Back in October 2011, we discussed a failed $35MM development project where a bank sought damages from three environmental consultants for failing to anticipate methane gas problems at the development site. The plaintiff, BancorpSouth Bank, was a successor by merger to The Signature Bank that had financed the project. The project consisted of 150-acre site that was to be developed for industrial and warehousing facilities. Included within the development site was a 30-acre unpermitted landfill that had operated for 50 years.
In this case, a 2005 Remedial Action Plan (RAP) had been developed based on a number of environmental reports prepared by co-defendant Geotechnology, Inc (Geotech) including a 2001 Phase 1 for St. Louis County and certain sampling reports prepared between 2002-04 for a member or related entity of the borrower/developer. The Geotech reports identified nine areas of environmental concern on the development site, with the primary concern being the landfill. The RAP required excavation, screening, and depositing certain organic and other materials retrieved from the landfill site through six inch diameter screens. Soil and organic matter that passed through the screens were to be transported to an onsite deep fill zone, compacted, and reused across large portions of the development site. Waste that did not pass through screens was to be deposited into the onsite engineered cell.
An engineering cell was to be constructed with 24-inch thick clay liner located in an area selected by The Clayton Engineering Company (Clayton). The RAP was subsequently amended to increase the minimum required cap thickness to 60 inches as well as to include a dewatering system to monitor and remove water inside of the cell.
Environmental Operations Inc. (EOI) entered into an Environmental Services Agreement with the borrower/developer Hazelwood Logistics Center, LLC (Hazelton) in June 2006 to perform the approved RAP. EOI was to achieve substantial completion of the landfill remediation work, other than capping the engineered cell, within seven months, and substantially complete construction of cap within 12 months. All other remediation work was to be completed within 14 months at which time EOI was obligated to obtain a no further action letter from the state. The agreement also provided that EOI would obtain a Premises Pollution Liability Insurance Policy (“PPL Policy”) and a Remediation Cost Contamination Insurance Policy (“RCC Policy”) that collectively provide environmental insurance coverage up to $5MM.
EOI then entered into a subcontract agreement with Geotech where Geotech agreed to perform a geotechnical investigation of the engineered cell area, supervise construction of the engineered cell liner, conduct trash screening and closure sampling assistance, perform trash compaction and cell filling oversight. Geotech, in turn, entered into its own subcontract with Clayton to design the engineered cell.
According to the bank’s complaint, the defendants did not perform a study to characterize the waste present at the landfill to determine the potential for methane generation despite the fact they were aware of biodegradable materials. Plaintiff also claimed defendants failed to properly design and construction an engineering cell and spread waste around site due to a deficient screening process. Specifically, the bank alleged that the Geotech environmental reports did not evaluate of the potential for landfill gas generation, failed to properly identify and delineate certain waste which caused the study to omit landfill areas later discovered during implementation of the RAP, that neither EOI nor Geotech tested or reported on the existence of methane gas in the landfill and failed to address the existence, level, or generation potential of methane gas by the landfill materials placed inside the engineered cell.
According to the bank’s allegations, after completion of remediation work by EOI and Geotech, methane levels arose across portions of the Property previously uncontaminated by methane. The bank said the methane levels methane discovered inside and outside the engineered cells at the Property posed a health concern and preventing the issuance of a NFA Letter. Moreover, the bank alleged, the cells were constructed without methane gas collection and dewatering systems and as a result of this defective design/construction, methane gas was migrating from the cells and affecting large portions of the site. The bank also alleged the cells were negligently designed because they were located below the natural water table and stormwater retention ponds were placed on top of the cells, all of which may have allowed water to seep into the cells. The bank estimated that it would cost an additional $43.1 million to obtain the NFA letter. The bank claimed the additional work included remove and disposing of the contents of the former landfill off-site, backfilling and grading the development site.
On the CERCLA claim, the plaintiff bank alleged that a variety of hazardous substances had been illegally disposed at the landfill property including asbestos, medical wastes, and leaking drums containing waste paints, thinners, lubricants and industrial cleaners that had been released into the soil and groundwater, and that methane gas had been generated from organic and other materials buried at the development site. The bank further alleged that the defendants had caused additional releases of hazardous substances by disturbing, unearthing, spilling, moving and re-depositing hazardous substances. Moreover, because the defendants made decisions concerning compliance with environmental regulations, plaintiff charged the defendants were CERCLA “operators” of the development site.
In the court’s September 2011 decision, the court granted some of the defendants’ motions to dismiss but allowed the negligence and CERCLA claims to proceed to discovery. When ruling on a motion to dismiss, a court assumes the facts as alleged are true in determining if the complaint states a claim to relief that is plausible on its face. If the claims are only conceivable, not plausible, the complaint must be dismissed.
In the latest motion, it was the bank’s turn to file a motion to dismiss counterclaims filed by the defendants. BancorpSouth Bank v Environmental Operations, Inc., 2012 U.S. Dist. LEXIS 159466 (E.D.Mo. 11/7/12). We only discuss the CERCLA claim against the bank in this post. To review the other claims including the cross-claims against Geotech and Clayton, you can access the decision here
Defendant EOI alleged, inter alia, that the bank was liable as CERCLA operator for contribution. In addition to the CERCLA claim against the bank, EOI filed cross-claims against co-defendants Geotech and Clayton alleging they were liable for contribution under CERCLA as well as under state common law contribution and indemnity. EOI also claimed Geotech was liable for breach of contract.
According to EOI, Geotech failed to adequately characterize the waste present at the landfill for biodegradation and landfill gas generation potential in the its 2001-04 reports. EOI also claimed that Geotech did not identify landfill areas that were discovered during implementation of the RAP. Interestingly, Geotech asserted in its answer that the 2001 report had a $50K limitation of liability, expressly state that Geotech was not to be consider a generator of any hazardous substances under any circumstances and that the developer, would be responsible for any hazardous, pollutants, or contaminants.
In its counterclaim, EOI asserted that the plaintiff bank was an “owner” or “operator” of the Property that was contaminated with volatile organic compounds (VOCs), semi-volatile organic compounds (SVOCs), metals, total petroleum hydrocarbons (TPH), pesticides, and polychlorinated biphenyls (PCBs). EOI also asserted that if the Court finds that EOI has been an “operator” of the Property, then Geotech and Clayton similarly should be CERCLA “operators” and/or “arrangers” for the development site.
The bank argued that it is entitled to be dismissed because of the secured creditor exemption. However, EOI contended that the bank may be responsible because of the subsequent actions it took at the development site. The court said that in a motion to dismiss, the question is not if the parties are responsible but if the defendant sufficiently stated a cause of action in its counterclaim. While discovery might reveal that the bank and the co-defendants had no authority to control the handling of the hazardous material at the development site, the court concluded that the counterclaim and cross-claims sufficiently alleged facts to place the parties on notice of the CERCLA claim against them and met the extremely lenient pleading standards for surviving motions to dismiss.