Archive for the ‘Underground Storage Tanks’ Category

Court Dismisses Action Against DEC For Breach of VCA

Monday, November 28th, 2016

A 20-year old voluntary cleanup agreement (VCA) was the subject of the dispute before the New York Court of Claims in Alaskan Oil, Inc., v. State of New York, Claim No. 116072 Motion No. CM-81863 (Ct. Claims 7/25/16).

In this case, claimant Alaskan Oil Inc. acquired approximately 40 properties owned by Parrish Energy Fuels, Inc., and Webber Oil Company in 1994 and then sought to enroll the sites into the newly-created New York State Department of Environmental Conservation (NYSDEC) Voluntary Cleanup Program (VCP). After over negotiating for more than a year, Alaskan Oil entered into a VCA dated February 5, 1996 that covered all 40 sites. The VCA provided, inter alia, that Alaskan Oil would implement and complete remedial actions at all of the covered sites as well as reimburse NYSDEC for up to $66,000.00 in oversight costs.

Initially, work progressed pursuant to a schedule approved by NYSDEC that contemplated completing cleanup of all 40 sites by December 1998. However, only a handful of sites were remediated by the end of 1998. The pace of cleanups continued to lag and when Alaskan Oil ceased work in 2004, 19 sites remained unremediated. As a result,  NYSDEC advised Alaskan Oil in October 2005 that it had failed to comply with the VCA and that the VCA would be terminated within thirty days unless Alaskan Oil came into substantial compliance with the terms of the VCA. After a series of meetings failed to produce any progress, NYSDEC terminated the VCA in September 2007 based on material breach of contract for failure to perform its obligations.

The parties again held several meetings but could not resolve their dispute. Alaskan Oil then filed an article 78 proceeding in January 2008, seeking to determine if DEC had acted within its authority. However, since the proceeding involved contract action against the State, the action had to be discontinued. Alaskan Oil then filed a claim with the Court of Claims in May 2008 alleging that it had suffered $1.3 MM in monetary damages as a result of NYSDEC’s actions. Specifically, the claimant alleged NYSDEC made it more difficult under the VCA to bring its sites into compliance, that the Region 6 technical staff continually interrupted business operations that caused or contributed to claimant’s inability to meet the terms and conditions of the VCA. Alaskan Oil also claimed that the Region 6 staff forced it to comply with more stringent cleanup than required for other sites under the VCA or sites operated by its competitors.

NYSDEC initially claimed that Alaskan Oil had filed its complaint too late because the alleged actions of interference occurred from the 1990s to 2001. However, in a Decision and Order dated September 29;2008, the Court ruled that the claim arose on the date the VCA was terminated and therefore, the claim was timely.

After Alaskan Oil was granted leave to file a late claim, the NYSDEC moved for summary judgement arguing it was immune from liability because it was acting pursuant to its authority under the Navigation Law, citing the savings clause of Navigation Law § 176 (2)(b)., which states:

“Section eight of the court of claims act or any other provision of law to the contrary notwithstanding, the state shall be immune from liability and action with respect to any act or omission done in the discharge of the department’s responsibility pursuant to this article; provided, however, that this subdivision shall not limit any liability which may otherwise  exist for unlawful, willful or malicious acts or omissions  on the part of the state,· state agencies, or their officers, employees or agents or for a discharge  in violation of section one hundred seventy-three  of this article.”

In response, Alaskan Oil asserted that NYSDEC was not immune because its employees committed unlawful, willful or malicious acts or omissions. In support of this argument, Alaskan Oil pointed to notices of violations and a proposed administrative Consent Order issued by the NYSDEC Region 6 office for non-compliance with the Petroleum Bulk Storage ACT, that the Region 6 office required more stringent cleanups at two sites than required at other similar facilities and a demand for reimbursement of $261,223.58 incurred for a cleanup conducted by Region 6 related to a 1988 spill which Alaskan Oil alleged breached the indemnity.

However, the Court found these allegations did not fall with the exception to the Navigation Law’s immunity shield because they related to sites or events outside of the VCA. Accordingly, the Court concluded that NYSDEC carried out its responsibilities under the Navigation Law in a lawful, non-willful and non- malicious manner, and dismissed Alaskan Oil’s claim.

NYSDEC Adopts Revised Petroleum and Hazardous Substance Bulk Storage Regulations

Monday, January 18th, 2016

The New York State Department of Environmental Conservation (NYSDEC) has made extensive changes to its regulations pertaining to the handling and storage of petroleum and hazardous substances. Specificially, the revisions were made to the Petroleum Bulk Storage (PBS) regulations (6 NYCRR Parts 612-614), the Chemical Bulk Storage regulations (6 NYCRR Parts 596-599), the Used Oil program (6 NYCRR Subpart 374-2) and 6 NYCRR 370.1(e)(2) of the Hazardous Waste regulations.

NYSDEC embarked on the rulemaking to reflect changes made to state and federal laws since the PBS regulations were last revised in 1994. The rulemaking is intended to enable NYSDEC to obtain full delegation of the RCRA Subtitle I program. The agency is currently operating on a memorandum of agreement with EPA. This post is limited to the changes to the PBS regulations.

Former Parts 612-614 of the PBS regulation have been repealed and consolidated into a single new Part 613 which governs both underground storage tanks (USTs). Under the revised structure, Subpart 2 covers UST Systems that are subject to both the federal UST program (Subtitle I) and Title 10 of the Environmental Conservation law (Title 10 tanks). Subpart 3 only pertains to Title 10 tanks (mainly heating oil tanks or motor fuel for non-commercial purposes). Subpart 4 pertains to ASTs. Revised spill reporting, investigation and corrective action requirements are set forth in subpart 6.  Among key changes to the PBS regulations are:

  • New definitions of facility, UST and petroleum;
  • New Categories of USTs;
  • Secondary Containment for piping and dispensers and clarify AST secondary containment requirements;
  • Changing testing frequency for USTs;
  • Changes to Spill Requirements, Investigation, and Remediation Rules;
  • Potential Delivery Prohibition;
  • Operator training requirements;

The particular requirements depend on if the tank system is subject to the federal Subtitle I program or only Title 10 tanks as well as the tank category which is based on installation date. Category 1 tanks are tanks installed prior to December 27, 1986. Category 2 tanks were installed between December 27, 1986 through October 11, 2015. Category 3 tanks means any tank system was installed after October 11, 2015.

NYSDEC plans a second round of rulemaking that will address additional EPA requirements that became effective in October 2015 as well as Changes to Part 611(Spill Response and Corrective Action).

Key Definitional Changes-

Facility– this term is now defined as a single property, or contiguous or adjacent properties (as opposed to tanks) that are used for a common purpose that are owned or operated by the same person or persons Regulated facilities are those with (a) one or more tanks with a combined capacity of 1100 or more gallons or (b) a single UST with a capacity of 110 or more gallons. Heating oil tanks with a design capacity of less than 1100 gallons that are used for on-site consumption are not regulated unless there are other tanks at the property with a combined storage capacity of 1100 gallons.  Note that operational tanks that store petroleum which is not consumed such as transformers and hydraulic lift tanks are exempt.

Operator– is now defined as any person any person who leases, operates, controls, or supervises a facility

Owner– An owner is defined as any person who has legal or equitable title to the real property of a facility.

Petroleum– The definition of “petroleum” has been amended to match the federal definition. The term now includes synthetic forms of certain oils, including lubricating, dielectric, insulating, hydraulic, and cutting oils, as well as complex blends of hydrocarbons and petroleum mixtures.  Animal and vegetable oils and substances that are normally gases are excluded from the definition.

Petroleum Mixture– A new definition of petroleum mixture was added to clarify when a mixture will be regulated as petroleum or a hazardous substance. If the mixture contains one percent or more petroleum and no hazardous substance, then it is regulated as petroleum. If the mixture contains at least 70% petroleum and less than 30% hazardous substance containing no hazardous waste, then the mixture is regulated as petroleum. If the mixture does not contain any petroleum and less than one percent of one or more hazardous substances, it is unregulated.

UST Tank system– The definition of USTs was amended to conform to the federal definition. A UST system is now one or more tanks whose volume is at least 10% beneath the ground. In calculating the volume of the system that is beneath ground, piping must be included. What about the numerous tanks located in basements? DEC has clarified in comments to the new regulations that tanks located in concrete vaults that are not accessible for inspection are considered USTs and subject to the full panoply of UST requirements. If a tank is located in a concrete vault that has weepholes that can be monitored weekly for leaks, the tank will be considered an AST and not subject to tightness testing

Registration Requirements-

The owner of property where tanks are located is required to register the USTs even the total volume of tanks at the property is 1100 gallons or more. The owner obligation applies even where the tanks are owner or operated by multiple tenants (e.g., USTs for emergency backup generators). The NYSDEC contemplates one registration per property for all regulated tanks.  The agency did indicate in its responsive summary that it will allow more than one registration based on a number of factors.

If ownership of the real property on which a facility is located is transferred, the new facility owner must submit an application to initially register the facility with the Department within 30 days after the transfer. The application for an initial registration or transfer of facility ownership must be accompanied by a copy of the current deed for the property at which the facility is located. If the facility is located on multiple properties, deeds for each property must be submitted with the application.

Equipment and Operating Requirements

Federally regulated tanks must have secondary containment and Interstitial monitoring. For new UST systems (category 3), double-walled tanks and piping are now the only acceptable method of secondary containment. Under-dispenser containment is required for new dispenser systems.

All UST systems must be monitored for leaks weekly, and a monthly operability check of the leak detection system is required. 10-day reconciliation inventory monitoring is now only required for retail motor fuel UST systems storing motor fuel or kerosene. NYSDEC cautioned that the NYS Fire Code Section 3404. (inventory control) provides that daily inventory records shall be maintained for underground storage tank systems.

Annual line testing required for suction piping that is part of Title 10 Category 1 UST system. However, no leak detection required for suction piping that is part of Title 10 UST Category 2 or 3 system. Entire piping run must be replaced when 50% or more of piping run is replaced unless piping has been constructed in accordance with section 613-2.1(b)(2).

Federal leak investigation requirements are incorporated. For Title 10 USTs, category 1 UST systems must be tightness tested annually. USTs storing #5/6 oil or have acceptable leak detection are exempt.

UST owners or operations must ensure that the last 30 days of leak detection records are always available for inspection. Cathodic protection monitoring records must be maintained for 3 years

Operator training requirements are also being added to comply with federal requirements. Operators of UST systems regulated by Part 613 will be required to undergo training and pass an exam within one yea by October 11, 2016.

Financial Responsibility-

The revised PBS rules now incorporate the federal financial responsible (FR) requirements. The Oil Spill Fund may be used to satisfy the FR requirement for corrective action / third-party property damage requirements. For third-party bodily injury, acceptable mechanisms include self‐insurance, guarantee, insurance and risk retention group, standby trust fund, local government bond rating test, local government financial test, local government guarantee, and local government fund. However, surety bond, letter of credit are not acceptable.

Spill Reporting, Investigation and Corrective Action

The new DEC regulations incorporate the federal requirements of 40 CFR Part 280 Subparts E, F, and G. Effective October 11, 2015, a “facility” must report a “suspected” leak to the DEC’s Spill Hotline (518-457-7362) within two hours after discovery (The old PBSA regulations had imposed reporting obligations on “any person with knowledge of a spill leak or discharge”). Conditions suggestive of a leak include the presence of petroleum in secondary containment structure of the tank system or in the surrounding area (e.g., product or vapors in basements, sewers, utilities, etc.), unusual operating conditions and results of inventory monitoring.

The facility must commence an investigation with 48 hours of discovery of the suspect leak and complete the investigation within one week.  If a leak is confirmed, the facility must then implement corrective actions.

A facility must report any spill within two hours of discovery unless the spill meets the following conditions: (a) the spill is less than five gallons; (b) the spill is contained and under control; (c) the spill has not reached and will not reach the land or waters of the State; and (d) it is cleaned up within two hours after discovery.


USTs that are out of service for more than 30 days must undergo temporary closure. The facility must continue with certain monitoring and other operating requirements while the UST tank system is temporarily closed.  USTs out of service for more than one year must be removed or permanently closed in place.  DEC must be provided with 30 days advance notice when tank systems are permanently closed or when there is a change in service. Closure report due no more than 90 days after permanent closure.

The rulemaking does not make changes to NY’s quirky rules for closure of heating oil tanks. No closure site assessments are required for Title 10 USTs (heating oil tanks used for on-site consumption). However, NYSDEC strongly recommends performing site assessments when closing heating oil tanks.


The AST standards are now consolidated into one section. The new tank construction standards (UL 80, UL 2258) have been adopted to allow for new technologies. Annual monitoring for adequacy of cathodic protection is now required. Impressed current systems must be monitored every 60 days for operation. Cathodic protection monitoring records must be maintained for 3 years. Tightness testing of ASTs as opposed to 10-year inspections is permitted. While there are no changes to the leak detection requirements, the federal leak investigation requirements now apply.

The revised rules clarify when ASTs must be equipped with secondary containment requirements are clarified. AST systems installed after December 27, 1986 with a design capacity of 10,000 gallons or more must have secondary containment. Smaller ASTs must also be equipped with secondary equipment if they are located within 500 feet of wetlands; a perennial or intermittent stream; a storm drain; a public or private well; lake, pond, estuary, or other similar surface water body or a primary or principal aquifer. Depending on the facility, a standard double-wall tank may not meet the secondary containment requirements.

Note that ASTs that are out-of-service for more than 12 months at an active site do not have to be permanently closed. An active site is where there are one or more other tanks being used.

A handful of counties (Cortland, Nassau, Suffolk, Rockland, and Westchester) have received delegation from NYSDEC to administer the PBS regulations under their local rules.  These counties must adopt the revised rule within 6 months to maintain their delegation. Some of the country UST programs have been stricter than the NYSDEC PBS program. As a result, owners and operators of USTs need to ensure that they comply with any local requirements.

Principal New York State Environmental Laws Impacting Commercial Leasing Transactions

Saturday, January 16th, 2016

Parties to commercial leasing transactions frequently overlook environmental issues because they believe that tenants who do not use large quantities of hazardous chemicals will not be exposed to significant environmental liability. Consequently, the parties may do little to no environmental due diligence and use obsolete or boilerplate lease provision that do not specifically allocate environmental risks. Even when a lessee examines environmental conditions of a site, the investigation is often limited to ensuring that there are no environmental conditions that would impair its ability to operate at the site or that the property is adequate for the intended use.

What these parties do not realize that owners and operators of commercial property can be liable for contamination associated with historic uses. This means that landlords can be liable for contamination caused by their tenants and tenants may be responsible for contamination that preceded its tenancy.

In the second installment of a series that I am publishing in the venerable New York State Bar Journal, I review the key New York State Laws that can impact commercial leasing transactions. The article is available here. The next installment in this series will cover NYC environmental laws. The first article discussing federal environmental laws impacting commercial leasing transactions is available from our publications page here.

OER Grants Available for Petroleum Assessments But Need to Move Quickly

Friday, July 18th, 2014

The NYC Office of Environmental Remediation just announced that it has a little over $100K to award for petroleum assessments this summer. The source  of the grant money is the brownfield revolving loan fund that was awarded by EPA to OER under section 104(k) of CERCLA. The federally-funded grant may be used for phase 1 or phase 2 investigations. There is no requirement that  the applicant enroll in the OER voluntary cleanup program (VCP) to receive  the federally funded assessment.

OER hopes the money will be used to fund assessments at former gas station sites or other sites impacted by petroleum USTs that will be redeveloped for affordable housing. However, the funding is no  specifically limited  to affordable housing projects.

Because the petroleum assessments will be  federally-funded, there are fairly stringent  eligibility requirements. First, the current owner of the property and immediate prior owner of parcel cannot have caused or be responsible for the petroleum contamination. However, if the immediate prior owner was responsible for the spill, the applicant could be still apply for the grant if the applicant can show that the immediate prior owner is insolvent at the time of the application. In addition, the property could not have been previously owned by the City.

Second, the applicant will also have to have performed an all appropriate inquiry at the eligible site.

Third, the  work (phase I or Phase II) must be performed by one of OER’s retainer contractors and not by a site owner’s or a developer’s environmental consultant.  

Finally, the work itself must be completed by Sept 30. What this means, given the time required for EPA approval of a Phase II workplan and QAAP, the work needs to be done very fast to have field work and lab analysis completed by Sept 30.


New York’s Quirky Rules for Heating Oil Storage Tanks

Monday, November 11th, 2013

Storage tanks used for the storage of heating oil for on-site consumptive use are excluded from federal underground storage tank (UST) program.  However, a number states including New York regulate heating oil tanks.

There are approximately 3 million residential heating oil tanks in New York State. While home heating oil tanks for single family homes typically range from 275-to 1,000-gallons.  However, heating tanks for multi-family or commercial properties frequently have capacities up to 20,000-gallons.

The New York Petroleum Bulk Storage Act (PBSA) program generally regulates USTs and aboveground storage tanks (ASTs) that are used to store petroleum and have a combined storage capacity (either individually or collectively) of more than 1,100 gallons. If the combined total capacity of all petroleum storage tanks at a property that have least 110 gallon capacity exceeds 1100 gallons, then all the tanks at the property are subject to the PBS program.

However, there are special rules for heating oil tanks. For purposes of determining if the property exceeds the 1100 gallon threshold for regulation, the volume of heating oil tanks with a capacity less than 1,100 gallons are not included in the calculation. Thus, if a property has a 1,000-gallon gasoline USTs and a 500-gallon heating oil tank, none of the tanks will be subject to regulation. Likewise, a property with four 500-gallon heating oil tanks will also not be subject to the PBS program even though the total capacity of the tanks at the property is 2000-gallons.

The performance and operating standards for regulated USTs under the PBS program are considerably more extensive than those for ASTs. Thus, it is particularly important to ensure that tanks in multi-family or commercial buildings are properly registered. However, the rules for classifying a tank as an UST or AST are-yes quirky. A tank located in a basement could be regulated as an UST under some circumstances which means it could be subject to periodic testing and other performance standards.

NYSDEC has commenced numerous enforcement actions against residential buildings for failing to properly register tanks, report spills and remediating contamination. Indeed, a number of multi-family buildings in NYC have been required to pay in excess of $1MM for tank violations and cleanup. One of the recurring themes I have seen in the cases involving significant fines or cleanup costs has been when the property or building management has hired a “tank” company to repair a failed tank system. The building manager believes that the “tank” company will deal with all of the issues associated with the failed tank system and are then shocked when they get a notice of a hefty fine from NYSDEC for failing to properly close out a spill. See our prior post on the importance of hiring the right kind of consultants for leaking heating oil tanks.

Another quirk of the NYSDEC PBS program is the closure requirements for heating oil tanks. Regulated PBS tanks that are out-of-service for more than one year must undergo closure. Unlike the federal UST program, though, the NYSDEC PBS program does not require an environmental assessment to close heating oil tanks. The tank has to be cleaned out and visually inspected for holes but soil or groundwater samples are not ordinarily required to achieve closure of heating oil tanks unless there is visual evidence or a leak.

Thus, it is possible that a heating oil tank that was closed in place and obtained regulatory closure by the NYSDEC may have impacted the property. Accordingly, it is advisable for purchasers of property with abandoned heating oil tanks to review the closure documentation to see if sampling was conducted. In the absence of such documentation, the purchaser should consider conducting its own sampling since the purchaser could be strictly liable under the state Navigation Law if an abandoned tank that was closed in place has impacted the environment.

In New York City, chapter 34 of the Fire Code establishes requirements for Out-of-Service Storage Systems storage tanks (3 RCNY §3404-01.  Closure of storage tank systems that have not been used for one year must be closed a certain licensed individuals. The owner or operator of a permanently out-of-service storage system or the permit holder for the tank system must also file an affidavit with the Fire Department certifying that the tank system was removed and disposed or abandoned in place in compliance with the requirements of Fire Code. If an environmental site assessment is required by federal or state law or regulations, the owner/ operator of the storage system, the permit holder for the system or the person filing the affidavit of compliance must submit a written statement to the Fire Department that such environmental site assessment has been performed in accordance with such law and regulations.

Finally, the New York City Department of Environmental Protection (NYDEP) has issued regulations to phase-out the use of Number 6 oil (No. 6) and Number 4 oil (No. 4) fuel oil that is burned at approximately 10,000 buildings to reduce the quantity of fine particulates emitted by buildings. Studies had shown that 1% of the buildings in the city produce 86% of the total soot pollution from buildings.

Effective May 23, 2001, all newly-installed/permitted boilers may only burn low sulfur No. 2 oil, natural gas, or the equivalent from an emissions standpoint. For existing boilers, the regulations provide for a phase-out of No. 6 oil. Beginning July 1, 2012, building owners are required to convert to a cleaner fuel (No. 4 oil or cleaner) before their three-year certificate of operation expires. Building owners will not be able to renew Certificate of Operation for a boiler burning #6 heating oil unless the applicant demonstrates that the No. 6 fuel that will be used will emit the same or less PM and NOx than No. 4 on an annual basis. All boilers must be converted to low sulfur No. 4 heating oil or an equivalent cleaner fuel by mid-2015. By 2030, existing boilers that have not been replaced must be modified to meet the equivalent emissions of burning low sulfur No. 2 oil or natural gas. The regulations are available here.

Financing and other incentives are available for building owners required to convert to cleaner-burning fuels.  NYC has established a webpage that provides information on financing options  and incentives available to building owners. Click here for Information on the permitting process


NYSDEC Proposes Changes to Petroleum and Hazardous Substance Storage Tank Regs

Sunday, November 10th, 2013

During the summer, NYSDEC issued draft revised regulations to its Petroleum Bulk Storage (PBS), the Major Oil Storage Facility (MOSF) program and the Chemical Bulk Storage (CBS) program. The revisions are intended to make the PBS and CBS regulations consistent with the federal underground storage (UST) regulations codified at 40 CFR Part 280 so that these program may qualify for delegation under 40 CFR Part 281.

Proposed PBS Revisions

The New York “Control of the Bulk Storage of Petroleum Act” (PBSA) regulates USTs and aboveground storage tanks (ASTs) that are used to store petroleum and have a combined storage capacity (either individually or collectively) of more than 1,100 gallons.  Note there are slightly different threshold rules for heating oil tanks which are discussed in our companion piece on NY’s Quirky Heating Oil Tank regulations here.

The New York State Department of Environmental Conservation (NYSDEC) issued regulations implementing the PBS program in 1985 that are currently codified at 6 NYCRR 612-614.  Under the draft revised regulations, NYSDEC proposes to replace at 6 NYCRR 612-614 with a new Part 613. The revised Part 613 will establish separate requirements for tanks that are regulated by the federal UST program as well as those that are only subject to the PBS program such as heating oil tanks. See our companion post on New York’s quirky heating oil regulations here.

The revisions will include requirements mandated by the federal Energy Policy Act of 2005 including ensuring that facility operators have been trained, authority to prohibit delivery of petroleum and hazardous substances to tanks that are or may be leaking, tanks operated in significant non-compliance, and requirements for piping and dispenser secondary containment. The proposed changes will also changes to the definition of “petroleum” and of “facility that were made by the 2008 amendments to PBSA.

NYSDEC has issued a number of guidance documents and policies governing USTs and ASTs that are subject to the PBS program. These documents are available here.

It should be noted that Nassau, Suffolk, Rockland, Westchester and Cortland Counties administer the program in these localities, pursuant to delegation from DEC. Because these counties may have more stringent requirements than the PBS program, owners and operators with tanks in these jurisdictions should be familiar with the specific local requirements. In particular, some of these delegated counties have adopted regulations that apply to smaller heating oil tanks than the NYSDEC PBS program.

It is important to remember that the PBS  closure and corrective action requirements are not the only source of liability for owners or operators of property contaminated with petroleum.  Article 12 of the Navigation Law imposes strict and joint liability on dischargers who are defined as persons who are “in any way responsible” for petroleum discharges. While mere ownership of property that is contaminated with petroleum discharges may not automatically result in liability for a property owner, state courts have broadly construed this phrase so that owners who had the ability to control storage tanks such as landlord have been found liable under the Navigation Law. Moreover, purchasers of property contaminated by abandoned petroleum tanks have often been found to be ineligible for reimbursement from the Oil Spill Fund on the grounds that they owned the abandoned tanks. Thus, it is important for purchasers to determine if abandoned tanks, in particular abandoned heating oil tanks, are present at the property prior to taking title. If tanks are discovered, they should be removed prior to the closing or before the purchaser assumes control of the property.

Proposed CBS Revisions

NYSDEC is also proposing changes to its CBS program which implements Articles 37 (Substances Hazardous to the Environment) and 40 (Hazardous Substances Bulk Storage Act). Article 37 requires the NYSDEC to regulate all substances covered by CERCLA, FIFRA, and TSCA along with other chemicals that NYSDEC determines to be hazardous. Article 40 regulates the sale, storage and handling of hazardous substances.

NYSDEC proposes to consolidate and amend its CBS regulations as follows:

  • Repeal Part 595 (Releases of Hazardous Substances) and move these requirements in Parts 597 ((general requirements for spill reporting) and 598 (facility specific reporting requirements).
  •  Replace Part 596 with a new Part 596 titles Hazardous Substance Bulk Storage Facility Registration. Significant changes include:

 -This section modifies the definition of hazardous substances so that the term is not limited to those listed on the table in Part 597.

-The definition of owner is to clarify that the property owner will be responsible for registration and that the tank owner will be responsible for all other “owner” requirements designated in the rule.

-The definition of UST is also modified to conform to the federal definition.

  •  Replace current Part 597 (List of Hazardous Substances) with a new Part 597 (Hazardous Substance Identification, Release Prohibition and Release Reporting). Among the key changes:

-The definition of hazardous substance is being clarified to include listed substances, substances meeting certain characteristics, certain mixtures, and hazardous waste.

-The list of hazardous substances is being updated to be consistent with CERCLA. The existing definition of hazardous substance had included petroleum but this was deleted to avoid conflicts with the PBS program.

-The persons required to comply with reporting obligations have been changed to any person in actual or constructive control or possession of the hazardous substance when it is released or any employee, agent, or representative of such person who has knowledge of the release.

-The reportable quantity is also being changed to conform to the federal definition that refers to a 24-hour period. Because the existing requirement did not have a time period, the proposed change will narrow the reporting obligations;

-elimination of the exemption for releases that were the result of an unavoidable accident

-elimination of the exemption to the spill reporting requirements for carries and transporters;

  •  Amend Part 598 (Handling and Storage of Hazardous Substances). This section now includes the release reporting, investigation, confirmation, and corrective action requirements previously contained in Parts 595 and 596.  In addition, the federal public participation requirements for corrective action plan have been added;
  •  Amend Part 599 (Standards for New Hazardous Substance Tank Systems). 

Ct Allows Claim Agst Consultant For Missing Contamination at Lowe’s Site To Proceed

Tuesday, October 8th, 2013

Some time ago, we discussed the $14MM lawsuit filed by Lowe’s Home Centers  against a consultant. Lowe’s alleged  that the consultant failed to identify all areas that had been contaminated with PCBs and the store opening was delayed because of complications associated with the previously unknown PCB-contaminated soil was improperly disposed. The matter eventually settled

Another Lowe’s Home Center store development site has led to a lawsuit against a consultant, this time by an insurance company that issued an environmental insurance policy to Lowe’s Companies, Inc (Lowe’s). The complaint alleges that that the consultant failed to identify contamination associated underground storage tanks (USTs) during pre-acquisition due diligence and resulted in the plaintiff paying $1,050,103 under its insurance policy. Recently, the federal district court denied the consultant’s motion for summary judgment in Chartis Specialty Ins. Co. v. Aqua Science Engineers., 2013 U.S. Dist. LEXIS 124090 (N.D.Cal. 8/29/13).

In this case, Lowe’s was considering purchasing a 28-acre property in Concord, California for a proposed Lowe’s Home Center store. The property had a history of light industrial use including contractor equipment yards, diesel generator repair business, drilling company, automotive wrecking, wood truss manufacturer, ornamental iron fabricator and mobile home sales lot.

A phase 1 conducted by Anton Geological (Anton) in 2001 had identified a number of Recognized Environmental Conditions (RECs) including an abandoned oil-water separator, potential soil contamination from automotive wrecking operations, an above-ground storage tank (AST), areas where hazardous materials and wastes had been used by a variety of tenants and former underground storage tanks (USTs). A total of 11 underground storage tanks had been removed from the Site in the 1990s. Several of the USTs were removed without any regulatory oversight. Two USTs that had been operated by Judd Drilling were particularly notable.  The USTs were removed in the early 1990s and the Regional Water Quality Control Board (the Board” ) granted closure in 1998 despite the fact that sampling detected over 1,000 parts per million (ppm) of benzene, toluene, ethylbenzene and xylene (BTEX) in soils and 15,000 ppb of diesel range total petroleum hydrocarbons (TPH-D) in groundwater.

In 2004, Aqua Sciences Engineers, Inc (AES) was retained by the Winton Jones Development Company (WJDC) to obtain regulatory closure on the RECs identified in the Anton  phase 1 report to facilitate redevelopment of the property. AES identified significant petroleum contamination in one well that was located downgradient from the former Judd Drilling UST. However, no elevated levels were detected in the on-site drinking water well. Three test pits detected elevated concentrations of TPH-D, gasoline-range total petroleum hydrocarbons (TPH-G), and motor oil (TPH-MO) in the shallow soil.

In 2006, ASE excavated contaminated soils from the three test pits in the central portion of the Site known as the Winton Jones Development Parcel (WJDP) pursuant to a workplan approved by the Board. Post-excavation sampling confirmed the residual contamination was below environmental screening levels (ESL) used by the Board for commercial property. ASE originally requested that the Board issue a site-wide NFA. However, the Board responded that the sampling performed to date was limited for a size and history of site and that the Board believed additional soil and groundwater contamination was present in areas such as where the USTs had been removed without regulatory supervision. As a result, ASE then modified its request, indicating that ASE was comfortable with the issues elsewhere as the property and was simply seeking confirmation that the 2006 soil remediation was completed in accordance with the approved workplan. In response, the Board advised AES in 2007 that if the owner wanted to receive an NFA letter allowing for unrestricted land use in the future but restricting shallow groundwater use via a deed restriction, it would need to undertake a more robust and complete investigation of the environmental conditions of the entire site that could require additional remediation. However, the Board said the seller could obtain an NFA with restrictions without additional environmental investigations.

In 2008, AES submitted a Revised Workplan for Soil and Groundwater Assessment to obtain a letter from the Board indicating that the property was suitable for redevelopment. ASE investigated two additional former UST areas that ASE had not aware of when it conducted its 2006 remedial work but had learned about from its review of the Board’s files. ASE also collected samples from four areas where stained soil was observed during a site visit or had historically been used to store equipment and vehicles.  ASE detected TPH-D, TPH-G and TPH-MO that did not exceed the ESLs. ASE also issued a Soil and Groundwater Assessment for  an adjacent five-acre parcel where three gasoline USTs had been removed from the site in 1987 and closure had been granted by the Contra Costa County Environmental Health Department and RWQCB in April 1995. ASE did not detect any petroleum hydrocarbons in the soil or groundwater and VOCs in the groundwater were detected below the ESLs. ASE recommended that the RWQCB prepare a no further action (NFA) letter for this parcel. The report contained a section title “Report Limitations”. This section stated that “This report does not fully characterize the site for contamination resulting from unknown sources or for parameters not analyzed by the laboratory.”

Also in 2008, Lowe’s retained ASE to perform a pre-acquisition phase 1 environmental site assessment (ESA) contemporaneous with the sub-surface investigation. Lowe’s selected ASE in part because the firm had performed a number of investigations and implemented remedial measures under the under the supervision of the Board during the preceding decade for the owner/seller of the property.

The ASE report had some curious language and suffered from the use of inconsistent terminology. In the “Findings” section, ASE concluded that the former USTs and surficial staining identified in 2004 were HRECs because of the prior remedial activities. ASE also said that the surface staining from improper handling of hazardous materials and the areas where equipment or vehicle storage each “would be considered a environmental conditions.” (The term “environmental condition” is undefined and not a term recognized by ASTM E1527-05. It is unclear if this was a typo and ASE meant to identify these conditions as RECs).

Then the report went on to say that the areas of heavy surface staining and equipment/vehicle storage were not considered “recognized environmental conditions that would that negatively impact the site” because sampling did not exceed the ESLs. The use of the phrase “that would negatively impact the site” seems to create ambiguity. Was ASE saying there are no RECs or that there are RECs that will not result in material impacts to the site? If the latter, why identify the release as a REC and not a de minimis condition (e.g., one that would not result in enforcement or cleanup obligations if brought to the attention of regulators).

ASE identified the areas where poor management of waste oils and chemicals as de minimis conditions because of the sampling.

The “Findings” section concluded with a box with bold type that seemed to contradict the aforementioned statements. The bold text stated “No recognized environmental conditions, historic environmental conditions or de minimis conditions were discovered in the course of this phase 1Environmental Site Assessment, with regard to the subject property that warrant further assessment activities.

The “Opinion” section went on to state that “Although historical and recognized environmental conditions exist at the subject site, in our opinion, regulatory agency prepared closure letters and recent (2004, 2006 and 2008) assessment and remedial activities performed at the site render a conclusion that these afore-mentioned conditions no longer negatively impact the subject site and do not warrant any further assessment activities.”

The “Conclusions” section stated that “Based on the above-referenced information, there does not appear to be any current or former site conditions that warrant any further assessment.” This section ended with the following statement “ As discussed in Section 8.1 and 8.3, this assessment has identified historic recognized environmental conditions and de minimis conditions, which as detailed in sections 8.0 and 9.0, are not considered to negatively impact the property or warrant any further assessment activities. This assessment has revealed no evidence of evidence of recognized environmental conditions except for those conditions specifically detailed in Section 8.2; however, in our opinion, each of the recognized environmental conditions identified in Section 8.2 have been fully assessed and are not considered to negatively impact the property or warrant any further assessment activities.

Finally, in the “Recommendations” section, ASE recommended that the junk yard area where there was poor management of waste oils and chemicals be re-inspected after the vehicles were gone and that the drums and buckets containing liquid be immediately removed. ASE also recommended that stained soil be scraped and separately managed from non-stained soils.

The Board issued a letter in May 2008 confirming that the property was suitable for redevelopment and that the environmental assessments completed to date were sufficient to allow the Board to issue a No Further Action (NFA) if five identified requirements were met, including additional sampling of the eastern 5-acres, abandonment of the on-site well, recording of a deed restriction and implementation of a “Risk Management Plan to properly deal with unanticipated soil, soil gas, and groundwater issues that may arise during future construction activities. In accordance with the Board’s request, ASE conducted additional soil and groundwater sampling that did not identify any contaminants above the commercial/industrial ESLs and prepared a Soil and Groundwater Plan (SGMP) which was approved in May 2009.

Between June and August 2009, contaminated soils were encountered during grading operations for the building foundation, excavation of a temporary stormwater retention basis and construction of a bio-swale. An estimated 18,500 tons of soil were disposed off-site and moderately-contaminated soils were reused beneath parking and driveway areas on the western half of the property, and beneath the concrete pad of the building

Lowe’s provided a Notice of Loss/Notice of Claim to its carrier, Chartis Specialty Insurance Company (f/k/a American International Specialty Lines Insurance Company). Chartis paid $1,050,103 to or on behalf of Lowe’s for the cleanup costs and then filed its lawsuit.

This case illustrates the challenges of redeveloping brownfield sites or those that have historic light industrial use. Phase 2 investigations are not comprehensive site investigations and it is not unusual for previously unknown contamination to be uncovered during demolition or construction activities. Insurers who write environmental insurance policies are certainly aware that unknown contamination is often encountered when developing industrial sites. Indeed, the frequency and magnitude of unexpected cleanup costs is a reason that insurers largely stopped writing cost cap insurance.

It may be that the plaintiffs will be able to uncover evidence of negligence on the part of ASE during discovery. However, given the numerous investigations and extensive oversight by regulators, it does seem that plaintiffs are embarked on a Quixotic mission. If there was negligence in this case, it seems it was committed by the insurer/plaintiff. The correspondence between ASE and the Board clearly reflect the concerns of the regulator about potential unknown sources of contamination in areas of the property that had not been fully characterized. These materials were readily available for review by the plaintiff’s underwriters. Thus, this lawsuit seems more a case of buyer’s regret on the part of the plaintiff for not having done more thorough due diligence or perhaps ignoring the risks to chase premium dollars during a credit bubble than the negligent performance on the part of the defendant.

NJ Shopping Center Owner Waits Too Long to Bring Spill Act Claim

Wednesday, September 25th, 2013

Commercial property owners and asset multi-family buildings usually retain property managers firms to handle the daily operations of properties ranging from leasing, record-keeping, routine maintenance and emergency repairs. We previously discussed on how the importance of property managers understanding environmental issues, particularly the nuances of the requirements heating oil tanks for multi-family buildings. A recent New Jersey case involving a leaking heating oil UST at a shopping center reinforces this point.

In Morristown Assocs. v. Grant Oil Co., 2013 N.J. Super. LEXIS 130 (App. Div. 8/23/13), a New Jersey appeals court held that an owner of a shopping center waited too long to bring claims against several heating oil companies and the prior owners of a dry cleaning business for remediation costs and for other damages caused by a leaking fuel line.

In this case, the plaintiff acquired the shopping center in 1979 where Plaza Cleaner was a tenant. Before plaintiff purchased the property, Plaza Cleaner had installed a heating oil underground storage tank (UST) to feed the steam boiler used in the dry cleaning process. The UST was located  under a concrete slab floor. A number of heating oil companies delivered oil to Plaza Cleaners until 2003 when the tenant converted to natural gas in. The heating oil was pumped from a delivery vehicle through an external fill pipe protruded from an exterior wall. The fuel traveled through an internal feed line to the UST that was located under the basement. Sometime during this period, the fuel line developed holes which allowed the oil to seep into the soil and groundwater.

As is frequently the case, the plaintiff learned of the contamination when oil was observed in a groundwater monitoring well installed on an adjoining property owner in 2003 as part of a due diligence. The adjacent property owner contacted the plaintiff’s property manager to advise them that the investigation identified Plaza Cleaners as the source of the oil contamination.

When the UST and pipes associated with Plaza Cleaners were removed in 2004, the UST was found to be intact but the fuel line had holes as big as two inches in diameter. At the trial, plaintiff’s expert testified that the corrosion occurred because of improper design of air conditioning venting directly above the fill pipes, which caused rainwater and acidic water to accumulate around the pipes. Since 1988, it was estimated that between 9,400 and 14,670 gallons of heating oil leaked into the environment from the corroded fuel line

The plaintiff filed a lawsuit in July 2006 against the prior owner as well as the fuel oil companies under the Spill Act, the New Jersey Environmental Rights Act,  and common law negligence. The plaintiff asserted that the oil companies failed to inspect the pipes and the UST to ensure they were not leaking.  The defendant oil companies filed motions for summary judgment on several grounds, including that the plaintiff’s claims were barred by statute of limitations (SOL). Plaintiff opposed the motions, arguing that the Spill Act did not contain an SOL for private contribution actions.

The first issue the trial court had to resolve was if the Spill Act had a statute of limitations and if so, what was the applicable period.  The court ruled that the six-year SOL applied to plaintiff’s claims.

Then the court turned to when the SOL commenced. Plaintiff sought to invoke the discovery rule which New Jersey courts have applied to avoid the harsh effects that might result from a mechanical application of SOL. Under the discovery rule, the “clock” for filing a claim may be tolled or not begin ticking until a party discovers or should have discovered by an exercise of reasonable diligence and intelligence that they may have a basis for an actionable claim. Based on the discovery rule, plaintiff argued the SOL began to run in 2003 when the property manager learned of possible contamination caused by the dry cleaner. However, the oil companies asserted that the plaintiff’s should have discovered potential contamination from the Plaza Cleaner UST in 1999 when the supermarket UST was removed and because of the staining on the exterior wall of the dry cleaner.

The plaintiff testified he was unaware of the UST at the dry cleaner and also first became aware of the contamination in August 2003 The plaintiff’s president testified that 1993 environmental audit performed in 1993 as part of refinancing a mortgage did not identify USTs and that he first learned of the UST at the dry cleaner in August 2003 when the property manager was informed of the sampling results from the adjacent monitoring well.

The plaintiff had retained two management companies to supervise the operation of the shopping center. The president of the management company that operated the shopping center from 1988 to 1995 and again beginning in 2002 testified that he never saw anything to indicate there was a UST or any environmental problems at Plaza Cleaners. He also said did not remember seeing the extensive staining on the alleyway wall beneath the fill line. He said that he first became aware of an environmental problem when he was informed about the advised by the adjacent The second management company that operated the property from 1999 to 2002  had hired a consultant to remediate a leaking UST at the supermarket tenant. The owner of that management company testified in deposition that he was aware of the UST tank at Plaza Cleaners and that he had discussed the 1999 tank removal from the shopping center with the plaintiff.

The trial court said the discovery rule was an equitable remedy that courts applied when a party through no fault of its own is unable to take reasonable actions promptly to bring appropriate litigation and that the circumstances in this case did justify such relief. The court found that the plaintiff should reasonably have discovered the contamination at Plaza Cleaners no later than 1999. Any lack of knowledge by the plaintiff or its property manager by that date, the court went on, suggested a lack of diligence in attending to the property. The trial court estimated that there had been hundreds of oil deliveries to Plaza Cleaners between 1979 and 2003 and that plaintiff should have become cognizant of them at some point. In so holding, the court said

“A landowner has a fundamental  duty historically and settled in our law to make reasonable observations of the conditions on its property and to take reason-able care to insure that dangers do not exist on that property.. . . Anyone with any degree of reasonable knowledge must have known that there was an oil tank in the vicinity of Plaza Cleaners. There was an exterior fill pipe on the wall which was readily visible. There was a vent pipe in the same vicinity which was reasonably visible.”

On appeal, plaintiff argued the trial court erred because the Spill Act statutory defenses did not include contain a statute of limitations and prior caselaw had rejected application of general SOLs to Spill Act contribution actions.

In support, plaintiff cited to Pitney Bowes v. Baker Industries, Inc., 277 N.J. Super. 484 (App. Div. 1994) where the court rule that strict application of the New Jersey statute of repose would defeat the legislative intent of the Spill Act to impose strict liability on those responsible for contamination. A statute of repose sets an absolute time period for filing claims regardless of when a plaintiff discovered or should have discovered it has been damaged. In contrast, an SOL establishes the time period when a particular action may be brought. The appellate court in Morristown Associates said that unlike the statute of repose, an SOL is not “patently repugnant or inconsistent” with the purposes of the Spill Act. Because the Pitney decision involved the application of a statute of response and not an SOL, the appeals court declined to follow Pitney.

The plaintiffs also relied on the unpublished opinion in Mason v. Mobil Oil Corp., 1999 N.J. Super. Unpub. LEXIS 7(App.Div. 6/8/99) that did involve application of the SOL to a Spill Act contribution claim. In that case, there the plaintiffs purchased two adjacent lots there had been formerly used a gasoline station and a contiguous third lot. After demolishing the structures on their property, plaintiffs contracted to sell the property to Summit Bank. However, the bank walked away from the sale after its environmental consultant found significant levels of gasoline contamination. The plaintiffs had filed a lawsuit against their seller and ten fictitious defendants (“John Does”). The plaintiff later amended their complaint to substitute Mobil Oil for one of the John Doe defendants. Mobil sought to dismiss the amended complaint because it was filed more than six years after the filing of the original complaint. While the court felt that the plaintiffs had not been diligence since Mobil Oil’s involvement could readily have been determined by a title search during ensuing six years, the court ruled that the six-year SOL did not apply to a Spill Act claim.

The appeals court in the Morristown Associates case declined to follow Mason, finding more persuasive the reasoning followed by a New Jersey federal district court in Reichhold, Inc. v. United States Metals Refining Co., 655 F. Supp. 2d 400, 446-47 (D.N.J. 2009).  In Reichhold, the district court ruled that the Spill Act did not contain an SOL for private contribution claims and said courts should use the SOL applicable to actions seeking similar relief under common law.  The appellate court in Morristown Associates then ruled that the applicable statute of limitations for Spill Act contribution actions was the six-year limitations period for trespass or injury to real property.

Turning to the discovery rule, the court affirmed the lower court’s ruling that the plaintiff should have reasonably discovered the contamination by 1999. In so doing, the Appellate Court seemed to set a rather high bar for property owners seeking to invoke the discovery rule. The court held that that the discovery rule “does not depend on whether actual sampling results have been taken, but on whether enough indications of environmental contamination were present to put the plaintiff on reasonable notice to investigate further.”

The court went on to note that plaintiff was put on notice when the UST was removed from the supermarket that the 1993 environmental report was inaccurate. Therefore, the court said, the plaintiff should have exercised due diligence and supervision over its property to investigate if any other UST’s existed on its property. Having been put on notice of potential contamination at the property, plaintiff should have investigated whether the Plaza Cleaners’ system was functioning properly. Indeed, the court found that because the fill and vent pipes were clearly visible and there was evidence of staining on the external wall of Plaza Cleaners, the property manager should have made inquiry about the use of the fill pipes and their condition.

This ruling appears to impose an affirmative obligation on property managers and owners to periodically inspect each tenant space for evidence of spills or mismanagement of hazardous substances. Property management agreements often require the property managers to perform their duties using “due diligence” or “reasonable care”. The agreements also tend to contain “hold harmless” provisions where the owner agrees property manager will not liable for damages even those by third parties except where the property manager has engaged in willful misconduct or gross negligence. Some agreements require property managers to be responsible for compliance with laws but often these agreements contain a hold harmless clause for environmental conditions. As a result of the Morristown Associates decision, property owners and asset managers may want to review their property management agreements to determine if responsibilities for environmental compliance or environmental issues need to be revised.

Ct Allows Environmental Escrow Claim Agst FDIC To Proceed

Monday, May 6th, 2013

What happens to a remediation escrow account when the funds are deposited in a bank that is subsequently closed and Federal Deposit Insurance Corp (FDIC) is appointed as a receiver? Some of the issues that need to be considered are illustrated in Kuruvilla Edukutharayil v. FDIC, 2013 U.S. Dist. LEXIS 8840 (N.D.Ill. 1/23/13).

In this case, the plaintiff agreed to sell 6 gas station properties in August 2004. Due diligence revealed that three of the properties were impacted with petroleum contamination. The petroleum releases were disclosed to the Illinois Environmental Protection Agency (“IEPA”) prior to the closing and plaintiff agreed to perform any investigation and cleanup required by IEPA after the closing. To ensure that plaintiff complied with its post-closing obligations, the parties entered into an escrow agreement whereby $300K of the sales proceeds were placed into an escrow account that was to be maintained by Broadway Bank. The escrow was to be released in $100K increments when the IEPA issued No Further Remediation Letter for each property.

It appears that the corporate entities that owned the three properties were formally dissolved December 2006. At the time of the corporations were dissolved, the cleanups had not been completed so the corporate entities did not have any right to demand release of the escrow.

In April 2010, the Illinois Department of Financial and Professional Regulation closed Broadway Bank and appointed the FDIC as Receiver. MB Financial Bank, N.A. (“MB”) acquired all of the assets of Broadway Bank, including deposits and escrows pursuant to a Purchase and Assumption Agreement on the same day that FDIV was appointed receiver. MB sent notices to depositors, including escrow account holders, of its acquisition of the Broadway Bank accounts.

Meanwhile, Plaintiff completed a cleanup at one of the properties. Pursuant to the escrow agreement, plaintiff was entitled to release of $100K of the escrow proceeds. According to the Plaintiff’s complaint, it first learned of the closing of Broadway Bank and the appointment of the FDIC as Receiver in April 2011. In July 2011, plaintiff submitted a completed Proof of Claim Form and other documentation substantiating its claim. In August 2011, FDIC was notified plaintiff that his claim was disallowed because it had been submitted after the expiration of the period of time to file claims. In addition, the FDIC advised plaintiff that Broadway Bank had applied the escrow account to satisfy another loan by plaintiff in December 2009.

In September, one of plaintiff’s investors, Rodney Simon, contacted FDIC representative Kirk Kelly by email to inquire on the status of the escrow. Simon advised Kelly that Broadway Bank had not been not been authorized to apply the escrow account to the other loan and alleged that escrow funds had been kept in three separate accounts that were FDIC insured. Simon further advised Kelly to “[p]lease consider this an appeal or let us know how else to proceed so we don’t miss [the 60 day] deadline.

Kelly responded in October 2011 by email that Kelly was “waiting on a response from our Legal Division” and told Simon “Please accept this as my acknowledgement that the 60 day term to respond is on hold until I hear back from Legal.” In December 2011, Simon e-mailed Kelley to ask if he had “heard from Legal as yet.” Kelley replied that the FDIC had initiated a more in depth review by MB since the bank had taken over Broadway Bank’s assets and liabilities. Two weeks later, Simon again contacted Kelly, asking if there was any update. Kelley replied the same day, stating that he had not heard back from the MB but also stated that the matter had been transferred to the FDIC’s Dallas office. Several days later, Kelley advised Simon that the plaintiff’s claim was a ” Deposit Claim” because it involved a deposit that MB claimed had been applied to a loan prior to its assumption of Broadway Bank’s assets and liabilities, and that there was not a time frame exclusion for Deposit Claims.

Plaintiff filed its lawsuit suit in August 2012 and the FDIC filed a motion to dismiss the complaint. FDIC first argued the complaint should be dismissed because plaintiff did not pursue an administrative hearing within the sixty (60) day statutory deadline. The FDIC also asserted since the escrow had been applied to the balance of a loan prior to the failure of Broadway Bank, there was no basis for a claim against the FDIC as receiver. Finally, since the FDIC said the $300K amount of the escrow exceeded the limit insured by the FDIC, the Plaintiff assumed the risk of loss of such funds.

The court held that the plaintiff’s claim was not only untimely filed but might actually be premature. The court said plaintiff to seek agency review within 60 days of notice of the disallowance and that the Plaintiff had its email expressly stating that the correspondence was an appeal was well within the sixty day period following issuance of the notice of disallowance. The FDIC argued the e-mail did not did not amount to a request for administrative review because the email was insufficiently specific. In other words, the FDIC appeared to claiming that the email correspondence was not a request for an administrative request because it lacked the magical phrase “administrative review”. The court declined to exalt form over substance, holding that there was not FDIC did not cite to any authority that there was any particular format for requesting review of disallowance claim.

FDIC alternatively argued that even if the September 28, 2011 email amounted to a request for administrative review, the deadline expired with the December 19th email and plaintiff failed to file its lawsuit within 60 days of that email. However, the court said Kelley’s e-mail was anything but a final determination of the administrative appeal. The court found that Kelley’s emails “essentially strung plaintiff along for several months” and then passed the matter off to the FDIC’s Dallas office. The e-mail does not amount to a “final determination” of the claim by the FDIC. In sum, the FDIC’s argument that the suit is untimely lacks merit. Indeed, the court said plaintiff’s email might be premature because FDIC had not concluded its administrative process. Since the FDIC had not made that argument, the court declined to rule on the ripeness of plaintiff’s lawsuit.

As we have previously discussed, a motion to dismiss is filed early in litigation before discovery is conducted and usually before a defendant files its answer. When ruling on a motion to dismiss, the court is asked to determine if the plaintiff has adequately pled a cause of action based on the facts pled by the plaintiff and the court will assume the facts are true as pled. Thus, these rulings are often not very informative. Nevertheless, this decision is instructive.

Perhaps the most important lesson is to remember that in this age of informal email correspondence, it is still important for a party to formally invoke its statutory, common law or contractual rights. The plaintiff was fortunate that this court did not follow a formalistic approach and look for the existence of a magical phrase containing the words “administrative review.” In New York, for example, some courts have held parties failed to preserve rights to dispute resolution or other administrative remedies despite lengthy email correspondence and conference calls because the party failed to specifically refer to the specific contractual right in the underlying agreement or consent order.

During the depth of the Great Recession, hundreds of community banks were failing each year. In such an environment, the parties should have been monitoring the status of the escrow account. There are alternatives to cash escrows such as letters of credit or performance bonds but these are more costly than maintaining a depository account. Perhaps the lesson from this case is to place deposits in a bank that-dare I say it- is “too big to fail”….

Landlord Liable For NYSDEC Costs Responding to Vapors at Off-Site Properties

Friday, April 26th, 2013

A property owner was found liable under the New York Navigation Law for cleanup costs incurred by the New York State Department of Environmental Conservation (NYSDEC)responding to gasoline fumes that had migrated a quarter of a mile from the gas station. While the vast majority of the state’s costs were associated with the cleanup of soil and groundwater, it was the presence of the vapors that drew regulatory attention to this spill.

In State of New York v Slezak Petroleum Products, 947 N.Y.S. 2d 189 (App. Div-3rd Dept 2012), the defendant leased its property in Amsterdam, New York to a gas station operator. In October 2004, gasoline fumes were detected in a warehouse located approximately one quarter mile from the gas station.  The NYSDEC conducted an investigation and determined that that the vapors from a gasoline spill had infiltrated nearby sewer lines and residences. After the USTs at the site failed a tightness test, the he tanks were removed and holes were observed on the bottom. Further sampling confirmed the presence of extensive soil and groundwater contamination.

When the defendant declined to undertake further investigation for financial reasons, NYSDEC retained a contractor to implement response actions. The NYSDEC determined that the groundwater flowed from the gas station towards toward the warehouse and affected residences. In addition, the highest concentrations of contaminated groundwater were consistently found in the monitoring wells at and immediate downgradient from the gas station. The petroleum detected in monitoring wells at the affected residences revealed minimally weathered gasoline and MTBE.

After investigating other potential sources of the contamination, including two nearby gas stations, NYSDEC concluded that the defendant’s property was the source of the petroleum contamination causing the vapors at the warehouse and the affected residences. When the defendant again declined to take further action, NYSDEC implemented extensive remediation measures to remove the contamination at the gas station and mitigate the vapors at the affected business and residences.

DEC filed a cost recovery action pursuant to article 12 of the Navigation Law along with penalties. The trial court granted DEC’s partial summary judgment that the defendant was strictly liable for all cleanup and removal costs and prejudgment interest, and entered a judgment for $937,233.53.

The defendant appealed, arguing that there other discharges who had contributed to the contamination and that as a property owner who did not operate the gas station, it could not be held strictly liable as a discharger under the Navigation Law. The appellate court affirmed, noting that while liability for remediation costs cannot be premised solely on land or ownership of the tank system, owners who have “control over activities occurring on their property” and who had reason to believe that petroleum products were stored there could be liable as dischargers. The court then found it was it is undisputed that defendant was the owner of the contaminated site as well as the petroleum tanks and system from which the spill emanated, had control over the activities on and the use of its property, and was aware that petroleum products were stored in underground tanks and sold from its property. Because the defendant clearly had the “capacity to take action to prevent an oil spill or to clean up contamination resulting from a spill, the court said defendant was strictly liable as a discharger.

In support of its motion for partial summary judgment, the plaintiff had submitted affidavits of two NYSDEC environmental engineer directly involved in the investigation and remediation that concluded the defendant’s property was the principal source of the contamination, and that the plume had migrated downgradient to the other affected properties in the neighborhood. The conclusions were based upon the sampling results from over 100 groundwater monitoring wells, soil borings and soil gas.

The defendant alleged that spills at other nearby locations were the source of the contamination at the residences and warehouse. In opposing plaintiff’s motion, the defendant submitted an affidavit of one of its principals refuting defendant’s liability for the off-site contamination and suggesting that it came from other nearby businesses. The court also found that affidavit submitted by defendant’s geologist contained only conclusory and speculative assumptions and assertions, noting that defendant’s expert affidavit did not conclude that migration from the gas station did not occur but that there were unanswered questions that needed further investigation. Because this affidavit was speculative and unsupported by any evidentiary proof, the court said it could not support a verdict in defendant’s favor. Likewise, the court found that the affidavit of defendant’s counsel was insufficient because the counsel did not have any expertise in applicable scientific disciplines or possess sufficient personal knowledge of relevant matters on the material disputed issues.

In sum, the court said the uncontroverted evidence established that the defendant’s property was the source of the contamination. The key facts noted by the court were that:

  • the gasoline tank excavated from the defendant’s property had holes in the bottom;
  • the petroleum was found in  the tank grave after the excavation;
  • high concentrations of gasoline and MTBE were found in the soil and groundwater at the defendant’s property;
  • the defendant’s property was identified as being at the top edge (highest point) of the contamination plume;
  • groundwater migrated away from defendant’s property toward the impacted sites;
  • vapors detected at the warehouse and affected residences were identified as a petroleum product;
  • a buried stream channel in the bedrock at the defendant’s property provided a migration pathway for the gasoline contamination to travel to the impacted areas;
  • there was a continuous impacted area between the spill site and the downgradient impacted warehouse;
  • forensic analyses of the petroleum in the wells at the affected residences established that it was post-1990 unleaded gasoline; and
  • the defendant’s property were the only nearby retail source of unleaded gasoline produced after 1990.

Besides, the court went on to say, the  plaintiff was not required to exclude other parties as contributing dischargers to establish defendant was strictly liable  under the Navigation Law. The court said the possibility that other dischargers contributed to the off-site contamination was irrelevant to the question of if  the defendant was strictly liable as a discharger under the Navigation Law. The court said that once the plaintiff established defendant was strictly liable as a discharger for all cleanup and remediation costs associated with the contamination, the defendant had the burden of proof to raise a triable issue of fact with regard to its liability and it failed to do so. Accordingly, the appellate court affirmed the granting of the summary judgment in favor of the plaintiff.

Of course, the defendant is not without recourse. It can  proceed with a Navigation Law contribution claim against the other parties that it believes are  dischargers.

This case illustrates the importance of identifying preferential transport pathways when evaluating the potential for vapor intrusion at sites with petroleum releases. EPA’s proposed “Guidance For Addressing Petroleum Vapor Intrusion At Leaking Underground Storage Tank Sites” (PVI Guidance) that was released for public comment last week indicated that lateral distance beyond which buildings and other structures may not be threatened by potential PVI is a site-specific analysis. For the  vertical separation distance which is the thickness of clean, biologically active soil between the highest vertical extent of a contaminant source and the lowest point of an overlying building, EPA recommends vertical separation distances of 6 feet for dissolved and 15 feet for LNAPL sources.

However, EPA also states that preferential pathways can increase the speed  at which contamination moves through the subsurface so that contaminants are not biodegraded by the time they reach receptors. Preferential pathways can be natural (e.g., gravel lenses, buried stream beds, solution channels in karst terrain, bedrock fractures) and human features (utility corridors, trenches, sumps, drainage pits).  Other factors that EPA identified in its pVI Guidance can impact degradability of petroleum contamination and thus may require investigation  include exceptionally dry soils and areas of extensive impervious paving.