USEPA Finds No Systemic Contamination of Drinking Water from Hydraulic Fracturing

Posted on June 23, 2015 by Chester Babst

On June 4, 2015, the U.S. Environmental Protection Agency released a draft “Assessment of the Potential Impacts of Hydraulic Fracturing for Oil and Gas on Drinking Water Resources,” which finds no evidence that hydraulic fracturing activities have led to widespread, systemic impacts on drinking water supplies.  According to the draft assessment, between 2000 and 2013, there were an estimated 9.4 million people living within one mile of a well that was hydraulically fractured.  The draft assessment supports the assertion that state agencies, as the primary regulator of oil and gas development in the United States, are effectively governing hydraulic fracturing activities by the industry.  

Initially announced by USEPA in March 2010, the study has a broad scope.  USEPA reviewed each stage of the “hydraulic fracturing water cycle” – including water acquisition, chemical mixing, well injection, flowback and produced water recapture, and wastewater treatment and disposal – to assess for any widespread, systemic impacts on the quality or quantity of drinking water resources.  The agency also used an expanded definition of drinking water resources that includes currently undrinkable saline aquifers that might be desalinated for consumptive use in the future.  

Although the draft assessment acknowledged that hydraulic fracturing could potentially contaminate drinking water resources, USEPA found that the actual occurrences of such impacts were “small compared to the number of hydraulically fractured wells.”  The risks related to hydraulic fracturing activities identified in the draft assessment included:  water withdrawal in times of low availability; spills of fracturing fluids and produced water; fracturing directly into underground drinking water resources; below ground migration of liquids and gases; and inadequate treatment and discharge of wastewater.  

The draft assessment noted that the primary means of disposing of wastewater from hydraulic fracturing activities conducted in the United States is underground injection wells.  However, one notable exception to this finding is in the Marcellus shale play, where USEPA found that most wastewater is reused by industry.  The high percentage of reuse and recycling of wastewater in the Marcellus shale play is a practice that industry has long asserted is a valuable means of reducing the amount of freshwater needed for well development activities.

USEPA is expected to publish a final assessment after the completion of a notice and comment period, which is currently open and concludes on August 28, 2015, and a review of the draft assessment by the Science Advisory Board Hydraulic Fracturing Research Advisory Panel.  The Panel has scheduled a public meeting to conduct a review of the draft assessment from October 28 to October 30, 2015, and teleconferences to discuss the draft assessment on September 30, October 1, and October 19, 2015.

Temporary contamination – Ain’t that a non-compensable shame?

Posted on December 12, 2013 by Jeff Civins

A “stigma” is a mark of shame.  When applied to real estate, stigma refers to an unfavorable quality in a property that makes it less attractive.  Whether a landowner may recover stigma damages for temporary contamination that has been remediated in accordance with state law is an issue the Texas Supreme Court will consider when it hears oral argument in early December in the case of Houston Unlimited, Inc. Metal Processing v. Mel Acres Ranch

In that case, the lower appellate court had affirmed the decision of the trial court, following a jury trial, awarding the plaintiff almost $400,000 in damages attributable to an alleged diminution in value resulting from temporary contamination.  In arguing for reversal, Houston Unlimited has asserted that this decision recognizes a new cause of action in Texas – for stigma damages absent permanent physical injury.  Because of the ramifications of this holding, a number of Texas trade associations have filed amicus briefs in support of Houston Unlimited.1 

Houston Unlimited operated a metal-processing facility that had failed to comply with various regulatory requirements relating to the management of solid waste and storm water.  Its operations also had resulted in leaks to the adjoining Mel Acres Ranch.  The Texas Commission on Environmental Quality (“TCEQ”) cited Houston Unlimited for these violations and required it to investigate the contamination on the ranch.  

Houston Unlimited stopped the leaks and instituted steps to prevent future leaks. Its investigation showed that there was no ongoing contamination and that only one sample result – for copper in one pond – showed an excess of a TCEQ action level, which a month later had fallen below the action level. The ranch nonetheless sued for trespass, nuisance, and negligence, alleging that it had suffered permanent damage, measured by a loss in market value of the property.

The jury found that there had been no permanent nuisance or trespass, but nonetheless awarded the ranch stigma damages.  Houston Unlimited asserts that a majority of jurisdictions reject this theory of recovery and that the decision of the lower court disregards the TCEQ’s regulatory determination as well as prior case law.  The Court’s determination – whether temporary contamination ain’t a non-compensable shame – will have significant ramifications for other pollution damage cases in Texas and possibly elsewhere.  

The blogger’s firm, Haynes and Boone, represents one of those associations – The Texas Oil & Gas Association – in this matter.

Another Blow to the Divisibility of Harm Defense to Joint and Several Liability

Posted on May 20, 2013 by William Hyatt

When the Supreme Court issued its 2009 decision in Burlington N. & Santa Fe RR. Co. v. United States (Burlington Northern), Superfund practitioners were encouraged to think that CERCLA joint and several liability could be avoided by arguing that the harm is divisible and therefore capable of being apportioned.  Subsequent decisions in the lower courts have dampened that encouragement.  The most recent case in point is the May 1, 2013 decision by the U.S. District Court for the Eastern District of Wisconsin in United States v. NCR Corp. (NCR Corp.), the latest in a long line of decisions involving the Fox River Superfund Site..  After an eleven day trial, the District Court permanently enjoined NCR and the other defendants to comply with a unilateral administrative order requiring them to clean up PCB-contaminated sediments in the Fox River. 

The court had previously issued a preliminary injunction to the same effect, which was affirmed by the Court of Appeals for the Seventh Circuit on interlocutory appeal.  The District Court had also held that EPA’s remedy selection was not arbitrary, capricious or otherwise unlawful and that NCR was not entitled to contribution, decisions not yet reviewed by the Court of Appeals, leaving NCR with apportionment as its best argument in the District Court to avoid having to bear the entire burden of the cleanup.

In the latest decision, the District Court rejected attempts by NCR (and the other defendants) to prove that the “harm” in one of the operable units of the Fox River was divisible and could therefore be apportioned.  The Seventh Circuit had ruled that “harm,” for this purpose, “was best defined with reference to the contamination, as set forth in the government’s remediation rules.”  The District Court began its analysis of apportionment by pointing out that exceptions to joint and several liability will be “rare.”  According to the District Court, to demonstrate that the harm is divisible, a defendant bears the burden of proving two things: first, that the harm is theoretically capable of being divided, a question of law, and second, that there is a reasonable basis for an apportionment, a question of fact.  Burlington Northern, the District Court observed, involved only the second of these elements (“Yet, even though it is undeniable that Burlington Northern loosened the rules governing how a given harm might be apportioned, it did not address the key issue here, which is whether the harm is theoretically divisible in the first place” [emphasis in original]). 

Applying the analysis of Sections 433A and 875 of the Restatement (Second) of Torts, both Burlington Northern and the Seventh Circuit concluded that some harms will not be theoretically capable of apportionment.  Thus, if one of the causes is “sufficient” in and of itself to bring about the result, the harm will not be divisible and apportionment will not be appropriate.  The question is “whether one polluter should be considered such a significant cause of the harm that the harm attributable to that cause is incapable of being divided.”  Further, some kinds of harms will simply be unsuitable for divisibility by their very nature, as when a chemical is deemed to be harmful when it “surpasses a certain amount” or when a chemical becomes harmful only when mixed with other chemicals. 

It is interesting that the courts continue to follow the Second Restatement even though there is a more recent Third Restatement of Torts (2000).  While the courts have not provided any basis for their continued reliance on the Second Restatement, some commentators have opined that the Third Restatement can be read as trending away from joint liability and encouraging apportionment.

The District Court observed that whether a harm is theoretically capable of apportionment, although a question of law, is heavily dependent upon the underlying facts.  In this case, after an exhaustive review of the evidence, the District Court concluded that NCR had not met its burden of rebutting the government’s contention that the NCR discharges were a “sufficient cause” of the harm.  The District Court defined the “harm” as contamination in the sediments above 1 ppm of PCBs.  The Court found that NCR had not meaningfully disputed that the remedy for the sediments would have been the same even if NCR had been the only contributor.  In other words, because of NCR’s discharges, the same remedial measures would have been required regardless of whether or not discharges from others had occurred.  Since NCR’s discharges would, on their own, “require roughly the same remedial measures that are now being undertaken, [NCR] could be deemed a sufficient cause of the harm.”  Under those circumstances, the District Court concluded, the harm could not be deemed divisible and apportionment would be inappropriate.  

The District Court then went on to conclude that joint and several liability should attach even if NCR had not been a “sufficient cause” of the harm, “so long as the party is necessary to the harm.”  Thus, for example, if one party’s discharge produces a concentration below action levels, such that it is not a “sufficient cause” of the harm, when that discharge is combined with other discharges that cause the concentration to exceed the action level, the first discharge is a “necessary” cause and joint and several liability should attach.

The District Court concluded that the “harm” was not theoretically capable of apportionment, thereby avoiding the necessity of determining how apportionment might be accomplished.  This decision suggests that the battleground in the apportionment arena is likely to shift from how apportionment is conducted (the issue addressed by Burlington Northern) to the question of whether apportionment is appropriate in the first place.  This decision provides a useful guide for practitioners regarding how courts may evaluate this threshold question, and highlights the importance of how courts define the “harm” at issue.

Less Lessee Liability – A Critique of EPA’s New Superfund BFPP Guidance

Posted on March 14, 2013 by Jeff Civins

In December 2012, EPA issued revised enforcement guidance to assist agency personnel in exercising enforcement discretion regarding the treatment of tenants under Superfund’s bona fide prospective purchaser (BFPP) defense.  This guidance expands some of the protections provided by the prior, 2009 guidance. Though recognizing that “[l]easehold interests play an important role in facilitating the cleanup and reuse of contaminated properties,” the agency chose a relatively ineffectual tool for addressing prospective tenant liability and encouraging re-use of Brownfield properties.  The agency could have better encouraged Brownfield development by providing tenants with guidance on how to avoid Superfund liability in the first place.

Under Superfund, a tenant's status and activities may give rise to "owner or operator" liability -- for the costs of investigating and remediating a contaminated site and for natural resource damages.  The guidance does not flesh out the contours of tenant liability as an owner or operator, but instead assumes that tenant liability exists and explains how the BFPP defense under section 107(r) of Superfund might then be available. 

To take advantage of the BFPP defense, an owner or operator of contaminated property must satisfy three statutory prerequisites. It must show: (1) it conducted all appropriate inquiry or AAI, e.g., by having conducted a phase I environmental assessment; (2) it has no affiliation with a potentially responsible party or PRP; and (3) it is satisfying specified continuing obligations, including, among other things, complying with applicable regulatory requirements and not impeding remedial actions.

In brief, the December 2012 guidance confirms that a tenant may receive protection as a BFPP derivatively from its landlord if the landlord conducted AAI, provided that all disposal occurred prior to the landlord’s acquisition of the property and the tenant satisfies the continuing obligations requirement.  It also expands EPA's use of enforcement discretion for a tenant who relied upon its landlord for the BFPP defense to include situations in which the landlord loses the BFPP defense, provided the tenant meets the requirements of the BFPP defense other than having performed AAI.   In addition, it makes clear that a lease will not disqualify a tenant from the BFPP defense for failure to have satisfied the "no affiliation" prerequisite.  Furthermore, it confirms that EPA will use its enforcement discretion for a tenant who independently meets the BFPP prerequisites, including having performed AAI prior to execution of the lease.

The new guidance notes the obvious: all bets are off if the tenant itself engages in an activity that independently creates liability, e.g., by creating or exacerbating contamination.  It also notes that, except as otherwise provided, the tenant itself must satisfy the BFPP prerequisites. 

The agency explains that it generally will not proactively make determinations as to the availability of the BFPP defense in connection with any particular transaction, e.g., by issuing a comfort letter, though there may be limited circumstances where it might do so.  And, of course, the agency’s exercise of prosecutorial discretion provides no comfort where the Superfund claim is brought by a third party, though the agency’s guidance may be persuasive to the court in which the claim is brought.

The problem with the BFPP defense is that it’s a defense, which must be asserted in response to a Superfund claim, and the tenant has burden of proof.  Moreover, as far as defenses go, it’s not even the best.  The third party defense, which doesn’t require AAI, generally should be available as long as the lease does not relate to the act or omission giving rise to the contamination.  SeeThe Third Party and Transaction-Related Defenses,” J. Civins, M. Mendoza, and C. Fernandez, ABA-SEER Environmental Litigation and Toxic Torts Committee Newsletter, July 2005.

More significantly, as EPA recognizes, “the mere execution of a lease does not necessarily make a tenant liable as an owner or operator,” and the agency and the regulated community would have been better served had the agency issued guidance establishing safe harbors for tenants.  A tenant’s first line of defense to Superfund liability should not be a defense, BFPP or other, but rather should be an assertion that it is not a Superfund owner or operator, placing the burden of proof on the plaintiff rather than on the tenant.  And case law provides a good basis for EPA issuance of such guidance.

Arguably, a tenant should not be liable and have need of a defense as an owner unless it virtually stands in the shoes of its owner, e.g., by entering into a 99-year lease or by subleasing the property to one who contaminates it.  Similarly, a tenant should not be liable as an operator, unless its action caused or exacerbated contamination.  Regardless of whether case law adequately fleshes out the contours of a tenant’s owner or operator liability under Superfund, it would have been more useful for the agency to have issued guidance with respect to such liability rather than on the BFPP defense.

FDA Still Dragging Its Feet on Antibiotics in Animal Feed

Posted on November 13, 2012 by Peter Lehner

Eighty percent of all the antibiotics sold in the United States are given to farm animals – not humans. Most of these animals aren't even sick. It's standard practice on factory farms, as a substitute for better management practices, to routinely dose healthy pigs, cows, and chickens with antibiotics that are vital for treating human disease.  As a result of this non-therapeutic antibiotic use, these farms have become breeding grounds for superbugs--dangerous germs that can't be knocked out with the usual medicines. And that puts human health at risk.

The Natural Resources Defense Council, where I serve as Executive Director, has been at the forefront of this issue.  In response to an NRDC initiated lawsuit, twice this year a federal court ordered the FDA to take action. In March, the court required the FDA to withdraw approval for the use of penicillin and tetracyclines in animal feed, unless drug manufacturers can prove this practice is not a public health risk. In June, the court directed the FDA to reconsider its denial of two citizen petitions on antibiotic use in livestock, saying “The adoption of voluntary measures does not excuse the Agency from its duty to review the Citizen Petitions on their merits.”

Superbugs can travel off farms and contaminate the surrounding air and water, as well as our food supply, which puts people at risk of acquiring serious and even life-threatening infections. In 2010, almost 52 percent of retail chicken breasts tested by the FDA were contaminated with antibiotic-resistant E. coli. Drug-resistant bacteria have been detected in air and drinking water near industrial hog farms in three states. Drug-resistant infections caused by antibiotic-resistant bacteria, including those generated by factory farms, have been estimated to cost Americans up to $35 billion every year.

The FDA has known for more than 30 years that antibiotic abuse on factory farms poses a risk to human health. In its March decision, the court determined that the FDA formally found back in 1977 that penicillin and tetracyclines had not been shown to be safe. In its June decision, concerning other antibiotics, the court pointed out that “the Agency has all but made a finding that the subtherapeutic use of antibiotics in food-producing animals has not been shown to be safe.” Nonetheless, the use of penicillin, tetracyclines, and other medically important antibiotics in livestock quadrupled between 1970 and 2009. The agency has not stopped the practice of routinely feeding antibiotics to healthy livestock, relying instead on "voluntary guidance" to address the issue.

The FDA has appealed the March and June  decisions and remains focused on the failed strategy of allowing industry to use antibiotics as it chooses instead of standing up to protect public health. NRDC is fighting FDA’s appeals. Under an FOIA request, the FDA will begin releasing public health risk assessment documents on antibiotics to us. NRDC is also working with leading scientific organizations to keep public pressure on the FDA. Health groups from the CDC to the American Medical Association have spoken out against antibiotic abuse on industrial farms. Hundreds of thousands of citizens, including chefs, medical professionals, and progressive food companies, have called on the FDA to do its job and protect the health of our families.

It's time for the FDA to follow the law and do its job. The agency needs to curb antibiotic abuse on factory farms and protect antibiotics for those who need them most--sick people.

There’s More to Solutia Than Meets the Eye

Posted on June 25, 2012 by John Barkett

CERCLA practitioners are familiar with the Eleventh Circuit’s decision in Solutia, Inc. v. McWane, Inc., 2012 WL 695007 (11th Cir. Mar. 6, 2012).  The court of appeals decided that Solutia  & Pharmacia, the plaintiff, was limited to a contribution action for costs incurred in cleaning up lead contamination.  In so holding, the Eleventh Circuit agreed with three other circuits which have held that a person who enters an administrative or judicially approved settlement under Sections 106 or 107 of CERCLA are limited to a contribution claim under Section 113(f).  See Morrison Enter., LLC v. Dravo Corp., 638 F.3d 594, 603 (8th Cir.2011); Agere Sys., Inc. v. Advanced Envtl. Tech. Corp., 602 F.3d 204, 229 (3d Cir.2010), and Niagara Mohawk Power Corp. v. Chevron U.S.A., Inc., 596 F.3d 112, 128 (2d Cir.2010).

While Solutia’s holding is significant, the decision provides an important reminder of the importance of foresight in the outcome of a claim.  Let me explain.

Solutia & Pharmacia had entered into a Partial Consent Decree (PCD) in August 2003.  The PCD referenced two areas of contamination, a PCB site and the “Anniston Lead Site.”  Solutia and Pharmacia reserved their rights in the PCD to seek contribution from parties who could be proven to be liable for the Anniston Lead Site.

In 2005 EPA undermined Solutia & Pharmacia’s reserved contribution rights.  It entered into settlements with a number of parties that provided contribution protection for lead-related cleanup costs.  By motion, Solutia & Pharmacia protested EPA’s action.  The trial court agreed and offered to suspend their obligations under the PCD because of EPA’s breach.  By either inaction or conscious decision, Solution & Pharmacia declined the offer.

In 2006, EPA and Solutia & Pharmacia entered into a “Stipulation Clarifying the Partial Consent Decree.”  Under the Stipulation, Solutia & Pharmacia agreed to clean up certain “zones” around Anniston, labeled as A, B, C, and D, which were contaminated with lead and not just PCBs.   The Stipulation provided that “it shall not be considered an admission of liability and is not admissible in evidence against the Defendants in any judicial or administrative proceeding other than a proceeding by the United States.”

Solutia & Pharmacia argued that because lead contamination was excluded from the PCD, it had a Section 107 claim for its lead-related cleanup costs.  Had the case turned just on the PCD, Solutia & Pharmacia would have been in the same position as Texas Instruments in Agere Sys., Inc. v. Advanced Envtl. Tech. Corp.—even though it signed one consent decree for which it was limited to a contribution action, costs it incurred unrelated to that consent decree could be pursued under Section 107(a).  

The court of appeals, however, agreed with the district court that the Stipulation obligated Solutia & Pharmacia to clean up areas where PCBs were commingled with hazardous substances disposed of the defendants.  Hence the PCD, which was “clarified” by the Stipulation, embraced costs associated with more than remediation of PCBs limiting Solution & Pharmacia to a contribution claim for those costs.

But what of the prohibition on admissibility of the Stipulation into evidence in any judicial proceeding that did not involve the United States?  The prohibition is not self-executing; the Stipulation was admitted in the district court and relied on heavily.  Solutia & Pharmacia apparently decided to wait until its reply brief to argue nonadmissibility.  That was too late.  Because admissibility of the Stipulation was not contested in Solutia & Pharmacia’s opening brief, the argument was waived, the court of appeals held.

The defendants in the action had been awarded summary judgment in the trial court because they had contribution protection from lead-related cleanup costs.  However, Solutia & Pharmacia had spent $14 million in cleanup costs in areas that were not covered by the PCD.  It filed a motion to alter or amend the judgment because the defendants had not sought a summary judgment with respect to these costs.  The argument was rejected in the trial court because it had not been raised before entry of the summary judgment. 

The court of appeals affirmed this exercise of the trial court’s discretion because the defendants’ motion for summary judgment, in fact, had sought dismissal of all of Solutia & Pharmacia’s Section 107 claims, and Solutia & Pharmacia had never argued prior to the grant of summary judgment that they “voluntarily incurred costs unrelated to the Consent Decree.”

The burden is always on counsel to make and preserve arguments.  This is as much a lesson from Solutia as its holding on the Section 107/113 issues.

NJDEP Site Ranking Letter and Draft Data Forms Will Require Prompt and Careful Attention

Posted on June 7, 2012 by William L. Warren

Significant consequences may result from the upcoming remedial priority ranking of approximately 12,000 contaminated sites by the New Jersey Department of Environmental Protection (NJDEP).  In mid-May NJDEP initiated its formal communications with parties responsible for contaminated sites by sending data forms that identified the information that NJDEP will use to compute the remedial priority rankings of most contaminated sites.  After about a 90 day review and comment period, NJDEP will rank all of the sites on a scale from 1 to 5, with “1” being the “lowest risk potential” and “5” being the “highest risk potential.”  Within about sixty days of receipt of the data form, each recipient will have to register with the NJDEP to preserve its right to submit comments.  Only the Licensed Site Remediation Professional (LSRP) for the site, required to be retained by responsible parties by May 7, 2012, may submit the actual comments on the data form.  NJDEP intends to publish site rankings in the Fall and to update the rankings quarterly commencing in 2014, as more data becomes available for each site during the course of remediation.

NJDEP originally planned to publish draft site rankings and submit the rankings for comment.  However, it decided to issue these draft forms instead, explaining that it wanted to focus its efforts on giving parties the opportunity to make sure that it had up-to-date site remediation information before it calculated the site ranking.
NJDEP’s ranking will be based on:

• risk to the public and the environment;
• length of time the site has been undergoing remediation;
• economic impact; and
• other factors deemed relevant.

I.  Why Is NJDEP Ranking Sites, and How Will Sites Be Affected by the Ranking?

Besides a long overdue statutory obligation to rank contaminated sites, NJDEP wants to insure that the sites with the highest potential risk are being remediated.  Although nothing is certain, NJDEP likely will not take any action, even if a site is highly ranked, so long as:

• the site is undergoing active remediation;
• no enforcement actions have been commenced; and
• an LSRP has been retained.

However, if the remediation is not proceeding in compliance with these criteria, a high ranking may cause NJDEP to place the site under its “Direct Oversight,” and “Direct Oversight” is not a place that most responsible parties want to be. (See Section III. below)  It is also true that a highly ranked site, even if not placed under NJDEP “Direct Oversight,” is more likely to receive public scrutiny and potential adverse publicity than is a lower ranked site.  NJDEP, the United States Environmental Protection Agency (USEPA) and legislators constantly receive requests from environmental groups and others to take remedial action or investigate the progress of a remediation.  Undoubtedly, a site with a high ranking is a target for future attention, especially because NJDEP will be posting the rankings on its website.

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Michigan Court Imposes New Duty to Disclose on Real Estate Agents

Posted on February 16, 2012 by Michael Hockley

In Alfiero v. Bertorelli, the Michigan Court of Appeals affirmed a jury verdict holding a real estate agent liable under a theory of silent fraud and negligent misrepresentation for the failure to disclose environmental contamination beneath an abandoned factory that was rehabilitated into condominiums.  This decision raises the duty of care for real estate agents in transactions involving property where there are known past environmental issues.

Plaintiffs sued both the seller and its agent after learning the condominium unit plaintiffs’ purchased had not been properly decontaminated, contrary to statements in a sales brochure and newspaper article the agent provided to plaintiffs in response to plaintiffs’ inquiry about the status of past environmental contamination at the property.  The real estate agent relied upon information provided by seller and argued that although a seller has a duty to disclose to a buyer, that duty does not extend to the seller’s agent, and the agent should not be liable for seller’s misrepresentations. 
 
The unit was located in a former factory that had been contaminated with trichloroethylene (“TCE”).  During the conversion of the factory into condominiums, a TCE vapor barrier was installed, but the site was never properly decontaminated.  Plaintiffs believed that the site had been properly cleaned up because of statements to that effect in the newspaper article and sales brochure provided to them by the real estate agent in response to buyers’ inquiries concerning past contamination.  Plaintiffs purchased the condominium in reliance on those representations without conducting independent due diligence. 

The appellate court ruled in favor of plaintiffs on the grounds of common law fraud or fraudulent misrepresentation, noting that the elements are (1) a false representation of a material fact with the intention of reliance by plaintiffs; (2) defendant knew the representation was false or was made with reckless disregard for its accuracy; and (3) plaintiff actually relied on the representation and suffered damages as a result. (M&D Inc. v. McConkey). The court further found silent fraud is essentially the same except it is based on the defendant withholding or suppressing a material fact that he or she was legally obligated to disclose rather than making an affirmative representation. 

Because both silent fraud and negligent misrepresentation require that a defendant owe a duty to the plaintiff, defendants argued that previous Michigan decisions did not impose on an agent a per se duty of disclosure to buyers and that such duty instead lies solely with the sellers.  The court held that although that is the general rule, when a buyer has expressed a concern about a particular statement, a duty to disclose may arise solely because of the buyer’s expressed interest or direct inquiry to the agent.  Defendants also argued there cannot be fraud if the party claiming to be defrauded had an independent means to determine the truth of the matter.  The court again acknowledged the general rule but held that it is not an absolute rule, stating it is “only applied where plaintiffs ‘were either presented with the information and chose to ignore it or had some indication that further inquiry was needed.’” 

The agents provided plaintiffs with a sales brochure stating that the site had been cleaned up.  When plaintiffs further inquired to the agents about the state of the cleanup, the agents referred plaintiff to a newspaper article reporting that the building had been decontaminated.  Based on those statements, the court found that plaintiffs had no duty of further inquiry and could reasonably rely upon information provided by the agent. 

Nevertheless, the court issued a comparative negligence instruction to the jury, and the jury determined that Plaintiffs’ decision not to obtain an environmental inspection knowing that there had been contamination in the past made Plaintiffs partially at fault. 

This decision reinforces the duties on both sides of a real estate transaction (1) to make adequate and accurate disclosures, on the part of the seller and its agents, and (2) to make reasonable environmental inquiries on the part of the buyer, notwithstanding seller’s statements.  Even though a real estate agent as a general proposition may not be responsible for the seller’s representations concerning a property’s environmental status, a duty is triggered when a buyer makes specific inquiry concerning a factual representation about the property and the agent provides additional information to buttress the seller’s representations. 

The lesson to be gleaned from this case is simple:  a seller’s agent should conduct his or her own due diligence concerning statements about the remediation of environmental contamination when the property has known or suspected past contamination.  Similarly, even for residential properties, buyers have an obligation either to conduct independent verification of seller’s statements concerning environmental conditions or to seek contractual representations and warranties from the seller concerning such conditions.