Buyer agreed to purchase former oil field in 1996 to develop for residential complex. Contract included 40 pages detailing remedial obligations of parties. Buyer had five years to complete investigate of property and inform seller of contamination. If cleanup exceeded $30MM, seller could take over cleanup. Contract also provided that after completion of sellers’ corrective action plan, seller will have been deemed to have assigned to buyer any rights seller may have against contractors.
In 1996, buyer retained consultant (consultant 1) to investigate site and Huntington Beach Fire Dept approved remedy to remove lead-contaminated soils. In 1997, Seller retained a second consultant (consultant 2) for $15K to remove 10 cyds of lead-contaminated soil. Later that year, seller advised the buyer that its costs were approaching $30MM threshold and that seller intended to take over cleanup to better manage costs. During soil excavation performed by the second consultant, additional lead-contaminated soil was discovered approximately 15 feet from prior excavation area. The seller then retained consultant 2 to excavate and dispose oil-contaminated soil.
Buyer claimed it had suffered $3MM in costs and sued consultant 1 for breach of consultant and negligence. Using a six-part test employed by California courts for determining if a duty exists to third parties who are not in contractual relationship with the alleged wrongdoer, the court found consultant owed no duty to buyer. The court said the first consultant had been retained by the seller and that buyer did not have right to enforce the contract as a third party beneficiary because the contract did not disclose that the seller was not the property owner. Moreover, the court said the first consultant had excavated the specific contaminated area provided in the contract and had no obligation to investigate other areas of the site. The court also noted that the buyer had the opportunity to review the work being done by the consultants and it should not be rewarded for failing to audit this work. Finally, the court said that imposing a $3MM liability on the consultant for a $15K project would not be in the public interest since such disproportionate liability would discourage consultants from engaging in such work.
This case is particularly important to purchasers, developers or lender who are relying on another party to investigate and remediate a major development site. In such instances, it is important that the “passive” party retained its own expert to actively supervise the work.
Makallon Atlanta Huntington Beach LLC v Chevron Land and Development Company, 2011 Cal. App. Unpub. LEXIS 1911 (Ct. App. 3/14/11)