We have reviewed several cases where sellers have been held liable for failing to adequately disclose environmental conditions in mandated property condition reports even where the property is sold “as is”. Another example is Wise v. Hays, 943 N.E.2d 835 (Ind. Ct. App. 2011), a state appeals court reversed a grant of summary judgment  in favor of a seller of residential property where the seller had failed to disclose correspondence with the Army Corps of Engineers (Corps) discussing the presence of wetlands on the property.

In 2007, the plaintiffs were interested in purchasing a 16.5 acre parcel that contained a residence. After inspecting the property, plaintiffs sent defendant written questions about the property. One of the questions asked if there were any wetlands that could impact development of the property. The defendant allegedly responded that the property could be developed for additional residential housing.

In connection with the purchase agreement, defendants completed a Residential Real Estate Sales Disclosure Form. The “no” box was marked next to question 7 (“Have you received any notices by any governmental or quasi-governmental agencies affecting this property?) and question 14 ( “Is the property in a flood plain?”).

Sometime after the purchase, plaintiffs began to have concerns about the certain structural issues about home and the presence of wetlands. Plaintiff obtained copies of correspondences from the Corps to the defendant. A June 2003 letter informed defendant that he had engaged in improper “sidecasting” of dredged material from an excavated channel, that he would have to obtain a wetlands permit for the portion of the property he proposed to develop and that any such a permit would likely compensatory mitigation. The November 2003 letter acknowledged receipt of the defendant’s permit application to leave the dredged material in place until it could be removed during the winter freeze and advised the defendant that a site visit would be conducted in March 2004 to verify that the spoil material had been removed and the area restored to its original grade.

Plaintiffs filed a complaint, alleging that defendant knowingly misrepresented certain items on the sales disclosure form. The trial court granted defendant’s motion to dismiss, ruling that plaintiffs had no right to rely on their representations when they had a reasonable opportunity to inspect the property. On appeal, the court reversed.

The appeals court began its analysis by stating that the common law recognized that a seller had a duty to disclose material facts about the property when asked by the buyer. The court said that this common law obligation was amended in 1993 when the legislature required  sellers of certain residential real estate must complete and sign a disclosure form and submit the form to a prospective buyer before an offer is accepted. However, the court said that a seller is not liable under the statute for any error, inaccuracy, or omission on the sales disclosure form that was not within the seller’s actual knowledge.

Turning to the disclosure statement, the court said the evidence established that seller had failed to disclose that the Corps had informed him that the property could not be developed with a wetlands permits, had failed to disclose that he had been informed that the dredging activities had violated the Clean Water Act, and that he was under obligation to remove the dredged materials. However, there were genuine issue of material fact as to whether the defendants had actual knowledge of the structural problems with the residence if the property lies in a flood plain. Accordingly, the court remanded the matter to the trial court for further proceedings.

The New York Property Condition Disclosure Law provides for a statutory penalty of $500 for non-compliance. Many real estate lawyers advise their clients to give the buyer the $500 credit rather than completing the form and risking greater damages for misrepresentation.

In Stalvey v. NVR, Inc., 2012 U.S. Dist. LEXIS 2506 (N.D. Ohio 1/09/12), the plaintiffs entered into an Ohio Purchase Agreement with defendant for the construction and purchase of a house. As part of the Agreement, defendant provided plaintiff with a Topographic Survey & Improvement Plan that did not depict the presence of wetlands on the property.

After taking possession of the house, plaintiffs learned that their home had been built on or near wetlands in violation of federal regulations and the local zoning regulations. Plaintiffs then began to notice odors in their home that they associated with the wetlands. After notifying the defendant, the parties agreed that they would each pay one-half of the cost to install a radon pump beneath the garage floor to eliminate the odor. After the installation, the garage floor coating began to bubble from the wet concrete floor. When the defendants declined to pay their half of the costs of the work, the plaintiffs filed their action.

Plaintiff alleged the defendant had breached the Ohio Consumer Sales Practices Act (“OCSPA”) prohibiting unfair or deceptive act or practice in connection with a consumer transaction. The trial court initially granted the defendant’s motion to dismiss on grounds OCSPA claim pertains only to real property and the law did not provide a remedy for real estate transactions.

Plaintiff filed a motion for reconsideration, arguing that its allegations went beyond the presence or failure to inform of the existence of wetlands but concerned the construction of the home itself.  The plaintiff said the defendant was required to build a home that was in compliance with local zoning ordinances and federal law but had built a home that was too large for the lot since a portion of the house encroached upon wetlands. The court reversed its ruling and held that the OCSPA claim would survive but only to the extent that it is based on allegations that the construction of the house was in violation of applicable zoning laws because the construction encroaches upon wetlands.

The plaintiffs alleged the defendant materially breached the Purchase Agreement because it represented that no wetlands existed on the property. The defendant did not check the “wetlands addendum.” Plaintiffs allege that the addendum created a duty on the part of Defendant to disclose the existence of wetlands. In response, the defendant maintained that the failure to check the wetlands addendum meant that the parties did not contract in any manner in regard to wetlands. The court concluded that the contract was ambiguous since the failure to check the wetlands addendum might be read to suggest that since there are no wetlands. Accordingly, the court denied the defendant’s Motion to dismiss the breach of contract claim.

The Army Corps of Engineers recently reissued its 48 existing nationwide general permits (NWPs) and issued two new NWPs to facilitate renewable energy projects (77 FR 10184, 2/21/12). The reissued and new NWPs became effective on March 19^th and will expire on March 18, 2017.

The NWPs contain three new general conditions. However, activities authorized by the NWPs issued on March 12, 2007 that have commenced or are under contract to commence by March 18, 2012 will not have to comply with the new conditions if those authorized activities are completed by March 18, 2013. Special conditions apply to NWP 21 which authorizes surface coal mining activities (see below).

Readers interested in the NWPs should review the federal notice announcement that discusses the NWPs. Here are a couple of highlights.

The first new NWP is NWP 51 applies to Land-Based Renewable Energy Generation Facilities. This NWP authorizes the discharges of dredged or fill material for the construction, expansion, or modification of land-based renewable energy production facilities. Such facilities include infrastructure to generate solar (concentrating solar power and photovoltaic), biomass, wind or geothermal energy and their collection systems. The NWP also applies to associated features of these projects including but not limited to roads, pads, parking lots, utility lines, and stormwater management facilities.

The discharge may not result in a loss of more than 1/2-acre of waters of the United States(e.g., wetlands) and 300 linear foot of stream bed loss. The linear limit does not apply for intermittent and ephemeral stream beds. Pre-construction notification is required for all activities authorized by this NWP and the permittee may not commence work that would result in discharges of dredged or fill material until the district engineer verifies the activity is authorized by this NWP.

Division engineers can regionally condition this NWP to restrict or prohibit its use in waters of theUnited States where the discharges are likely to result in more than minimal adverse effects on the aquatic environment, the activity may affect an endangered or threatened species, or is located in critical habitat for an Endangered Species Act. In such instances, consultation with the Fish and Wildlife Service is required. Moreover, general condition 19 provides that if the activity will result in the “take” of a migratory bird or a Bald or Golden Eagle, and a “take” permit is required from the U.S. Fish and Wildlife Service (FWS), the permittee must apply for and obtain the appropriate ‘‘take’’ permits.

The Corps noted that the draft FWS Land-based Wind Turbine Guidelines are voluntary guidelines that project proponents may incorporate into their land-based wind energy projects. The Corps does not have the authority to condition this NWP to incorporate the recommendations provided in those guidelines.

However, the Corps noted that other NWPs may apply to certain segments of these projects. For example, NWP 12 may be used to authorize discharges associated with the construction, maintenance, repair, or removal of utility lines for land-based renewable energy facilities. Utility lines that are used to transfer energy from the renewable energy generation facility to a distribution system, regional grid, or other facility are generally considered to be separate single and complete linear projects. Those utility lines may be authorized by NWP 12. Likewise, NWP 14 may be used to authorize road crossings. If the proposed activity qualifies for authorization under that particular NWP, the district engineer will issue a verification letter.

The second new NWP is NWP 52 for Water-Based Renewable Energy Generation Pilot Projects authorizes structures or work in navigable waters and discharges of dredged or fill material into waters of the United States for the construction, expansion, or modification of water-based wind or hydrokinetic renewable energy generation pilot projects. The associated features that are authorized by this NWP may include but are not limited to land-based distribution facilities, roads, parking lots, utility lines, and stormwater management facilities.

The NWP imposes a 1⁄2-acre and 300 linear foot limits, and restricts its use to pilot projects that have minimal adverse effects on the aquatic environment. All activities require pre-construction notice. As with NWP 51, the Corps said it was not the intent to limit use of other applicable NWPs to cover discharges of dredge or fill material associated with activities involved in the construction of water-based renewable energy generation pilot projects. Instead, this NWP provides an additional option for authorization of such discharges that are not currently covered by any other NWP.

The Corps clarified that each separate and distant water crossing as well as each crossing of other waters along the corridor for the linear project may be permitted by separate NWP. The acreage and other applicable limits for an NWP would be applied to each crossing so long as those crossings are far enough apart to be considered “separate and distant”.

Finally, there were some interesting changes to NWP 21 for Surface Coal Mining Activities has some important changes. First, there is now a prohibition on using this NWP to construct “valley fill”.  The NWP also contains a 1/2-acre limit and a 300 linear foot limit for the loss of stream bed. District engineers to waive the 300 linear foot limit for intermittent or ephemeral stream bed when the engineer determines that the proposed activity will result in minimal individual and cumulative adverse effects on the aquatic environment. District engineers will have to coordinate the pre-construction notifications with the resource agencies to solicit their comments. However, the 300 linear foot limit may not be waived for perennial streams. The Corps acknowledged that the new limits and prohibiting valley fills will result in more surface coal mining activities requiring individual permits.

As discussed above, the new conditions on acreage limits, linear foot limits, and prohibition against using discharges of dredged or fill material to construct valley fills do not apply to surface coal mining activities previously authorized by the 2007 NWP 21. Surface Coal Mining Activities that were authorized by the 2007 NWP 21 may be reauthorized without applying the new limits imposed by the 2012 NWP 21 if the permittee submits a written request for reauthorization to the district engineer by February 1, 2013, and the district engineer determines that the on-going surface coal mining activity will result in minimal adverse effects on the aquatic environment and notifies the permittee in writing that the activity is authorized under the 2012 NWP 21. The Corps encouraged operators who received a 2007 NWP 21 verification and plan to operate past March 18, 2013, to submit their letter as soon as possible to allow for uninterrupted NWP 21 permit coverage. The Corps also recommended that any projects that will extend beyond March 18, 2017 expiration for 2012 NWP 21 that do not meet the new limits in NWP 21 apply for an individual permit and allow sufficient time for the Corps to process their application to allow uninterrupted coverage when the new NWP 21 expires in 2017.

General Condition (GC) 18 relating to endangered species was modified to clarify that both direct and indirect effects are to be taken into account when assessing if an activity may jeopardize the continued existence of a threatened or endangered species or a species proposed for such designation, or destroy or adversely modify the critical habitat of such species. New definitions of definitions of ‘‘direct effects’’ and ‘‘indirect effect ’’ were added.

New GC 19 clarifies that permittees are responsible for complying with the Migratory Bird Treaty Act and the Bald and Golden Eagle Protection Act, and obtaining any ‘‘take’’ permits that may be required under FWS regulations.

GC 23 clarifies that compensatory mitigation must comply with the compensatory mitigation rules of 33 CFR part 332. Prospective permittee is responsible for proposing an appropriate compensatory mitigation plan if the district engineer determines that compensatory mitigation is needed to minimize adverse effects on the aquatic environment.

The amount parking that was necessary for a regional mall/mixed-use project was at the heart of a lawsuit involving a wetlands permits issued by the Army Corps of Engineers (Corps).

In Sierra Club v. Van Antwerp, 2011 U.S. App. LEXIS 23736 (D.D.C 11/29/11), the Corps issued a permit in 2007 authorizing the filling 54 acres of wetlands to facilitate construction of a new town center that included regional mall, commercial buildings and residences. Nearly half of the filled wetlands would have been used to build 14,000 parking spaces. As a condition of the permit, the Corps required the developer to perform certain mitigation measures, including the preservation, creation, or enhancement of 13 acres of on-site wetlands and nearly 120 acres offsite wetlands. In issuing the permit, the Corps had performed an Environmental Assessment (EA) but not an Environmental Impact Statement (EIS). The Corps also refused to consult with the Fish and Wildlife Service about potential impacts to listed endangered species.

 Three environmental groups challenged the permit, asserting that the Corps had violated the National Environmental Policy Act (NEPA), Clean Water Act (CWA) and Endangered Species Act (ESA). Among other allegations, the plaintiffs argued that the Corps failed to require a practicable alternative to filling in wetlands since the project was not water-based. The plaintiffs also argued that the Corps had acted arbitrarily and capriciously when in concluded there were no significant impacts that would have required an EIS, and when it failed to engage the FWS.

The Corps rejected these claims on the basis that reducing the size of the project was infeasible because the project would not provide an adequate rate of return. The applicant had indicated that an 8% rate of return (ROR) was necessary to maintain the projects economic feasibility and to obtain financial support. As part of this calculation, the Corps utilized the opportunity costs (opportunity to sell the land) based on the fair market value of the land  ($72.3MM) instead of the lower acquisition costs for the raw land ($4.3MM). The plaintiffs also argued that if the developed price should be used, the Corps should have used the recessionary value of 2009 which was 45% lower than the peak value in 2007.  

 The district court granted summary judgment for the plaintiffs on the NEPA and CWA claims but rejected  ESA claim. The court also ordered the Corps and developer to submit a proposed remediation plan The plaintiffs then sought a permanent injunction precluding further construction of the project and restoration of the wetlands that by the time of the motion had been completely filled. The court declined to require the developers to remove the fill material but did order the developers to implement certain stormwater management measures to minimize impacts to the remaining wetlands.

On appeal, the United States Court of Appeals for the District of Columbia reversed the lower court’s CWA ruling, finding that the Corp use of the market value of the project and an 8% rate of return was reasonable,  and in finding less fewer parking spaces was not a practicable alternative. The court also found that the mitigation requirements adquately addressed concerns about environmental impacts resulting from the loss of wetlands. However, the appeals court agreed that the Corps failed to adequately consider the impact of fragmented habitat on the indigo snake and remanded this issue to the Corps for further analysis.

In most wetlands cases, landowners are challenging determinations by the Army Corps of Engineers (Corps) that wetlands are present on their property. However, in Deerfield Plantation Phase II-B Property Owners Association v Army Corps of Engineers , 2011 U.S.Dist. LEXIS 75766 (D.S.C. 7/12/11), the plaintiffs argued that the Corps improperly determined that only a fraction of land on a former course near the subdivision contained jurdictional wetlands.

In this case, the owners the  Old South Golf Course sold the land to Bill Clark Homes of Myrtle Beach (BCH) in 2005. BCH intended to redevelop the golf course into a residential sub-division and submitted a request for a jurisdictional determination (JD) to the local Corps office. In August 2006, the Corps determined that only 0.37 acres  of the 85-acre parcel contained “waters of the United States” consisting of a portion of two channels on the property totaling 920 liner feed.

In making this JD, the Corps said the two channels on the property had sandy bottoms, were free of vegetation, had a steady influx of groundwater and that a highwater mark was clearly present. The Corps also said the flow from the two tributaries went off-site through a box culvert, continued through a stormwater detention pond and into a culvert under a highway before connecting to the Dogwood Lake, a navigable water body. Based on these observations, the Corps said that the two channels satisfied the  ”relatively permanent waters” (RPW) test of the plurality’s holding in  the Supreme’s Court’s decision in Rapanos v United States, 547 U.S. 715 (2006)(“Rapanos”).

However, the Corps determined that the remaining ponds that were interconnected with a series of ditches and swales did not constitute RPW. The Corps said these structures had been constructed in and only drained upland areas. The Corps also said the small, artificial ponds which were created primarily for  ”ornamental” or “aesthetic” purposes were not ordinarily considered RPW. Moreover, the Corps concluded these waterbodies did qualify for the “significant nexis” test articulated by Justice Kennedy in his concurring opinion in Rapanos because of their low volume, duration and frequency.” The Corps determination meant that BCH was free to dredge or fill the vast balance of the property.

The Deerfield Property Owners Association (POA) then filed a lawsuit challenging the JD. The Deerfield POA argued that network of water bodies on the golf course did qualify as jurisdictional wetlands. In reviewing administrative actions, courts do not generally engage in an independent review but determine if the agency acted arbitrarily or capriciously. On the RPW analysis, the court said the Corps had conducted on-site inspections, reviewed infrared. aerial photographs, topographic maps, and soil surveys. As a result, the court found  that Corps had reasonably concluded that the ditches, ponds and swales had been excavated in upland areas. The court also said the Corps also acted property when it applied its long-standing interpretation and concluded that artificial ponds were likely constructed for the purpose of retaining water and that retained water for aesthetic reasons was a common feature of golf course design and construction.

On the “significant nexis” test, the POA asserted that the Corps had failed to specific measurements of flow when ruling these structures did not have a significant impact on navigable waters. However, the court upheld the use of such qualitative, physical indicators as lack of high water mark, thick and matted vegetation and lack of groundwater recharge. Thus, the court ruled that the Corps had reasonably concluded that because of the low flow of the ditches and swales along with the vegetation present in these structures, the ability to affect the physical,chemical or biological integrity of downstream navigable waters was insubstantial and speculative at best.

In US v Donovan, 2011 U.S. App. LEXIS 22026 (3^rd Cir. 10/31/11) this case, appellant Donovan owned a four-acre parcel situated within the watershed of the Sawmill Branch. Water from stream channels on the property flowed into the Sawmill Branch which was a navigable water. The Branch then flowed into the navigableSmyrnaRiver which was connected to the Delaware Estuary. In 1987, the Army Corps of Engineers (“Corps”) concluded that Donovan had filled approximately 3/4 of an acre of jurisdictional wetlands and warned him that he would have to obtain a permit if he wanted to fill more than one acre.

In July 1993, the Corps issued a cease-and-desist notice to Donovan after learning he had continued filling wetlands. The Corps ordered him to remove 0.771 acres of fill material or to submit a pre-discharge notification. After he refused to comply with the order, the federal government filed a lawsuit, alleging violations of the Clean Water Act (CWA). In 2006, the United States District Court for the District of Delaware concluded that Donovan had violated the CWA and entered a final judgment, imposing a $250K fine and requiring removal of 0.771 acres of fill.

After the Supreme Court’s decision in Rapanos v US, 547 U.S. 715 (2006), Donovan appealed, arguing that decision had deprived the Corps of jurisdiction over his land. In Rapanos, a four-Justice plurality held that to assert jurisdiction over wetlands, the government would have to show that the wetlands were “relatively permanent” and also had a “continuous surface connection” with navigable waters (the “plurality test). Justice Anthony Kennedy agreed with the conclusion but not the test that was used by the plurality. Instead, he said that wetlands would be subject to CWA if they possess a “significant nexus” with waters of the United States. He said this meant that that the wetlands “either alone or in combination with similarly situated lands in the region” would significantly affect the chemical, physical, and biological integrity of navigable waters (the “Kennedy Test”). Following a motion by the federal government, the case was remanded back to the district court to further develop a record.

At trial, the government introduced evidence showing that the stream channels on and around Donovan’s property were perennial. This evidence included analyzing hydrological connections to downstream waters, the wetlands’ potential for filtering pollutants, and the wetlands’ role in the aquatic ecosystem for fish and invertebrates. To rebut this evidence, Donovan simply provided an affidavit. He said the only source of water flow on his property was rainwater run-off from the adjacent highway and that the stream channels around his property were dry when between rainfall events.

The magistrate concluded that wetlands were subject to the CWA if they met either of the Rapanos tests. He then ruled the government had offered sufficient evidence to establish the Rapanos plurality test and that there was adequate evidence to support the Kennedy test. The district court adopted the magistrate’s recommendations and granted the Government’s motion for summary judgment.

On appeal, Donovan argues that the district court should not have used the Rapanos tests but instead should have relied on the pre-Rapanos decision in Rappa v. New Castle County, 18 F.3d 1043 (3d Cir. 1994). However, the Court of Appeals for the Third Circuit sided with the First and Eighth Circuits, and held that regulatory jurisdiction could be established over wetlands using either the Rapanos plurality or Kennedy tests.

The Third Circuit said that while Donovan’s affidavit alleged facts that could possibly raise a genuine issue of fact if the government had presented sufficient facts to satisfy the plurality test, it did not have to reach that issue because he had because he unquestionably failed to raise a genuine issue about whether Justice Kennedy’s test had been met. The court found the following facts supported jurisdiction under the Kennedy test:

• Dissolved bromide and dye was placed into the wetlands near Donovan’s property and was observed in the Sawmill Branch, which became a tidal water approximately 2.5 miles from Donovan’s property;
• The headwater wetlands of the Sawmill Branch which include Donovan’s wetlands helped to remove nitrogen and protect the Delaware Estuary from excessive nutrient loading;
• The wetlands on Donovan’s property helped sequester pollutants such as zinc and polycyclic aromatic hydrocarbons (PAHs) from downstream water. Specifically, the evidence showed that the intact wetland flow path on Donovan’s property removed approximately 540 grams of zinc and 12 grams of PAH compounds over a 72-meter length while non-wetland flow path removed approximately 49 grams of zinc and 0.8 grams of PAHs over a 65-meter length. Absent Donovan’s wetlands, these pollutants would travel downstream, raising contaminant levels for up to 150,000,000 gallons of water;
• The wetlands at Donovan’s land played an important role in the “aquatic food web” by providing habitats and nutrients for fish species as well as macro-invertebrates who, in turn, were important sources of energy and carbon for downstream habitats;
• Fish on Donovan’s property were also found in downstream waters of Sawmill Branch Creek;
• The tributary stream channels on Donovan’s land had a low gradient, meaning that the wetlands retained water for relatively long periods of time;
• The wetlands performed important functions such as reducing sediment loads and pollutants from storm water as well as retaining and transforming nutrients for downstream navigable waters;
• The wetlands on and adjacent to Donovan’s property discharged ground water, thereby maintaining stream flow and preserving fish and wildlife habitats.

The court said that Donovan’s affidavit did not address the effect the wetlands had on the chemical, physical, and biological integrity of downstream waters. Thus, the court said the record evidence clearly showed that Donovan’s wetlands alone significantly affected the chemical, physical, and biological integrity of “waters of theUnited States”.