Sponsored by American Conference Institute
By Jaclyn Jaeger on behalf of ACI Insights
New regulations on the horizon from the Environmental Protection Agency (EPA) and a state-by-state patchwork of PFAS bans have created a landscape of heightened compliance and litigation risks for all businesses and manufacturers that use PFAS chemicals. Failing to properly mitigate these new risks could result in major supply chain disruptions, significant penalties for non-compliance, litigation costs, environmental liabilities, and more.
Latham & Watkins partner Julia Hatcher, and Lowenstein Sandler partner Kegan Brown are co-chairs of American Conference Institute’s Summit on PFAS Regulation, Compliance, and Litigation, taking place in May. They recently caught up with ACI Insights to offer a preview of the latest PFAS-related developments to be discussed.
Q: At a high level, what are some of the most pressing PFAS-related regulatory and litigation concerns?
Brown: The science is not keeping up with the evolution of the legal landscape. We have a lot of regulations that are either being proposed or being finalized and a lot of litigation claims that assume that all PFAS, to some degree, pose an unreasonable risk to human health and the environment. The litigation and regulatory landscape are outpacing the actual science, which creates challenges across the board.
Hatcher: There are critical applications of PFAS – in semiconductor manufacturing and certain types of medical devices, for example. Trying to separate from a policy and regulatory standpoint the critical applications of PFAS, how to identify them, and preserve their use is a big challenge.
Q: Looking ahead, the EPA will soon issue a final rule designating PFOS and PFOA as hazardous substances under CERCLA. What practical implications could this have on all potentially responsible parties?
Brown: Practically, the rule means that those two PFAS compounds – PFOS and PFOA – will be subject to investigation and remediation processes under the federal Superfund statute. This will expand the scope of investigations at existing contaminated sites. If PFOS or PFOA is detected above the applicable regulatory limit, additional investigation and cleanup efforts will need to be taken, and those costs will have to be borne by one or more potentially responsible parties. For new sites that are being listed on the Superfund list, this is going to be another issue that will need to be looked at and addressed.
Hatcher: There will be a lot of litigation between potentially responsible parties about who is actually responsible for the contamination. That litigation is going to be pretty complex because much is not currently and widely understood about all of the different historical uses of PFOS and PFOA in many value chains.
Q: What can companies do to best mitigate PFAS regulatory and litigation risk?
Brown: Having a good understanding of where they might have a PFAS nexus is step number one. Often, companies think they either don’t use PFAS or think they have used it only in small applications. It’s only when they start to dig a little deeper that they find out it’s being used in broader applications, which creates additional risks. The first step is to understand the scope of the potential problem. Once they do that, then they can chart a strategy to identify the most pressing legal risks and reduce them. On the regulatory side, they may decide it is appropriate to put additional environmental controls or treatment systems on certain waste streams so that they are proactively treating for PFAS to get ahead of any potential issues.
Q: What developments should legal counsel for manufacturers and importers of PFAS be aware of regarding the EPA’s “significant new use rules” under the Toxic Substances Controls Act (TSCA)?
Hatcher: The manufacture and import of any new chemical – not currently on the TSCA inventory of existing chemicals – that meets the definition of PFAS will have to go through a new chemical approval process with the EPA. EPA does have a PFAS policy for its new chemical approval review, which recognizes that certain critical uses of PFAS chemicals exist and if exposure and release can be eliminated, then that new PFAS chemical could receive EPA approval; however, the policy makes clear that the review will be rigorous, and getting a new PFAS chemical approved by EPA will be challenging. Separate from the process for new chemical approval, EPA has been trying to use its “significant new use” authority under TSCA to address PFAS, among other chemicals, and trying to use it in a pretty aggressive way.
Q: There was a significant decision out of the Fifth Circuit recently addressing PFAS and the “significant new use” authority. What did the court find in that case?
Hatcher: On March 21, 2024, the Fifth Circuit Court of Appeals issued a decision involving a company called Inhance Technologies, which has been manufacturing certain long-chain PFAS during its fluorination process for plastic containers, and Inhance has been engaging in this fluorination process for over 40 years. EPA went after Inhance for violating EPA’s long-chain PFAS “significant new use rule” (or “SNUR”). In December 2023, the EPA issued two orders under Section 5 of TSCA, prohibiting Inhance from manufacturing PFAS during its fluorination process.
In its March 21 ruling, the Fifth Circuit vacated the EPA’s orders, finding them invalid. The court found that “Section 5 is intended to regulate covered substances prior to their initial manufacture, not decades after a manufacturing process has been in place.” EPA is probably going to petition for a rehearing with the Fifth Circuit, and there also is a related enforcement case against Inhance in a different court in Pennsylvania that EPA may try to use to get a different ruling on its SNUR authority.
In the simplest terms, EPA has been trying to use its new use authority in a pretty aggressive way to restrict existing PFAS chemicals. If the Fifth Circuit decision holds, the EPA will have to use its Section 6 TSCA authority to regulate or ban existing PFAS chemicals, which is much more complicated to do. It requires a cost-benefit analysis. It requires a much more upfront risk evaluation and justification. So, we could see a big change in how TSCA applies and how aggressive EPA can be in using it to restrict existing PFAS chemicals.
Q: What other PFAS-related litigation risks should companies keep in mind?
Hatcher: Companies are under pressure to make claims about their products being “sustainable,” “green,” or “environmentally friendly.” Where PFAS is involved, companies need to be careful when making such claims. If a company claims its products are sustainable when they contain PFAS, that could result in additional litigation risk.
Q: What measures should companies take to mitigate their PFAS-related risk exposure?
Brown: The PFAS issue highlights the need for the business, the R&D team, the communications and investor relations teams, and the legal and compliance team to have a coordinated approach. Because the definition of PFAS varies from jurisdiction to jurisdiction, sometimes there can be a disconnect internally between what is said and what is heard. That disconnect can result in problems that then can create additional risk for the company. In the long term, you have to take a step back and ask, “Is this type of chemical critical to the business, or is there an alternative chemical we could use that would not present some of these risks?” You’ve got to start thinking about those issues.
Q: Another issue companies have to consider is PFAS liabilities in M&A transactions. What are some key considerations there?
Hatcher: Those with PFAS expertise often get asked to get involved in transactional matters. In my experience on transactional matters, when we are representing a buyer, time and again the seller will insist they don’t have PFAS, and you know that’s not true because you know the type of product they’re making and the claims they’re making about the product, and you know that historically that type of product for sure involved PFAS. To Kegan’s point, you need all these constituencies to come together and ask, “Do we have PFAS? What type of PFAS – a long-chain or shorter-chain PFAS? Is it critical? Is substitution possible, and should it be considered depending on the overall circumstances?”
Q: Looking ahead, what new PFAS-related regulatory and litigation developments could be coming down the pike?
Brown: For the most part, much of the PFAS regulatory and litigation landscape tends to focus on long-chain PFAS chemicals. Thousands of chemicals could fall within the definition of PFAS, depending on how it’s defined. So, we should continue to expect to see an expansion of the number of PFAS chemicals that are subject to regulation and litigation activities.
Hatcher: There are different state laws, some taking effect next year, that will prohibit PFAS in certain types of consumer-facing products. We’re going to see a continued effort at the state level to regulate PFAS. A lot of companies are grappling with how to stay on top of these state law developments. Companies have to think of PFAS regulations as an evolving issue and continue to be forward-looking.
Join both Julia and Kegan this May at ACI’s PFAS Summit to learn more about mitigating your business’s potential PFAS-related risk. Learn more at https://bit.ly/ACIPFAS
