evidence, litigation of this case may be unsuccessful.
The Division believes that pursuing cost recovery
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37
through litigation is not a wise use of the Division's
money orresources.
4)
Conclusion
The Division terminated activities at the Brown residence in
November of 1993 when the residence was connected ;to city's water
and the filtration system was removed from the Brown's water
well. The Division has no plans to pursue cost recovery due to
the results of the environmental assessment at the company's UST
facility. If the Division were to institute an assessment to
attempt to prove a direct connection and/or to litigate the case,
the costs would at least equal and probably exceed the costs
expended to date. Therefore, the Division plans n|o further
action at this site including cost recovery.
Approved:.
UST Program Manager
Date:.
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38
(1)
(2)
(3)
(4)
Appendix C
(Outline of Cost Recovery'Procedures)
Discovery of a release and identification of.the owner
and/or operator (O/O) of the UST.
A. an inspector may investigate and identify the O/O via
the owner search.
Evaluate whether the State will use LUST TRUST fund monies
to remediate the site.
A. determine Whether the O/O is financially unable to
perform the corrective action at the site.
b. determine whether the O/O is finacially able to
remediate the site but refuses or fails to do so.
c. determine whether the State is expending LUST TRUST
funds to address an emergency situation.
Send a Notification Letter to the O/Os.
a.
'b.
notify the O/O of his/her liability and responsibility
under the Act and regulations.
send the Notification Letter to the O/O by certified
mail.
Implement the cleanup action at the UST site.
a.
the State must establish and maintain records and
documents of all costs expended to cleanup the site.
b, the Workgroup recommends a tracking and records system
which generates site-specific documentation; the court
system his granted recovery to states in cost recovery
actions where the State presented documents and records
identifying costs with site-specific records and
documentation.
i ' ' -
(5) Once the cleanup is complete, reevaluate the facts and
circumstances to determine whether the State will seek cost
recovery.
a. determine whether the O/O's financial condition has
changed. .
b. determine the total amount of costs the State will seek
to recover from the O/O.
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39
(6) If the State has determined that it will not seek cost
recovery, prepare a close-out memorandum-.
(7) If the State has determined to seek cost recovery, send (via
certified mail) a Demand Letter to the O/O.
(8) Contact and discuss with the O/O the payment of the costs
and the payment plan for the debt.
(9) If the O/O fails to response or pay the assessed costs,
refer the case to the program attorney to p.ursue an
administrative or court action to recover tine costs.
(10) Institute the appropriate rost rerovcry action through the
program attorney.
(11) Collection of costs, via settlement or litigation, and case
closure.
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