Archive for the ‘common law’ Category

Lender that Sold Contaminated Property Agrees to $1.4MM Settlement

Wednesday, May 6th, 2015

We have previously reported on instances where banks have incurred cleanup costs in connection with properties they have sold.  For some examples, click here, here, here, here and here

The latest installment of this saga involves Bank of America (BOA) which agreed to pay $1.4MM as part of a settlement involving a dry cleaner property that a BOA predecessor owned decades ago. A federal district court approved the settlement in Whitehurst v. Heinl, 2015 U.S. Dist. LEXIS 49147 (N.D.Ca. 4/14/15).

In this case, Charlotte A. Heinl (“Heinl”) operated a Norge Cleaners in Oakland, California from approximately 1965 to 1987. Bank of America, National Trust & Savings Association (“NTSA”) owned the property from approximately 1969 to 1987 and had leased it to Heinl. Bank of America became the successor to NT&SA when BankAmerica Corp. merged with NationsBank in 1998. As part of that merger, Bank of America, NTSA, was renamed Bank of America, NA (BOA).

NTSA sold the property to Richard and Lorraine Whitehurst (“Plaintiffs”) in 1987 for $265,000 pursuant to an “as is” agreement. The Plaintiffs had also been provided with a opportunity to investigate the property prior to the closing and had obtained a 120-day extension. The Property had been part of a larger parcel of real property that NTSA subdivided shortly before it sold the property to the Plaintiffs. The remainder of the parcel is still owned by Bank of America, NA and is potentially impacted by the former dry cleaner.

Sampling conducted September 2007 revealed elevated levels of PCE and its breakdown products in the groundwater. After the California Regional Water Quality Control Board, San Francisco Bay Region (“RWQCB”) sent an information request to the Plaintiffs, they filed a complaint against the Heinl and BOA asserting the defendants were liable under RCRA 7002,  CERCLA and various state common laws claims. The plaintiffs sought an order compelling the defendants to remediate the contamination and sought damages because they had been unable to lease or sell the property due to the presence of the contamination. The bank subsequently filed claims against both Whitehurst and Heinl alleging they were responsible for the contamination.

After several court-sponsored mediations failed to achieve a settlement, the parties reached an agreement on the eve of trial. Under the settlement, the parties agreed to establish a $2MM remediation fund. BOA agreed to contribute $1.4K with $200,000 of that amount representing a contribution from the Plaintiffs Whitehurst in the form of an interest free loan. The plaintiffs will be required to repay the loan within 6 months of receipt of a NFA letter from the RWQCB.  The Fireman’s Fund agreed to tender $600K on behalf of Heinl who passed away during the course of the litigation.

The plaintiffs and BOA entered into Fixed Price Remediation Agreement  with a consultant to implement remedial actions required by the RWQCB. BOA is required under the agreement to designate a Project Manager to supervise the cleanup and handle various administrative tasks associated with the cleanup.

A copy of the order approving the settlement is available from Google Scholar here 


Cal Appeals Ct Affirms $2MM judgment against foreclosing bank for failure to complete remediation is

Saturday, September 20th, 2014

The foreclosing lender in Hoang v. California Pacific Bank, 2014 Cal. App. Unpub. LEXIS 5230 (July 23, 2014) made some curious decisions and the result was the bank was ordered to pay damages to the purchaser that exceed the sales price of the property. The irony is that the lender probably complied with the CERCLA and state secured creditor exemption by foreclosing and then quickly selling the property. Unfortunately, the lender incurred contractual liability for the cleanup.

In 2000, California Pacific Bank (CBP) had financed the purchase of a commercial real property that had been contaminated with PCE from a dry cleaning solvent packaging and supply business that had formerly operated at the site. At the time of the loan, the known maximum PCE contamination had been 3,200 parts per million (ppm) in the soil and 82,000 parts per billion (ppb) in the groundwater. The highest PCE concentrations were located in areas where product had been offloaded from railcars and trucks to an aboveground storage tank. 

A consultant retained by the borrower concluded the remediation could be completed within three years at a maximum cost of $250K.  The estimate was based on a limited soil removal and groundwater monitoring. The purchaser/borrower negotiated a reduction in the purchase price from $900K to $850K. In addition, the purchaser agreed to release and indemnity the seller as well as to covenant to obtain a no further action letter from the water board.  An escrow was established equal to the $250K estimate.

Despite the high PCE concentrations, the bank made its first judgment error when it accepted what proved to be a woefully inadequate estimate without retaining its own consultant to independently vet the estimate. The bank then committed its second error when it approved an escrow equal to the estimated cleanup costs. Most lenders will require escrows to be at least 125% and often 150% of the estimated costs to obtain closure.  

After excavating 130 cubic yards of contaminated soil and pumping 5,000 gallons of groundwater, the borrower’s consultant sought regulatory closure form the State Regional Water Quality Control Board (Water Board). In October 2001, though, the Water Board required further groundwater and soil remediation.  

In November 2002,  borrower defaulted on its loan and eventually filed for bankruptcy.  In March 2003, the bank acquired title through a non-judicial foreclosure. In another curious decision, CPB retained the same environmental consultant who had underestimated the cleanup and did so two months AFTER  CPB too title. The consultant reportedly told the bank that he could he could obtain Water Board closure for $45K of additional remediation. However, at trial he testified he had informed the CPB that other environmental consultants probably would have estimated that it would cost over $1 million to obtain Water Board closure. Another lender might have wondered if it was provided with a low-ball bid but CPB appears to have elected to proceed with the environmental equivalent of a “Hail Mary” pass. The Water Board approved the workplan for quarterly monitoring but required submission of a remedial investigation and proposed remedial action by the end of 2003.

CPB then agreed to sell AND finance the acquisition of the property to the plaintiff for $1.14MM. Paragraph 29 of the amended agreement provided that CPB agreed to fund the remedial work up to $45K consisting of additional source removal and installation of additional groundwater wells. If additional remediation was required to obtain an NFA letter, the Bank had the discretion to authorize additional remediation work up to a maximum cost of $100K, with plaintiff paying half of the additional costs. Any costs in excess of $100K were to be the sole responsibility of CPB. The bank covenanted to obtain the NFA letter within three years of the August 6, 2003 closing.

After the closing, the bank’s consultant conducted groundwater monitoring and requested regulatory closure in 2004 and 2005 based on natural degradation of the PCE concentrations but each time the Water Board denied the request.

In 2005, the purchaser/plaintiff refinanced the property for a higher amount ($1.2MM) at 8.25% as opposed to the existing loan of $868K at 5.25%. The refinance allowed the purchaser/plaintiff to recoup its original down payment and pocket an additional $60K. In addition, the purchaser/plaintiff was able to lease the property for approximately $20K a month. By the time the lawsuit was filed, plaintiff had received nearly $290K in rental income.

Meanwhile, a dispute had risen between CPB and the original seller over ownership of the original $250K escrow. The seller demanded the escrow to be released since the original purchaser had failed to obtain the NFA letter. In 2009, the parties settled this lawsuit whereby CPB agreed to remediate the property and obtain an NFA letter by April 2014 (subsequently extended to April 2016) and to pay the seller’s counsel fees of approximately $330K. 

In July 2010, plaintiff filed a breach of contract action asserting CPB had failed to remediate the property within three years from the date of purchase. As a direct result of CPB’s failure to perform, plaintiff claimed it has suffered the loss of use of the property, was unable to enter into a lower interest rate when it refinanced the property , and had lost a sale for a portion of the property that would have netted it $650K.

In August 2010, the Water Board issued another directive requiring additional investigation and requiring submission of remedial alternatives.  The remedial investigation revealed maximum PCE soil samples at 8800 ppm in the soil and 28,000 ppb in groundwater. Maximum TCE concentrations in groundwater were 41,000 ppb, DCE at 61,000 ppb and vinyl chloride at 21,000 ppb. The report also revealed concentrations of PCE and TCE in the soil gas of 8,529,800 ug/m3 and 5,591,070 ug/m3, respectively. As a result, the Water Board also became concerned about vapor intrusion.

A trial was conducted in two phases. First, a bench trial was held to interpret the contract. In April 2012, the trial court found that the agreement did not require the Bank to obtain a NFA letter by any specific date. Instead, the court ruled that the bank had simply promised to complete the tasks set forth in the agreed upon scope of work but did not include a guarantee that the scope of services would result in regulatory closure before the third anniversary after the close of escrow. The plaintiff then filed an amended complaint alleging that CPB’s failure to obtain an NFA letter within a reasonable time constituted a breach of contract for which Plaintiff sought damages of $4.5MM.

In the second phase of trial, a jury awarded plaintiff approximately $2.3MM for the bank’s failure to complete the cleanup in a reasonable time period. The jury based its damage award on expert testimony proffered by the environmental consultants who had conducted the original investigation. These experts had testified based on contaminant levels, it could cost from $1,332,990 to $3,235,770 to achieve the environmental screening levels (ESL) of 0.69 ppm in soils and 5 ppb in groundwater.

On appeal. CPB argued that paragraph 28 of the agreement stating that the bank “shall have no liability to buyer for any known or unknown hazardous contamination on the property” limited plaintiff’s remedy to an indemnity. Since the plaintiff had yet to incur any cleanup costs, CPB asserted that the jury erred when it awarded damages. However, the appeals court noted that CPB had not raise this issue with the trial court prior to or during the trial, did not assert this ground as an affirmative defense and had not objected to the jury instruction on damages until after the jury had returned its verdict. Thus, the court concluded CPB had waived the indemnity issue.

Even if the bank had not waived the indemnity issue, the appeals court went on to say the two contractual provisions do not operate to limit plaintiff’s contractual remedies to indemnity. The court held that Paragraph 28 was an “as is” clause that simply limited the bank’s liability in connection with any representations. This provision, the court continued, could not be reasonably understood to limit plaintiff’s remedies for failing to complete the remediation in a in a reasonable time period as required in Paragraph 29.

Turning to the damage award, CPB contended the evidence was insufficient to support the $2.3MM damage award. The damage claim was based, in part, on plaintiff’s testimony that 1600 tons of contaminated soil would have to be excavated. The bank said the plaintiff’s experts did not explain how they reached the 1600 ton figure. CPB noted that only two of the 15 soil borings relied upon by plaintiff’s experts had PCE concentrations over the ESL, suggesting plaintiff’s expert opinions on the quantity of soil that needed to be removed was unfounded. However, in yet another questionable trial tactic, the court noted that the bank’s counsel did not ask plaintiff’s expert on cross-examination to explain why he would recommend the removal of soil in areas where the borings showed contamination levels below the ESL. Moreover, the court observed, CPB did not offer any expert witness testimony to contradict plaintiff’s expert testimony.

The court found that it was uncontroverted that at least a portion of property contained very high levels of PCE contamination and that while plaintiff’s expert testified that the precise extent of the contamination could not be determined without more testing, his remediation scenarios contemplated excavating soil from the three known hot-spots to resolve the contamination. Moreover, the court said that while it did appear only one or two of the samples were above the ESL, plaintiff’s expert relied on other evidence in forming his opinions. Again, the court highlighted more questionable trial strategy by the bank, noting that CPB did not raise any evidentiary objections to plaintiff’s expert testimony and did not challenge the proffered jury instructions on how to evaluate expert testimony.

The appeals court said while there was uncertainty on the disposal costs of the excavated soil, the evidence was sufficient to support the plaintiff’s estimates on the cost of each element of remediation that would be needed to obtain an NFA letter. Once again, the court noted that the bank did not object before or during the plaintiff’s expert testimony that estimates were based on speculation, either. Since the jury’s award fell within his estimates, the court ruled that the award was not is unduly speculative.

CPB also objected to the amount of the award because it exceeded the purchase price of the property. However, the court noted that the Bank did not argue in advance of the jury’s verdict that there was a ceiling on damages based on the purchase price. The court said the evidence supported the conclusion that plaintiff purchased the property with the understanding that the Bank would remediate the property and obtain an NFA letter would be obtained within a reasonable time. The court said the remediation costs were not awarded based on injury to the property, but to enable plaintiff to be in as good a position as if the bank had remediated his property according to its promise in the contract. Additionally, the court noted that because the state had a firm policy in favor of environmental remediation, it could not say an award of remediation costs was unreasonable just because it exceeds the amount that the present owner paid for the property.

The plaintiff had asserted at trial that he was unable to refinance his property in 2005 at a lower interest rate of 6.75 percent, and instead elected to take a loan at 8.25 percent, allegedly due to the Bank’s breach of the contract in failing to obtain a NFA letter prior to 2005. CPB asserted there was no evidence showing that it breached the contract in 2005 because it had until August 2006 (three years from close of escrow in August 2003) to complete the work. Even if there had been a breach, the Bank argued, any claim for breach would have been barred by the statute of limitations. However, the court ruled that the action involved an executory contract where the plaintiff had fully performed and was waiting for the bank to complete its performance. In such situations, the court said an injured party can wait until the time for complete performance by the other party to bring an action for damages. The court said the party waiting for performance was not required to treat the contract as abandoned on the first breach but could elect to wait for performance, and the statute of limitations will not begin to run until the injured party has made its election. Since the trial court found that the time for the Bank’s performance was not three years, but was instead “reasonable time, there was no error.

McDonald’s Labor Case May Have Environmental Law Implications

Thursday, July 31st, 2014

Labor rulings have in the past served as precedent for eroding traditional corporate law doctrines and expanding liability of corporations. For example, the doctrine known as either Continuity of Enterprise or Substantial Continuity was used in the 1990s to impose successor liability for environmental contamination originated with a line of labor law cases dating back to the early 1970s (see, e.g.,  William J. Burns International Detective Agency, Inc. v. NLRB, 441 F.2d 911 (2nd Cir. 1971) where a security firm outbid the existing firm providing security services and was required to honor the collective bargaining agreement entered into by the prior firm after hiring most of the former firm’s employees).

Indeed, those of us who were practicing environmental law in the 1980s can recall how the larger corporate law firms initially viewed environmental law as a niche area that was primarily the domain of “tree huggers and critter lovers”-as one cynical corporate once told me. The corporate firms were confident that well-entrenched doctrines of corporate law would shield their clients from significant environmental liability. After the Substantial Continuity test was used override state corporate law and  impose environmental liability on purchasers  of corporate assets, the “white shoe” law firms suddenly  realized they needed environmental lawyers to protect their institutional clients and started scrambling to hire environmental lawyers.

We have taken this path down memory land because of labor ruling earlier this week that may profoundly change corporate relationships. This past Tuesday, the National Relations Labor Board (NRLB) Office of General Counsel issued a decision finding that franchisor McDonalds USA could be liable as a “joint employer” of its approximately 13,000 franchised restaurants in the United States for alleged workplace violations. The employees had asserted that McDonald’s was a “joint employer” with the franchise restaurants  on the grounds that McDonalds required its franchisees to strictly follow its rules on food, cleanliness and employment practices and that McDonald’s often owned the restaurants that franchisees use.

The ruling will now be heard by the five-member NRLB. If the NRLB upholds decision is affirmed and the ruling survives appellate review, it could impact large swaths of the national economy including manufacturers, real estate management firms, hotels, health care, automotive services, and cleaning companies that use temp agencies or subcontractors. It could also possibly impact the environmental consulting firms that heavily relying on independent contractors (“1099s”) to perform phase 1 reports since those individuals might be deemed to be employees that are entitled to benefits.

It should be noted that in the early 1980s, the NLRB ruled that a company could be considered a “joint employer” where two or more employers exerted “significant control” over the same employees. After that ruling was affirmed by an appeals court, though, the NLRB adopted a narrower standard, holding that a company could only be deemed to be a “joint employer” when it directly controlled, for instance, a franchisee’s or a temp agency’s employment practices. The McDonald’s decision suggests that the NLRB may be returning the earlier “significant control” standard.

What are the implications for environmental law? Well, since the inception of state and federal underground storage tank (UST) programs, purchasers of former gas stations and residents with homes impacted by leaking gas station USTs have sought to impose operator liability on Big Oil franchisors because of the control allegedly exercised over their franchisees. The indicia of control frequently asserted by these plaintiffs included that franchisors required the station operators to maintain the premises in a certain manner, keep specific minimum hours and purchase minimum amounts of their products.   Except for a couple of outlier cases where courts found the fuel distributors or “jobbers” essentially acted as agents of the franchisors, these cases have been unsuccessful. The allegations in the McDonald’s case focused on the level of control exerted by the franchisor. It is not a big step from arguing that a company that is liable as a “joint employer” because of the control is exercised over its franchise operations should be liable as an “operator” under state or federal environmental laws.

Likewise, plaintiffs have pursued dry cleaner franchisors and equipment manufacturers under “operator” and arranger” theories. The plaintiffs have asserted that because the manufacturers/franchisors had control over the design of the dry cleaning machines including installing the equipment, chose the locations of the floor drains, physically connecting the discharge piping to the building, inspected the connections to ensure that the waste water was disposed into the sewer system and provided instructions  recommending that the dry cleaners be connected to the sewer system, the manufacturers/franchisors  amounted to either control or actual involvement in decisions about disposal of waste (for example compare Berg v. Popham, 412 F.3d 1122 (9th Cir. 2005) and Vine Street LLC v. Keeling, 361 F. Supp. 2d 600 (E.D. Tex. 2005) with California Department of Toxic Substances Control v. Payless Cleaners, 368 F. Supp. 2d 1069 (E.D. Cal. 2005), Team Enters., LLC v. W. Inv. Real Estate Trust, 2010 U.S. Dist. LEXIS 79912 (9th Cir. 09/09/2010)). One could envision the reasoning in the McDonald’s case being extended to the dry cleaner franchisor/equipment manufacturer cases at least on the “operator” theory of liability.  

The McDonald’s case may not be the first joint employer case to reach the federal appellate courts, though. The NLRB is currently reviewing a request by the Teamsters union to declare Browning-Ferris, Inc (BFI) as a joint employer along with the staffing agency it uses to supply workers at a recycling plant in California because of how closely BFI directs the use of the staffing agency’s workers. 

It is true that following the US Supreme Court decision in United States v. Bestfoods, 524 U.S. 51, 141 L. Ed. 2d 43, 118 S. Ct. 1876 (1998) where the Court ruled that CERCLA did not replace settled rules of state corporation law that several federal appellate courts over the past decade have ruled that the Substantial Continuity test was only applicable to labor law and should not be used to extend liability under CERCLA ( see New York v. Nat’l Servs. Indus., 352 F.3d 682 (2nd Cir. 2005) ruling that the fact that the substantial continuity test is well-established in the context of federal labor law does not indicate that it is extendable to other areas of federal common law, it was  not a part of general federal common law and should not be used to determine whether a corporation takes on CERCLA liability) .  Thus, it is possible that federal courts may decline to apply the reasoning of the “joint employer” cases to CERCLA operator liability. However, the doctrine may be a useful tool for  creative lawyers who will likely be presenting their cases before federal judges appointed over the last eight years-at least on the district court level-  and therefore be more receptive to these arguments.

EPA Recognizes E1527-13 But Preamble Raises Specter of Retroactive LIability For Past Phase 1 Reports that Did Not Assess Vapor Intrusion

Tuesday, December 31st, 2013

On December 30th, the  federal Environmental Protection Agency (EPA) published a final rule in the Federal Register  (78 FR 79319) recognizing the new ASTM E1527-13 phase 1 standard practice as an approved method for complying with the All Appropriate Inquires (AAI) rule. As explained below, while the preamble to the final rule is an improvement to the text that accompanied the August rulemaking since it attempts to address some of the concerns raised in the adverse comments, this action amounts to Band-Aid where surgery was needed to repair the ill-conceived rulemaking exercise.

Despite receiving adverse comments to the botched August rulemaking, EPA declined to delete the reference to the now obsolete E1527-05 from the AAI rule. Instead, agency included language in the explanatory text (the “preamble”) encouraging property owners and consultants to use ASTM E1527-13. In responding to some of the adverse comments it received,  EPA may have opened the door to retroactive liability to consultants and their clients for previously completed phase 1 reports that did not evaluate the vapor intrusion pathway.

In response to concerns that the continuing reference to E1527-05 could cause confusion in the marketplace, EPA first said-unconvincingly to this observer-that because it did not propose to remove the reference to E1527-05 in the August rulemaking, such action was “well beyond the scope of today’s action”. However, to address the concerns that the parties may be confused about the level of due diligence required because of the continuing reference to a historic ASTM standard, EPA said it planned on issuing a future proposal to delete the obsolete ASTM standard from the AAI rule. The agency said it felt that these concerns would be best done through a separate rulemaking process to give the public an opportunity to review and comment on that proposed action. EPA did go on to say that it intends “to monitor the uptake of the new ASTM E1527-13 across the commercial and industrial real estate sector to see if these expectations are borne out.”

In announcing this decision, EPA reminded the regulated community that while E1527 may be used to comply with AAI, “ASTM standards do not comprise a federal regulation or standard, nor are they incorporated by reference into the federal regulation. Parties may use industry standards to comply with Part 312, but the standard for compliance is the AAI rule itself.”  In its specific responses to comments the agency reviewed key due diligence case law that EPA said stood for the proposition that courts look to the “quality of the investigation and reasonableness of the conclusions reached as a result of the investigation” in determining the adequacy of a particular phase 1 report. EPA said it believed “that site-specific circumstances and conditions would continue to inform the courts’ review of the strength and satisfactoriness of parties’ conduct of all appropriate inquiries, under both the ASTM standard and the all appropriate inquiries rule.”

Because of the caselaw and  the fact that parties seeking to asset one of the CERCLA landowner liability protections have the burden of establishing that they qualify for those defenses,  EPA said it believed that parties conducting AAI for this purpose have a strong incentive to ensure that the investigation is done thoroughly and properly. As a result, the agency indicated that it “anticipates that those conducting or relying on the ASTM International standard for the conduct of All Appropriate Inquiries will generally adjust to using the updated standard, particularly in light of the fact that ASTM International will label the ASTM E1527-05 Standard a historical standard and establish that the revised standard, the E1527-13 standard, is the only standard reflecting the current consensus of the responsible ASTM International technical committee.” EPA’s responses to the comments  are set forth in a new document that has been added to the regulatory docket and is available here:

In recognizing the new ASTM standard, EPA said it believed that ASTM E1527-13 “improved upon the previous standard” and “reflected the evolving best practices” that would provide prospective purchasers with the necessary and essential information that is required to satisfy AAI as well as meet their “continuing obligations” under the CERCLA liability protections.  This statement is another indication of how even though phase 1 reports are usually ordered to satisfy AAI, the reports may have implications for satisfying post-acquisition appropriate care/continuing obligations (think Ashley and Voggenthaler).

From a purely legal standpoint, all a consultant needs to do to complete its contractual obligations to its clients under an E1527-13 phase 1 assignment is to determine if there are RECs, CRECs or HRECs at a property. To satisfy AAI and therefore qualify for the bona fide prospective purchaser liability protection, a property owner simply has to identify current and prior releases of hazardous substances at a site using an investigation that complies with AAI. While no further investigation is generally required to comply with AAI and therefore qualify for the BFPP, a property owner/ purchaser may need to do further investigation about the releases (or RECs/CRECs using ASTM parlance) to be able to comply with its appropriate care/continuing obligations. Depending on specific site factors, such an investigation may be more comprehensive than a phase 1 investigation. Users should discuss with their environmental consultants and lawyers if it makes sense to do this more comprehensive all at once prior to acquisition so the user can develop an appropriate care/continuing obligations plan or to do additional investigation soon after acquisition to be able satisfy those obligations.

In touting the virtues of ASTM E1527-13, EPA focused on one of the hottest issues in environmental law-vapor intrusion.  The agency said that one of the important revisions contained in ASTM E1527-13 was clarifying that “all appropriate inquires and phase I environmental site assessments must include, within the scope of the investigation, an assessment of the real or potential occurrence of vapor migration and vapor releases on, at, in or to the subject property.” The more potentially troubling statement for consultants and property owners was the statement that  “In the case of vapor releases, or the potential presence or migration of vapors associated with hazardous substances or petroleum products, EPA notes that both the All Appropriate Inquiries Rule and the ASTM E1527-05 standard already call for the identification of potential vapor releases or vapor migration at a property, to the extent they are indicative of a release or threatened release of hazardous substances.”[Emphasis added]

In the response document that is in the regulatory docket, EPA said that “Some users of the ASTM E1527-05 standard and some who submitted comments in response to EPA’s August 15, 2013, proposed rule raised concerns that potential vapor releases on, at, in or to a property are often not considered or may be overlooked by many practitioners when conducting all appropriate inquiries. EPA wishes to be clear that, in its view, vapor migration has always been a relevant potential source of release or threatened release that, depending on site-specific conditions, may warrant identification when conducting all appropriate inquiries.…” [Emphasis added]

The agency then went on to say “ In the case of the ASTM E1527-05 standard, users and environmental professionals are required to identify recognized environmental conditions that include the presence or likely presence of hazardous substances or petroleum products under conditions that indicate an existing release, a past release, or a material threat of a release. Neither the All Appropriate Inquiries Rule nor the ASTM E 1527-05 standard excludes the identification of vapor releases as a possible type of release.”

These statements seem to reinforce the fears that many lawyers expressed to me as chair of the legal sub-committee that was working on the ASTM revision process. There was consensus that the role of vapor intrusion had to be clarified in the E1527 revisions but not in a way that could call into question the adequacy of phase 1 reports prepared prior to the ASTM revisions. The principal concerns were if such evaluation required sampling and if the evaluation of the vapor pathway would be a prospective obligation so that it only applied to transactions that closed after the publication of E1527.

The ASTM task force satisfactorily addressed the first concern by explaining that vapor intrusion was like any other exposure pathway and that sampling to confirm that the pathway was completed was typically outside the scope of a phase 1 and more properly addressed as part of a phase 2 investigation.

Unfortunately, EPA’s statements that the vapor pathway should have been considered all along raises the very risk that many lawyers and property owners feared-namely that parties who thought they had qualified for the CERCLA landowner liability protections because they had performed an AAI-compliant investigation may now suddenly not qualify as a BFPP because they did not consider the vapor intrusion pathway. Of course, this concern would only be for sites where vapor intrusion is or becomes a problem. However, the uncertainty created by EPA’s statements in the preamble and response document is going to be unsettling to some property owners. It will also provide ammunition to plaintiffs’ counsel who could use these statements as evidence that the defendant property owner breach a duty it owned to plaintiffs and was therefore negligent by failing to comply with a regulatory requirement. In some states, failure to comply with a regulatory standard is considered negligence per se while in others can be used as evidence of a duty.

Moreover, EPA’s statements in the preamble and response document could be used by clients in malpractice or breach of contract against consultants who failed to evaluate the vapor pathway in a prior phase 1. Of course, each situation will be highly fact dependent. Vapor intrusion will have to be a concern at the site and the plaintiff will have to show some nexus between the consultant’s failure to flag the vapor pathway and the damages the client has incurred to be successful. Nevertheless, these statement do potentially expose consultants to the retroactive liability through a backwards looking lens where hindsight is always 20-20 or a classic “Monday Morning Quarterbacking”  scenario (or whatever other aphorism you prefer).  EPA may not have been the Grinch that stole Christmas but this certainly was not a good New Year’s Eve present for property owners and environmental professionals. .

Federal Court Rules Methane Gas Constitutes “Imminent and Substantial Endangerment” Under RCRA 7002

Thursday, December 12th, 2013

A federal district court ruled that methane migrating from a closed landfill to a residential development project constitutes an imminent and substantial endangerment under section 7002 of the Resource Conservation and Recovery Act in Marcas, L.L.C. v. Bd. of County Comm’rs,2013 U.S. Dist. LEXIS 104380 (D.Md. 7/25/13).  The court also followed an emerging trend and found that knowledge of groundwater contamination did not trigger the statute of limitations for the soil gas pathway.

Following discovery of the methane issue, a dispute subsequently arose about the extent of actions required to mitigate the methane and the VOCs. When the landfill gas collection system became operational in 2007 and elevated levels of methane gas remained in the subsurface soils at the property, the plaintiff filed its lawsuit. After a series of preliminary rulings which we covered in an earlier post, the parties moved for partial summary judgment on a number of issues. We will discuss the statute of limitations, CERCLA and RCRA rulings.

The County argued that plaintiffs were not entitled to summary judgment on their nuisance, trespass and strict liability claims because those claims were barred by Maryland’s three year statute of limitations (SOL). The County contended the plaintiff had actual notice of the groundwater contamination because of a March 2000 letter from the Maryland Department of the Environment (MDE) that advised plaintiff that contamination from the landfill had migrated to the shallow groundwater beneath its property aquifer but not in the drinking water wells and that a cap to be installed on the landfill later that year would greatly reduce rainfall infiltration mitigate the shallow groundwater contamination. However, the court said that the crux of the lawsuit was the migration of methane gas and VOCs from the landfill onto plaintiff’s property, not groundwater contamination. Since the plaintiff did not have notice of the methane gas before September 8, 2004, the court ruled that the County was not entitled to summary judgment on the common law causes of actions.

In a prior ruling, the court had entered judgment on the CERCLA contribution claim but reserved judgment on the amount of the response costs that plaintiff was entitled to be reimbursed. The County asserted that plaintiff had failed to demonstrate substantial compliance with the National Contingency Plan (“NCP”) for its investigative costs. The court agreed that plaintiff had not presented any evidence that it complied with the NCP requirement regarding community relations/public comment of 40 C.F.R. §§ 300.430(c), (f)(3), 300.700(c)(6).

In addition, the County argued that plaintiff’s investigative and monitoring costs were not necessary because the response costs were incurred as part of the commercial development and not in response to any threat to public health. Moreover, the County claimed these costs were duplicative of work already performed by the MDE. The Court said the MDE had not asked plaintiff to perform any response actions and found that the gas monitoring wells plaintiff installed on its property performed the same function as gas monitoring wells that the MDE had required to be installed without cost borne by Marcas. For these reasons, the court concluded that plaintiff had not met its burden of showing its investigative and monitoring costs were substantially compliant with the NCP. Therefore the court not only denied plaintiff’s motion for summary judgment in the amount of $35MM but also vacated its earlier judgment in favor of plaintiff.

In additional to its CERCLA cost recovery and common law damages claims, plaintiff sought injunctive relief under two sections of the Resource Conservation and Recovery Act (RCRA). First, plaintiff sought an order under 42 U.S.C. § 6972(a)(1) for violations of Subtitle D requirements. The County opposed the motion on the grounds that there were no ongoing violations since the landfill was not longer operating and because remediating was underway pursuant to a plan approved by the MES. The court agreed that a prohibitory injunction was not an appropriate remedy because the County ceased all operations in June 2001. However, the court found a mandatory injunction requiring additional remedial measures was warranted and appropriate because methane gas continued to exceed the LEL at the boundary of the landfill in violation of 40 C.F.R. § 258.23(a)(2) more than a decade after operations ceased and six years after a mitigation system had been installed.

The court also found that plaintiff was entitled to injunctive relief under RCRA § 6972(a)(1)(B), finding that the continued migration of methane gas at levels above the LEL beyond the landfill boundary was a present imminent and substantial endangerment to the health or the environment.  In support of this conclusion, the court pointed to correspondence from the MDE in 2005 that advised the County that the migration of methane gas beyond the landfill boundary could cause “potential risks to on-site structures, neighboring homes, pedestrians, businesses and properties, “that the County “must immediately take all necessary steps to protect human health from potentially explosive conditions from the migration of methane gas from the landfill.”

The court directed the parties to submit a jointly propose an injunctive order. If the parties cannot agree on the terms of a proposed injunctive order, the court said each party must submit a proposed injunctive order for court’s consideration.

This case illustrates several trends. First, the willingness of courts to view discovery of a completed soil gas exposure pathway as triggering a separate statute of limitation period even though plaintiffs may have been aware of a groundwater plume years. Second, RCRA 7002 continues to be a powerful tool in vapor intrusion litigation and many courts will allow these actions to proceed where there is evidence that an existing remedy is not mitigating the threat. Third, defendants continue to try to use the primary jurisdiction doctrine to defeat common law claims for site where a cleanup is underway but courts tend to allow common law claims to proceed when the plaintiffs are not seeking response costs or challenging the adequacy of the remedy but seeking compensation for property damage or bodily injury. Finally, it appears that the growing awareness of the vapor intrusion pathway may be contributing to an increase in the number of methane gas lawsuits.

CERCLA “Discovery Rule” Playing Important Role in Toxic Tort Cases

Friday, October 25th, 2013

State statutes of limitations (SOL) establish the time period when an injured party may bring a lawsuit seeking compensation for damages. In general, the SOL “clock” will start when a claim “accrues” (e.g. when all of the required elements of the cause of action have been satisfied.

Because of the long latency period between exposure to hazardous substances and manifestation of illness as well as the delayed discovery of releases of hazardous substances that may have damaged real property, injured parties may not become aware of their damages until decades after the alleged wrongful conduct and well after the SOL has expired.  Some states have tried to minimize this harsh effect by crafting a “discovery rule” that tolls or suspends the SOL until the injured party has an opportunity to discover or with reasonable care should discover his injury.

One of the predecessor bills to CERCLA attempted to address the concern by creating a remedy for exposure to hazardous substances. This bill imposed liability against manufacturers, transporters, and disposers of hazardous substances for any loss of earnings and out-of-pocket medical expenses resulting from personal injury. Plaintiffs would have been allowed to file claims in federal court or file administrative claims when responsible parties were unknown or unavailable six years from the discovery of their injury.

This victim compensation plan proved contentious and not included in the final bill that became CERCLA. Indeed, as an interesting aside, the exclusion from the definition of releases for “any release which results in exposure to persons solely within a workplace” was a relic of this victim compensation remedy. It was intended to prevent workers from “double-dipping” by filing workers compensation claim and lawsuit for personal injuries. Apparently some congressional staffers inadvertently left the workplace exclusion in the definition of Release in the final version of CERCLA. Just one more installment in the infamous history of CERCLA’s last minute passage.

As a compromise, Congress authorized creation of a twelve-member study group under section 301(e) of CERCLA ( 42 U.S.C. 9651(e) to study the adequacy of existing common law and statutory remedies for harm caused by the release of hazardous substances into the environment. The so-called 301(e) Superfund study group published its report in August 1982.

In response to the study group, Congress added section 309 (42 U.S.C. 9658) to CERCLA as part of the 1986 Superfund Amendments and Reauthorization Act (SARA). This section creates a federally mandated discovery rule known as the Federal Required Commencement Date (FRCD) for the accrual of state law claims involving releases of hazardous substances, pollutants or contaminants that cause or contribute to personal injury or property damage. The FRCD provides that a SOL would begin to run when the plaintiff discovers, or should have reasonably discovered that the personal injury or property damages were caused or contributed to by the hazardous substance or pollutant or contaminant. The FRCD would pre-empt a state SOL when the FRCD would provide a more generous accrual date than available under state law.

Courts have also grappled with the scope of section 309. One early issue if 309 only applied where there was an underlying CERCLA claim for contribution or cost recovery. More recently, court have been struggling with the question if FRCD applies to statutes of response which are laws that provide an outside date for filing lawsuits regardless when the claim accrued. In Waldburger v. CTS Corp, 723 F.3d 434 (4th Cir. 2013), a federal appeals court reversed a ruling by a district court and held that the FRCD pre-empted the North Carolina statute of repose.

In Waldburger, defendant CTS had owned and operated the Mills Gap Road Electroplating Facility in Asheville from 1959 to 1985. In 1987, CTS sold the site to Mills Gap Road Associates (“MGRA”). As part of the transaction, CTS represented that that the property was in “an environmentally clean condition,” that to the best of its knowledge, no on-site disposal had occurred at the property and that as soon as “the existing inventory of materials contained in drums and other miscellaneous equipment within the plant [was] removed from the premises, no threat to human health or the environment [would] remain. In 1997, MGRA sold approximately forty-four acres of the property in 1997 to the plaintiffs. In 2009, the landowners learned that their well water was contaminated with volatile organic chemicals (VOCs).  The plaintiffs filed a lawsuit in 2011.

CTS moved to dismiss, maintaining that North Carolina’s ten-year statute of repose (SOR) barred the claim. The landowners countered that section 309 preempted the North Carolina SOR. The district court found that section 309 did not apply to the North Carolina SOR. Since the last act or omission of CTS occurred in 1987 when it sold the Facility to MGRA, the court dismissed the lawsuit.

The appeals court observed that courts and legal scholars have historically used the terms “statute of limitations” and “statute of repose” interchangeably. The court also found section 309 ambiguous because of internal inconsistencies. In one section the applicable limitations period was said to be that “specified in the State statute of limitations or under common law” while the definition of “applicable limitations period” and “commencement date” make no reference to common law. Thus, the court looked to the legislative history to determine Congressional intent for this section.

From this review, the court said that Congress enacted section 309 to remove barriers to legitimate causes of action relating to exposure to toxic substances. A narrow interpretation that would exclude the SOR, the court concluded would thwart this unmistakable Congressional goal. Moreover, the court noted that North Carolina SOR appeared in a section titled, “Limitations, Other than Real Property”. Accordingly, the appeals court held that the FRCD preempted North Carolina’s SOR and reversed the judgment of the district court.

[In June, the United States Supreme Court vacated the 4th Circuit ruling and held that CERCLA section 309 did not apply to the North Carolina Statute of Repose].

In Harris v. Bristol-Myers Squibb Co., 2013 U.S. Dist. LEXIS 137335 (D.N.J. 9/25/13), a federal district court held that the FRCD preempted a state wrongful death SOL There, current and prior residents filed a lawsuit against the current and former owners or operators of a manufacturing plant for exposure to toxic and hazardous substances that allegedly emanated from the plant. The defendants filing motions to dismiss a group wrongful death claims under the New Jersey Wrongful Death Act (WDA), N.J.S.A. 2A:31-1 et seq. The WDA contains a two-year limitations period that begins to accrue on the date of death. The court held that the FRCD had a more generous accrual date for wrongful death claims than the WDA. Accordingly, the court held that the WDA claims were tolled until Plaintiffs knew or reasonably should have known that the contamination conduct caused their deaths.

Discovery rules have become particularly important with the emergence of vapor intrusion. In many instances, homeowners may have been aware of regional plumes but there was little concern about health risks because groundwater was not used for drinking water or the area was connected to public water supply. If vapor intrusion later emerges as a concern, a number of courts have held that the vapor pathway is newly discovered contamination that either tolls the SOL or create a new time period for bringing claims.

Failure to Identify Dry Wells and Review Building Dept File at Heart of Consultant Malpractice Case

Tuesday, July 9th, 2013

Southern Wine & Spirits of New York vs. Impact Environmental Consultants, 2013 N.Y. App. Div. LEXIS 2081(App. Div.-1st Dept 3/28/13) involves a common source of contamination in Long Island and other suburban areas of New York City-dry wells and septic systems. The parties have yet to begin discovery but based on the motion papers filed so far, the lawsuit will include some interesting legal issues such as the application of the economic loss doctrine, the standard of care for non-licensed professionals and if compliance with ASTM satisfies that scope of that duty.

Because discovery has not yet started, our factual recitation is based on the pleadings and motion papers. We will also discuss the findings of the phase 1 report and the plaintiff’s expert certification. Readers can then judge for themselves if they think the plaintiff’s should prevail.

Southern Wine & Spirits of New York (“Southern”) operated a wine and alcoholic beverage storage and distribution facility at 345 Underhill Boulevard in Syosset, Long Island. Southern Wine was considering purchasing the site it was using as well as the adjacent parcels located at 313, 323 and 325 Underhill Boulevard to expand its facility.

In November 2005, Southern retained Impact Environmental Consultants, Inc (“IEC”) to perform a phase 1 on the four parcels. Pursuant to the “proposal for services” letter, Southern acknowledged receipt of the IEC standard terms and conditions. Interestingly, Southern was identified as the “client” while Commerce Bank was identified as the “user”. The bank did not execute the proposal.

The IEC phase 1 identified three 10,000-gallon closed USTs used to store gasoline and diesel for fleet fueling and 4 active USTs. IEC also stated the Property was serviced by 30 dry wells and 9 drainage structures (catch basins) that did not have any visual signs of contaminations. While the property was currently connected to the county sewer system, IEC noted that there were two on-site sanitary systems that had been abandoned in 2001.

According to IEC phase 1, a 1999 phase 1 of 313-323 Underhill Blvd reported that these parcels had been serviced by an on-site sanitary system and fuel oil USTs. The phase 1 recommended sampling of the dry wells, former septic system, the former UST as well as near the transformers and railroad tracks. The 1999 Phase II detected contaminants that were either below the regulatory levels or were determined to not have the potential to impact the groundwater quality of the subject property. Accordingly, the phase 2 concluded no further action was required.

IEC’s historical review also included a 2004 phase 1 of 345 Underhill Blvd. The 2004 phase I revealed four USTs had been used at the property and that two of the USTs had been removed from the property 1996 and 2001. The report noted that the Nassau County Department of Health did not observe the UST removals.

The IEC phase 1 indicated a review of the records of the Nassau County Department of Health (NCHD) that had been performed in connection with the January 2005 phase 1 had inspected the property and had informed IEC that no further work appeared to be required for the abandoned septic systems. However, the NCHD had told IEC in January 2005 that an inventory of the dry wells should be submitted to EPA since the stormwater dry wells were considered Class V Underground Injection Wells (UIW). IEC indicated that this inventory had been completed. It appears that IEC had filed a new request to review the NCHD files but had not received a response when it had prepared the phase 1 report.

IEC also reviewed the building department records and reported the parcels had been used for light manufacturing since 1960 and discussed various permits for the on-site sanitary systems along with installation of USTs.

Because of the historic use of the property, the absence of documentation for the closed USTs and the use of on-site sanitary leaching pools in the past, IEC recommended a phase 2 for 325-345 Underhill Boulevard parcels but not the 313-325 lots. Southern authorized the additional investigation which included a targeted GPR survey that identified the presence of one septic tank, seven parking lot storm water catch basins that discharged to a recharge basin, six storm water drywells and two leaching sanitary cesspools. Impact collected soil samples and elevated levels of contaminants in four dry wells and a former sanitary leaching. The Impact phase 2 dated January 6, 2006 recommended these structures be remediated in accordance with the NCDH requirements.

Based on the IEI reports, an affiliate of Southern acquired the property in September 2006. During construction activities to expand the warehouse, Southern encountered a drywell field under the northeast parking lot of at 345 Underhill Blvd containing 38 dry wells that had not been disclosed in IEC’s phase 1 report. Southern had to submit a drywell closure plan to the NCDOH and the investigation detected concentrations of Semi-Volatile Organic Compounds (SVOCs) and cadmium in soil/sludge exceeding applicable standards. Southern ultimately incurred $1MM to properly abandon 53 dry wells.

Southern then filed a complaint against IEC asserting two causes of action for negligence (including gross negligence) and breach of contract for failing to disclose the existence of 38 drywells and another stormwater conveyance box. Southern alleged that if IEC had identified the undisclosed drywell field, Southern would have negotiated an adjustment in the purchase price of the Property or may have declined to proceed with the transaction.

The Complaint also alleges that Impact failed to properly review public documents pertaining to the Property. Specifically, Southern contended IEC’s phase 1 referenced construction permits in the municipal building department files but to review those documents. Southern alleged that files included letters with hydraulic calculations and describing the need to install the 39 drywells as well as a 1986 survey plan depicting eight (8) manhole covers and an underground storage tank at the site. Southern also contended that the public records contained a building permit that referenced drainage system. Southern argued that these documents were reasonably ascertainable and practically reviewable by Impact. As a result, Southern asserted that IEC failed to conform with the requirements of the ASTM E1527 Phase I standard. Southern also alleged that IEC erroneously identified stormwater drywells as catch basins Southern asserted that the IEC failed to conform to ASTM E1527 when it failed to discuss and identify on the site map physically observable drop inlet grates that lead to the drywells .

The IEC standard terms and conditions (TOC) that applied to both IEC phase 1 and the phase 2 reports. The TOC contained a Limitation of Liability (LOL) clause the capped IEC’s aggregate liability for damages arising out of negligence or breach of contract to the total amount of fees paid to Impact for the project. The TOC also expressly provided that IEC would not be liable for any consequential damages. Southern had paid IEC $3500 for the phase 1 and $22,950 for the phase 2 for a total of $26,450.

Finally, the TOC contained a contractual condition precedent for Southern to bring a claim for professional negligence. This clause provided that Southern could not make a claim for professional negligence unless it first provided IEC with a written certification executed by an independent design professional, which identified each act or omission that the professional contended was a violation of the standard of care identified in the Agreements. The certification had to be provided to Impact no less than thirty days prior to the institution of any judicial proceeding.

Southern filed its Summons and Verified Complaint with the court on December 11, 2008 which was within the three year statute of limitations (SOL) for professional negligence and the six-year SOL for breach of contracts. However, Southern did not serve this complaint on the defendants. Instead, Southern filed and served an amended complaint which contained the certification on March 31, 2009. The trial court dismissed the amended complaint without prejudice in an order dated November 5, 2009 for failing to serve the expert certification prior to filing the original Complaint. Southern filed another complaint that was virtually identical to the original complaint on February 3, 2010 pursuant to the New York rules of civil practice that allows a plaintiff to file a new action within until six months after the date of dismissal. Southern then appealed the dismissal of the amended complaint, arguing that the date for purposes of the SOL should relate back to the filing date of the original complaint.

In January 2011, the appeals court affirmed dismissal of the amended complaint. Southern Wine & Spirits of Am., Inc. v. Impact Envtl. Eng’g, PLLC, 915 N.Y.S.2d 541(App. Div.-1st Dept. 1/20/11). The court ruled that the “relation-back” doctrine could only be used for a valid preexisting action. Because Southern failed to submit the required certification prior to commencing its action, the court ruled that Southern could not use the relation-back doctrine to cure the defective initial complaint.

IEC then filed a motion for summary judgment seeking dismissing of Southern’s claims for negligence and gross negligence on the grounds that the claims were barred by SOL, Southern had failed to allege a duty independent from the contract, had failed to allege an injury to property and that IEC’s alleged negligence did not rise to the level of gross negligence. As part of its argument, IEC claimed the SOL should have started when it completed its site visit and not the date of its report.

In its April 2012 opinion, the trial court denied defendant’s motion to dismiss the negligence claim. Southern Wine & Spirits of Am., Inc. v. Impact Envtl. Eng’g, PLLC, No. 650083/2010 (Sup. Ct.-New York, 4/13/12). The court held that the SOL for the negligence claim began to run on the date of the report since IEC’s obligations included issuing a report. The court also ruled that the savings clause of the New York rules of civil procedure automatically extending the SOL by six months applied since the action was dismissed due to a procedural flaw and from a ruling on the merits of the case.

The court also found that IEC owed a legal duty to Southern independent of its contractual relationship, holding that while New York did not recognize a cause of action for negligent performance of contract, professionals could be independently subject to tort liability for failure to exercise reasonable care. The court also said that the economic loss rule was not applicable to cases involving failure to perform a professional duty.

IEC argued it could not be liable for professional malpractice because its employees were not professionals since that they were not licensed and did not require special training to perform phase 1 reports. The court rejected this notion, relying on a prior decision that held that environmental consultants could be subject to malpractice claims because the nature of the work had a significant public interest and the breach of those duties could have dramatic consequences. As further support, the court pointed out that IEC’s TOC provided its services would be “rendered in accordance with prevailing professional standards…” and “… will be conducted in a manner consistent with the level of care and skill standard to the industry under similar conditions.” Based on the contractual language, the court said IEC implicitly recognized that it was bound to exercise “prevailing professional standards.” The court found that Southern had clearly relied on IEC’s environmental expertise to discover existing problems on the Property. Given such reliance on this expertise as well as the potential dangers and the public interest involved in environmental contamination, the court ruled it was appropriate that IEC be held to the standard of professionals in this matter.

On the application of the LOL, the court said that while a contractual provision absolving a party from its own negligence or limiting its liability was generally enforceable, New York  public policy forbid a party to insulate itself from damages caused by “grossly negligent conduct.” IEC urged the court to find that the failure to report the existence of the drywells did not constitute gross negligence as a matter of law. However, the court said that a jury could reasonably infer that Impact misrepresented to plaintiffs that it had examined the relevant records, when in fact, it had not done so. Accordingly, the court held that was an issue of fact if IEC was grossly negligent in failing to perform its obligations under the Phase I Agreement that prevented granting of summary judgment. Finally, the court did dismiss claims against affiliates of IEC since they were not parties to the agreement with Southern as well as claims asserted by affiliates of Southern that also were not parties to the agreement.

The appellate division unanimously affirmed the 2012 ruling in its entirety. Now that the preliminary rulings are out of the way, the parties will commence discovery.

There appear to be a handful of interesting issues that remain to be resolved. One is if an environmental professional with ordinary skill and training should have discovered the presence of the 38 dry wells particularly given how often these structures are responsible for contamination in Long Island.

A related question is if IEC failed to conform to the professional standard of care for environmental professionals by failing to review the building department files that would have revealed the presence of the 38 dry wells. The duty to perform file reviews was a much debated issue during the recent round of discussions for reauthorization of E1527 standard. The E50 task force chose to clarify the language so that the environmental professional has to provide an explanation when it does not perform a file review. Of course, local custom can influence the standard of care and it may turn out that Southern might be able to introduce evidence showing that an environmental consultant should have reviewed the building records where a property with manufacturing past and was only recently connected to the public sewer. Then again, IEC did obtain a letter from the NCDOH indicating that no further action was required for the abandoned on-site sanitary systems.

Unless new information is developed, the LOL issue seems to be an easier question. Remember that to defeat the LOL, Southern would have to show that IEC was grossly negligent. Reading between the lines, it appears that the court was looking for something more than simply failing to discover the dry wells to support a claim of gross negligence such as a misrepresentation. While IEC’s agreement did state that IEC would review appropriate records, the phase 1 indicated that IEC had reviewed the standard NCDOH files in January 2005 but had not received a response from the NCDOH or building department. Presumably, this statement coupled with the fact that the records still need to be commercial available and practicably reviewable suggests that Southern might have heavy lifting convincing a court to ignore the LOL. Southern might end up with a Pyrrhic victory where the court finds that IEC was negligent but upholds the LOL.

NY Ct Says Contaminants Below MCL May Trigger SOL

Sunday, May 19th, 2013

A statute of limitation (SOL) establishes the maximum time period for filing certain civil and criminal actions. The purpose of an SOL is to allow legal claims to be resolved within a reasonable amount of time while at the same time  preventing fraudulent and stale claims after evidence has been lost or after the facts have become obscure through the passage of time or the defective memory, death, or disappearance of witnesses. The SOL is an affirmative defense that a defendant generally asserts before filing its answer to a complaint.

An SOL starts to run (think of a ticking clock) when all the essential elements of a cause of action have occurred. At this point, the claim is said to have “accrued.” The SOL can produce harsh or unfair results when injured parties may not become aware that they have been injured until after the SOL has expired. For example, plaintiffs may not discover contamination or the effects of exposure to contamination years after the wrongful conduct (e.g., initial spill or release of the contaminants).

As a result, many legislatures have adopted “discovery” rules providing that the SOL will not start until a plaintiff knew or should have known through the exercise of due diligence of the essential facts underlying the cause of action. Other states address this problem by recognizing the “continuing tort” doctrine so that the continuing presence of contamination gives rise to a new cause of action each day until the contamination is remediated. Leading cases illustrating the continuing tort doctrine in environmental litigation are Burley v. Burlington N. & Santa Fe Ry. Co, 2012 Mont. LEXIS 31 (Mt. 2/7/2012) and Hoery v. United States, 64 P.3d 214 (Colo. 2003).

Note that CERCLA section 309 essentially grafts a federal discovery rule onto a state SOL for causes of actions for personal injury or property damages claims based on exposure of releases of hazardous substances, pollutants or contaminants. 42 U.S.C. 9658(b)(4) creates a “federal commencement date” which is the date the plaintiff knew (or reasonably should have known) that the personal injury or property damages were caused or contributed to by a hazardous substance,  pollutant or contaminant.

Finally, many states also have adopted statutes of repose (SOR) that provide a hard outside date for bringing certain actions. The expiration of the SOR will extinguish the underlying cause of action. SORs run from the occurrence of some event, and not when the injury that gave rise to the claim occurs. State SORs typically range from six to ten years depending on the cause of action. SORs are stricter than SOLs because the SORs will not be tolled or suspended by fraud or discovery of injury.

In Plainview Water District v American Castings and Manufacturing Company et al, Index No.009435/10 (Sup. Ct-Nassau Cty 3/27/13) the issue before the court was if the New York three-year statute of limitations (SOL) set forth in CPLR 214-c(2) to recover damages to property caused by latent effects from exposure to hazardous substances had expired. CPLR 214-c (2) provides that the SOL starts when the plaintiff discovers the injury or should have discovered the injury through the exercise of due diligence.  New York courts have held that discovery occurs when, based upon an objective level of awareness of the dangers and consequences of the particular substance, the injured party discovers the primary condition on which the claim is based.

In this case, the plaintiff operated five pumping plants and thirteen supply wells that supplied drinking water to approximately 32, 000 residents of five Long Island towns. Two of the water supply wells are located downgradient from a 140-acre industrial park with 75 buildings where a variety of commercial and industrial activities have been conducted. Plaintiff alleged it detected trichloroethane (“TCA”) in supply well 1-2 at levels exceeding the maximum contaminant level (“MCL”) as well as dichloroethene (“DCE”) and dichloroethane (“DCA”) at levels exceeding one-half of the MCL in June 2007. After discovery of the TCA, supply well l -2 was taken out of service.

In 2010, the plaintiff filed its lawsuit seeking to recover the costs to treat and monitor the contaminated drinking water as well as to implement certain improvements to its water supply system. One of the defendants, Veeco Instruments Inc (Veeco), filed a motion to dismiss plaintiff s complaint on the grounds that the SOL had expired long before the plaintiff commenced its action.  Veeco argued that plaintiff was aware of the groundwater contamination (i.e., the injury to its property) as early as 1994 when its consulting engineers issued a Master Water Plan Report Update that reported TCA had been detected in the water district monitoring wells. Veeco also pointed to a November 13, 1998 letter from the plaintiff to the New York State Department of Environmental Contamination (NYSDEC) that identified the Veeco’s premises as a suspected source of the contamination. Veeco also noted that plaintiff had submitted a New York Drinking Water State Revolving Fund application that stated that well l-2 has yielded “detectable” levels of TCE, TCA, DCA and DCE and that TCA, DCA and DCE were detected above the MCL at monitoring well clusters. The application sought funding to install an air stripping treatment system for wells 1-1 and l-2 to “resolve an imminent threat to public health caused by the anticipated presence of primary contaminants (i.e. VOCs, MTBE and nitrates) at levels in excess of the MCLs.” In response, the Plaintiff argued that the mere presence of contaminants did not constitute injury for purposes of the CPLR 214-c (2) SOL. Instead, the plaintiff argued it did not have cognizable damages until the contaminants exceeded the MCL and the water district had to shut down the well.

Relying on MTBE Products Liability Litigation, 458 F Supp 2d 149 (SD NY 2006), the court first ruled that the MCL was simply a convenient guidepost in determining that a particular level of contamination has likely caused an injury and that contamination did not have to exceed the MCL for an to injury to occur and the SOL clock to start ticking.

Turning to the evidence, the court found that the plaintiff was aware of the presence of detectable amounts of TCA in the supply well at least by July 2004 and had incurred substantial costs as a result of the detected of contamination below the MCL. Since plaintiff was aware of contamination in its supply well and the source more than three years before the commencement of this action, the court dismissed the complaint on the ground that is barred by the statute of limitations.

EPA Guidelines on Building Debris and Demolition Following Natural Disaster

Sunday, November 11th, 2012

Cleanup activities related to homes and businesses damaged by hurricanes or other natural disasters can pose significant health and environmental challenges. Immediate and life-threatening conditions may arise from  leaking natural gas lines, and carbon monoxide poisoning from using un-vented fuel-burning equipment indoors.

However, there are other serious hazards that are not immediately life threatening but may cause long-term health issues such as exposure to asbestos, PCBs, lead, mold and other harmful substances, EPA recommends that adequate measures be taken during emergency situations to minimize exposure to such materials from the demolition of buildings

Various federal regulations apply to building demolition activities. Areas of primary federal concern include asbestos demolition requirements, the proper disposal of electrical equipment containing PCBs (i.e., distribution transformers and capacitors) and underground storage tanks, lead-based paint, pesticides, herbicides, varnishes, pool chemicals, industrial grade cleaning solutions or other harmful substances.

EPA also suggests the segregation of various wastes streams such as:

  • automotive/marine batteries;
  • pesticide cans;
  • explosives;
  • automotive oils;
  • fuels and fluids;
  • solvents;
  • paint thinners and stripper;
  • compressed gas containers;
  • household white goods (refrigerators, washer/dryers and stoves);
  • asbestos containing materials (asbestos shingles, siding and insulation);
  • PCBs (electrical equipment such as distribution transformers and capacitors);
  • electronics (televisions, radios, stereos, cameras, VCRs, computers, microwaves);
  • tires;
  • shingles;
  • domestic garbage; and
  • preserved woods.

EPA has established a webpage “Dealing with Debris and Damaged Buildings” that provides recommendations for handling various environmental issues associated with demolition of buildings damaged by hurricanes and major storms.


Helpful Federal Resources for Homeowners and Businesses Damaged By Sandy

Sunday, November 11th, 2012

The federal Department of Housing and Urban Development (HUD)  Office of Policy Development and Research (PD&R) has prepared a number of guides, brochures, reports and other resources to assist contractors and homeowners with flood-damaged homes and buildings. Following are links to some of these resources:

  • Rehabbing Flooded Homes: A Guide for Builders and Contractors – This resource discusses methods for determining how badly a building has been damaged and how to repair it are relatively similar no matter where you are working.
  • Creating a Healthy Home: A Field Guide for Cleanup of Flooded Homes– This guide is meant for do-it-yourselfers and contractors who need to clean up mold in flooded homes before starting to rebuild or renovate. This booklet tells how to clean up after flooding, but does not describe how to rebuild.
  • The Rehab Guide– This nine-volume guidebooks covers distinct elements of housing rehabilitation. It  focuses on state-of-the-art building technologies, materials, components, and techniques.
  • Moisture-Resistant Homes– This report describes best practices for designing, building, and maintaining houses to  effectively manage moisture penetration. It addresses many common moisture-related problems that are well known to builders, homeowners, and insurers.

Centers for Disease Control and Prevention (CDC)  has a webpage for Preventing and Treating Illnesses and Injuries After a Hurricane or Flood. This page contains fact sheets and videos on various topics including the following:

The federal Department of Energy ( DOE) Building Technologies Program is partnering with State Energy Offices (SEOs) to encourage regional exchange of information and best practices. The DOE website  Disaster Recovery and Building Reconstruction provides numerous links for builders, home owners and local officials. The FEMA Hurricane Sandy website offers a wide variety of resources, including a Frequently Asked Questions Webpage- The SBA provides low interest disaster loans to homeowners, renters, businesses of all sizes and private, nonprofit organizations to repair or replace real estate, personal property, machinery & equipment, inventory and business assets that have been damaged or destroyed in a declared disaster. Information is available at the SBA Disaster Loans webpage.