Vapor intrusion may have dominated the news in 2010 but it seems that 2011 was the year for methane litigation. There were a number of cases involving banks with loans that went into default because of complications from methane gas from old landfills. Several property owners also filed damage claims against owners/operators of adjacent landfills.

In two of the cases, the risk of methane migration was underestimated. In another case, the potential for methane was not mentioned in three environmental reports despite the fact the project was constructed on two old landfills. It is unclear how three consulting firms could have missed the potential for methane,

Because methane is not a hazardous substance, it does not quality as a REC. However, the former landfill could be identified as a REC if hazardous substances/waste were believed to be disposed. If not, the potential for methane gas migration/infiltration can be flagged in a phase 1 report as an "Item of Environmental Concern" to put the client on notice of the issue (and, of course, minimize future malpractice claims).

A recent case involved a hotel that was constructed next to a landfill. When the methane gas collection failed during the bankruptcy proceeding of the landfill operator, explosive levels of methane gas reached the hotel. The hotel suffered such a severe decline in business that the owner filed for bankruptcy itself and ended up selling the hotel for 20% of its value due to the methane problemsbankruptcy proceeding. 

A more detailed analysis is available from my website at: http://www.environmental-law.net/2011/12/no-administrative-claim-for-hotel-damaged-by-methane-from-bankrupt-landfill-operator/   

When retaining environmental consultants, one of the key issues to review limitation of liability (LOL) clause. This clause is usually located in the standard terms and conditions. Because this boilerplate language is usually attached as an appendix or exhibit to the consultant's proposal. clients frequently overlook the provision.

However, this clause is extremely important because it often caps the consultant's liability at the amount of its fees for the project. Because consultants are usually expected to carry at least $1MM in liability coverage,  clients often want consultants to be liable for at least the amount of their  insurance  limits.  Depending on the relative bargaining power of the parties, a compromise amount in the form of liquidated damages is usually negotiated that will be between these two extremes (usually $50K-$100K). 

A federal district court recently upheld a LOL clause where the plaintiff had retained a consultant to perform a comprehensive asbestos survey but apparently failed to identify over 195,000 square feet. As a result, the client incurred significantly more asbestos abatement costs that it had planned. A full discussion of this case is available from my website at: http://www.environmental-law.net/2011/12/ct-upholds-limitation-of-liability-in-consultant-negligence-case/   

There have been a number of articles in the main stream media about the legality of homeowners leasing their land for hydraulic fracturing. It seems that the "fracking" operations may constitute violations of several loan covenants in residential mortgages that are purchased by Freddie Mac, Fannie Mae and Farmer Mac. The housing authorities that issue and buy loans have apparently not focused on this issue since until "fracking" came along, there were relatively few gas wells on residential properties. See the most recent NY Times article at: http://www.nytimes.com/2011/11/25/us/officials-push-for-clarity-on-oil-and-gas-leases.html?_r=1&src=recg

Now comes a case from Sullivan County in upstate NY where a member of a home owners association was barred from leasing his land to Cabot Oil and Gas. Apparently, the plats used to create the subdivision and the original deeds issued by the developer prohibited commercial activity. The home owner argued that the restrictions were related to the obligations of the property owners association (POA) to protect a lake and dam that were located nearly two miles from the homeowners property. However, the court disagreed, saying that the covenants applied to all parcels.

However, there was good news for the homeowner. He was allowed to keep his $99K signing bonus. Cabot argued that if the court ruled that fracking could not be performed on the parcel, the court should rule the lease as a nullity and order the homeowner to pay back his signing bonus. However, the court said Cabot had signed the lease fully aware that the activities contemplated by the lease could be prohibited. Since recission is an equitable remedy, the court found no unfairness if allowing the home owner to keep his signing bonus.

  A full summary of the case is available at my website at: http://www.environmental-law.net/2011/11/ct-rules-fracking-barred-by-subdivision-covenants/

 The decision issued by the United States District Court for the Eastern District of Michigan in Saline River Properties v Johnson Controls, Inc, 2011 U.S. Dist. LEXIS 119516 (E.D.Mi. 10/17/11) has been summarized in a number of social media blogs. I have reviewed the public filings and have provided an in-depth analysis which is available from my website at: http://www.environmental-law.net/2011/11/confusion-over-scope-and-timing-of-rcra-cleanup-leads-to-potential-liability-for-brownfield-developer/

There are number of recurring themes in this case and Ashley as follows:  

• Like the buyer in Ashley, the plaintiff/developer knew from its pre-purchase due diligence that the Site had pre-existing contamination.
• Like the buyer in Ashley, the plaintiff/developer in this case destroyed a barrier exposing sub-surface soils to the elements.
• Like the Ashley buyer, the developer failed to take any precautionary steps after destruction of the barrier, such as remediation or assessment.
• In both cases, the defendants aggressively responded to the lawsuits with counterclaims for contribution under CERCLA. This last item should be a lesson to potential plaintiffs to examine their potential defenses and correct any deficiencies before commencing litigation.

I just published an article in the Practical Real Estate Lawyer providing some cautionary tales on how phase 1 reports can hurt clients. The article warns about including recommendations in reports since failure to comply can cause property owner to lose liability protection for not exercising due care or appropriate care. Also urges borrowers not to automatically rely on lender reports but to independently evaluate if the scope of the report and its conclusions satisfy the needs of the borrower. Article available from my website at: http://www.environmental-law.net/wp-content/uploads/2011/05/How-Phase-1-Reports-Can-Hurt-Your-Clients1.pdf 

Most residential buildings in NYC have oil-fired boilers for heat and hot water. The buildings often have tanks located in basements or under the sidewalk that typically store No. 2 or No.4 fuel oil. These tanks are subject to the full panalopy of state and local tank regulations. Indeed, NYSDEC strictly enforces the rules against residential buildings.

During the past few years, some buildings have been hit with fines or cleanup costs that exceeded $1MM. A common thread in these cases with significant fines or costs has been that the building owner or manager retained a "tank" company to repair or replace the defective tank system who fails to comply with the NYSDEC requirements. Thus, it is important for building managers to retain experienced environmental consultants when a tank system has failed and requires a cleanup. See the discusson on my webpage: http://www.environmental-law.net/2011/10/the-importance-of-hiring-an-environmental-consultant-for-leaking-nyc-heating-oil-tanks/. I also have a number of articles on the NY Oil Spill program under the resources link that provides more background on this issue.   

 Since the District Court of South Carolina handed down its decision in Ashley II of Charleston vs PCS Nitrogen, EPA has been under pressure to issue guidance explaining the scope of the non-affiliation requirement of the Bona Fide Prospective Purchaser (BFPP) defense.

The demand for guidance was because the court found that Ashley II, a brownfield developer, had an disqualifying affiliation with a responsible party when it idemnified the seller/ liable parties and then tried to dissuade EPA from pursing the sellers to pay for past response costs. Because many developers indemnify sellers of contaminated property or at least procure environmental insurance that serves a similar purpose, there was deep concern that this case could have a chilling effect on brownfield development.

This week, EPA issued guidance and quite frankly, it was very disappointing. The 11 page document provided a series of illustrations explaining how EPA would exercise its enforcement discretion but none of the examples involved the Ashley II situation. Indeed, most of the examples involved circumstances that will only rarely occur. In contrast, EPA devoted one paragraph and a footnote to the Ashley decision. Hardly the kind of guidance we were hoping for and that developers deserved.