Last week, I posted news about the $14MM lawsuit filed by Lowe's Home Improvement Centers against a consultant who failed to identify PCB-contaminated soil at a former junkyard that was being developed into a new store location.

I have obtained a copy of the complaint and have summarized the factual allegations. Note that the defendants have yet to answer.  However, the case is full of lessons about how to manage a brownfield redevelopment project.

The action filed by Lowe’s Home Centers, Inc. ("Lowe’s") seeks damages for breach of contract, negligence, statutory contribution, lost profits and attorneys’ and other professional fees from Bass Realty Company Bass), Sargent Corporation (Sargent, the Torrey Company, Inc ("Torrey) and Tetra Tech, Inc. ("Rizzo"), d/b/a Tetra Tech

The facts alleged in the complaint are as follows:

Barney Bass & Co., Inc operated a junkyard at a property located in Claremont, New Hampshire (the "Site") from 1952 to 1989. A number of auto repair shops also operated at the Site.

In July 2003, the Site owner agreed to sell the Site to an affiliate of Packard

Development, LLC, who, in turn, marketed the Site to Lowe’s for development into a Lowe’s Home Improvement store. To assist Lowe’s in deciding whether to purchase the Site from Packard, Lowe’s retained Rizzo to perform a phase 1 as well as to prepare a construction cost estimate and a preliminary site plan for development of the Site. Rizzo was retained because it had long-standing and close business with Lowe’s and effectively served as its"in-house" civil site engineering and environmental consultant for the development of new Lowe’s store sites in the Northeast. Lowe’s regarded Rizzo as its trusted engineering and environmental partner as Lowe’s expanded its network of stores in the Northeast region beginning in the early 2000s and selected Rizzo as a "major design firm" for Lowe’s Northeast expansion.

In March 2004, based in part on the information provided to it by Rizzo, Lowe’s

made a preliminary decision to purchase a 17.6-acre portion of the Site for the construction of a Lowe’s Home Improvement store ("Store Parcel"). Lowe’s retained Rizzo to provide Pre-Design, Design and Project Management Services at the Site, including preparing a Phase 1 ESA. Rizzo was also responsible for developing a stormwater pollution prevention plan ("SWPPP") that would set forth a phased sequence of construction activities ranging. Rizzo was also required to attend Site permitting meetings, provide construction cost estimates, and to prepare plans for Site permitting for such work as grading and drainage, utilities, demolition, earth excavation, site layout, and on-site construction, as well as a bid construction set of plans.

In September 2004, Rizzo issued a Phase I/ Phase II report and identified a number of ("RECs") associated with historic disposal practices. Rizzo recommended additional subsurface investigation of the RECs to develop a remedial action plan to be implemented prior to the start of construction under the supervision of the New Hampshire Department of Environmental Services ("NHDES"). The proposal provided that the supplement work would be performed by JME Environmental Corp., Inc. ("JME") under the supervision of Rizzo. As part of the supplement work, JME, conducted a magnetometry survey that revealed numerous anomalies. No sampling was conducted in the rear half of the Site where Rizzo had observed debris piles were located or where anomalies were located.

In March 2005, Rizzo and JME, submitted a RAP to the NHDES that identified five discrete areas of environmental concern ("AOCs") that required remediation. PCB-contaminated soils were identified in only one AOC. NHDES indicated that either additional pre-excavation sampling would have to be performed or a soil remediation implementation plan ("SRIP") would have to be developed for post-excavation sampling and analysis. In response, Rizzo and JME submitted a SRIP on May 6, 2005. Rizzo also submitted a notification letter to EPA proposing to conduct a self-implementing PCB cleanup.

After Lowe’s retained Torrey to act as the general contractor, Lowe’s Site Development Manager walked the Site with a Torrey representative and provided diagrams from Rizzo’s RAP of the AOCs and PCB-contaminated soils. Torrey was advised that those areas must not be disturbed until remediated. The Torrey contract expressly identified the environmental contamination at the Site and specified the locations of the then-known five AOCs by incorporating Rizzo’s various environmental reports and the SWPPP. .

In June 2005, representatives of Lowe’s, Rizzo, Torrey, and its subcontractor, Sargent, attended a pre-construction meeting. One purpose of the meeting was to satisfy a conditions of the SWPPP that required a pre-construction meeting to discuss implementation of the SWPPP and the sequence of major construction activities. During the meeting, a Torrey representative asked if it could depart from the construction sequence set forth in the SWPPP and, in particular, whether clearing and grubbing activities could precede the planned excavation of contaminated soils in

the AOCs, rather than follow that work as provided in the approved SWPPP. The Rizzo senior project engineers responded that Site clearing and grading work could proceed in advance of remediation so long as any such departure was documented in the stormwater-related documents on file at the Site.

Sargent then began clearing and grubbing activities at the Site. Sargent Corp. stripped the topsoil at the Site and began hauling the surplus topsoil to the nearby gravel pit of Norm St. Aubin & Sons, Inc. ("St.Aubin"), a commercial seller of loam, sand and gravel. Sargent removed and transported approximately 7,550 cubic yards of material from the Site to the St. Aubin pit. Some portions of the soil transported by Sargent originated from the rear half of the Site, where Rizzo had never identified the existence of any PCB contamination.

In July 2005 NHDES and USEPA representatives visited the Site to discuss the remediation of PCB contamination. By this date, Torrey and Sargent had cleared the Site of trees and other vegetative growth and disturbed a substantial amount of the soils at the Site in the course clearing and grading activities. After observing the absence of flagging in the AOCs , a representative of NHDES asked Torrey’s Site Superintendent if any soils had been removed from the Site. He responded that while wood chips from land clearing had been sent to a paper mill, no soils had been removed from the Site. He also said that all work was being managed in accordance with applicable state and federal law.

On August 2, 2005, the NHDES issued a stop order. Two days later, JME learned that soils had been transported from the Site to the St. Aubin property. Soil samples then collected by JME at the St. Aubin property revealed the presence of PCBs. Lowe’s retained Rizzo to oversee JME who prepared an Off-Site Stockpile Material Removal Plan ("OSSP Workplan"). Pursuant to the OSSP Workplan, JME transported the contaminated OSSP from the St. Aubin property back to the Site, and conducted extensive pre- and post-excavation sampling for PCBs on the St. Aubin property. Because the soils originating from the Site had became inextricably intermixed with St. Aubin’s existing stock of clean soil, Lowe’s ended up having to transport back to the Site approximately 17,500 cubic yards of PCB-containing soil. In December 2006, USEPA notified Lowe’s that Lowe’s had fulfilled all of its requirements under the OSSP Workplan with respect to remediation at the St. Aubin property, and that no further action on the St. Aubin property was necessary.

Meanwhile, Lowe’s was required to investigate additional areas of the Site for PCBs that had not been previously identified by Rizzo. Additional PCB-contaminated soils were discovered that had to be further investigated and excavated.

Lowe’s alleges that Rizzo did not correct the materially erroneous instruction by its senior project engineer that the Site work could proceed before remediation of the AOCs or to caution Torrey or Sargent about the potential environmental consequences of failing to stake-off the AOCs before beginning site work. Lowe’s also alleges that the misrepresentations made to the agencies by Torrey delayed the discovery of the disposal of PCB-contaminated soil at the St. Aubin property and allowed the contaminated soil to become intermixed with St. Aubin’s clean soil.

Lowe’s has continued to remediate the Site and has incurred costs of $14 million, In addition, because of the remediation, the opening of the Lowe’s Home Improvement Center which was scheduled to open in 2006 has been delayed until 2010.

I think another area where EPA missed the boat on AAI was not requiring states to adopt licensing requirements for EPs.

Besides having incredibly low threshold for EP, a national licensing would have at least put the brakes on some of the bottom feeding going on that is causing the quality of reports to deterioate (unlike the braking problem with Toyotas-sorry couldnt resist) :)

One of the reasons we had a sub-prime problem was that unethical mortgage brokers were allowed to operate without any licensing and essentially were able to lie to unsophisticated borrowers about what the borrowers were agreeing to pay. While I am not accusing professionals who work at commodity-shops of being unethical, I do think that creating a sufficiently rigorous barrier to entry to help screen out the less motivated and unprofessional sorts would would look to another less demanding field that does not testing or licensing such as  mortgage brokers. :)   

If we had  

Barry Trilling and I have begun our "point-counterpoint" discussion on the issues we plan to raise at the EPA listening session on March 17th. Here are the three recommendations I have made.

I discuss my explanations and rationale for these positions are on the listserve:  brownfields@lists.cpeo.org

According to an article in the Charlotte Observor, the city's first green public building is consuming twice the energy that was predicted. This was not because of design flaws but because it was used more than had been anticipated- thus demonstrating an important lesson about the LEED certification process. It is not only about how a building is designed but how it is operated. 

The $41 million Imaginon library facility was expected to use 30% less energy than standard designs when it opened in 2005. However, it has averaged 450,000 visitors a year instead of the predicted 300,000. As a result, its two theaters are used an average of seven hours a day instead of the two hours as a day that was anticipated. In addition, the offices are used on weekends, not just weekdays. Temperature adjustments also drove up costs. This illustrates one of the lessons of the LEED certification

The owner did not track its energy use until the Observer asked about the building’s performance. The newspaper was told that the library did not track the energy use because of the cost of an energy audit. The library then performed the audit and was surprised by the results.

However, when the longer hours are taken into account, the building is operating  28.4% more efficiently than a standard design. The extra use compounds the efficiency of the heating, cooling and lighting. ImaginOn saves $78,594 a year in energy bills compared to $40,224 projected.

ImaginOn scored points for an innovative design that floods the interior with daylight. Recycled detergent bottles were turned into bathroom partitions. The building got credit for efficient water use, recycling construction waste and nontoxic interior finishes.

Larry

www.schnapflaw.com

A federal appeals court has upheld a judgment for Mermart LLC in a suit brought by investors in its $47.3 million redevelopment project alleging breach of contract for failing to disclose payment deductions in connection with lead paint contamination of the site.

The case involved a $47.3 million redevelopment of the historic Merchandise Mart Building in downtown St. Louis that the developer planned to convert the property into a mixed-use apartment and retail building. As part of the renovation, Mermart retained a LBP abatement contractor. The abatement was completed in 2003 and the Missouri Department of Natural Resources issued a certificate of occupancy.

In connection with a refinancing, Mermart hired another consultant to perform a phase 1 who identified continued presence of lead paint and suggested that further remediation was necessary. Mermart began to remediate the LBP as units became available but characterized the cost as an “upgrade” expense, rather than a capital expense. This allowed Mermart to deduct the removal costs from the funds available to the Subordinate Net Loan Operating income, used to make the interest payments to its subordinate bondholders.

Several subordinate bondholder investors sued Mermart for breach of contract, unjust enrichment, negligence and fraudulent misrepresentations that the project had no environmental hazards. The investors demanded equitable accounting for failure to pay interest under the financing documents. Mermart filed a motion seeking dismissal because the subordinate bondholders failed to obtain the written consent of the senior mortgagee prior to bringing suit.

The court agreed and also held that the claims for fraudulent misrepresentation did not comply with pleading requirements and the negligence, unjust enrichment, and fraudulent misrepresentation claims were precluded by the economic loss doctrine.

Larry

www.schnapflaw.com

The Minnesota Pollution Control Agency has proposed removing all or part of three sites and adding an additional six to the Minnesota State Superfund priority list. One of the additions is the location of a former dry cleaning facility at 1003 Southview Blvd. in South St. Paul. More information at: http://www.southwestreviewnews.com/main.asp?SectionID=62&SubSectionID=275&ArticleID=5130