18 ELR 20769 -- Smith Land & Improvement Corp. v. Rapid-American Corp.

Smith Land & Improvement Corp. v. Rapid-American Corp.

No. 86-0116 (M.D. Pa. September 21, 1987)

The court holds that the successor corporation of the seller of a tract of industrial land is not liable to the purchaser for response costs the purchaser incurred under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) in cleaning up asbestos contamination at the site. The court holds that the Third Circuit's decision in Philadelphia Electric Co. v. Hercules, Inc., 15 ELR 20554, requires dismissal of the purchaser's action. The Third Circuit held that where corporations of roughly equal resources contract for the sale of industrial property and there has been no fraud or misrepresentation, the seller is responsible only to the extent it expressly agrees to be responsible. Although Philadelphia Electric involved a cleanup under the Pennsylvania Clean Streams Law, its rationale also applies to CERCLA cleanups. Defendant's predecessor did not conceal the presence of asbestos on the land when it sold the site to plaintiff's predecessor. Plaintiff's predecessor knew of the use of the land, inspected it more than five times, elected not to conduct the tests allowed under the sales agreement, failed to add a provision in the agreement covering any future cleanup costs, and calculated the risk of future cleanup costs into the purchase price. Plaintiff's state law nuisance, vicarious liability, and indemnity claims also must be dismissed. The court holds that defendant has not been unjustly enriched because plaintiff saved it from incurring response costs. Although defendant was also liable for cleaning up the asbestos, the fact that the Environmental Protection Agency chose plaintiff to perform the cleanup does not mean that defendant was enriched.

[The complaint is digested at ELR PEND. LIT. 65900. Briefs in plaintiff's appeal to the Third Circuit are digested at ELR PEND. LIT. 65990.]

Counsel for Plaintiff
Steven Schibla
Rhodes & Sinon
410 N. 3d St., Harrisburg PA 17108-1146
(717) 233-5731

Counsel for Defendant
Susan P. LeGros
Montgomery, McCracken, Walker & Rhoads
3 Parkway, 20th Floor, Philadelphia PA 19102
(215) 563-0650

[18 ELR 20769]

Kosik, J.:

Memorandum

This matter is before us on a defense motion for summary judgment which was filed on February 17, 1987. Also pending is the plaintiff's motion to amend paragraphs 25 and 26 of the complaint. Both motions have been referred to United States Magistrate J. Andrew Smyser for a report and recommendation. On June 16, 1987, Magistrate Smyser issued his report in which he recommends that this court grant the plaintiff's motion to amend the complaint and grant the defendant's motion for summary judgment. The plaintiff has filed objections to said report of the Magistrate.

At the outset, the court will grant plaintiff's motion to amend paragraphs 25 and 26 of the complaint. As noted by the Magistrate, this motion of the plaintiff has not been opposed by the defendant. Additionally, the defendant has not objected to the Magistrate's recommendation with respect to the motion to amend.

The relevant facts of this case are as follows: In 1963, the Philip Carey Manufacturing Company conveyed a 160-acre tract of land to Exeter Investment, Inc. At the time of the conveyance, Exeter Investment was a wholly owned subsidiary of the plaintiff, Smith Land & Improvement Corporation. Subsequent to the conveyance, Exeter Investment merged with the plaintiff company. The plaintiff alleges that prior to the 1963 conveyance, the Carey Company deposited asbestos-containing waste on the conveyed property. In 1984, the United States Environmental Protection Agency informed the plaintiff that the property which it acquired from the Carey Company contained asbestos and thatthe plaintiff was responsible for the cleanup costs. The plaintiff spent substantial sums of money complying with the EPA's cleanup order. The plaintiff now seeks reimbursement for the cleanup costs from the defendant, Rapid-American Corporation, on the theory that its predecessor, [18 ELR 20770] Philip Carey Manufacturing Company, was liable for the cleanup debt.

The plaintiff commenced this action on January 21, 1986. The complaint originally contained seven counts. However, the court dismissed Counts II and III of the complaint on August 12, 1986. In Count I the plaintiff seeks to recover from the defendant its costs to respond to the EPA cleanup order pursuant to the Comprehensive Environmental Response Compensation & Liability Act (CERCLA), 42 U.S.C. § 9601, et seq.^[1] Count IV is a pendent state common law nuisance claim. Count V is a pendent state common law vicarious liability claim. Count VI sets forth a claim for restitution on the basis of unjust enrichment. Finally, Count VII contains a claim for common law indemnity.

In his report, the Magistrate states that the defendant is entitled to summary judgment as to Counts I, IV, V and VII. The Magistrate bases his conclusion upon a recent Third Circuit Court of Appeals case, namely Philadelphia Electric Co. v. Hercules, Inc., 762 F.2d 303 [15 ELR 20554] (3d Cir. 1985), cert. denied, U.S. , 106 S. Ct. 184 (1985). The plaintiff contends that the Philadelphia Electric case is inapplicable to the instant case. The court has reviewed the Philadelphia Electric case and the plaintiff's objections and finds that the stated case is dispositive of the present case with respect to Counts I, IV, V and VII.

In Philadelphia Electric the plaintiff bought industrial land from the defendant. Subsequently, the Pennsylvania Department of Environmental Resources (DER) discovered that the plaintiff's land was contaminating the environment. The DER directed the plaintiff to clean-up its land pursuant the Pennsylvania Clean Streams Law, and the plaintiff did so. Thereafter, the plaintiff brought suit seeking recovery of the monies it spent to clean-up its land claiming negligence, private and public nuisance, and indemnity against the defendant corporation whose predecessor in interest had owned the property which the plaintiff purchased. The plaintiff based its suit on the ground that the defendant's predecessor in interest caused the contamination of ground water and a river during its operation of a chemical plant on the property.

In Philadelphia Electric, supra, 762 F.2d at 312, the court stated that the law in Pennsylvania "is that in the absence of fraud or misrepresentation a vendor is responsible for the quality of property being sold by him only to the extent for which he expressly agrees to be responsible . . ." [Citation omitted]. The court also stated that where, as in the case sub judice, corporations of roughly equal resources contract for the sale of an industrial property the rule of caveat emptor applies. Id. at 313. This is true especially where, as in the instant case, the dispute is over a condition on the land rather than a structure. Id. The Philadelphia Electric Court further held that a purchaser of real property cannot recover from the seller on a private nuisance theory for conditions existing on the land that was transferred. Id. Additionally, no public nuisance cause of action exists against a vendor of industrial property for pollutants existing on the land sold. Id. at 316. Finally, the Philadelphia Electric Court held that the plaintiff, who was required by the DER to clean up land which it purchased from the defendant, has no indemnity cause of action against the defendant seller or a successor corporation of the seller. Id. at 316-317.

The plaintiff does not dispute the findings in Philadelphia Electric. Rather, the plaintiff attempts to distinguish Philadelphia Electric from the present case. The plaintiff argues that Philadelphia Electric does not involve a case brought under CERCLA as does the case at bar. This court concurs with the Magistrate that the Philadelphia Electric case is applicable to the present case even though the cleanup in the present case was ordered by the EPA under CERCLA and the cleanup in Philadelphia Electric was prompted by the DER under the Pennsylvania Clean Streams Law. As this court interprets Philadelphia Electric, it is not germane under what environmental law a landowner is directed to clean up contaminated land.^[2] What is important is the Court's aforementioned holding in Philadelphia Electric pertaining to the past landowner's liability to the present landowner. The EPA in the present case could have proceeded against either the plaintiff or the defendant. However, this fact has nothing to do with the plaintiff's right as present landowner to recover from the defendant as former landowner the costs of the cleanup. As stated, caveat emptor is the rule when determining the plaintiff's right to recover its cleanup costs from the defendant. The plaintiff does not dispute the Magistrate's finding that the defendant's predecessor did not conceal the presence of asbestos on the land when the plaintiff's predecessor purchased it. Moreover, there is no evidence in this case which indicates any concealment with respect to the asbestos on the property when it was purchased by plaintiff's predecessor.

The record shows that plaintiff's predecessor acted as a sophisticated and responsible purchaser. It knew of the past use of the land and it inspected the land on more than five (5) occasions before it purchased the land. The plaintiff's predecessor was aware of the quarry holes on the property as well as a 30-foot high pile of material covering twenty (20) acres of the property. The agreement of sale for the property in question also allowed the prospective purchaser, plaintiff's predecessor, to perform test borings at the property before completing the transfer of ownership of the land. The plaintiff's predecessor elected not to conduct any tests on the land. It is clear that the price plaintiff paid for the land reflected the possibility of environmental risks. Furthermore, the plaintiff could have added a provision in the agreement of sale to deal with any required future cleanup costs, but it did not do so.

The plaintiff also claims that the Magistrate erred with respect to his recommendation to dismiss its common law counts by not considering the affidavit of its president, Mr. Richard E. Jordan. The plaintiff states that according to Mr. Jordan's affidavit, the plaintiff was neither involved with asbestos in any way nor was it aware that asbestos was a hazardous material before being so informed by the EPA in 1984. The plaintiff contends that since at the time when it bought the subject land from the defendant's predecessor it was not a sophisticated purchaser with respect to the hazards of asbestos, the sale was not an arms-length land sale. Therefore, the plaintiff argues that it could not have considered the cost of future cleanup when it purchased the land.

The Magistrate has concluded that the plaintiff's predecessor bought the land in an open, arms-length land sale. The Magistrate states that the plaintiff calculated the risk of future cleanup costs into the purchase price of the land. The court finds no error with the Magistrate's conclusions.

As stated above, plaintiff's predecessor inspected the land more than five (5) times before purchasing it. Plaintiff's predecessor was aware that the land contained a 30-foot high pile of waste which covered twenty (20) acres of the land. In fact, Mr. Jordan, who at the time was Secretary to plaintiff's predecessor, admitted that the pile of waste was a "negative" factor in the decision to purchase the land from defendant's predecessor. Plaintiff's predecessor also had the opportunity to test the land, but it did not do so. Once again, there is no evidence in the record to indicate that the defendant's predecessor tried to conceal anything from the plaintiff's predecessor. Nor does the plaintiff offer any evidence to demonstrate concealment. Therefore, the record is clear that plaintiff's predecessor acted as a sophisticated and responsible purchaser when it bought the land in question from defendant's predecessor.

Accordingly, the court will grant the defendant's summary judgment motion with respect to Counts I, IV, V and VII of the complaint based upon the Philadelphia Electric case.

Next, the Magistrate recommends that the defendant is entitled to summary judgment with respect to the plaintiff's unjust enrichment claim contained in Count VI of the complaint. The plaintiff has objected to this recommendation.

There are two essential elements to establish a claim for unjust enrichment: (1) an enrichment and (2) an injustice resulting if recovery for the enrichment is denied. Peterson v. Crown Financial Corp., 661 F.2d 287, 295 (3d Cir. 1981). The Magistrate states [18 ELR 20771] that the plaintiff has failed to meet the first element of an unjust enrichment claim. Specifically, the Magistrate states that the defendant was not enriched just because the government brought an enforcement action against the plaintiff instead of the defendant. The plaintiff contends that the defendant was enriched because it saved the defendant from incurring the costly cleanup expense. The plaintiff also argues that the defendant was enriched because it satisfied a debt and duty of the defendant's.

The court agrees with the Magistrate that both the plaintiff and the defendant were liable to clean up the asbestos on the land. However, just because the EPA chose the plaintiff to do the cleanup work, does not mean that the defendant was enriched. The plaintiff continually argues that the defendant was spared the cleanup costs. Yet the plaintiff fails to realize that it was equally responsible to clean up its land. Additionally, there is no injustice in requiring a landowner to clean contaminated materials from its land and preventing the landowner from recovering against the prior landowner if the condition was obvious at the time of the land sale and the prior landowner did not attempt to conceal the condition. Therefore, summary judgment will be granted in favor of the defendant with respect to Count VI.

Based upon the foregoing, the court will adopt the report of the Magistrate and grant the defendant's motion for summary judgment as to all counts.

An appropriate Order will issue.

Order and Judgment

NOW, this 21st day of September, 1987, IT IS HEREBY ORDERED THAT:

(1) the Magistrate's report dated June 16, 1987 is adopted by the court;

(2) plaintiff's February 17, 1987 motion to amend paragraphs 25 and 26 of the complaint is granted;

(3) defendant's motion for summary judgment is granted as to all counts of the complaint;

(4) judgment is entered in favor of the defendant and against the plaintiff; and

(5) the Clerk of Court is directed to close this case and to send a copy of this Memorandum and Order to United States Magistrate Smyser.

1. The defendant contends that this is not a case instituted under CERCLA. The plaintiff claims that its case is based upon a cause of action under CERCLA. We agree with the plaintiff that Count I is based upon CERCLA. The CERCLA creates a private cause of action. See 42 U.S.C. § 9607. See also Fishel v. Westinghouse Elec. Corp., 617 F. Supp. 1531, 1534-1535 [16 ELR 20001] (M.D. Pa. 1985). The plaintiff has sufficiently alleged that the defendant is liable to it pursuant to the CERCLA, 42 U.S.C. § 9607(a)(2), (3) and (4). See amended paragraphs 25-26 of the complaint, Doc. 27. Moreover, the plaintiff claims that the defendant is a responsible party under CERCLA since it owned the property at the time of disposal of the asbestos and it transported asbestos to the property.

2. The plaintiff fails to explain how Philadelphia Electric is distinguishable from the present case based upon the underlying governmental agency filing the enforcement action. Moreover, the plaintiff has not cited a single case which makes a distinction between a cleanup action initiated under CERCLA as opposed to the Pennsylvania Clean Streams Law.