Under the new law, commencing on January 1, 2013, each Michigan circuit court with three or more judges must create a business court. The Michigan Supreme Court will appoint judges to the business court who will serve six-year terms and will be assigned cases by a blind draw. Business disputes involving an amount in controversy over $25,000 will be heard by judges with specialized knowledge of business and finance, alleviating some of the burden these suits currently place on circuit courts.

The new business court will have jurisdiction over a wide range of “business or commercial disputes” which includes actions where all the parties are “business enterprises.” The term “business enterprises” is similarly broad and includes for-profit and not-for-profit corporations as well as “any other entity in which a business may be lawfully conducted”. The range of issues of classified as a “business or commercial dispute is equally broad and includes but is not limited to the following: issues involving software and technology, the internal organization of business entities, contractual agreements in business dealings, commercial transactions, commercial insurance policies, and commercial real property. However, the bill specifically excludes disputes pertaining to personal injury, product liability, family, criminal, and probate matters, condemnation, landlord-tenant issues, foreclosures, motor vehicle and individual insurance disputes, employment discrimination, civil rights, disability, workers compensation matters, and appeals from a lower court.

The impact that such business court will have on disputes involving environmental matters is still unclear because environmental litigation involves a layer of complexity that goes beyond what is found in typical business or commercial matters. Whether or not a suit involving environmental law will be heard in the new business court will depend upon the matters asserted and the parties involved in the dispute.

Because most environmental suits involve a business entity, it is likely many of them will be resolved in the business court, as long as the suit meets the amount in controversy requirement. The types of environmental cases that might be assigned to a business court include:

• A corporate real estate purchaser suing a corporate seller for indemnification pursuant to the terms of a purchase agreement;
• A business filing suit against another business to recover costs incurred in cleaning up a predecessor’s contamination;
• A business suing an adjacent business for contamination that has migrated onto its property.

On the other hand, because the parties must be business enterprises, the courts would not hear environmental cases brought by individual homeowners against adjacent businesses, or individuals against businesses for personal injuries allegedly caused by contaminants or pollutants emitted by a business. Likewise, a homeowner would not have to file a nuisance suit against a business in the new court.

However, because non-profits are included in the definition of “business enterprise), if the homeowners bring their action against a business as a non-profit homeowner’s association, they may be required to file the action in the business court. Similarly, a non-profit environmental group pursing an environmental claim against a company under a statute like the Michigan Environmental Protection Act (something that is not typically seen as a business type dispute) may be required to file the action in the new business court. And what happens if a company asks that the non-profit’s litigation be assigned to the business court or the court assigns it sua sponte? Those decisions cannot be appealed to the court of appeals. (§308(1)(d))

It is also unclear whether environmental litigation between a company and a governmental agency would be heard by the new court. Although it’s pretty clear that a governmental agency issuing a permit is not engaging in typical business activity (and the Business Court Act proscribes appeals of agency decisions), it is less clear when the government sells contaminated land or engages in polluting conduct as part of activity that many businesses engage in. Such cases may be “business court worthy.”

Although there are some uncertainties as to whether particular environmental disputes will be heard in the business court, it is possible that the new business court will play a large role in deciding environmental cases.

(Thank you to Kylie Angileri who assisted with the preparation of this blog.)

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MDEQ requests access regardless of previous environmental reports showing no levels of contamination. While the prior reports do not constitute a final closure of a LUST site, they may demonstrate that these old sites do not pose a threat. Presumably, the MDEQ’s effort will result in a reduction in the number of listed contaminated sites throughout Michigan.

If an owner requests additional information, such as a work plan, or somehow delays a response to the request, the MDEQ may classify such a response as a “denial”. In the case of a denial for access, the MDEQ will refer the matter to its Compliance and Enforcement Section for further evaluation. The MDEQ may then conduct a liability determination, which may take several months, to determine if the owner is a liable party. If liable parties are identified, the MDEQ will issue a request under Part 213 for the owner to conduct an initial assessment report or a final assessment report regarding the open LUST release.

If a liable party cannot be found, the site will revert to “orphan” status and the State will continue to spend resources to investigate the LUST release at the site. Court proceedings may be necessary to obtain access.

The MDEQ will typically not provide a complete work plan to the Owner when it requests site access due to time and budget constraints. The owner is typically allowed to take split samples of soil or groundwater samples. Owners have an option to conduct additional work at their sites to control information and otherwise acquire information relevant to the MDEQ’s request. Where time has lapsed and other contaminants may become relevant, it is important to enlist the support of a competent environmental consultant as well as a lawyer to determine the best course of action.

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A similar boom is going on with natural gas produced through fracking, and the U.S has become the largest producer of natural gas in the world. According to the Energy Information Administration website, the U.S. produced almost 30 million cubic feet of natural gas in 2012.

This new found energy production is having impacts elsewhere too. Oil and gas employment has increased 40 percent over the last 5 years.

Fracking also has created a huge demand for sand (a key ingredient in the fracking process). As noted in the Wall Street Journal, energy companies are expected to use 56 billion pounds of sand this year and it takes approximately 25 railcars of sand to frack one well.

The increased production and use of natural gas also appears to have had a positive environmental impact. By some accounts, C02 emissions in the U.S. have dropped 12% due to the switch from coal to natural gas.

Amidst all of this positive news, taxpayers, scientists and regulators are keeping a watchful eye on these industries due to health, safety and environmental concerns. In Oklahoma (a state with an average of 50 tremors per year) there have been 2,600 earthquakes in 2013 and the increase coincides with rise in fracking. The cause? Scientists suspect it’s due to the pressures created when fracking wastewater is injected deep underground. Other issues such as groundwater withdrawal and contamination also have been raised.

As with many aspects of our increasingly complex lives, as the U.S. enjoys the fruits of these energy resources, society will have to make hard policy decisions relating to the management of these risks and benefits.

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The recent $5 billion record settlement between the U.S. Government and Anadarko Petroleum is a case in point. Kerr-McGee Corporation, which was purchased by Anadarko in 2006, had an extensive legacy of contaminated properties throughout the U.S.: everything from uranium mine waste to rocket fuel contaminated land. Prior to being purchased by Anadarko, Kerr-McGee transferred its environmental liabilities to one of its smaller subsidiaries, Tronox. Tronox was eventually spun off, went public in 2005 and filed for bankruptcy in 2009.

A group of plaintiffs, including the U.S. Government, sued Kerr-McGee, Tronox and its affiliates arguing that the transfer of the environmental liabilities to Tronox was a fraudulent conveyance. In other words, the U.S. asserted that Kerr-McGree had purposely transferred the environmental liabilities to Tronox shortly before Anadarko’s purchase of Kerr-McGee as a way of making Kerr-McGee more attractive to prospective purchasers. In December, 2013, the bankruptcy court agreed with the U.S. and ruled that Kerr-McGee’s environmental liabilities were fraudulently transferred to Tronox. On Thursday, the Department of Justice announced it had settled with Anadarko for $5 billion – the largest environmental enforcement award to date. A copy of the DOJ’s press release can be accessed here. Shortly after the settlement was announced, Anadarko’s stock rose 15%.

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I. Nu-West Mining Inc. v United States (U.S.D.C., Idaho, 4:CV 09-431-BLW)

This case involved mining leases that the governor awarded in the late 1940s. As part of the leases, the lessees had the right to dump waste rock on national forest land adjacent to the leased mines. During the mining operations, the government approved plans for mining waste disposal and reclamation, monitored the mining process, required the mines to meet certain production requirements, and collected a royalty fee. Unfortunately, the government-approved waste pile design allowed selenium to leach out of the waste pile and contaminant the groundwater in the area around the mines.

Cost Recovery Suit Against The US.
In the 1990s, Nu-West entered into an AOC to clean up the sites and filed suit against the US under the “arranger” liability provisions of CERCLA §107 to recoup those costs. The court, in analyzing the government’s potential arranger liability, primarily relied on prior rulings in U.S. v Shell Oil Company (294 F.3d 1035(9th Cir. 2002)) and Burlington Northern and Santa Fe Railroad Company v U.S. (129 S.Ct. 1870 (2009)). In particular, the Nu-West court focused on the Shell Oil court’s statement that an entity has “arranger liability” if it has “direct involvement in arrangements for the disposal of waste”. Shell at 1055. It also focused on the following three elements relied upon by the Shell Court:

(1) whether the entity owns the hazardous substance;

(2) whether the entity had authority to control the disposal; and

(3) whether the entity exercised some actual control over the disposal.

In addition, the court relied on Burlington Northern’s interpretation of to “arrange for” as meaning that an arranger must take “intentional steps to dispose of a hazardous substance”.

US Liable As An Arranger
Because the US owned the waste piles, had authority to control the disposal, and exercised control over the disposal, the Nu-West court concluded that the US was liable as an “arranger” under CERCLA §107. The court also rejected the government’s argument that its conduct was purely regulatory and was intended to only mitigate the environmental harm caused by the parties. In doing so, the court noted that the government previously waived its sovereign immunity under CERCLA and has even been liable under CERCLA in situations that “cannot possibly be characterized as “non-governmental” (i.e., military base operation).

II. Pakootas v Teck Cominco Metals, Ltd. et al. (U.S.D.C., E.D. Wash; 2:04-CV-00256-LRS)

Like Nu-West, the State of Washington entered into mining leases in the 1940s for the purposes of removing copper, silver, lead, gold and other valuable minerals from State land. Although the contract specified a royalty payment to the State, it did not address waste disposal.

Cost Recovery Suit Against the State
The plaintiffs’ land was contaminated by the defendant’s historical mining operations and they filed suit under CERCLA. The defendant filed a counterclaim against the State as a CERCLA §107 “arranger”. The defendant claimed that waste disposal was an inherent part of mining and, therefore, the State had contracted for waste disposal by contracting for the mining.

State of Washington Not Liable As An Arranger
The court rejected the rationale of the defendant’s argument. In doing so, the court relied heavily on the Supreme Court’s analysis in Burlington Northern case:

It is plain from the language of the statute that CERCLA liability would attach under Section 9607(a)(3) if an entity were to enter into a transaction for the sole purpose of discarding a no longer useful hazardous substance. It is similarly clear that an entity could not be held liable as an arranger merely for selling a new and useful product if the purchaser of that product later, and unbeknownst to the seller, disposed of the product in a way that led to contamination. Less clear is the liability attaching to the many permutations of “arrangements” that fall between these two extremes – cases in which the seller has some knowledge of buyer’s planned disposal or whose motives for the “sale” of a hazardous substance are less than clear. In such cases, courts have concluded that the determination whether an entity as an arranger requires a fact-intensive inquiry that looks beyond the parties’ characterization of a transaction as a “disposal” or “sale” that seeks to discern whether the arrangement was: (1) Congress intended to fall within the scope of CERCLA’s strict liability provisions. (129 S.Ct. 1878-79)

Using this analysis, the Pakootas court found that the State mining leases before it were not like any of the “extreme” cases referenced in Burlington Northern. The court also found that the State did not enter into these mining contracts for the sole purpose of discarding a used and no-longer useful hazardous substance because the ore deposits were useful. However, the State had some knowledge of the disposal so the case was the type that fell in between the two extremes.

Therefore, the court performed a fact intensive inquiry whether the lease between the State and mining companies in question was the type “(1) Congress intended to fall within the scope of CERCLA’s strict liability provisions”. Relying on the Supreme Court’s analysis in the Burlington Northern decision, the trial court stated that “disposal and/or treatment of hazardous waste cannot be merely “foreseeable”. It must be a specific purpose of the transaction, not merely “inherent” in the transaction.

In terms of the facts before it, the court noted the following: naturally ore deposits did not have the “characteristic of waste” when they were “delivered” to the mining companies pursuant to the leases, there was no intent by the State to dispose of the mining waste merely because of the mining, disposal of hazardous waste was not the purpose of the transaction, the State did not require the mining companies to dispose of the waste in any particular manner, the ore deposits did not have the characteristic of waste and the State never owned or possessed any hazardous waste. In light of these factors, the court held that the State did not qualify as an “arranger” under CERCLA §107.

Reconciling the Cases
Comparing the two cases, it’s pretty clear why the courts wound up with two seemingly different results. In Nu-West, the court focused on the fact that the US Government owned the property where the waste was disposed and the Government’s intimate involvement with approving the waste pile design. The mining leases in the Pakootas case, on the other hand, simply addressed mining and were silent on waste disposal or handling.

However, what these seemingly disparate cases show is that the more a government agency becomes involved in the manner of handling the mining wastes, the more likely it is to be held liable as an “arranger” under CERCLA. This is a very odd result indeed from a policy perspective because it discourages government agencies form overseeing and ensure that wastes are handled properly.

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Ashley II originated in South Carolina and was heralded as one of the first cases to examine CERCLA’s Bona Fide Perspective Purchaser (“BFPP”) defense (which provides a liability defense to purchasers). You would think that this would be a good thing. In this case, it wasn’t.

Background

The background of Ashley II is a lot like the Saline case; a developer being held liable for contamination on a brownfield redevelopment. The property that Ashley intended to redevelop into a sustainable/mixed use redevelopment was contaminated with arsenic, lead and other substances as a result of historical fertilizer plant operations.

As part of its acquisition, Ashley indemnified the sellers of both parcels. Ashley also had Phase I Environmental Site Assessments performed for each of the parcels prior to purchase, and hired an environmental engineer to oversee the environmental aspects of the development. The site was gated and patrolled and during the development, Ashley’s environmental engineer would inspect the property. On one of these occasions, the engineer noted areas of staining, neglected trash piles and, on the smaller parcel, some cement pads, sumps, trenches and pipes. Because Ashley left these structures in place during development, they collected water that caused a release of contaminants into the soil.

During the development, Ashley brought a CERCLA §107 cost recovery action against the prior owners, PCS, and the PCS filed a claim for contribution from Ashley and others under CERCLA §113. Because Ashley performed a Phase I before acquiring the property, Ashley tried to rely on the BFPP defense of CERCLA §107(r), however, the trial court didn’t buy it.

Elements of BFPP Defense

In ruling against Ashley, the district court noted that Ashley had to prove the following eight elements by preponderance of the evidence to rely on the BFPP defense:

1. The hazardous substances in question were disposed at the facility prior to the buyer’s purchase;
2. The buyer conducted All Appropriate Inquiry into the prior history of the site;
3. The buyer provided all legally required notices regarding the contamination;
4. The buyer exercised due care with respect to hazardous substances found at the facility;
5. The buyer cooperated with persons authorized to respond to the contamination;
6. The buyer complied with land use restrictions;
7. The buyer complied with any requests for information; and
8. The buyer did not have any affiliation with a liable party.

The court examined each one of these elements as they applied to Ashley and determined that it failed on the first, fourth and eight elements. With regard to the first, the court noted that it was likely that hazardous substances were disposed on the property when Ashley removed the water containing sumps and piping. Also, the court noted that Ashley failed to exercise due care because it did not clean out the sumps and left them exposed to the elements. Further, the court pointed to the debris pile as further evidence that Ashley did not use appropriate care.

Affiliation and Loss of BFPP Status

However, it was the court’s analysis of the “affiliation” element that was strange on a number of levels. In its opinion, the court explained that Ashley had to prove that it was not:

• A potentially responsible party;
• Affiliated with persons that are potentially liable for response costs at the site through: (a) any direct or indirect familial relationship; or (b) any contractual, corporate, or financial relationship; and
• The result of a business reorganization.

The court held that Ashley failed to meet the first and second elements. When you look at the actual language of the CERCLA affiliation requirement, though, it’s pretty clear that the court’s recitation of the CERCLA affiliation elements is incorrect. CERCLA §101(40)(H) actually requires the following showing:

The person is not –

(i) potentially liable, or affiliated with any other person that is potentially liable, for response costs at a facility through –
(I) any direct or indirect familial relationship; or
(II) any contractual, corporate, or financial relationship . . . . ; or
(ii) the result of reorganization of a business entity that was potentially liable.

Grammar and sentence structure are key here. If you look closely, subsection (i) actually requires a buyer to show the following: that it is not potentially liable for response costs at a facility:

• Through any direct or indirect familial relationship; or
• Through any contractual, corporate, or financial relationship.

A buyer must also show that it is not affiliated with any other person that is potentially liable for response costs at a facility:

• Through any direct or indirect familial relationship; or
• Through any contractual, corporate, or financial relationship.

Lastly, the buyer must show that it is not the result of a reorganization of a business entity that was potentially liable.

As you can see, there is a strong argument that the court misinterpreted §101(40)(H)(i) as imposing an additional requirement on buyers: to prove that they are not potentially responsible parties (PRPs). However, that is not the requirement. By reading this additional element into the statute, the court gutted the BFFP defense to PRP liability. All purchasers of contaminated property by definition fall within the large category of “PRPs.” Because of this broad definition, buyers who had no relation to the contamination were at risk for being held liable to clean it up. To correct this (and to encourage redevelopment of impaired sites) Congress created CERCLA’s BFPP defense to limit a buyer’s liability Following the court’s logic, however, all buyers of contaminated property would never qualify for the BFPP defense because it would always fail the court’s first element.

The second part of the court’s analysis that developers need to be aware of is how the court applied the “affiliation” requirement to Ashley’s conduct. Although the court found that Ashley did not have any familial relationship with any responsible party, the court ruled that Ashley was affiliated with one of the PRPs (the seller) because: (1) Ashley had indemnified and released the seller in the purchase agreement and (2) Ashley tried to discourage the EPA from taking enforcement action against the seller. The court noted: “In indemnifying [the seller], Ashley took the risk that [the seller] might be liable for response costs. Ashley’s efforts to discourage the EPA from recovering response costs covered by the indemnification reveals just the sort of affiliation Congress intended to discourage.” As a result, Ashley was not able to rely on the BFPP defense and was found liable for a portion of the site’s cleanup costs.

However, the ruling is unclear; was it just the indemnification and release, or was it Ashley’s attempts to affirmatively persuade the EPA not to take action against the seller that caused the court to characterize the relationship as an affiliation?

The Chill

Regardless, this holding is unsettling because of its potential chilling effect on buyers and sellers of contaminated property. Contractual indemnifications are quite common and can be a useful risk-shifting mechanism in the sale of contaminated property. If this ruling is upheld on the appellate level, it could impede the use of such arrangements where the buyer wants to take advantage of the BFPP defense.

Because Ashley has appealed this case to the Fourth Circuit Court of Appeals, the trial court’s analysis of the BFPP defense may just become a small footnote in the law governing the CERCLA BFPP defense. However, given its potential ramifications if it is upheld, this case should be watched closely. We will continue to monitor and provide an update in the future.

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The case is Saline River Properties LLC v. Johnson Controls, Inc. and it all started when Saline (the plaintiff) decided to redevelop property that was previously owned by Johnson Controls and contaminated with vinyl chloride. During the course of Saline’s redevelopment activities, it allowed rainwater to infiltrate soils beneath a concrete building slab. I’ll spare you the details of the convoluted procedural history but, in short, after Saline brought suit against Johnson Controls, Johnson Controls field counterclaims under federal and state law alleging that Saline contributed to the contamination of the site by making the pre-existing contamination worse. All of Saline’s claims were dismissed but the judge denied Saline’s motion to dismiss Johnson Control’s counterclaims. In ruling that Johnson Controls could proceed with its counterclaims, the Court explained that passive migration could constitute a “release” of hazardous substances under state and federal law. Further, the Court added:

“Here, more is alleged than just passive migration. JCI alleges that Saline took the affirmative action of breaking up the concrete slab, which caused hazardous substances beneath that barrier to migrate into additional soils and groundwater. “

Developers redeveloping contaminated property have always been subject to liability for conduct that exacerbates pre-existing contamination. However, most developers would probably tell you that their conduct would have to be really “bad” to be held liable. What’s so startling about this case is that it underscores how low the bar might actually be. The developer simply removed a concrete slab.

How can brownfields be redeveloped if the simple removal of a building foundation makes a developer subject to liability for exacerbating on-site conditions? Should additional precautions be taken? What are they? Limiting work to periods of dry weather only? Placing tents or tarps over exposed soils? What about when large earthworking activities are involved?

Such steps can be very difficult to implement on big projects with multiple contractors and understanding how your actions may or may not impact historical contamination is critical. Obtaining the expertise of an environmental consultant and attorney is highly recommended.

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