Ct Rules Indiana Real Property Transfer Law May Be Triggered By Historic Uses

What started out as a toxic tort lawsuit has evolved into a precedent-setting case involving the Indiana Real Property Transfer Law (RPTL) with a potentially fascinating Racketeer Influenced and Corrupt Practices Act (RICO) ruling waiting in the wings.

The legal trade press focused much of its attention on the RCRA 7002 rulings handed down by a federal district court for the northern district of Indiana in Browing v. Flexsteel Indus., 2013 U.S. Dist. LEXIS 41164, (N.D.Ind. 3/25/13). However, the more interesting aspect of the decision from an environmental transactional perspective was the court’s ruling that the disclosure obligations of the Indiana Responsible Property Transfer Law (“RPTL”) are not limited the current use of a property but can be triggered by historic uses of a property.

In this case, David Dygert (a defendant in the RICO count) and his wife purchased vacant farmland adjacent to the Meadow Farms Subdivision in Elkhart Indiana in 1983. They leased the property to Dygert’s business, Dygert Seating, Inc. (Dygert Seating) which manufactured foam seats and metal seat frames at an adjacent facility.

After filing for bankruptcy in 1997, Dygert Seating sold substantially all of its assets including the facility to Flexsteel Industries, Inc. (Flexsteel). The former Dygert Seating business was then operated as the Flexsteel Dygert Seating division and the corporate entity, Dygert Seating, was dissolved in 2000. Dygert along with co-defendants Greg Lucchese and Gerald Alexander continued to work for the Dygert Seating division at the site.

Over the next several years, Flexsteel, PBD Corporation, Lux Steel, Inc., and Dylux Technology, Inc. all engaged in manufacturing at the site at one point or other. These entities used a variety of industrial solvents TCE, methylene chloride and TCA to degrease metal frames as well as ingredients in adhesives, spot removers, and glue and silicone sprays. According to the complaint, the corporate defendants reportedly directed their employees to dump and pour used TCE and other solvents and glues directly onto the ground at the Site where the contaminants eventually seeped into the subsurface soil and ground water. The complaint also alleged that the defendants stored hazardous waste in cardboard boxes and 55-gallon drums and disposed virtually all of the waste with regular trash without making proper waste determination or reporting their waste generation activities to EPA.

In January 2005, Flexsteel sold the Cooper Drive property to plaintiff Fred Lands. The purchase agreement stated that Flexsteel was not required to provide a disclosure under the Indiana RPTL. Flexsteel did not inform Lands of the past disposal practices and widespread dumping of hazardous chemicals.

In August 2007, a homeowner in the adjacent subdivision tested her tap water after reading an article about groundwater contamination in the newspaper. The sampling  revealed TCE contamination at levels as high as 1,360 ug/L. Subsequent tests detected levels as high as 330 ug/L in various plaintiffs’ drinking water. The Elkhart County Health Department then advised the homeowners to immediately stop using their water for drinking cooking and bathing, and to use only cold water when necessary to avoid vapors. Working under a cooperative agreement with the USEPA, the Indiana Department of Environmental Management (“IDEM”) implemented an area-wide groundwater sampling program that found elevated levels of volatile organic compounds (VOCs) present in 13 of the water samples. IDEM provided residents with bottled water after the testing, and EPA then provided carbon water filters. Eventually, EPA funded the extension of the public water supply to 26 homes.

In March 2011, the homeowners filed a complaint in Elkhart Circuit Court seeking damages and injunctive relief under theories of trespass, nuisance, negligence, negligent infliction of emotional distress, punitive damages, and for relief under the Indiana Environmental Legal Action statute. In December 2011, the plaintiffs filed a RCRA 7002 action against Flexsteel and Dygert Seating. In May 2012, the plaintiffs filed an amended complaint that contained RICO claims.

The defendants filed motions to dismiss a various claims filed by the numerous plaintiffs. On the RCRA count filed under RCRA 7002(a)(1)(A) alleging that the presence of hazardous wastes that had been illegally disposed constituted a RCRA continuing violation. However, the court said the conduct that was alleged to have caused the violation had ceased long ago and that the plaintiffs were seeking a remedy to address the continuing effects of this wholly past conduct. Since it did not have jurisdiction to claims for wholly past violation, the court dismissed this RCRA count. However, the court found there was a material dispute if the contamination constituted an imminent and substantial endangerment and denied the defendants’ motion to dismiss the RCRA 7002(a)(1)(B) count.

The court then turned to the motion to dismiss Fred Land’s claim that the defendants’ failed to comply with the Indiana Responsible Property Transfer Law (RPTL), Ind. Code § 13-25-3-1 et seq, which requires the transferor of certain property to  provide a disclosure form to the transferee identifying past uses of the property and potential environmental defects. A plaintiff may recover consequential damages, reasonable costs, and attorneys’ fees when a defendant fails to provide the required disclosure document required by RPTL.

RPTL applies to a property that contains an underground storage tank, is listed on EPA’s Comprehensive Environmental Response, Compensation and Liability Information System (CERCLIS) list or if it contains one or more facilities that are subject to reporting under Section 312 of the federal Emergency Planning and Community Right-to-Know Act of 1986 (EPCRA).

Land alleged that the Cooper Drive Property was subject to the RPTL’s disclosure requirement because while manufacturing activities had ceased at the Cooper Drive Property as of the date of transfer, the property had been and remained subject to reporting under Section 312 of EPCRA.  Land also asserted that although the site was not listed on CERCLIS at the time of the transfer, it would have had the appropriate agencies been notified of the defendants’ disposal practices.

Flexsteel argued that it was not required to provide a RPTL disclosure document the property was not listed on CERCLIS. Regarding the EPCRA reporting requirements, Flexsteel said that RPTL’s definition of “property” uses the present tense and since the last time the property was subject to EPCRA reporting requirements was 1993, the site did not fall within the RPTL definition of property when it was sold in 2005.

The Court began its analysis by acknowledging that no Indiana court had ever interpreted the application of the RPTL to historic uses of a property. However, the court then went on to rule that the definition of “property” for RPTL purposes should not be construed to mean that a facility must be required to file an ECPRA inventory report for the current calendar year before disclosure is mandated. In so holding, the court reasoned that the purpose of RPTL was to provide a broad swath of environmental information, including regulatory information during the transferor’s ownership, site information under other ownership or operation as well as “environmental defects”. The phrase “environmental defects”, the court said was broadly worded and any “environmentally related commission, omission, activity, or condition” that would violate environmental laws, “require remedial activity,” present a “substantial endangerment” to public health, public welfare, or the environment, “have a material, adverse effect on the market value of the property,” or would interfere with another’s ability to obtain environmental permits or licenses. Because the purpose of the statute appeared to be to disclose as much information related to environmental conditions on the property as possible, the court said it made sense to read the statutory definition of “property” broadly as well.

The court said the three categories that meet the definition of “property” intended to cover those properties where there is an elevated risk of environmental defects. The court observed that underground storage tanks posed a risk even if the transferor did not install the tanks. Likewise, the court noted that CERCLIS list sites have already been identified by the EPA as actually or potentially contaminated. Finally, the court said that the “ECPRA reporting” category was clearly intended to cover facilities that have been handling large amounts of hazardous chemicals, raising the likelihood of an accidental (or intentional) release and environmental defect. Given the broad purposes of RPTL and the broad disclosures required by the IDEM form, the court said it made little sense to exclude from the class of “property” for which the disclosures are required a transferor that was formerly required to submit hazardous material inventory reports under EPCRA but has ceased (or reduced) operations prior to the current calendar year.

Further buttressing this conclusion, the court said, was that the IDEM appeared to share this broad view of RPTL’s purposes. The court pointed out that the RPTL disclosure document asked broad questions designed to solicit information on past regulatory compliance as well as specific information that would allow a transferee to investigate potential unknown environmental defects. For example, court went on, the form broadly asks whether the transferor has “ever conducted operations on the property which involved the generation, manufacture, processing, transportation, treatment, storage, or handling of a ‘hazardous substance,” or whether certain common hazardous waste storage and disposal units are “at the property that are used or were used by the Transferor.” The court said the form inquires if the transferor has been required to file an EPCRA hazardous chemical inventory or a toxic chemical release form, and whether the transferor or any facility on the property has been subject to certain state or federal government actions. Finally, the court wrote, the form asks for limited information on previous owners and operators.

The court said that if it adopted Flexsteel’s “cramped reading of the statutory definition of “property,” the RPTL disclosure requirements would be so limited so as to defeat the statutory purpose. The court reasoned that a transferor that had stored (and perhaps released) substantial amounts of hazardous waste over the course of decades could avoid disclosure requirements by ceasing operations and removing hazardous chemicals before the beginning of the calendar year in which it intends to transfer the property, thus eliminating any reporting requirement despite known or suspected environmental defects. Given the broad purpose of RPTL and the substantial consequences of noncompliance, the court said it simply made no sense that the legislature intended to limit its coverage so drastically.

While the court acknowledged that present tense language in a statute may indicate an intent to focus on current and ongoing activity, the court said that it was not bound to adopt a construction to advance the strict letter of the statute if such an interpretation would lead to manifest absurdity

Finally, the Court noted that the complaint did not admit that the property has not been subject to EPCRA reporting requirements since 1993 but included allegations that the defendants had previously submitted EPCRA reports in the 1990s and were storing hazardous waste on the property in late 2001. While the complaint stated that manufacturing activities had ceased as of the date of transfer, the court said the allegations did not rule out the possibility that activities within the past calendar year triggered an EPCRA reporting requirement at the time of transfer. The court said RPTL’s definition of “property” did require that a transferor must have been complying with EPCRA reporting requirements at the time of the transfer but merely that it be subject to those reporting requirements. Thus, even under the defendants reading of the RPTL property definition’s “subject to” language, the court said it was not implausible that the plaintiffs could prove a current reporting obligation.

Because historic contamination usually does not have to be reported under CERCLA and most state statutes, environmental transaction statutes are an important tool for remediating contaminated properties. It will be interesting to see if other state courts apply the reasoning of this case to their statutes.