Bank Kept In Case On Claims For Incomplete Disclosure of Environmental Issues

In Ironwood Homes v Bowen, 2010 U.S. 58750 (D.Or. 6/14/10), purchasers of farm land subsequently discovered that the property had been used as a disposal site for tannery waste.   Plaintiffs asserted a variety of federal and state law claims against a range of defendants, including two banks that had a history of involvement in the site.

One bank served as the trustee that managed the affairs of the tannery owner, while the other bank provided financing to the plaintiffs.  The lender bank reviewed an environmental report concerning the property, but misstated the conclusions contained in the report to the plaintiffs.  In particular, the bank’s employee incorrectly described the environmental risk associated with the property as “low” and also stated that the report had concluded that no further environmental investigation was warranted.

The court denied motion to dismiss by bank on claims for fraudulent concealment and reckless misrepresentation, negligent misrepresentation, and non-gratuitous negligent advice. The court also denied the lender motion to dismiss that an indemnification in loan modification agreements released plaintiffs’ claims against the bank, ruling that if plaintiffs agreed to the modifications because they had been unaware of the bank’s knowledge about the true environmental condition of the property, the release might be considered unconscionable and therefore unenforceable. 

The court also rejected a state contribution claim brought by the trustee bank against the lender bank, holding that the contribution claim was barred because the trustee bank failed to allege that the lender bank “in any way ‘caused, contributed to, or exacerbated the release’ of contaminants or ‘hinder[ed] or relay[ed] entry to, investigation of, or removal or remedial action at’ the contaminated property.”