A California state court dismissed a negligence claim brought against an environmental consultant by residents of the infamous Ujima Village low income housing complex for failing to identify health risks associated with a former oil storage facility.

The 300-unit Ujima Village complex had been constructed on a portion of the former Athens Tank Farm that had contained 22 80,000 barrel aboveground storage tanks along with two crude oil reservoirs/ sumps with a combined capacity of 1.8 million barrels. The tank farm operated from 1924 until 1962 when Exxon began dismantling the structures. After Exxon sold the property, it was subdivided. The Ujima Village Apartments complex was constructed in 1973 on a portion of the old tank farm.

The complex was not adequately maintained, though, and after the owners defaulted on their loan, the federal Department of Housing and Urban Development (HUD) commenced foreclosure proceedings in 1990. According to the complaint, HUD planned to sell the complex to Drew Economic Development Corporation (Drew) in 1990 who had committed to invest $6MM to renovate the complex. However, a June 1990 environment report allegedly indicated that the property had “high potential for significant environmental impairment” including exposure to methane gas and hydrocarbons. As a result, Drew withdrew its offer to acquire the property.

The plaintiffs allege that HUD then retained a property manager who performed its own environmental investigation in 1991 that revealed benzene, xylene, toluene and ethylbenzene (BTEX) at levels that posed a risk to human health and explosion. The report allegedly recommended further investigation to delineate the extent of the contamination. The plaintiffs allege that the property manager concealed the results of the investigation. The plaintiffs also allege that HUD disagreed with the recommendations. Specifically, the complaint stated that HUD initially rejected the recommendations and that there were ongoing exposure issues. Instead, the complaint stated, “HUD’s engineers preferred to refer the issue to the HUD Office of Counsel to determine legal responsibility or further action by HUD because the environmental reports had ‘opened Pandora’s Box’ regarding notification to regulatory agencies.”

In 1992, the plaintiffs assert that the state Department of Toxic Substances Control (DTSC) advised HUD that a Preliminary Endangerment Assessment (PEA) was required because some of the contaminants exceeded ingestion screening levels.  HUD reportedly advised the DTSC that HUD was trying to sell the property to the County and that the County was reluctant to take over a contaminated site. The plaintiffs allege that HUD never shared the DTSC communications with them.

In 1993, HUD retained Earth Technology, Inc (Earth Tech), a predecessor of defendant Aecom, to perform an assessment of potential health hazards. . The firm conducted three rounds of sampling and testing of soil, soil gas, and indoor air samples. The plaintiffs allege that the Earth Tech detected elevated levels of lead and mercury in the soils and elevated BTEX beneath the buildings but that HUD edited the report so that it concluded that were “no significant threat to the health or safety of residents.”

The property manager reportedly retained its own consultant, Hunter and Associates (Hunter) in December 1993 that was highly critical of the Earth Tech Report. Hunter’s criticisms included that Earth Tech failed to address high levels of petroleum hydrocarbons in the top layers of soil, did not adequately consider that there was a significant risk of explosion, failed to adequately data showing a significant risk of exposure to benzene and that a Preliminary Endangerment Assessment (PEA) should have been performed in accordance with CAL EPA guidelines.

In early 1994, HUD issued a memo titled “Ujima Village Apartments: Assessment of Toxic Hazards Compliance with HUD Toxic Policy/Notice 79-33” that expressed HUD’s opinion that contamination at Ujima Village Apartments presented an insignificant risk of exposure to the general public. Later that year, Earth Tech prepared a report for HUD titled “Ujima Village Apartment Complex: A Survey of Potential Liability and Reporting for a Subsequent Owner or Operator” that advised HUD that it could be liable to residents or neighbors of Ujima Village Apartments and recommended HUD avoid deep excavation or drilling at the complex or use care when conducting such activities (gee-engineers providing legal advice?).

According to the complaint, the County initially insisted on additional sampling to determine the full risk to the residents in its negotiations to acquire the complex. However, the complaint alleged, the County dropped the demand when HUD offered to indemnify the County. In 1995, HUD sold the residential complex to the County for $1.

The plaintiffs also allege that in 2000, the County retained ATC to perform a phase 1 that concluded that the previous petroleum refining operations might have impacted the subsurface soils. The County then retained SCS Engineers who reported elevated concentrations of hydrocarbon vapors in soils. Plaintiffs allege that none of these reports were disclosed to the residents.

Faced with millions of dollars in repair and maintenance costs, the Los Angeles County Housing Authority and the CDC sought to find a developer to acquire, rehabilitate and manage the complex. Two prospective developers were identified but they apparently declined to proceed with the purchase after learning the results of a 2005 investigation performed by Rincon Consultants (Rincon). The Rincon report warned that residents were at a significant risk of exposure and cancer from elevated levels of hydrocarbon vapors in the buildings and BTEX groundwater contamination.

One of the developers retained TRC to perform a phase 1 and the firm reported elevated concentrations of methane and VOCs in subsurface soil vapor.  TRC also said that in some portions of the property, methane and/or VOCs in the soil gas exceeded the lower explosive limit (LEL).  TRC recommended additional investigation to define the vertical and lateral extent of soil contamination. Plaintiffs also claim that Rincon later prepared a report for the housing authority titled “Risk Based Corrective Action Evaluation Ujima Village Residential Development” where the firm stated “we believe that the possibility of a chronic health risk concern at this site warrants additional study…[F]inally, we believe that remediation is likely warranted at this site as a preventative measure to reduce possible exposure of VOC to residents, and also to mitigate existing soil and groundwater contamination underlying this property.”

The housing authority then met with HUD officials and plaintiffs assert that HUD responded with a letter that stated, in part, that “unhealthy levels of petroleum vapors existed at the project”, “a real health hazard could possibly exist for long-term residents” and that the Housing Authority was concerned about it’s potential liability because it did not have insurance for health related problems.

The plaintiffs allege that none of the foregoing reports were provided to the tenants, that communications with Exxon and various consultants between 2007 and 2008 were not disclosed and that when public meetings were held, the parties represented that the risks from the contamination were insignificant.

In 2009, the housing authority declared Ujima Village blighted and approved a plan to relocate residents. The complex is currently scheduled to be demolished. In 2010, hundreds of former residents filed a toxic tort lawsuit against Exxon, alleging that exposure to chemicals associated with the former storage facility had caused 38 premature deaths, cancer, leukemia, miscarriages, respiratory distress and other health problems. The plaintiffs also sought damages from Aecom as successor to Earth Tech for negligently failing to discover the risks in its 1993 report.

In Doris Alexander v Exxon Mobil, No. BC436640, Super. Ct-Los Angeles cty). However, the court ruled that the plaintiffs did not have any contractual relationship with Aecom and were not the intended beneficiaries of the 1993 environmental. Therefore, Aecom did not have duty that could have been breached. Moreover, to allow the claim against Aecom to proceed, the court said, would expose the firm to millions of dollars in potential liability for a report it was paid approximately $35K.

If allegations in this case are true, the conduct of HUD, the CDC and the housing authority in not timely advising residents that they were being exposed to elevated levels of contaminants and carcinogens is nothing less than disgraceful. This case demonstrates the need to develop clear reporting standards for vapor intrusion sampling results. New York has a strong vapor disclosure law and could serve as a model for other states.

The landmark NYC brownfield program demonstrates the economic benefits of brownfield programs.  The Office of Environmental Remediation (OER) which is responsible for administering the program has calculated the benefits of the first 47 projects that enrolled in the program.

The OER analysis indicates that these projects generated city revenue of $369 MM  on a 30- year net present value (NPV) while state revenue is estimated at $310 MM 30 Year NPV. The revenue generated to the City includes Income Tax, Property Tax, Sales Tax, and One-Time Revenue (Remediation and Construction, Sales Tax on Materials, and Mortgage Recording Tax). Revenue to the State includes the same set excluding Property Taxes because they are collected on a local level.

To further improve the value of the program to applicants, OER  is working with the state legislature to obtain a state liability release for sites remediated in the city program (currently OER has an MOU with the DEC) and elimination of state hazardous waste fees for material removed from city voluntary sites. Both are available for state program.
 

The New York City Brownfield Partnership recently announced its 2012 Big Apple Brownfield Awards (BABA). For the second year in a row, one of our affordable housing clients  has won an award. We helped Exact Capital gain entry into the New York State Brownfield Cleanup Program so that it could build an affordable housing project-Crotona Apartments- on a former gas station site. This award was especially meaninful to me because both of my parents grew up across the street from Crotona Park.

Last year, another client won an BABA award for the La Terraza project that was built on a former dry cleaner site in the Bronx. Here is a link containing information about that project:2011 BABA Awards

In Queens W. Dev. Corp. v. Honeywell Int’l, 2011 U.S. Dist. LEXIS 91795 (D.N.J. 2011), the plaintiff developers commenced remedial activities at two parcels that were accepted into the New York State Department of Environmental Conservation (NYSDEC) Brownfield Cleanup Program (BCP) and Voluntary Cleanup Program (VCP). Plaintiffs filed a lawsuit against the defendants as successors to the responsible parties to recover response costs that plaintiffs estimated to meet or exceed $20 million

Defendants filed motion to dismiss the CERCLA § 113(f)(3)(B) contribution claim, private nuisance and restitution claim. The court granted the defendants motion to dismiss the contribution claim because the state BCP and VCP agreements were not administrative or judicially approved settlements under  section 113(f)(3)(B) because the agreements did not resolve CERCLA liability. Instead, the plaintiffs alleged that they “have resolved, or will resolve, their liability to the State of New York.”.

The court also dismissed the private nuisance action. While the parties disputed whether New York or New Jersey law applied, the court said it did not have to resolve that issue because both states confined  private nuisance to situations where one’s property use interferes with another’s use of neighboring or adjoining property but that successor landowners could not maintain private nuisance actions against prior landowners of the same property.

The court declined to rule on the restitution claim depending on the outcome of the CERCLA private cost recovery claim under section 107(a)(4)(B).

EPA recently published notice of two proposed prospective purchaser agreements (PPAs) . PPAs had been a critical tool for brownfield development prior to the 2002 CERCLA amendments that added the bona fide prospective purchaser (BFPP) defense. Following the 2002 amendments, EPA issued guidance that indicated that the agency would only issue PPAs in special circumstances since the BFPP was self-implementing (i.e, the defense could be asserted as a matter of law without express approval by EPA).

The fact that the agency has considered entering into these PPAs is newsworthy in itself. The Glendale/Goodwin Realty PPA was also noteworthy because it involved a private purchaser. What is more interesting, though, is that both PPAs require the settling party to establish financial assurances for the amount of the cleanup.

In the PPA for Glendale/Goodwin Realty I LLC (GGRI) agreed to purchase a parcel to facilitate expansion of a warehouse and distribution facility operated by Ralphs Grocery Co. (RGC) located adjacent to the property.  The parcel subject to the PPA lies above a regional groundwater plume known as Glendale Operable Unit of the San Fernando Valley Supefund Site Area 2.  The parcel had been used by a number of companies that conducted engaged in plating, anodozong and painting of metal parts  from 1946 to December 2004. The owners of the parcel, two family trusts, had received PRP notice letters from EPA. In addition, the Los Angeles Regional Water Quality Control Board had issued a number of Cleanup and Abatement Orders and the state Department of Toxic Substances Control had issued an Imminent and Substantial Endangerment Determination and Order. A cleanup plan was approved in 2010 but the family trusts lacked the resources to implement the cleanup. RGC, another settling party to the PPA, had a license to park empty delivery trailors on the paved portions of the parcel subject to the PPA.

GGRI agreed to purchase the parcel provided a PPA could be obtained. EPA agreed to issue the PPA to GGRI, RGC and The Kroger Co. (Kroger), the parent of RGC, in exchange for GGRI’s commitment to implement the cleanup. However, the parties had to agree to establish and maintain financial responsibility in the amount of $3.4MM which is the estimated cleanup costs. The financial assurance can be met using a surety bond, letter of credit, trust fund, insurance policy or by  Kroger satisfying the RCRA financial assurance criteria.

In the City of Dowagiac Brownfield Redevelopment Authority (CDBRA) PPA, ICG Castings ceased operations in December 2010. As is frequently the case with abandoned properties, the city responded to complaints of vandalism and tresspassing, and observed that numerous drums containing hazardous wastes and chemicals. EPA then performed a number of time critical removal actions to remove the waste containers from the site. The city had property tax liens in the amount of $228K and had estimated the cost to develop the site for reuse would be between $560K to $700K. EPA agreed to issue a PPA in exchange for the CDBRA agreeing to secure the property, extend and maintain essential utilities, rehabiliate and operate the wastewater treatment system, decontaminating building interiors, performing supplement sampling and implementing post-removal measures required by EPA. The authority was also required to reimburse EPA $25K in past response costs as well as establish and maintain a performance guarantee of $300K using one or more of the standard forms of acceptable financial assurance.

EPA did not typically impose financial assurance requirements in past PPAs. Under section 108 of CERCLA, EPA was authorized to require financial assurances to ensure completion of remedies but EPA had largely ignored this provision for the bulk of the CERCLA program. It was only two years ago that EPA promulgated regulations to implement this requirement for certain industrial sectors.  It is unclear if the financial responsibility provisions of these PPAs represents new policy for PPAs.

The title of this post sounds like a teaser to a bad joke but unfortunately it refers to the latest round of motions in two sprawling lawsuits involving a defunct planned community that was to be developed on what proved to be a part of a world war 2 bombing practice range. The defendants include the project developer, the bond underwriter, bond counsel, the district established to issue the bonds, the appraiser, the title company and the seller of the property.

Several motions for summary judgment were recently decided by the federal district court for the eastern district of Louisiana. Coves of the Highland Community Development District v McGlinchey Stafford, 2011 U.S. Dist. LEXIS 109187 (E.D.LA. 9/26/11); SCB Diversified Municipal Portfolio v Crews & Associates, 2011 U.S. Dist. LEXIS 136177 (E.D.LA 11/28/11) and SCB Diversified Municipal Portfolio v Crews & Associates, 2011 U.S. Dist. LEXIS 141987 (E.D.La. 12/9/11). A third related case, MGD Partners v First American Title Insurance Company, 2011 U.S. Dist. LEXIS 18699 (E.D.La 09/08/11), was recently dismissed and will not be discussed in this post. The Cove of the Highland Community Development District is scheduled to go to trial in January while the SCB trial is scheduled for February.

Common Facts

In March of 2006, MGD Partners (“MGD”) purchased 324 acres of real property (the “Property”) inTangipahoa Parish,Louisianato build a planned residential community known as The Coves of theHighland(the Project”). MGD did not perform a phase 1 environmental site assessment (Phase 1 ESA). A MGD partner testified in a deposition that he did not order a phase 1 ESA because he had lived in the area and the property had timber or farmland for all his life. He did say that he was aware that there had been a World War 2 practice bombing and gunnery range in the area but believed it was about a mile to the east of the Project. Moreover, the title abstract indicated that the practice range was on a different parcel. In addition, the bank that financed the acquisition of the property, First Guaranty Bank, did not require a Phase 1 ESA.

In June 2006, MGD retained Defendant McGlinchey Stafford (McGlinchey) to a special municipal district known as the Coves of the Highland Community Development District (the “District). The purpose of the District was to finance and manage the Project infrastructure. MGD transferred title to the District who then issued tax-exempt bonds to finance certain infrastructure improvements such as roads, utilities and sewers. The District had five board of supervisors. Three of the board supervisors were partners of MGD. The other two board members were the attorney who served as the District’s general counsel and the consulting engineer for the Project.

On November 1, 2006, the District entered into a Development Agreement with MGD to facilitate development approvals and infrastructure financing. MGD represented there were no violations of any Environmental Laws or any material environmental claims affecting the property. MGD also agreed in section 3.10(b) that it would take all remedial actions necessary to clean up or remove of any hazardous materials discovered on the Property.

The District also entered into a Master Trust Indenture with Regions Bank, as trustee, for the issuance of up to $30MM in tax exempt bonds. Defendant Crews and Associates (“Crews”) was the underwriter of the bonds to be issued by the District. Crews worked with MGD to assemble a 480-page “Due Diligence Binder” to support the bond offering. To develop this binder, Crews gave MGD a “Due Diligence Checklist”.

The District issued $7.695MM in bonds that were sold through a prospectus called a ‘Preliminary Limited Offering Memorandum (“PLOM”) and a “Limited Offering Memorandum” (“LOM”). Bond investors typically use the PLOM to make purchase decisions with the bond pricing left blank. After the bond purchases are confirmed, the LOM is then issued with the only changes typically being the pricing information.

Defendant Breazeale, Sachse & Wilson (“BSW”) prepared both the PLOM and the LOM. The PLOM contained a paragraph titled “Development” that stated the developer had provided a number of documents including a Phase 1 ESA. This paragraph also stated that although the information furnished was believed to be reliable, “the neither District, the Underwriter nor their counsel have independently verified the information provided by such parties.” The PLOM also had a section title “Phase 1 Environmental Site Assessment” that stated a phase 1 with the date left blank had been performed and no RECs had been identified. When the LOM was issued, the phase 1 section had been deleted but the “Development” section still stated that a phase 1 had been one of the documents furnished by the developers. BSW issued an opinion letter to Crews stating that the firm was not aware of any information that caused it to believe that the LOM contained any untrue statement of material fact or omits to state any material fact.  The LOM also contained the standard bold boilerplate that investors should not rely on any investigations by any party to the transaction

Greystone Valuation Services (“Greystone”) was retained by MGD to prepare a feasibility study known as a marketing study which was attached as an appendix to the LOM. McGlinchey issued Bond Counsel Opinion, Supplemental Opinion and opinion to the District. The opinions were delivered on November 16, 2006, the date of the closing of the issuance, sale and delivery of the Bonds.

Crews purchased the bonds pursuant to bond purchase agreement drafted by McGlinchey. Crews then sold the bonds to several series of the Sanford C. Bernstein Fund Diversified Municipal Portfolio (“SCB”), a municipal mutual fund for the face amount of the Bonds. In connection with the SCB closing, BSW issued an opinion letter to Crews stating that the LOM did not contain any misrepresentations or omissions of facts.

Discovery of the Former Bombing Range

As it turns out, the property was part of the Former Hammond Bombing andGunneryRange(“HBGR”) that the federal government had leased from 1942 to 1945. The 1943 deed expressly stated that the property was being leased to the United States Army Air Corp for “a practice bombing and gunnery range.” The HBGR was subsequently designated as a “Formerly Used Defense Site” (“FUDS”) and in 1995 the Army Corps of Engineers (“Corps”) conducted an assessment to determine if the site was eligible for funding under the Defense Environmental Restoration Program for Formerly Used Defense Sites (DERP-FUDS). The inspection revealed physical evidence of ordnance and explosive waste consisting of old bomb craters and pieces of shrapnel. The Corps also concluded the existence of bomb craters suggested a high probability of buried unexploded ordnance (“UXO”) as well as munitions and explosives of concern (“MEC”) on the HBGR. In August 1996, the Corps determined the site was eligible for DERP-FUDS inclusion, based on the likely presence of UXO and MEC. In 1996, a local historian wrote a book “Hammond Army Air Field and Early Aviation in the Hammond Area” which contained extensive detail about the HBGR and interviews with former military personnel who had used the HBGR. Indeed, the Corps used this book to locate some of the target areas.

After Sept. 11, 2001, Congress took a particular interest in the approximately 10,000 FUDs across the country because their potential for terrorist activity. In connection with this initiative, the Corps returned to the HBGR in 2002 and performed an extensive physical, historical and risk assessment analysis. The results were published in the March 2003 Archives Search Report for the formerHammondBombingRange(“2003 ASR”).

In 2005, the Corps issued a contract to Parsons Infrastructures and Technology Group, Inc. (“Parsons”) to conduct a Site Inspection at the HBGR to further define the scope and extent of munitions, including any UXO and MEC, remaining on or at the HBGR, and to determine what, if any, further action would be required to remove this material from the HBGR. Parsons issued a draft report in December 2008 which showed that the Project was located within the HBGR.

By the spring of 2009, the District had completed the 120-acre phase 1 of the Project consisting of 264 home lots, installed streets, street lights, sewer and water lines, eight acres of ponds, and a one acre sewage plant that was capable of serving 2500 homes. MGD was preparing to close on $2.5MM in lot sales when the Corps published a public notice in the local newspaper advising of the results of the site inspection. The study contained maps showing that a portion of the Project was located within the outer boundary of the former strafing target area, rifle range, multiple use target area, and three of the five munitions response sites located within the HBGR. The Corps said that the munitions used at the HBGR included 100-pound general purpose bombs, 100-pound practice bombs, 100-pound concrete practice bombs, 2.25” practice rockets, spotting charges, .50-caliber machine gun ammunition, 3-pound practice bombs, 4.5-pound practice bombs and general arms ammunition. The Corps indicated that it would probably not begin remediation work until 2030 depending on Congressional funding.

Following publication of the notice, the Tangipahoa Parish Engineer issued a building moratorium until the risk of UXO and MEC contamination had been fully investigated and remediated. As a result, development of the Project ceased, the lots could not be sold and the District defaulted since the bond payments were to be funded from assessments. There were also allegations in the briefing for the various motions that the Project had been encountering financial difficulties. Reportedly, MGD as well as its principals had to borrower an additional $1.3MM in late 2008 money to fund the work. In 2009, MGD allegedly was behind on its assessment payments, interest payment for the bonds and an installment payment on a promissory note for land that was to be used for the other phases of the Project.

The District Litigation

After the District defaulted on the Bonds, the District filed a lawsuit against McGlinchey and BSW alleging violations of federal securities law and state claims for professional malpractice The District said that under the bond offering documents and CERCLA, the District and MGD were obligated to remediate the property at an estimated cost of $1,3MM

Specifically the District argued that as its bond counsel, McGlinchey had strict “due diligence” duties to conduct a reasonable investigation into the facts supporting its opinion letters, including performing basic environmental due diligence. The District also claimed McGlinchey had failed to alert its client’s attention that the LOM inferred that the Developer had obtained a Phase I ESA when in fact no such environmental site assessment had been performed. As a result, the District said the LOM was misleading and subjected it to securities litigation with the bond purchasers. The District also asserted that McGlinchey had a duty to review the abstract of title obtained by its general counsel or should have ordered its own abstract of title.

McGlinchey filed a motion to dismiss and in 2010 arguing as bond counsel it had no obligation to investigate environmental issues and that its engagement letter expressly stated that the firm would be relying on information provided by the District and MGD. In an October 2010 opinion, the court noted that documents such as the engagement letter outlining the scope of the firm’s services seemed to contradict or undermine the District’s allegations. While concluding that the allegations raised sufficient questions to defeat a motion to dismiss, the court said it was skeptical of the alleged expanded scope of the law firm’s representation. Therefore, the court said it would welcome an appropriately-supported motion for summary judgment after sufficient discovery had been completed.

The law firm also argued that the complaint that had been filed on November 10, 2009 was barred by the three-year statute of limitations. The court agreed that any claims relating to any alleged misrepresentations, errors, omissions, or misstatements of fact upon by McGlinchey that the District relied on to its detriment that occurred prior to November 10, 2006 were barred.

The District then sought permission from the court to file an amended complaint to clarify the misstatements, misrepresentations or omissions committed by McGlinchey that had been learned during discovery. However, the court denied this motion. Coves of the Highland Community Development District v McGlinchey Stafford, 2011 U.S. Dist. LEXIS 109187 (E.D.LA. 9/26/11)

The District also alleged that BSW committed legal malpractice when it (1) failed to advise the District that its bond offering memorandum referenced the Environmental Phase 1 study; (2) did not advise the District that this reference to an Environmental Phase 1 study amounted to a representation that an Environmental Phase 1 study had been performed; (3) failed to disclose to the District that an Environmental Phase 1 study had not been completed; (4) did not remove reference to the Environmental Phase 1 study in the LOM; and (5) did not advise the Plaintiff that an Environmental Phase 1 study should have been performed to protect against unknown conditions associated with the property that may delay the development or affect the Plaintiff’s ability to meet its debt obligations. The District also stated that the firm had a “duty” to evaluate the Plaintiff’s bond offering memorandum, disclose the terms of the memorandum, and advise the Plaintiff about the possible consequences of the memorandum.

SCB Litigation

SCB filed a complaint against the District, Crews and Greystone, alleging the LOM was also misleading because it failed to disclose the UXO and MEC contamination risks affecting the Property. SCB asserted the defendants had strict due diligence obligations in connection with the bonds that included environmental due diligence.

SCB Claims Against BSW

Specifically, SCB charged BSW with negligent misrepresentation for (1) failing to reveal relevant facts relating to the proximity of the HBGR to the Project; (2) failing to reveal that a Phase I Environmental Site Assessment had not been conducted on the property; (3) drafting the PLOM and LOM which allegedly contained misleading statements regarding a Phase I Environmental Site Assessment;” and (4) issuing an opinion letter to Crews which states that the PLOM and LOM did not contain misrepresentations or omissions of facts.

BSW filed a motion for summary judgment. The court said that even if it assumed BSW had a duty of disclosure and breached that duty, SCB have failed to establish justifiable reliance on any alleged misrepresentation. The court said SCB was essentially claiming that its financial analyst interpreted the reference to the section captioned “Phase I Environmental Site Assessment” meant a Phase I ESA had been performed on the Property and relied upon that statement in making the decision to purchase the Bonds. However, the court noted that SCB’s financial analyst who read the PLOM had testified that he had failed to notice that the caption “Phase I Site Assessment” was missing from the LOM. Since he was the only SCB representative who read the PLOM, the court ruled that SCB could not claim reliance on this alleged misrepresentation by BSW.

SCB also argued that BSW made misrepresentations in its opinion letter that the PLOM did not contain any misrepresentation or omission of material fact. However, the court said even assuming BSW had a duty of disclosure and breached this duty by making misrepresentations or omitting material facts in its opinion letter, SCB had not presented any evidence of justifiable reliance. In particular, the court noted that SCB’s financial analyst testified in his deposition that SCB did not rely on the opinion letter in purchasing the Coves Bonds. Accordingly, summary judgment was granted to BSW. SCB Diversified Municipal Portfolio v Crews & Associates, 2011 U.S. Dist. LEXIS 141987 (E.D.La. 12/9/11)

SCB Claims Against Greystone

SCB asserted claims against Greystone for negligent misrepresentation for failing to conduct an environmental investigation. SCB also argued that as a certified and licensed real estate appraiser, Greystone had a duty to obtain and review a title search to determine any historical issues regarding environmental contamination

The Marketability Study stated that was “a comprehensive analysis and review” of forces affecting the Project including “environmental (physical) and governmental features of the defined market area. SCB alleged that Greystone had a duty to discover and disclose the lack of a Phase I Environmental Site Assessment; had breached that duty; and that SCB had relied on such statements when it decided to purchase the Bonds.

In Greystone’s motion for summary judgment, the court said that SCB had failed to identify any source of law that could impose upon Greystone a duty to obtain an environmental assessment or to disclose is absence. Even assuming that Greystone had a legal duty, the Court said, Greystone did not breach that duty. The court said there was no mention of any environmental assessment in Greystone’s report. Moreover, the court said the Marketability Study contained several “Underlying Assumptions and Conditions” that make clear that the analysis was based on the Property being in full compliance with all applicable environmental and laws unless stated otherwise. Moreover, SCB’s financial analyst testified that he did not rely on the Greystone’s study. The court said it was undisputed that the SCB financial analyst understood from the PLOM that any Phase 1 ESA was supplied by the developers and not from any other source. Because SCB could not demonstrate justifiable reliance on the Greystone study regarding the existence of a Phase I Environmental Site Assessment, the court granted Greystone’s motion for summary judgment. SCB Diversified Municipal Portfolio v Crews & Associates, 2011 U.S. Dist. LEXIS 136177 (E.D.LA 11/28/11)

SCB Claims Against Crews

SCB asserts the LOM was misleading because it failed to disclose the Project was located on the HBGR and may contain UXO and MEC. Crews failed to disclose the above alleged material facts. SCB alleges that as the underwriter, Crews had a duty to inquire into the accuracy, truthfulness and completeness of the key representations of the District and had a duty to exercise reasonable care by conducting due diligence to investigate and disclose all material facts surrounding the issuance of the bonds. In particular, SCB claims that Crews had a duty to conduct basic environmental due diligence as to potential environmental contamination of the Project. SCB claims Crews knowingly and recklessly failed to verify or inquire into whether there was any basis for this representation even though a Phase I Environmental Study is a basic component of due diligence on a real estate transaction of this size. Crews has filed a summary judgment motion but the court has not yet decided the motion.

This case is just one of a number of high cases involving residential developments that were unknowingly constructed on former bombing practice ranges. In some instances, the parties were aware that a former bombing range had been located in the vicinity of the development but the developments were not close enough to the target areas to represent a significant risk. The underlying assumption in those decisions was that all of the bombs fell on the intended target. Given that these were PRACTICE ranges for new pilots, one has to wonder why the developers and their engineers assumed all of the bombs fell on the “x”! Discussions of the other cases are available from our Archived Posts.

It is also interesting that the District was dominated by the developer who made the decision not to conduct environmental due diligence. Call my cynical but it does seem somewhat repugnant that the District is trying to blame professional service providers who do not normally deal with environmental issues for the negligence of its own members.

Update on McGlinchey Lawsuit

In January, the court granted summary judgment to McGlinchey. The court said that the terms of the engagement letter provided that McGlinchey’s role in the venture was limited to assisting Plaintiff in its formation under Louisiana law and in issuing bonds. The court said the firm’s review of the PLOM did notinclude the section regarding the development, which is where the mention of a Phase I Environmental Site Assessment is located.

The court also rejected the District’s claim that McGlinchey had violated the rules of professional conduct for attorneys by limiting its representation without obtaining informed consent to such limited representation. The District had introduced expert testimony that any attorney representing, in any capacity, a client who is engaged in developing real estate must advise a client about the need for environmental reviews. However, the court said this  standard of practice was too broad, finding that environmental issues are outside the scope of bond counsel’s traditional role in municipal finance transactions. Since environmental due diligence was not in the scope of McGlinchey’s duty to Plaintiff, McGlinchey did not commit legal malpractice by reviewing the PLOM and failing to notice the mention of a Phase I Environmental Site Assessment-especially in this case where McGlinchey was retained after the client had acquired the property.

Of some concern to real estate lawyers, though, was the court suggestion that attorneys working on real property acquisitions would most likely have a duty to advise a client regarding environmental issues but this duty didnot extend to every attorney who comes into contact with a client developing real estate. SCB Diversified Mun. Portfolio v. Crews & Assocs 2012 U.S. Dist. LEXIS 754  (E.D.La. 1/4/12)

Section 198(a) of the Internal Revenue Code allows owners of qualified brownfield sites to deduct their cleanup costs in the year they are incurred. To qualify for this deduction, the owner must obtain a certification from the state where the site is located that the site qualifies as a brownfield.

The NYC Office of Environmental Remediation announced today that all sites that are remediated under the NYC brownfield program will be eligible for the IRS 198(a) deduction. Under an agreement with the NYS Department of Environmental Conservation, an owner who remediates a site under the NYC Brownfield program will receive the certification that it would have received if the cleanup had been done under state oversight. 

Owners of NYC brownfield properties will be able to take the 198(a) deduction even if they receive a brownfield grant from NYC. The grant will be considered income for federal tax purposes and basically can be added to the cleanup costs for purposes of the deduction. More information is available from the NYC brownfield site on our Helpful Links page.

Last year, the brownfield community was rattled by the Ashley II decision of United States District court for the District of South Carolina holding that a brownfield developer failed to comply with the requirements of the Bona Fide Prospective Purchaser defense. The court ruled the developer did not comply with its post-closing continuing care obligations when it did not timely implement recommendations in a phase 1 report.

 Now, we have an equally scary case from the federal District Court for the Eastern District of Michigan where confusion over the scope and timing of a RCRA corrective action caused the brownfield developer to become exposed to potential CERCLA liability.  

 Saline Properties LLC v Johnson Controls, Inc, 2011 U.S. Dis. Lexis 119516 (E.D. Mi. 10/17/11) involved a 22-acre former die cast auto parts manufacturing facility in Saline,Michigan. Universal Die Casting (UDC) owned and operated the facility as a subsidiary of Hoover Universal from 1944 and 1984. In 1985, Johnson Controls, Inc (JCI) merged with UDC and operations continued at the facility until 1991.

After the plant was shut down, the Washtenaw Industrial Facility, LLC acquired title to the property and leased the site to an automotive parts storage and distribution company. When the tenant vacated the premises in 2002, the owner defaulted on its mortgage. The lender holding the mortgage on the site wanted to avoid foreclosing on the property because of the concerns about environmental conditions that might exist due to the site’s manufacturing history. The lender apparently contacted EPA to obtain information about potential liable parties and then approached JCI about getting the Site “delisted” from the RCRA Information System database so that the site could be marketed. In 2003, JCI entered into an RCRA 3008(h) Administrative Order on Consent (“AOC”) to perform a RCRA Facility Investigation/Corrective Measures Study (RFI/CMS).

 JCI had originally contemplated a Corrective Measures Plan (CMP) based on a commercial/industrial cleanup standard. However, while the RFI was underway, plaintiff Saline River Properties LLC (SRP) obtained a zoning change to residential to support a proposed $20MM condominium development. SRP acquired the site in 2006 after performing a Baseline Environmental Assessment (BEA). However, SRP did not conduct a pre-acquisition AAI-compliant phase 1. Instead, SRP performed a database update of a four-year old phase 1.

SRP obtained $1MM in brownfield funding fromMichiganin the form of a $400K CleanMichiganInitiative (CMI) Brownfield Redevelopment Grant and a CMI brownfield redevelopment loan of $600K. The funds were to be used to implement SRP’s due care responsibilities under the state Natural Resources and Environmental Protection Act (NREPA). SRP demolished the building structures in 2007, leaving only a building foundation that covered approximately 40% of the site.

At this point, the publicly available facts become a bit murky. Initially, it appears that SRP had contemplated using its CMI funds and an EPA brownfield revolving loan fund to remove the foundation and excavate contaminated soils necessary to achieve the more stringent residential standards. To facilitate this work, SRP performed a phase 2 which detected more extensive contamination than originally envisioned.

EPA then told JCI that because of the re-zoning, the reasonably anticipated future use was residential and therefore, the CMP had to be amended to reflect a residential cleanup standard.  EPA advised JCI that its RFI was not acceptable because there remained data gaps, which was confirmed by the SRP phase 2. Sometime in 2007, SRP demolished the building foundation

Since JCI was now obligated under the ACO to remediate the site to a residential standard, EPA determined that the site was no longer an eligible brownfield site. In making this determination, EPA said that it was now unclear what JCI would pay for and how the brownfield funding would be used. Citing to 42 U,S.C. 9604(k)(4)(B)(i)(IV) which provides that no part of a grant or loan may be used to provide an indirect benefit to a responsible party, EPA said it did not want public funding to be used for cleanup that could be the responsibility of JCI. Also, around this time, it appears that SRP lost its CMI funding because of project delays associated with the RFI/CMS.

In 2009, JCI submitted a CMP addendum. EPA identified a number of deficiencies. In early 2010, EPA met with JCI and SRP. EPA advised both parties that they needed to coordinate their activities to ensure that an effective corrective action plan. In follow-up correspondence, EPA told SRP that it had to provide detailed site plans including specific building locations. EPA also advised SRP that it had to define what due care measures it would be implementing so this work could be coordinated with the corrective action plan. EPA also reminded SRP that the former facility had been an RCRA interim status TSDF and that corrective action obligations for such facilities “ran with the land” and applied to future owners or operators of such facilities under 40 CFR 265.1 and 270.72(a)(4).

EPA also cautioned SRP that the slab had served as a barrier to groundwater infiltration exposure to contaminated soils until SRP was ready to commence construction in the slab area. EPA told SRP that addressing the slab was now critical because the removal of the slab allowed infiltration and exposure to contaminants that had been located below the slab.

SRP filed a lawsuit in 2010 seeking to enforce the AOC under the RCRA citizen suit provision, asserting breach of contract, negligence, and nuisance claims. In an initial ruling, the court dismissed JCI’s motion to dismiss and dismissed the state claims without prejudice. SRP then filed a complaint in state court and JCI removed the action back to federal court on diversity grounds. JCI filed counterclaims against SRP under CERCLA and NREPA. JCI filed a motion to dismiss the common law claims and SRP filed a motion for summary judgment on JCI’s CERCLA and NREPA counterclaims. The court dismissed the breach of contract, nuisance, and negligence claims. The court also granted summary judgment to JCI on the SRP’s citizen suit to enforce the AOC.

In its CERCLA counterclaim, JCI argued that SRP exacerbated the existing environmental contamination below the building by allowing additional rainwater into the ground that the building and slab might have partially diverted to the slab perimeter. SRP asserted it was exempt from CERCLA liability as a bona fide prospective purchaser (BFPP). JCI also alleged that it incurred additional response costs because it had to work around the rubble piles to continue its investigation, and was forced to change its remediation plan from using the slab as an engineered barrier with some “hot spot” removal to installation of an “in-situ oxidation” system. As a result of SRP’s action, JCI said it would have to spend an additional $520K.

The court said, though, that SRP had not presented evidence on each of the BFPP elements and also had not shown it had not impeded the performance of the response action. In contrast, the court said that JCI introduced evidence that vinyl chloride concentrations had been stable while the slab had been intact but began to fluctuate significantly after SRP had broken up the slab. JCI’s expert testified that the reason for the increased concentrations was the infiltration of precipitation into subsurface soils through the broken up slab causing migration of previously stable contaminants. The court said the evidence also showed that SRP was also well aware of the role barriers like the slab play in preventing exacerbation of existing contamination. Despite this knowledge, the court failed to take any steps to prevent future rainwater infiltration through the broken slab or to conduct any remedial or investigative steps.

Thus, the court concluded that the evidence showed that SRP failed to satisfy the BFPP defense criteria because it failed to take reasonable steps to prevent the continued release or the threat of a future release and also caused exposures to persons on the site. Indeed, the court said that far from taking reasonable steps, SRP demolished the 3-acre floor slab after being specifically warned by its expert not to do so, and with full knowledge that contamination underlay the slab. Likewise, the court said SRP had not established it qualified for the innocent landowner defense because it had not demonstrated that it exercised due care with respect to the hazardous substance

Turning to the elements of CERCLA liability, SRP argued that JCI could not establish there had been a release during SRP’s ownership because the vinyl chloride had existed in the soil and groundwater prior to the time SRP acquired title. However, the court said that the definition of “release” was broader than “disposal”. As a result, the court said that a release encompassed movement of hazardous substances without any human activity. Indeed, the court said that JCI had not simply alleged passive migration but that Saline took the affirmative action of breaking up the concrete slab, which caused hazardous substances beneath that barrier to migrate into additional soils and groundwater. Thus, the court said JCI had created a genuine issue of material fact as to whether SRP caused a release or disposal at the facility

On the NEPRA claim, JCI asserted that by breaking up the concrete slab that was serving as a barrier to the known contamination in the soil beneath the slab, SRP had exacerbated the existing contamination by causing a change in facility conditions that increased response activity costs. SRP argued that it is exempt from liability under M.C.L. § 324.20126(1)(c) because it conducted a BEA. The court noted that JCI had presented evidence showing that:

• there was a very large concrete slab on the Property;
• SRP knew there was contamination beneath the slab; 
• a concrete slab can serve as an engineered barrier to contamination beneath the slab;
• SRP’s environmental expert told SRP about their due care requirements, which were “first and foremost not to make the contamination worse, not to move it around, not to excavate it, not to create any new conditions of exposure for the existing contamination.”;
• SRP’s environmental expert advised SRP not to break up the slab and to leave it in place;
• SRP hired a contractor who broke up the slab;
• SRP had not undertaken any measures to prevent rainwater infiltration through the broken up building slab; and
• SRP environmental expert prepared a “Due Care Plan” for SRP but SRP did not follow that plan.

Thus, the Court concluded that JCI has submitted sufficient evidence to create a genuine issue of material fact as to whether SRP’s actions constitute exacerbation.

As Ashley and this case demonstrate, brownfield development is extremely complex and parties that move dirt need to understand the requirements of the CERCLA and state law liability defenses. Demolition and construction schedules need to be closely coordinated with remedial activities to ensure that the work is done in a cost-efficient manner and that the remedy is effective. Courts are going to be evaluating the performance of a remedy with the benefit of hindsight and what might may had made sense from a construction schedule when the work was be done may in retrospect not look like the exercise of due care or appropriate care.  

This case also serves as a reminder of how RCRA interim status will follow the land. Purchasers often only focus on CERCLA or state superfund law and fail to consider potential RCRA liability.

No Further Action (NFA) letters have become an important tool in transactions involving contaminated properties. Contracting party often use issuance of an NFA letter has the mechanism for establishing that a party has satisfied its obligations under an agreement. Issuance of an NFA letter often also operates as a release of statutory liability and may also confer contribution protection to the remediating party, its successors and assigns.

While the NFA letter may represent a determination by a regulatory agency that a particular party has satisfied its obligations to remediate a release of hazardous substances under an environmental statute, the NFA letter usually will not operate to cut off potential common law toxic tort claims for bodily injury or property damage. This is particularly so when the regulatory agency has approved a risk-based cleanup that allows residual contamination to remain. A recent opinion of the federal district court for the northern district of California demonstrates this point.

In Barrous v. BP P.L.C., 2011U.S. Dist. LEXIS 113597 (N.D.Cal. 10/3/11), the plaintiffs owned a restaurant property that had been impacted by an adjacent  gas station. Soil contamination was first detected at the gas station in 1992 and again in 1994 when the station was sold. After groundwater contamination was discovered in 1998, the Santa Clara Valley Water District (“SCVWD”) required defendant BP Products to implement a corrective action investigation. In late 1999, BP Products informed Plaintiffs that the restaurant property “might be” contaminated and then entered into an agreement with the plaintiffs to monitor groundwater contamination at the restaurant property. The Access Agreement contained a “Value Protection” provision where BP Products agreed to indemnify any lender, lessee or purchaser of the restaurant property from liability resulting from contamination caused by BP Products.

In 2001, the SCVWD issued a Clean Up and Abatement Order requiring BP Products to complete interim remedial actions to reduce contamination. When BP Products failed to comply with the order, the Santa Clara County District Attorney’s Office charged BP Products with violations of the California Health and Safety Code. BP Products, the SCVWD and the District Attorney’s office then entered into a stipulated judgment under which BP Products was required to immediately implement a Corrective Action Plan (CAP). The SCVWD monitored the cleanup effort until 2004 it transferred oversight to the Santa Clara County Department of Environmental Health (“DEH”). In 2005, Conoco agreed to be the lead responsible party for managing the cleanup and in 2009, BP Products paid Conoco to take over its remaining remediation obligations under the CAP. Later that year, the DEH concluded that no further active remediation was required and allowed the site to transition to groundwater monitoring. In 2011, the DEH issued a no further action letter.

In 2010, the plaintiffs filed a lawsuit alleging nuisance, trespass, and negligence claims stemming from the contamination of the restaurant property, contract claims for defendants’ breach of and interference with the Access Agreement, and punitive damages. Among the damages sought by the plaintiffs were lost business opportunities from their inability to finance redevelopment of the property on three occasions because of the contamination, diminution in property value and restoration costs to bring the property to its pre-contaminated condition.

After preliminary motion practice that narrowed the contract claims, the defendants filed a motion for summary judgment. For the property diminution claim, the court began by explaining that plaintiffs must prove that the contamination of their property was a permanent injury which required a showing that the harm was not capable of being abated. The defendants asserted that the DEH NFA letter was evidence that the harm had been abatable, and therefore the plaintiffs could not recover any diminution of the value. Plaintiffs countered with an expert report stating that the groundwater contamination was likely to persist for decades. The plaintiffs’ expert further stated that it was not uncommon for the DEH to reopen a site after a No Further Action letter has been issued. The court held that under California law, the plaintiffs only had to establish that there was a “reasonably deductible inference” that the contamination at the Site was not properly remediated. Based on the plaintiff’s expert report and the fact that contamination levels remain above those initially proposed in the CAP, the court found the plaintiffs had met this burden and denied defendants’ motion for summary judgment as to Plaintiffs’ tort claims for prospective damages.

The plaintiffs also sought punitive damages on the grounds that BP did not take remedial actions for eight years until the company was ordered to do so by a state court pursuant to the stipulated judgment. The court said that California courts have found punitive damages awards appropriate for unintentional conduct “showing complete lack of concern regarding the harmful potential-the probability and likelihood of injury” or a “conscious disregard of the rights and safety of others.” The court ruled that a reasonable jury could find that BP’s inaction for nearly ten years exhibited clear and convincing evidence of a “complete lack of concern regarding the harmful potential” of the contamination at the gas station. Therefore, the court declined to find that BP’s conduct cannot constitute malice as a matter of law. However, the court found there was no material issue of fact about Conoco’s conduct and granted the company’s motion for summary judgment on the punitive damages claim.

Plaintiffs also sought to pierce the corporate veil of BP Products immediate corporate parent, BP North America, as well as its “grandparent”, BP p.l.c. The court found there was a genuine issue of material fact whether there was an agency relationship between BP Products and, BP North America. The court said that a reasonable jury could infer that although BP Products was the “responsible party of record” charged with overseeing the cleanup, BP North America exerted some control over day-to-day operations at the contaminated site. However, the court said there was no evidence that that BP p.l.c. was sufficiently involved in the remediation to breach its corporate veil.

In the wake of the Great Recession, many foreign investors are buying bulk quantities of condominium units at what they perceive to be distressed prices for projects located in certain gateway cities such as Miami and New York. Frequently, these condominium projects are developed on brownfield sites. In phased transactions where multiple buildings are constructed over a period of time, portions of the brownfield site cleanup on other parcels comprising the larger project may not be completed. Some states will not issue no further actions letters with covenants not to sue or liability releases until construction of the entire complex is completed. In such circumstances, buyers would acquire condo units without the liability protection afforded by the NFA letter.

As a result, some banks are requiring environmental due diligence when investors seek to finance condo acquisitions. However, other banks and cash buyers may not conduct any such diligence since they do not perceive of significant liability. In the case of foreign investors, they may also not be familiar with US environmental laws. 

A condo buyer will not normally be liable for an incomplete cleanup or failure of the building to comply with post-remedial engineering or institutional controls since the condominium association will be considered the property operator for purposes of CERCLA liability. Of course, if the buyer acquires enough units to control the condo association, it is possible the buyer could inadvertently become an “operator” of the property.  A condo buyer could also face indirect liability if the condo projects subsequently experiences adverse environmental publicity which causes the units to lose significant value—even from distressed valuation levels. In such instances, lenders who financed the condo acquisition could also confront a loss of their collateral.    

A recent Michigan case illustrates the risks associated with such projects. In Alfieri v. Bertorelli, 2011 Mich. App. LEXIS 1796 (Mich.Ct. App. 10/18/11), the plaintiffs purchased a condominium unit in a former factory building. The plaintiffs did not intend to live in the condo but purchased it as an investment. The factory had been impacted with trichloroethylene (“TCE”) from its former use.  A newspaper article and the sales brochure prepared by the real estate agents indicated the site had been remediated. However, the developer did not remediate the contamination beneath the building but instead installed a vapor barrier. When asked about the environmental condition of the property, the real estate agents told the plaintiffs the property had been remediated despite the fact that the Michigan Department of Environmental Quality had advised the agents that the sales brochure was inaccurate and misleading. Because of the newspaper article and the sales brochure, the plaintiffs did not perform their own due diligence

The property turned out to be heavily contaminated. Plaintiffs subsequently filed a lawsuit against the real estate agents on theories of silent fraud and negligent misrepresentation.  The defendants claimed that they owed no duty to the buyers, that there was insufficient evidence that the buyers relied on the sales brochure, and any reliance was unreasonable because the agents did not make any misrepresentations.  The jury found that the agents engaged in negligent misrepresentation. However, the jury also determined that the plaintiffs were partially responsible for their damages because they had failed to perform their own due diligence. The jury found that the buyers were 35% at fault on the negligent misrepresentation claim.

Both parties appealed but the Michigan Court of Appeals affirmed the jury’s verdict. The Court of Appeals began its opinion by distinguishing between silent fraud and negligent misrepresentation. While the concepts were similar, the court said that silent fraud was based on a defendant suppressing a material fact that they were legally obligated to disclose while negligent misrepresentation was premised on an affirmative inaccurate statement. The court said that a misleadingly incomplete response to an inquiry could constitute silent fraud.

Rejecting  defendant’s contention that sellers’ agents a per se duty of disclosure to buyers, the court said that a duty of disclosure may be imposed on a seller’s agent to disclose newly-acquired information that is recognized by the agent as rendering a prior affirmative statement untrue or misleading. The court said this would be especially true where the agent knows that the buyer has a particular concern with the subject matter of that statement.

Turning to the facts of the case, the court found there was evidence that plaintiffs made direct inquires of defendants about the condition of the property and that the Department of Environmental Quality advised defendants that the sales brochure contained inaccurate and misleading information. The defendants had  argued that there could be any fraud if the allegedly-defrauded party had the means to determine the truth of the matter. However, the court said the general rule only applied when the plaintiffs were either presented with information and chose to ignore it or had some other indication that further inquiry was needed. Moreover, the court went on, when the defrauded/injured party tried to examine extrinsic evidence supporting a false statement, the injured party owed no duty to the defrauder to exercise diligence to uncover additional evidence disproving the defrauder’s representations

The court noted that the plaintiff testified that it was his understanding that the site had been cleaned up based on general public discussion, conversations with the defendants and local newspaper articles. Moreover, the court said, plaintiffs directly inquired of Greene regarding the condition of the property and whether it had been cleaned up at the time they signed the purchase agreement. While the court acknowledged that the facts set out in the sales brochure could have been independently verified, the court said that viewing the evidence and all reasonable inferences that can be drawn from it in the light most favorable to plaintiffs, there was sufficient evidence to establish that the plaintiffs had reasonably relied on the sales brochure where numerous sources–including the defendants, the local newspaper, and public “buzz”– indicated that   the site had been cleaned up

On the jury instructions regarding the plaintiff’s comparative negligence, the court ruled that given plaintiff’s decision not to obtain an environmental inspection and execution of a purchase agreement specifically stated that defendants had no knowledge of the property’s environmental conditions, there was sufficient evidence for the jury could have found some comparative fault on the part of plaintiffs with respect to the negligent misrepresentation claim.

We have a number of posts about broker liability associated with environmental conditions and incomplete property condition disclosure statements in our “archived” blogs.