Posted on June 28, 2012
Late in the fall of 2011, the California Air Resources Board adopted its groundbreaking cap-and-trade rules (CTR) for greenhouse gasses. ARB faced stiff headwinds at every step. This month, one lingering legal tempest subsided while a new legal gale appeared on the horizon. Each involves novel environmental justice claims and could snuff out CTR and similar programs in other states.
First, balmier breezes for CTR: in a decision filed June 19, 2012, the California Court of Appeals rejected a 2009 mandamus petition filed by the Association of Irritated Residents (AIR) and other groups and upheld ARB’s climate plan under the “California Global Warming Solutions Act of 2006” (Cal. Health & Safety Code §38500 et seq., also known as “AB 32”). The court recognized the magnitude of ARB’s challenge under AB 32 and held: “After reviewing the record before us, we are satisfied that the [ARB] has approached its difficult task in conformity with [AB 32], and that the [GHG] measures that it has recommended reflect the exercise of sound judgment based upon substantial evidence. Further research and experience likely will suggest modifications to the blueprint drawn in the [ARB] scoping plan, but the plan‘s adoption in 2009 was in no respect arbitrary or capricious.” (p. 22).
In its 2009 mandamus petition, AIR et al. had challenged ARB’s overall plan to implement AB32, partly on the grounds that the plan’s CTR element did not adequately protect already overburdened local communities. The petitioners preferred “direct regulation” of GHGs at sources, another major element of ARB’s plan. They asserted that the full benefits of AB 32 to communities surrounding major sources could only be obtained by controlling GHG emissions at each GHG source, rather than by adopting the CTR. CTR would allow GHG sources to acquire and trade GHG allowances and/or GHG offsets resulting from GHG reductions in other communities, states, provinces or countries.
Now, a new tempest: earlier this month, AIR et al. filed a new complaint with EPA under title VI of the federal Civil Rights Act alleging that ARB had discriminated against African/American, Latino and Asian/Pacific Islander residents throughout California by adopting and implementing CTR. The title 6 complainants ask EPA to require, as a condition of continuing to provide federal financial assistance to ARB, that ARB reverse its decision to approve the CTR and adopt less discriminatory alternatives. It is impossible to say how or when EPA will respond.
Forecast: ARB will continue to try to implement CTR on schedule in spite of all legal flurries.
A lot is at stake now. Under the CTR, ARB plans to conduct its first auction of GHG allowances in November of this year, which could raise tens of millions of dollars. Starting January 1, 2013, refineries, power plants and other major GHG sources throughout California must properly account for all of their GHG emissions and later surrender qualifying GHG allowances and/or GHG offsets to ARB for every ton of GHGs emitted during the first compliance period (2013-14). Later this month, ARB plans to link its CTR to a similar program in the Canadian Province of Québec. Please see the June 11, 2012 ARB Notice.
But all regulated and other interested parties are left with new questions about how these legal winds may affect:
• The willingness of regulated companies and GHG traders to bid tens of millions or more for GHG allowances at ARB auctions.
• The willingness of other states to adopt cap-and-trade programs and link them to the ARB CTR. U.S. states are now vulnerable to federal title VI complaints as soon as they adopt their own cap-and-trade programs.
• The ability of ARB to contain the costs of AB 32 and minimize leakage by adopting the CTR and linking it to other cap-and-trade programs, as provided by AB 32.
• The continued ability of California to maintain its own climate program and achieve its climate goals.
It surely looks like more westerlies are approaching the CTR on the legal radar.
Posted on June 15, 2012
The Ninth Circuit’s en banc opinion in Karuk Tribe of California v. United States Forest Service belongs on your summer reading list. It holds your attention on two levels. First, the majority broadly construes consultation requirements of the Endangered Species Act (“ESA”) in the context of mining in National Forests. Then, the dissent provides a memorable critique of “extreme environmental decisions” by the Ninth Circuit.
The case applies the ESA to regulation by the United States Forest Service of small-scale gold mining on the Klamath River in the Klamath National Forest in northern California. The river is critical habitat for endangered salmon, and the river’s bed also contains gold deposits that are mined by miners who hold rights under the General Mining Law of 1872. Mining methods include suction dredging of the river bed, and views differ about the effects of mining on the salmon. The Forest Service mining regulations at issue divide mining activities within National Forests into three categories: those that “will not”, “might,” and “will likely” cause significant disturbance of surface resources. For planned mining activities that either “might” or “will likely” cause such disturbance, the miner must file a notice of intent to operate (“NOI”). After reviewing the NOI, the District Ranger determines whether a plan of operations is also required. A plan of operations is more detailed than an NOI and is required only for mining that “will likely” cause significant surface resource disturbance. If the Forest Service determines that significant surface disturbance is not likely, the NOI satisfies the requirements of the regulations. But the ESA may impose additional requirements. It requires the Forest Service to consult with the Fish and Wildlife Service before taking discretionary “agency action” that “may affect” a species listed as threatened or endangered. Otherwise, consultation is not required.
The fundamental issue in Karuk Tribe is whether a Forest Service decision not to require a plan of operations was “agency action” requiring consultation under the ESA or mere agency inaction that does not require consultation. Several miners filed NOIs for proposed operations, and in response to the NOIs the District Ranger essentially imposed conditions but decided not to require plans of operations. The Ranger did not consult the United States Fish and Wildlife Service in reaching that decision. The Karuk Tribe sued the Forest Service and asserted consultation was required. The Forest Service defended its failure to consult by arguing that the NOI was a mere notice and its action on the NOI was only a decision not to regulate, rather than “agency action” under the ESA. The district court ruled in favor of the Forest Service. In 2011, a divided panel of the Ninth Circuit affirmed the district court’s holding that such consultation was not required because the District Ranger’s decision was not “agency action” under the ESA. But upon rehearing the case en banc, the court reversed its previous decision and found that the District Ranger’s decision rose to the level of “agency action” and triggered consultation requirements of the ESA. The court reasoned that the decision was agency action because when the Forest Service considered the NOIs, it affirmatively authorized mining to proceed and the mining may affect the salmon.
The dissenting opinion is essential reading for lawyers who have represented clients entangled in extensive environmental regulation. It ventures well beyond the issues presented by Karuk Tribe to criticize various Ninth Circuit environmental decisions as “extreme”. Featuring art and prose from Gulliver’s Travels, and invoking works of Dante and Aldous Huxley, the dissenting opinion urges that the court exercise judicial restraint in construing environmental laws. Finally, the dissent recounts specific examples of harm to employment, industry, and local government that it attributes to the court’s creation of “burdensome, entangling environmental regulation out of the vapors”. You might take this one to the beach as long as your destination is not the Island of Lilliput.
Posted on June 7, 2012
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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NJDEP Site Ranking Letter & Draft Data Forms Require Attention.pdf (30.02 kb)
Posted on May 22, 2012
In the waning days of the Clinton administration, the U.S. Forest Service adopted a regulation to protect more than 50 million acres of national forest roadless lands, i.e., public lands still undeveloped and largely untouched. Called the Roadless Area Conservation Rule [36 C.F.R. § 294] or Roadless Rule (and sometimes called the RACR), it was soon off to the races with no fewer than nine lawsuits by development interests and western states seeking to invalidate it.
First, at the request of the State of Idaho and others, a district court in Idaho issued a preliminary injunction against the Roadless Rule – without opposition from the Forest Service, by then under different management. Conservation interests appealed and the Ninth Circuit reversed and vacated the injunction, allowing the Roadless Rule to take effect.
A district judge in Wyoming then invalidated the Roadless Rule and enjoined its implementation nationwide in a case filed by the State of Wyoming. An appeal by conservation interests to the Tenth Circuit, again with the Forest Service firmly on the sidelines, ensued. In 2005, before the appeal was resolved, the Forest Service itself repealed the Roadless Rule and replaced it with a state petition process, leading the Tenth Circuit to vacate the district court decision and dismiss the pending appeal as moot.
Conservation groups and the states of California, Oregon, Washington and New Mexico challenged the repeal. In 2006, a district court in California overturned the repeal and reinstated the Roadless Rule. The Ninth Circuit subsequently affirmed.
Back to Wyoming, where the State of Wyoming renewed its complaint and in 2008 the district court duly re-issued its earlier decision enjoining the Roadless Rule. Conservation groups again appealed to the Tenth Circuit, and in 2011 the Circuit reversed the district court’s decision and vacated the injunction. The RACR ruled again.
Last week, after the Tenth Circuit denied rehearing en banc, Wyoming petitioned the Supreme Court to review the Tenth Circuit’s decision. The decision is a unanimous, one hundred-plus page review of Wyoming’s claims under NEPA, the National Forest Management Act, and the Wilderness Act -- worth a read just as a primer on the current state of these laws. In the meantime, the Forest Service is now off the sideline and, along with conservation interests, expected to oppose Wyoming’s cert. petition. The Supreme Court should act on the petition by next Fall.
Unless you live in Hawaii, you’re probably no more than a few hours’ drive from the nearest national forest roadless area (yes, there are roadless areas in the White Mountains, Appalachians and Ozarks as well as the western states). Visit one and see what the controversy is all about. Or maybe you already know because you live in one of the hundreds of communities around the country that gets its drinking water from a nearby roadless area – so you enjoy these lands every time you turn on your tap. Any way you use and enjoy them, the more than 50 million acres of federal public land the Roadless Rule protects are still roadless after all these years.
(Full disclosure – Earthjustice represented the conservation interests in the cases discussed above.)
Posted on May 8, 2012
Yesterday, the Chesapeake Bay Commission released a study showing that implementation of a nutrient trading system would dramatically reduce the cost to achieve nutrient reductions in Chesapeake Bay. Pardon me if I seem to be posting a lot of dog bites man stories recently.
Although it should not come as a surprise that a trading system would permit nutrient reductions to be attained most cost-effectively, the scope of the benefit is worth noting. If trading were allowed basin-wide, and among both point and agricultural non-point sources, costs are projected to decrease by about 50% of the non-trading compliance costs.
Since I have faced this issue in Massachusetts, I found it even more noteworthy that, if trading were expanded to include regulated urban stormwater sources, compliance costs are expected to be reduced by about 80% over the non-trading scenario. The report’s explanation is both simple and cogent:
Implementing urban stormwater BMPs tends to be a much less cost-effective way of reducing nutrient loads than agricultural BMPs.
To which I say, you could have knocked me over with a feather. I just hope that EPA does not limit its review of this report to the Chesapeake Bay itself, but considers its implications more broadly in the context of stormwater regulation in other areas.
Posted on April 3, 2012
For anyone who thought New York State was galloping toward exploration, development and regulation of drilling for natural gas, and for anyone who wondered how and when you’d see the brakes applied, two towns did just that during the third week of February. Using local zoning ordinances, the towns of Dryden and Middlefield banned drilling for natural gas within their geographic boundaries. How they did so, whether they are on solid legal ground for their bans, and what, if anything, the state can or should do to further enhance the development of natural gas are important questions.
Drilling for natural gas, which has gone on for decades in the west, has expanded rapidly in the east in recent years, largely due to a technique known as hydraulic fracturing or hydrofracking. For property owners, leasing land for gas drilling has created an economic boon, and with it the potential for bringing jobs to a portion of the state that has long been economically depressed, along with the prospect of lessening the nation’s dependence on foreign energy sources. At the same time, hydrofracking has heightened concerns about contamination of well water, air pollution, and the generation of hazardous waste, as well as other environmental concerns.
For now at least, it appears that towns in New York State may ban gas drilling within their borders if they choose to do so. Two statutes in particular – aided by judicial interpretation – support bans like those enacted by the Town of Dryden and the Town of Middlefield. In regulating oil and gas development, the Oil, Gas and Solution Mining Law (OGSML), set forth in Environmental Conservation Law (“ECL”) Article 23, Title 3, and the Mined Land Reclamation Law (“MLRL”), set forth in ECL Article 23, Title 27, come into play.
On February 21, 2012, in Anschutz Exploration Company v. Town of Dryden, Index No. 2011-0902, Tompkins County Supreme Court Justice Phillip Rumsey ruled that the OGSML does not preempt local restrictions that ban gas drilling within the geographic boundaries of the municipality. Similarly, on February 24, 2012, in Cooperstown Holstein Corp. v. Town of Middlefield, Index No. 0011-0930, Otsego County Acting Supreme Court Justice Donald F. Cerio ruled that the OGSML does not preempt a local municipality from enacting a land use regulation within its geographic jurisdiction, and that a local municipality may permit or prohibit gas drilling in conformity with statutory authority.
The New York State Court of Appeals reached a similar decision in Frew Run Gravel v. Carroll, 71 N.Y.2d 126 (1987) with respect to a comparable provision of the MLRL that empowers the New York State Department of Environmental Conservation (“NYDEC”) to regulate mining and the reclamation of mined lands. The Frew Run court held that zoning ordinances were not the type of regulatory provision that the legislature foresaw as being preempted by the MLRL and made a distinction between the regulation of how property may be used, i.e., the local zoning ordinance, and the regulation of mining activities. Just 11 years later, the Court of Appeals again examined the supersession claim clause of the MLRL in In the Matter of Gernatt Asphalt Products, Inc. v. Town of Sardinia, 87 N.Y.2d 668 (1996) and likewise concluded that zoning ordinances were not the type of regulatory provision that the legislature foresaw as being preempted by the MLRL.
The Town of Dryden and the Town of Littlefield decisions relied on these authorities, and thus are on solid legal footing. As a result, a municipality in New York State is free to ban operations related to oil and gas production within its borders just as towns are free to use zoning ordinances to ban mining activity, even recognizing an incidental effect on the oil, gas drilling or mining industry.
What does this mean for gas drilling in New York State? Dryden and Middlefield are but two towns in upstate New York that have taken action. Whether these towns are outliers or the start of a trend remains to be seen. Many citizens of New York long have said that towns should have the authority to block natural gas drilling within their boundaries. However, towns may forego bans on gas drilling because of the perceived economic benefits.
The development of natural gas drilling in New York is in its early stages. During the early run-up to exploration and development of natural gas, the NYSDEC Commissioner, with one stroke of a pen, banned natural gas drilling in the entire New York City watershed, as well as in the City of Syracuse watershed. The Commissioner’s action alleviated concern that hydraulic fracturing might harm pristine drinking water for those two major cities. Such environmental concerns could be the subject of sharp debate in other towns where gas drilling is proposed.
NYSDEC is still six months to a year or more away from adopting a final environmental impact Statement regarding drilling, and ultimately, it may not even be up to New York. The Environmental Protection Agency has empowered a team of experts to examine the technology and the science of hydraulic fracturing, and to make recommendations that could include extensive federal regulation. When New York is ready to look at permit applications, the NYSDEC can evaluate the legal landscape to determine how the courts have handled the fracking cases. As for the New York legislature, assuming that the bans on natural gas drilling are upheld, its willingness to tackle an issue as controversial as natural gas drilling will depend on the price of natural gas, the economic landscape, and the will of the State Executive branch. For those of you keeping score, for now, it is towns, two, New York State, zero.
1Using water at high pressure, hydrofracking can break rocks deep underground. In using this technique, drilling begins vertically and is then done horizontally, opening a larger land area to well placement and allowing for the extraction of more product.
2The OGSML contains the following statement: “The provisions of this article shall supersede all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries; but shall not supersede local government jurisdiction over local roads or the rights of local governments under the real property tax law.” ECL 23-0303(2) (emphasis added).
3In Frew Run, the Court of Appeals examined the supersedure provision of the MLRL, which at that time provided: “For purposes stated herein, this title shall supersede all other state and local laws relating to the extractive mining industry; provided, however, that nothing in this title shall be construed to prevent any local government from enacting local zoning ordinances or other local laws which impose stricter mined land reclamation standards or requirements than those found herein.” ECL 23-2703(2) (emphasis added).
Posted on March 13, 2012
The past several decades have shown, time and again, that environmental regulations generate health and economic benefits that far outweigh their costs. Calling on polluters to clean up their mess spurs innovation that saves American lives and money.
Take the example of catalytic converters. When the EPA required car manufacturers to install catalytic converters to reduce tailpipe pollution, automakers warned of catastrophe. Instead, it cost far less than they had predicted--less than 2 percent of the total car cost -- and led to American dominance in the global market for this clean car technology. The EPA estimated that the health benefits of the rule outweighed the cost at least 10 times.
When Congress mulled over the acid rain program, industry claimed that scrubbing sulfur dioxide from smokestacks would send the price of electricity skyrocketing. It did no such thing. The program inspired engineers to design cleaner power-plant technologies, and the cost of reducing acid rain pollution turned out to be about a quarter of what the government had predicted . In fact, the acid rain program's benefits have exceeded costs by about 40 to 1, according to the Office of Budget and Management . And reducing acid rain saves nearly 19,000 lives every year.
The list goes on and on: leaded gasoline, CFCs, nitrogen oxides. Environmental regulations have saved thousands of lives in this country, and improved the health of millions , without creating any of the dire economic consequences predicted by industry at the outset. On the contrary - these regulations have spurred the development of clean technologies and achieved their goals for a relative pittance. And there's nothing dirty about that.
Posted on March 12, 2012
Two recent South Carolina Supreme Court decisions have addressed significant environmental regulatory issues. In the Smith Land decision which dealt with state regulation of discharges into isolated wetlands (“waters of the State”), the court held that there is a private cause of action to enforce the provisions of the South Carolina Pollution Control Act (“PCA”)1. In the Sandlands decision which involved a certified question from the federal district court, the South Carolina Supreme Court held that the state’s Solid Waste Policy & Planning Act (“SWA”) did not preempt local government flow control2. Each of these issues has been addressed in prior blogs (1, 2), although the outcome of the certified question on the flow control matter had not yet been determined.
Several pieces of legislation pending in the South Carolina General Assembly respond to these decisions and the issues they address.
House Bill H.4654 and its companion Senate Bill S.1126 would amend the PCA to identify those activities which require, or do not require, a permit under the Smith Land decision. The bills also preclude a private cause of action to enforce the provisions of the PCA. The House version of the bill cleared the House Agriculture subcommittee and committee with overwhelming support and is now on the House calendar for consideration. These bills enjoy considerable support from the regulated community.
Two other bills address the question of whether state law preempts local government flow control following the Sandlands decision. Senate Bill S.514 and its companion House Bill H.4721 would amend the SWA to prohibit local ordinances that preclude solid waste disposal facilities, regardless of location. The House version has also cleared the House Agriculture subcommittee and committee with nearly unanimous support and is pending on the floor of the House for consideration.
In each instance, the General Assembly clearly appears to be reacting to the Smith Land and Sandlands decisions in an effort to give meaning to its legislative intent. Time will tell whether the proposed amendments will be enacted into law as the Legislature moves through its last year of a two-year Session.
1 Georgetown County League of Women Voters v. Smith Land Co., 393 S.C. 350, 713 S.E. 2d 287 (2011).
2 Sandlands C&D, LLC v. County of Horry, 394 S.C. 451, 716 S.E. 2d 280 (2011).
Posted on February 22, 2012
After dismissal of The Los Alamos Study Group’s (the “Study Group”) complaint challenging the United States Department of Energy (“DOE”) and the National Nuclear Security Administration’s (“NNSA”) efforts to construct the new Chemistry and Metallurgy Research Replacement Nuclear Facility (“CMRR-NF”) at Los Alamos, New Mexico – based on the absence of any Environmental Impact Statement (“EIS”) analyzing the facility and its alternatives – the Study Group appealed the decision to the United States Court of Appeals for the Tenth Circuit. The Study Group claims on appeal that, regardless of promises by the federal defendants to conduct more NEPA paperwork, a major federal action cannot be implemented unless it has been analyzed in an applicable EIS and authorized by a record of decision (“ROD”).
In the Tenth Circuit, the federal defendants filed a motion to dismiss, claiming the appeal was moot because the federal defendants had issued, after the lower court’s decision, a Supplemental EIS (“SEIS”) authorizing the current CMRR-NF project. The federal defendants stated in the SEIS that, although the original CMRR-NF as analyzed and authorized by a 2003 EIS and 2004 ROD could no longer be built due to significant changes and seismic conditions, this deficiency was cured by the 2011 SEIS authorizing the current iteration of the project. The Study Group responded to the motion to dismiss by stating that, under NEPA, no federal project can be implemented unless and until an applicable EIS has been performed and no EIS, with an analysis of current alternatives, supported the current project. The Tenth Circuit sided with the Study Group, denied the motion to dismiss, and directed the parties to proceed to briefing on the merits. Briefing is now completed, and the matter awaits oral argument.
While the appeal was pending, the Study Group filed yet another suit against the federal defendants, challenging the continual implementation of the project and the absence of reasonable alternatives in the 2011 SEIS. The federal defendants have answered the complaint in the second suit and the parties were in the process of negotiating pre-trial procedures, when the matter took an unusual turn.
On Monday, February 13, 2012, NNSA abruptly announced that it would be “deferring the construction of the Chemistry and Metallurgical Research Replacement (“CMRR”) facility and meeting plutonium requirements by using existing facilities in the nuclear complex.” The use of existing facilities by NNSA is an alternative which the Study Group vigorously advocated in the lower court prior to dismissal of the first case, in the Tenth Circuit Court of Appeals, and also in the second suit. The available facilities, as a reasonable alternative to the 2011-12 CMRR, include sharing workload with Lawrence Livermore National Laboratories and other plutonium-capable facilities. Moreover, in the event additional storage is needed for plutonium or special nuclear materials, the Device Assembly Facility in Nevada remains available for that purpose.
Since NNSA’s adoption of the Study Group’s position, the relative legal positions of the parties are unclear. Although NNSA has not abandoned the CMRR project altogether, it has stated the project will be deferred for at least five years (after FY 2013). Such a deferral would mean CMRR would not be built until at least 2018, some fifteen years after the original 2003 EIS authorizing a much smaller version of the project, and at least seven years after the issuance of the 2011 SEIS seemingly ratifying the NNSA’s decision to build the $6 billion project. Under these circumstances, the Study Group will likely argue that no further activity can be taken on any aspect of the CMRR facility based on an antiquated EIS that could not possibly consider the myriad alternatives existing today, and certainly not those that will exist in or after 2018. In this regard, both cases appear ripe for a declaration that a fresh EIS must be performed, together with applicable scoping, prior to any commitment to a project that may or may not be built at some unspecified time in the future.
Posted on February 16, 2012
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.
Posted on January 20, 2012
My father introduced me to the big band sound he grew up with in the ‘20s, ‘30s and ‘40s. In addition to the musical skirmishes between the powerful brass and elegant woodwind sections that highlighted the genre, he was fond of the lyrics. One of his favorite ditties was a playful calypso tune written by Sy Oliver and Trummie Young, first recorded by Jimmie Lunceford in 1939. The enlightened refrain gives the recipe for being highly effective -- “Tain’t what you do, it’s the way that you do it – that’s what gets results.” At about the same time Lunceford was leading his show band, sociologist Robert J. Merton was focusing on avoiding the wrong results. He popularized the concept of “unintended consequences,” the gist of which is humans cannot fully control the outcome of their actions so be careful what you do and for what you ask. Seventy-five years later, EPA’s recent proliferation of regulations with short time fuses and no existing or foreseeable means of compliance demonstrates no such careful thought.
Merton’s analysis provided five causes for unintended consequences: ignorance, error, immediate interest, basic values and self-defeating prophecy. While these five causes could form the outline for comments on almost any rule, the one that might be most applicable to EPA’s recent flurry of regulatory activity is what Merton called “the imperious immediacy of interest” which refers to instances where the actor’s paramount concern with the immediate action excludes the consideration of further or other unforeseen consequences of the same act. The speed in which the recent rules have been promulgated, the leap in technology that they require, and the brevity of the time period by which compliance is required are unprecedented and seem destined to result in unintended consequences.
Examples of these rules include the corporate average fuel economy (“CAFE”) standards which EPA established in 2009. Under the CAFE standards, Model Year 2011 vehicles must achieve 27.3 mpg. The requirement is ratcheted up to 35 mpg by 2016, and a whopping 54.5 mpg by 2025. Those developing the standards were warned that the standards would result in the production of smaller, lighter and deadlier cars. The developers not only required increased mileage, they limited greenhouse gases (GHGs), including CO2 emissions, from motor vehicles – the first time that GHGs were regulated as air pollutants under the Clean Air Act. Standard developers also recognized that regulating GHGs as pollutants for mobile sources would also trigger regulation of GHGs from stationary sources under the Clean Air Act’s prevention of significant deterioration of air quality program. The latter was not an unintended consequence, but where such regulation might lead our economy and society is anyone’s guess. We need only look at the recent reports of spontaneous combustion of electric vehicles to get some idea.
Another example is EPA’s issuance of the cross-state air pollution rule which afforded electric generating facilities only four months between its promulgation and the date of compliance on January 1, 2012. EPA promulgated the rule amid warnings by states and others that the electric system reliability was jeopardized. Fortunately, the D.C. Circuit stayed the rule on December 30. Similarly, EPA pushed out the EGU MACT standard after allowing itself only a few months to consider tens -of -thousands of comments on the proposed rule. Such speed of promulgation without regard for unintended consequences has EPA staffers concerned about the quality of their work product. Perhaps it’s time to revisit the requirements for regulatory impact analysis to consider new rules in light of Merton’s five causes of unintended consequences and Lunceford’s catchy tune. The alternative may be to sing another tune Lunceford popularized -- Blue in the Night.