Lender that Sold Contaminated Property Agrees to $1.4MM Settlement

We have previously reported on instances where banks have incurred cleanup costs in connection with properties they have sold.  For some examples, click here, here, here, here and here

The latest installment of this saga involves Bank of America (BOA) which agreed to pay $1.4MM as part of a settlement involving a dry cleaner property that a BOA predecessor owned decades ago. A federal district court approved the settlement in Whitehurst v. Heinl, 2015 U.S. Dist. LEXIS 49147 (N.D.Ca. 4/14/15).

In this case, Charlotte A. Heinl (“Heinl”) operated a Norge Cleaners in Oakland, California from approximately 1965 to 1987. Bank of America, National Trust & Savings Association (“NTSA”) owned the property from approximately 1969 to 1987 and had leased it to Heinl. Bank of America became the successor to NT&SA when BankAmerica Corp. merged with NationsBank in 1998. As part of that merger, Bank of America, NTSA, was renamed Bank of America, NA (BOA).

NTSA sold the property to Richard and Lorraine Whitehurst (“Plaintiffs”) in 1987 for $265,000 pursuant to an “as is” agreement. The Plaintiffs had also been provided with a opportunity to investigate the property prior to the closing and had obtained a 120-day extension. The Property had been part of a larger parcel of real property that NTSA subdivided shortly before it sold the property to the Plaintiffs. The remainder of the parcel is still owned by Bank of America, NA and is potentially impacted by the former dry cleaner.

Sampling conducted September 2007 revealed elevated levels of PCE and its breakdown products in the groundwater. After the California Regional Water Quality Control Board, San Francisco Bay Region (“RWQCB”) sent an information request to the Plaintiffs, they filed a complaint against the Heinl and BOA asserting the defendants were liable under RCRA 7002,  CERCLA and various state common laws claims. The plaintiffs sought an order compelling the defendants to remediate the contamination and sought damages because they had been unable to lease or sell the property due to the presence of the contamination. The bank subsequently filed claims against both Whitehurst and Heinl alleging they were responsible for the contamination.

After several court-sponsored mediations failed to achieve a settlement, the parties reached an agreement on the eve of trial. Under the settlement, the parties agreed to establish a $2MM remediation fund. BOA agreed to contribute $1.4K with $200,000 of that amount representing a contribution from the Plaintiffs Whitehurst in the form of an interest free loan. The plaintiffs will be required to repay the loan within 6 months of receipt of a NFA letter from the RWQCB.  The Fireman’s Fund agreed to tender $600K on behalf of Heinl who passed away during the course of the litigation.

The plaintiffs and BOA entered into Fixed Price Remediation Agreement  with a consultant to implement remedial actions required by the RWQCB. BOA is required under the agreement to designate a Project Manager to supervise the cleanup and handle various administrative tasks associated with the cleanup.

A copy of the order approving the settlement is available from Google Scholar here