Most state remedial programs have well defined release or spill reporting requirements that are usually described in separate sections of the applicable law or regulation. However, sometimes there may be other reporting requirements that could not only eviscerate state liability protection but also the CERCLA landowner liability requirements as well.
A recent Michigan appeals court illustrates this issue. In 1031 Lapeer LLC v Ricky L. Rice, 2010 Mich. App. LEXIS 1511 (Ct. App. 8/5/10), the plaintiff agreed to lease a gas station in May 2006 from the defendant. Apparently, the defendant had been aware that the site was contaminated as far back as 1996 but had not disclosed this information to the plainitff. When the plaintiff learned from the state Department of Environmental Quality (DEQ) that the site was contaminated, the plaintiff filed a lawsuit, asserting fraud, breach of lease and violation of statutory obligations.
The trial court found the lease was void because the defendant had not complied with its statutory notice requirements under the Michigan Natural Resources and Environmental Protection Act (NREPA). Under part 201 of NREPA, a person who has knowledge that their property is a "facility" must provide written notice to a purchaser or other person to whom the property is transferred. A "facility", in turn, is defined as" any area, place or property" where a hazardous substance in excess of the cleanup standards but does not include such property where response actions have been completed.
The appeals court affirmed the trial court decision voiding the lease and denying the defendants motion for summary judgment. The appeals court said that "contracts founded on acts prohibited by a statute or contracts in violation of public policy are void". Because the defendant was prohibited from transferring any interest in the property without first providing the mandated written notice that the property was a "facility", the court said the leases was founded on an act prohibited by a statute and thus void.
The court went on to say that public policy supported such a voiding as well. The court said "one who obtains ownership or becomes an operator of a facility risk exposure to potentially significant, unanticipated costs and liability, public policy dictates that enforcement of a contract made without the disclosure mandate found in MCL 324.20116(1) would be against public policy."
The defendant argued that because the contract had a number general references to contamination, particularly an indemnity for pre-existing contamination as well as defendant's agreement to perform any mandated tank upgrade. The court did acknowledge that the plaintiff learned about the contamination just a few months after taking possession of the propertyand that it could be reaosnably argued that the plaintiff could have learned about the contamination prior to the lease. However, the court said the defendant had actual notice of the existing contamination and did not unequivocally advise the plaintiffs in writing of that fact. Regardless whether the plaintiff should have been placed on notice by the lease terms or the exercise of diligence, the defendant had a statutory obligation that it failed to comply with prior to transferring the property. Since there were questions of fact as to the fraud claim, the appeals court said that the lower court had correctly denied the defendants motion for summary judgment. Moreover, the fraud issue was submitted to the jury and the defendant did not appeal the jury verdict itself, that verdict would stand.
CERCLA has two provisions that could cause a party who has achieved the landowner liability protections to lose its liability immunity. First, owners of property who qualify for the landowner liability protections not only have post-acquisition obligations to comply with all state and federal reporting obligations. Thus, failure to comply with an obligation like that under NERPA could cause a landowner to forfeit CERCLA liability protection.
Second, CERCLA has what I have called an "innocent seller" disclosure requirement. An owner that qualifies for the innocent landowner defense is required to notify a subsequent purchaser of any information that the owner/seller has learned about releases during its ownership.
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