Anyone who has negotiated the purchase of a gas station is aware that these agreements are incredibly complex. The contracts have dense definitions, dependent and inter-related provisions, and grant broad discretion to the sellers in determining the scope and conduct of the cleanup.
A buyer who does not retain an environmental attorney who has previously worked on one of these agreements runs the risk of committing G. Gordy Liddy’s infamous aphorism of being unarmed in the battle of the minds. The recent decision of D& H Ventures v Exxon Mobil, 2011 Cal. App. Unpub. LEXIS 8580 (Ct.App-2ndh Div 11/8/11) illustrates this point.
In this case, D&H Ventures purchased a gasoline service station site from Exxon in 1995. D&H was owned by the franchisee that had been operating the property since 1989. Exxon had been remediating the contamination at the property since 1991 and had submitted a summary report to the Los Angeles County Department of Public Works (Regional Board in 1994. The Regional Board eventually issued an NFA letter in October 1997.
The agreement provided that the sale was “as-is” and the purchaser acknowledged that some spills had occurred that resulted in soil or groundwater contamination. Section 10 of the Agreement outlined the parties’ remediation rights and obligations. Exxon was obligated to conduct an environmental site assessment prior to closing and provide the results to the purchaser before closing. If the initial assessment or any additional assessment was unacceptable to D&H, it had the right to terminate the Agreement prior to closing. The environmental assessments served as the “Baseline Condition” for the contamination. If the Regional Board required further testing or remediation, the agreement provided that the Baseline Condition would be amended to reflect the additional sampling. Exxon made no representation or warranty regarding any aspect of any reports delivered to the purchaser and the purchaser had the right to conduct its own investigation.
Exxon was obligated to remediate the Baseline Conditions as it reasonably deemed necessary or appropriate to comply with “Legal Requirements”. Exxon’s remedial obligations under the agreement would be satisfied (1) upon receipt written notice from the appropriate Government Authority that either no further remediation and monitoring of the Baseline Condition was required or (2) when Exxon provided written notice to D&H that remediation had been completed, Exxon had submitted a written request for closure indicating that the soil and/or groundwater had been remediated to the applicable levels but Government Authority had not provided a written notice within a reasonable time.
The agreement also provided that Exxon was not responsible for investigation or remediation of contamination occurring after the closing date or for increases in contaminant levels above the Baseline Condition. In addition, the agreement indicated that Exxon’s remediation responsibilities inured only to the benefit of D&H and its lender, and did not extend to subsequent purchasers or assignees.
Exxon agreed to indemnify the purchaser until October 31, 2003 from third parties claims resulting from contamination occurring from Exxon’s use, operation or remediation of the property. However, Exxon would not indemnify purchaser for environmental contamination occurring after closing unless the contamination resulted from the remediation activities or negligence of Exxon. In exchange for the indemnity, purchaser provided a general release for itself, its representatives, successors and assigns except for any obligations of Exxon relating to the Baseline Conditions. The deed conveying title incorporated the environmental provisions of the agreement and provided that the environmental provisions were covenants that ran with the land.
In October 2006, D&H sold the Property to Fry’s Petroleum, Inc (Fry’s). One month later, the Regional Board advised D&H that groundwater contamination had been detected at a former service station site near the property and that the Regional Board was re-opening the case to determine if some of the contamination had migrated from the site. In April 2007, the Regional Board directed both D&H and Exxon to install additional groundwater monitoring wells to determine the direction of groundwater flow and groundwater quality. Exxon refused D&H’s request to resume its assessment and remedial activities at the Property.
D&H then filed its lawsuit, claiming Exxon had breached the agreement and asserting other common law claims. In the breach of contract claim, D&H argued that the 2006 reopener triggered section 10.B providing that if further testing or remediation is required by any government authority, the Baseline Condition would be modified by the results of any such tests. D&H also argued that even if Exxon had no contractual obligation to remediate the Property in 2006, Exxon was not entitled to summary judgment because there were triable issues of fact whether Exxon had breached the Agreement in 1997 and 1998 by failing to properly remediate the contamination.
The trial court rejected all of D&H’s claims and granted summary judgment in favor of Exxon. The court ruled that Exxon had completed its obligations under the agreement when the Regional Board issued the NFA letter. The court said the purchaser was relying on clauses outlining Exxon’s initial assessment obligations as well as pre-closing obligations but not relating to regulatory site closure
Exxon had asserted that D&H’s inadequate remediation claim was barred by the statute of limitations. D&H responded that the discovery rule should have operated to toll the statute of limitations. The court found for Exxon, finding that there was undisputed evidence that D&H was aware of the environmental conditions of the property, including the Baseline Condition, when it purchased the site in 1995, when the application for closure was submitted in 1997 and when Exxon ceased all remediation activities in 1998. The court said that the delayed discovery rule typically did not apply to breach of contract actions, which ordinarily accrue at the time of breach. The trial court also ruled that the broad release clearly and explicitly applied to bar D&H’s the common law claims. Likewise, the court held the release precluded Fry’s claims since the release specifically applied to successors and assigns, and was incorporated into the deed.
The appeals court affirmed. Looking at the entire agreement, the court said the only reasonable construction of the agreement was that the NFA letter relieved Exxon from any further remediation obligation. The court noted that Exxon was required to conduct an assessment, the results of the assessment would establish the Baseline Condition, that Exxon was to remediate the Baseline Condition and that Exxon’s remedial obligations continued until an NFA letter was issued by the appropriate Government Authority. The court said that to impose an indefinite remedial obligation on Exxon for an unidentified period of time was patently inconsistent with the provisions of Section 10 as well as other clauses of the Agreement
On the statute of limitations issue, the appeals court said that even though D&H knew the property was heavily contaminated at the time of purchase, it conducted no independent environmental investigation prior to purchase. Moreover, the court said, the purchaser did not investigate the requirements for site closure when Exxon submitted its request and did not object to Exxon’s representation that it had satisfied all the requirements for site closure. On the basis of this undisputed evidence, the court agreed that the doctrine of delayed discovery did not apply, and that any claim for breach of contract accrued more than 10 years before D&H filed its action