Vol. 17, No. 2, Summer 1998, Issue 54
Recent Developments in Environmental Law
By: Joseph M. Polito and Jeffrey L. Woolstrum—Honigman Miller Schwartz and Cohn
I. Judicial Developments
A. Federal Developments
B. State Developments
II. Administrative Rulemakings
A. EPA Final Rulemakings
B. State Final Rulemakings
III. State Legislation
State of the Law 1998
The following summarizes selected Michigan environmental judicial decisions from May 1997 through May 1998, and statutory and regulatory developments from June 1997 through June 1998. While not encompassing every environmental decision, statute or rule during these periods, the intent was to include those developments having significant import to environmental law practitioners.
I. Judicial Developments
A. Federal Developments
a. Johnson v. Indresco, Inc., 124 F. 197 (table text may be found at 1997 WL 468329) (6th Cir. 1997). Donald Johnson ("Johnson") operated a marine business and a used car dealership on property that he had occupied since 1955 and which had been zoned for such uses. Indresco, Inc. ("Indresco") has owned and operated since 1957 the Harbison-Walker Refractory ("Refractory") on property adjacent to Johnson's. The Refractory uses gas fired furnaces and kilns to produce magnesium oxide pellets. The furnaces and kilns emit exhaust gases which pass through a series of pollution control devices designed to remove particulate matter before they exit the stacks. Some particulate matter, including magnesite dust, is not captured by the pollution control equipment and is emitted into the atmosphere. The Michigan Department of Environmental Quality ("MDEQ") issued permits to the Refractory that allow such emissions within certain prescribed limits. Some additional magnesite dust is also emitted from the Refractory during handling and storage operations and is sometimes carried to surrounding property, including Johnson's property. Johnson brought suit in a Michigan state court against Indresco, alleging that it had committed the torts of nuisance, negligence, and trespass, all damaging Johnson's property. Johnson sought monetary damages and a permanent injunction. After Indresco had the case removed to the United States District Court for the Western District of Michigan, Johnson filed an amended complaint, which added a claim under the Michigan Environmental Protection Act ("MEPA") (now Part 17 of the Natural Resources and Environmental Protection Act ("NREPA"), Mich. Comp. Laws 324.1701 et seq.) for the protection of the air, water, and other natural resources. Although Indresco prevailed on the nuisance and negligence claims, the jury issued a verdict in favor of Johnson on the trespass claim and awarded him $50,000 for trespasses occurring later than three years before Johnson filed his complaint. Both parties appealed.
The United States Court of Appeals for the Sixth Circuit first rejected Johnson's argument that the district court had improperly applied a three-year statute of limitations to its request for damages. The Sixth Circuit noted that prevailing Michigan law supports retrospective application of the three-year limitations period for a "continuing violation" such as the trespass by Indresco. That is, the trial court properly limited the damages recoverable to those that occurred within the three years prior to filing the complaint. The court also upheld the district court's determination that an award of future damages was inappropriate because the extent of future damages was highly conjectural, especially in light of Indresco's obligation to install new emissions control equipment in response to recently promulgated federal regulations.
Johnson also challenged the district court's application of the doctrine of laches and its finding that Indresco had been prejudiced by Johnson's 30-year delay before filing suit. The Sixth Circuit upheld the district court's determination that if Indresco had known that it was about to be sued, it might have taken steps to improve its emission controls earlier and that, therefore, the resulting prejudice properly excluded any equitable recovery by Johnson. Indresco also challenged the district court's application of laches by arguing that it should apply to both equitable and legal claims. The Sixth Circuit rejected the argument and held that Indresco failed to allege or prove the exceptional circumstances required for laches to defeat recovery under legal claims.
With regard to Johnson's claim under MEPA, the district court had held that the challenged emissions' effect on the boats, cars and structures on Johnson's property was damage to personal property, not to the environment. The Sixth Circuit agreed and stated that it "does not equate to the type of damage to the atmosphere or other natural resources envisioned by the statute." 1997 WL 468329, at *4.
Indresco also challenged the amount of damages awarded, stating that the only way to measure damages is through the submission of diminution-in-value evidence. The Sixth Circuit noted that, under Michigan law, damages for trespass to land are generally measured by the difference between the value of the land before the harm and the value after the harm; however, the court must use its discretion to apply whatever approach is most appropriate to compensate the plaintiff for the loss incurred. The court, therefore, held that Johnson's damages could be determined by the cost of restoring the damaged property and, therefore, found that the jury award of $50,000 in damages to Johnson was adequately supported by the evidence.
Indresco claimed that it had essentially acquired a right to trespass on Johnson's property because its trespass had continued unopposed for 30 years. Under Michigan law, a prescriptive easement is created when there is an unopposed, continuous trespass for 15 years. The Sixth Circuit held, however, that Indresco's opposition to any characterization of its conduct as a trespass required the district court to reject the prescriptive easement doctrine.
Indresco also challenged the district court's instruction to the jury regarding the trespass claim, particularly the court's rejection of language offered by Indresco which added a "substantial damage" requirement. The Sixth Circuit noted that Michigan courts have not yet addressed the issue of whether "substantial damage" should be a part of trespass and refused, therefore, "to usurp the role of the Michigan legislature and the Michigan Supreme Court . . . and graft a new element upon Michigan's understanding of the tort of trespass." 1997 WL 468329, at *6.
Accordingly, the Sixth Circuit affirmed the judgment of the district court.
b. Charter Township of Van Buren v. EQ, The Environmental Quality Company, No. 97-60075-AA (E.D. Mich. Jan. 5, 1998). Van Buren Charter Township ("Township") filed a three-count citizens suit under the Clean Air Act, 42 U.S.C. 7401 et seq. ("CAA"), against EQ, The Environmental Quality Company ("EQ"). The complaint alleged that emissions from EQ's Michigan Disposal waste treatment plant in Belleville, Michigan, violated the facility's Wayne County Air Quality Management Division air permits. The permit provision in question prohibits emissions that cause injurious effects to human health or safety or an unreasonable interference with the comfortable enjoyment of life and property. The Township alleged that emissions from the facility resulted in excessive odors and concentrations of toxic air contaminants in violation of the cited permit provision. EQ moved to dismiss two of the three counts asserted in the complaint on the grounds that the Township had not provided adequate notice of its intent to file these claims and that the permit condition was not enforceable in a citizen suit under the CAA.
The court found that the Township failed to allege that the cited permit condition was an emission standard or limitation in effect under the CAA. The Township argued, however, that the permit condition was similar to an MDEQ Air Quality Division ("AQD") rule, Mich. Admin. Code r. 336.1901 ("Rule 901"), which the Township alleged was enforceable in a CAA citizen suit because it had been approved by the United States Environmental Protection Agency ("EPA") for Michigan's State Implementation Plan ("SIP"). Rule 901 is sometimes referred to as a "nuisance" rule because it, like the Wayne County air permit, prohibits emissions that amount to a common law nuisance. This similarity between Rule 901 and the permit condition, the Township argued, provided the basis for the claims to be heard under the CAA citizen suit provision.
The court rejected the Township's argument, finding that the Township had not provided the required pre-suit notice to EQ that the Township intended to allege a violation of Rule 901. The CAA requires citizen suit plaintiffs to provide notice of the alleged violations to the alleged violator and to EPA and MDEQ at least 60 days before the citizen suit is filed. Among other things, the notice must provide sufficient information for the recipient to identify the provision allegedly violated. The court found that the Township's notice letters failed to provide sufficient information to alert EQ that the Township intended to allege a violation of Rule 901. The Township's notice letters instead alleged a violation of a Wayne County permit condition and made no allegation that any AQD rules were violated. The court held that the Township failed to provide adequate notice that it alleged a violation of Rule 901 and, therefore, all claims in the complaint based on Rule 901 must be dismissed.
Alternatively, the court ruled that even if the Township had given adequate notice, the two counts based on Rule 901 must be dismissed because Rule 901 is not actionable in a CAA citizen suit. EQ argued that EPA's 1980 approval of Michigan's SIP was ambiguous and did not identify Rule 901 as one of the rules approved for Michigan's SIP. EQ argued that EPA had not, in fact, approved Rule 901 for Michigan's SIP in 1980 or at any other time. In support of this argument, EQ presented several EPA and MDEQ documents and correspondence that indicated that Rule 901 was not part of Michigan's SIP. EQ also cited EPA policy guidance documents and statements in the Federal Register demonstrating that EPA policy is not to approve general nuisance rules, odor rules and other rules similar to Rule 901 for SIPs because such rules do not relate to achieving and maintaining compliance with national ambient air quality standards. In light of the evidence submitted by EQ, and in deference to the MDEQ and EPA documents stating that Rule 901 is not part of Michigan's SIP, the court held that Rule 901 is not part of Michigan's SIP and, therefore, is not enforceable through a CAA citizen suit. Accordingly, the court dismissed the two counts in the Township's complaint that were based on Rule 901.
2. Clean Water Act
a. National Steel Corp. v. United States Coast Guard, 955 F. Supp. 773 (E.D. Mich. 1997). The Great Lakes Division of the National Steel Corporation ("Great Lakes") operates a steel rolling mill that, as part of its manufacturing process, discharges wastewater into the Detroit River through Outfall 009 under a National Pollutant Discharge Elimination System ("NPDES") permit issued by the Michigan Water Resources Commission under the Clean Water Act, 33 U.S.C. 1251 et seq. ("CWA"). In July 1994, the United States Coast Guard ("Coast Guard") witnessed a silver sheen of oil being discharged from Outfall 009. Investigators noted that the absorbent booms that Great Lakes used to prevent oil from reaching the river were saturated. The Coast Guard issued a notice of violation and Great Lakes submitted a written response which argued that the Coast Guard did not have jurisdiction in the case because the discharge was in compliance with Great Lakes' NPDES permit. The Coast Guard's Hearing Officer found that the oil sheen was not in compliance with the CWA, regardless of the existence of any state permit, and found Great Lakes liable for discharging oil in a sheen and assessed a $10,000 penalty. Great Lakes appealed the decision to the Commandant of the Coast Guard ("Commandant"), arguing that the discharge was exempt from the CWA under 33 U.S.C. 1321(a)(2)(B) or (C). Those subsections exempt from the definition of "discharge": (i) "discharges resulting from circumstances identified and reviewed and made a part of the public record with respect to a permit issued or modified under Section 1342 of this title, and subject to a condition in such permit" ("Type B exemption"); and (ii) "continuous or anticipated intermittent discharges from a point source, identified in a permit or permit application under Section 1342 of this title, which are caused by events occurring within the scope of relevant operating or treatment systems" ("Type C exemption"). The Commandant affirmed the Hearing Officer's opinion because there was substantial evidence on the record that the oil sheen constituted a hazardous quantity, which is prohibited by both the CWA and the state NPDES permit. Neither the Hearing Officer nor the Commandant directly addressed the specific requirements of the Type B or Type C exemptions and neither of them considered the evidence from the July 1994 Oil Program Report which indicated that there was no unusual or unanticipated cause for the discharge. Great Lakes appealed the Commandant's decision to the United States District Court for the Eastern District of Michigan.
Great Lakes argued that it had proved that the oil sheen was caused by its normal operations under its NPDES permit and that the Coast Guard had exceeded its authority because the discharge met the Type B or Type C exemptions. The Coast Guard moved for summary judgment, arguing that because Great Lakes could not identify the cause of the discharge, it was not an anticipated intermittent discharge. The Coast Guard also argued that monitoring data at two outfalls on the day the sheen was observed showed that there was insufficient oil coming from those sources to create a sheen. Great Lakes countered that measurements are only taken twice a day and would reflect the composition of the discharge for only ten minutes out of the entire day. The Coast Guard further argued that the absorbent booms are replaced on a regular basis and that, therefore, normal operations would not cause them to become saturated. The court held that the Coast Guard had not proven that there was substantial evidence in the administrative record to show that Great Lakes was not entitled to either the Type B or Type C exemption. The court found that the Coast Guard had abused its discretion by disregarding relevant information submitted by Great Lakes indicating that the discharge may have been caused in the normal course of its operations. The court, therefore, denied the Coast Guard's motion for summary judgment and remanded the matter to the Coast Guard for additional investigation and explanation, directing the Coast Guard to consider the differing requirements of the two exemptions and specify precisely what elements of the Type B and C exemptions were and were not satisfied. The court also directed the Coast Guard to provide its rationale for rejecting the evidence in the July 1994 Oil Program Report indicating that there was no oil spill or unplanned episodic oil loss.
b. National Wildlife Fed'n v. EPA, 127 F. 1126 (D.C. Cir. 1997). In 1994, the National Wildlife Federation ("NWF") and other environmental groups petitioned the State of Michigan to designate Lake Superior an "outstanding national resource water," which would subject the lake to the highest level of antidegradation protection under the CWA. NWF also asked the State of Michigan to consider its request as part of Michigan's required triennial water quality standards ("WQS") review under the CWA and to seek public comment on the issue. Michigan denied the petition, stating that it intended to maintain the lake's current less-protective WQS designation.
NWF then sued EPA under the CWA citizen suit provision, claiming that EPA was required by its own CWA regulations to approve or disapprove of Michigan's decision to maintain the existing WQS designation for the lake. Although Michigan had not submitted its decision to EPA for review, NWF claimed that Michigan's failure to submit the decision was itself a "constructive submission" to EPA, triggering EPA's duty of review. The United States District Court for the District of Columbia granted EPA's motion to dismiss, holding that neither the CWA nor EPA's regulations required EPA to review Michigan's decision to deny NWF's petition.
On appeal to the United States Court of Appeals for the District of Columbia Circuit, NWF relied on its interpretation of an EPA regulation that requires each state to "submit the results of its [triennial review of existing WQS] and any revisions of the standards to the Regional Administrator for review and approval, within 30 days . . . , or if no revisions are made as a result of the review, within 30 days of the completion of the review." NWF claimed that the phrase "for review and approval" applies regardless of whether the state has adopted any new or revised standards.
The court of appeals found that the regulation was "awkwardly drafted" and acknowledged that the NWF's reading may be "the better reading of the text." The court agreed with EPA, however, that the regulation also could be read to require EPA's review and approval only of a state's decision to enact new or revised standards, not of a state's decision not to enact such standards. The court also noted that the CWA itself imposes a mandatory duty on EPA to review and approve or disapprove only new or revised standards and that there was no evidence that EPA intended to expand its statutory duties in promulgating the regulation.
Stating that a court generally "accords substantial deference to an agency's interpretations of its own regulations," the court of appeals rejected NWF's claim that EPA's interpretation was "no more than a convenient litigating position." 127 F. at 1129. To the contrary, the court reviewed other regulatory language and EPA guidance documents and found that EPA never intended to impose on itself a duty to review states' decisions to maintain existing WQS. Thus, the court held, "[a]lthough [NWF] presents a colorable construction of [the EPA regulation] viewed in isolation," EPA's interpretation was not "plainly erroneous," was not "inconsistent with the regulation," and was "eminently reasonable in light of the structure and purpose of the [WQS] regulations taken as a whole." 127 F. at 1130.
c. American Iron and Steel Inst. v. EPA, 115 F. 979 (D.C. Cir. 1997). The Water Quality Guidance for the Great Lakes System ("Guidance") was promulgated by EPA on March 23, 1995, under Section 118 of the CWA, which requires EPA to establish numerical pollutant limits in ambient waters of the Great Lakes, along with "minimum water quality standards, antidegradation policies, and implementation procedures" for the protection of human health, aquatic life, and wildlife. 33 U.S.C. 1268. Each state within the Great Lakes system, including Illinois, Indiana, Michigan, Minnesota, New York, Ohio, Pennsylvania, and Wisconsin, is then required to enact water quality standards and discharge program provisions that are consistent with the Guidance within two years after its promulgation. EPA must impose such standards on states that do not implement the standards by the deadline.
The American Iron and Steel Institute ("AISI") brought suit, challenging EPA's authority to promulgate the Guidance in its entirety and also challenging numerous individual provisions of the Guidance. Among other arguments, AISI claimed that, in promulgating the Guidance as a rule, EPA had exceeded its statutory authority under Section 118 of the CWA because that section merely authorizes EPA to make "suggestions" for states to consider and later decide to implement. AISI claimed that when Congress used the term "guidance" in the CWA, it intended to authorize EPA to issue "nothing more than an informal advisory document" and not a binding regulation.
The court held that the Guidance cannot necessarily be construed as a "binding regulation" because it "merely announces the standards by which state submissions will be judged and informs the states of the default rule that [EPA] will apply if a state submits a nonconforming plan." 115 F. at 987. Moreover, the court held that regardless of how the Guidance is characterized, it is clear that EPA was authorized to issue the Guidance as a rule.
AISI also challenged certain of EPA's methodologies and procedures for calculating numerical permit limitations where only limited scientific data exists for certain pollutants, arguing that the methodologies and procedures were scientifically flawed and excessively conservative. The court rejected these arguments, holding that "it is within EPA's discretion to decide that in the wake of uncertainty, it would be better to give the values a conservative bent rather than err on the other side," and that the procedures otherwise were within EPA's authority. 115 F. at 993.
The court, however, vacated the Guidance's requirement that each permit for the discharge of wastewater to a navigable water of the United States include pollutant minimization standards for internal waste streams, holding that the CWA authorizes EPA to impose effluent limitations only on discharges from point sources into navigable waters, and although the CWA allows EPA to impose monitoring and reporting specifications on internal plant sources, it does not authorize the imposition of effluent limitations on wholly internal waste streams.
The court also held that EPA failed to consider properly the costs to municipalities and industries resulting from the elimination of mixing zones for "bio-accumulative chemicals of concern" when compared to the resulting environmental benefit. A mixing zone is the area within a navigable body of water in which the discharge from a point source is initially diluted. The permittee's compliance with the applicable water quality standards is assessed at the edge of the zone. The court cited the example of the Owosso, Michigan, publicly owned treatment works which, if mixing zones are eliminated, would be required to spend an additional $300,000 per year to remain in compliance. The only benefit from the expenditure would be a reduction in mercury discharges of 0.4 pounds per year. EPA had estimated that the total costs of compliance associated with the elimination of mixing zones would be only $200,000 per year. The court remanded this issue to EPA to further assess whether eliminating mixing zones "is cost-justified." The court upheld, however, EPA's determination that mixing zones should be limited to 25 percent of the design flow of the receiving stream and to the area in the immediate vicinity of the discharge where turbulence in the receiving water occurs as a result of the momentum of the discharge, including EPA's presumption that mixing zones should generally be limited to 10 parts receiving water for each part effluent.
The water quality standards for polychlorinated biphenyls ("PCBs") were also vacated and remanded to EPA for reconsideration because of EPA admissions that it had committed procedural errors in formulating those standards.
The court rejected several other challenges to the Guidance for various reasons, including that some of the challenges were not yet ripe for judicial review.
a. Container Specialties, Inc. v. Aetna Casualty & Surety Co., No. 95-CV-40154-FL (E.D. Mich. July 9, 1997). Container Specialties, Inc. ("CSI"), the owner of a dry cleaning business, was denied coverage by Aetna Casualty & Surety Company ("Aetna") and Century Indemnity Company ("Century") concerning indemnification and defense costs for environmental claims involving solvent spills because the spills were not "sudden and accidental." The Aetna and Century policies excluded coverage for pollution releases unless they were sudden and accidental. CSI acknowledged that spillage of "minute" quantities of solvents would be expected during the normal operations of its dry cleaning business. Spilled solvents were collected in a trench and routed to outdoor storage tanks. CSI claimed that there were eight discrete "sudden and accidental" indoor solvent spills that occurred due to separate and unique causes.
The court found that these eight spills either never left the property or were from waste tanks known to overflow. The court found that the spills that never left the property would cause no liability to CSI. In deciding in favor of Aetna and Century on the basis of the pollution exclusion clause with respect to the remaining spills, the court determined that the storage tanks were not monitored or emptied on a regular basis and that CSI knew its waste solvent tanks could overflow if not emptied regularly. Further, CSI provided no secondary containment around these tanks to prevent the periodic overflows from entering the environment. Accordingly, the solvent releases from these tanks could not be considered sudden and accidental.
Aetna and Century also contended that CSI was not entitled to coverage because it did not give timely notice to the insurers. In response, CSI argued that an "occurrence" giving rise to a duty to notify an insurer does not take place until the insured becomes aware of the third-party property damage resulting from an event. CSI claimed that an "occurrence" consists of two elements: (1) the event causing contamination, and (2) the insured becoming aware that the contamination has invaded areas outside the insured's property. Further, CSI claimed that it cannot be expected to give notice of an event or occurrence of which it was not aware. The court, however, found that "CSI was aware of each of the events as they happened, dealt with the consequences of each event and went on with its business foreclosing the insurance carriers' opportunity to investigate and discover the acts underlying their potential liability and the amount thereof." Based on this, the court ruled in favor of Aetna and Century on the basis of late notice.
The last argument raised by Aetna and Century was based on the "known risk" doctrine. The "known risk" doctrine applies when, prior to issuance of an insurance policy, the insured was already aware of an actual or probable loss to a third party. The court reasoned that the use of known dangerous substances, even with spills and leaks, standing alone, does not give rise to a "known risk" unless there is additional evidence indicating migration or the probability of migration of the hazardous substances. Although there was no evidence of migration or probable migration before the inception of Aetna's policy, there was evidence indicating migration or probable migration of CSI's spills before the inception of Century's policy. This evidence prompted the court to deny Aetna's motion to dismiss under the "known risk" doctrine, but to grant Century's motion to dismiss under the "known risk" doctrine.
4. Emergency Planning and Community Right-to-Know Act.
a. Steel Co. v. Citizens for a Better Env't, 118 S. Ct. 1003 (1998). Citizens for a Better Environment ("Citizens"), sued Steel Company ("Company"), a Chicago steel manufacturing company, in the United States District Court for the Northern District of Illinois, alleging that the Company had violated reporting requirements under the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. 11001 et seq. ("EPCRA"), for 10 years, beginning in 1988. When the Company received notice of Citizens' intent to sue, it filed all of the required reports and was in compliance with EPCRA by the time the suit was filed. The Company then asked the court to dismiss the lawsuit, asserting that EPCRA's citizen suit provisions apply only to ongoing violations and not to purely historical violations. The district court dismissed the lawsuit on that basis; however, the United States Court of Appeals for the Seventh Circuit reversed that decision.
The Seventh Circuit's decision was then appealed to the Supreme Court, which declined to address whether EPCRA's citizen suit provisions apply to historical violations and, instead dismissed the lawsuit on the grounds that Citizens did not have standing to bring the suit in the first instance. The Court held that Citizens lacked standing because the relief requested by Citizens would not redress its alleged injury.
The injury alleged by Citizens was that the Company's late reporting had adversely affected Citizens' right to know about toxic chemical releases, thus impeding its ability to protect and improve the environment and the health of its members. For its relief, Citizens requested: (1) a declaration from the court that the Company violated EPCRA, (2) an order requiring the Company to pay civil penalties of $25,000 per day for each violation, (3) an award of all Citizens' costs in connection with the lawsuit, (4) authorization to periodically inspect the Company's facility and records, and (5) an order requiring the Company to provide Citizens with copies of all compliance reports submitted to EPA.
The Court held that none of the specific items of relief requested by Citizens would reimburse it for its losses caused by the Company's late reporting or eliminate any effects of that late reporting. The Court reasoned that a declaration that the Company violated EPCRA would be "worthless" to Citizens because there was no controversy over whether the Company failed to file the required reports. Second, the Court held that civil penalties imposed on the Company under EPCRA must to be paid to EPA, rather than Citizens and, therefore, would not redress Citizens' injury. Third, the Court held that Citizens' recovery of litigation costs would not confer standing because the "litigation must give the plaintiff some other benefit besides reimbursement of costs that are a byproduct of the litigation itself." Finally, the Court held that Citizens' request to inspect the Company's facility and records and to compel the Company to disclose its EPCRA reports "cannot conceivably remedy any past wrong but is aimed at deterring [the Company] from violating EPCRA in the future." 118 S. Ct. at 1019. Accordingly, the Court held that Citizens lacked standing to sue the Company and ordered dismissal of the suit.
5. Comprehensive Environmental Response, Compensation, and Liability Act.
a. United States v. Bestfoods, 118 S. Ct. 1876 (1998). Ott Chemical Company ("Ott I") began manufacturing chemicals at a plant in Michigan and, in the process, significantly polluted the soil and ground water at the site. CPC International, Inc. ("CPC") (which subsequently changed its name to "Bestfoods") incorporated a wholly-owned subsidiary to buy Ott I's assets in exchange for CPC stock. The new company ("Ott II") continued manufacturing chemicals and continued to pollute the site. Ott I's founder, president, and principal shareholder, Arnold Ott, continued his duties at Ott II and several other Ott II officers and directors were also given positions at CPC. CPC sold Ott II to Story Chemical Company ("Story"), which operated the site until its bankruptcy in 1977. Aerojet-General Corporation ("Aerojet") arranged for transfer of the site from the Story bankruptcy trustee in 1977 and created a wholly-owned California subsidiary, Cordova Chemical Company ("Cordova/California"), to purchase the property. Cordova/California in turn created a wholly-owned Michigan subsidiary, Cordova Chemical Company of Michigan ("Cordova/Michigan"), which continued to manufacture chemicals at the site until 1986. EPA undertook cleanup activities at the site and filed a cost recovery action under Section 107 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq. ("CERCLA"), against CPC, Aerojet, Cordova/California, Cordova/Michigan, and Arnold Ott. The cases were consolidated for trial in three phases: liability, remedy, and insurance coverage. In 1991, following stipulations by the parties, the United States District Court for the Eastern District of Michigan focused on the issue of whether CPC and Aerojet, as the parent corporations of Ott II and the Cordova companies, had "owned or operated" the facility within the meaning of Section 107(a)(2) of CERCLA. The court held that operator liability may attach to a parent corporation both directly, as an "operator" of the facility, and indirectly, when the corporate veil can be pierced under state law. CPC Int'l, Inc. v. Aerojet-General Corp., 777 F. Supp. 549 (W.D. Mich. 1991). The district court held both CPC and Aerojet liable as operators. The United States Court of Appeals for the Sixth Circuit reversed in part, United States v. Cordova/Michigan, 59 F. 584 (6th Cir. 1995), and then granted rehearing en banc, vacating the panel decision, 67 F. 586 (6th Cir. 1995). In the second decision, the Sixth Circuit reversed the district court in part, 113 F. 572 (6th Cir. 1997), holding that neither CPC nor Aerojet was liable for the actions of their subsidiaries because there was no basis under Michigan law to pierce the corporate veil between the parent and subsidiary corporations. The parent and subsidiary corporations had maintained separate personalities and the parents did not utilize the subsidiary corporate form to perpetrate fraud or subvert justice. The United States Supreme Court granted certiorari, 118 S. Ct. 621 (1997).
The Supreme Court identified the issue in the case as whether a parent corporation that actively participated in, and exercised control over, the operations of a subsidiary may, without more, be held liable under CERCLA as an operator of a polluting facility owned or operated by the subsidiary. A general principle of corporate law is that a parent corporation is not liable for the acts of its subsidiaries and the exercise of the control which stock ownership gives to the stockholders will not create liability beyond the assets of the subsidiary. The corporate veil, however, may be pierced and the shareholders held liable for the corporation's conduct when the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud, on the shareholder's behalf. The Supreme Court held that the Sixth Circuit was correct in holding "that when (but only when) the corporate veil may be pierced, may a parent corporation be charged with derivative CERCLA liability for its subsidiary's actions." 118 S. Ct. at 1885. In addition, the Supreme Court held that nothing in CERCLA bars a parent corporation from direct liability for its own actions in operating a facility owned by its subsidiary. Under the plain language of CERCLA, any person who operates a polluting facility is directly liable for the costs of cleaning up the pollution. The problem, noted the Supreme Court, is in defining actions sufficient to constitute direct parental "operation." Using the ordinary or natural meaning, the Supreme Court held that "an operator must manage, direct, or conduct operations specifically related to pollution, that is, operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations." 118 S. Ct. at 1887. The Supreme Court continued that the district court was mistaken in resting its analysis on CPC's relationship with Ott II. "The analysis should instead have rested on the relationship between CPC and the [Michigan] facility itself." 118 S. Ct. at 1888. "[T]he District Court's focus on the relationship between parent and subsidiary (rather than parent and facility), combined with its automatic attribution of the actions of dual officers and directors to the corporate parent, erroneously, even if unintentionally, treated CERCLA as though it displaced or fundamentally altered common law standards of limited liability." 118 S. Ct. at 1889. There was some evidence, noted the Supreme Court, that CPC's governmental and environmental affairs director, who worked solely for CPC, played a conspicuous part in dealing with the toxic risks emanating from the operation of the facility, and this evidence was sufficient to remand the case to the district court for a determination of the extent of the role of that and other individuals at CPC in operating the Michigan facility. The Supreme Court vacated the Sixth Circuit's opinion and remanded the matter to the district court.
b. Donahey v. Bogle, 129 F. 838 (6th Cir. 1997). From 1962 to 1982, Helen L. Bogle owned property located in Marysville, Michigan, and leased that property to St. Clair Rubber Company ("St. Clair"). Bogle's brother, Seabourn S. Livingstone, was the sole shareholder of St. Clair's stock and served as chair and treasurer of St. Clair's board of directors. In its manufacturing process, St. Clair blended various resins, solvents, and other raw materials to produce rubber products and adhesives. The blending process created a waste product that St. Clair treated with an additional solvent, resulting in a hazardous "sludge." To dispose of that sludge, St. Clair typically allowed it to drain from 55-gallon barrels onto the property for a period of approximately one week, and then burned the remaining sludge residue. St. Clair's dumping and burning activities continued until the 1970s. During this time, Livingstone did not personally participate in the waste disposal practices of St. Clair, but did participate in the financial management of the company.
In 1981, Richard Donahey negotiated a land contract with Bogle to purchase the property leased by St. Clair. Prior to signing that land contract, Donahey entered into an agreement with St. Clair in which St. Clair agreed to remediate the contamination on the property and to indemnify Donahey for any costs and expenses for violations of environmental laws resulting from St. Clair's dumping activities. Donahey then entered into a land contract with Bogle under which Donahey was required to pay Bogle monthly installments on the purchase price. After the land contract was signed, St. Clair dissolved and ceased to exist as a corporation. However, former St. Clair employees informed the Michigan Department of Natural Resources ("MDNR") of St. Clair's dumping practices on the property. MDNR, in response, requested that Donahey conduct an environmental evaluation of the property and remediate any contamination. Donahey's environmental consultant conducted an initial remediation plan which was ineffective and a second remediation plan was estimated to cost approximately $450,000. Donahey then sued Bogle, Livingstone, and St. Clair for cleanup costs under CERCLA and rescission of the land contract. Bogle responded by filing a counterclaim against Donahey and a cross-claim against St. Clair and Livingstone under CERCLA. On the cross-claim against Livingstone, the district court held that Livingstone was not liable under CERCLA as an "operator" of the property because he took no active role in St. Clair's activities that contaminated the property.
On appeal, the United States Court of Appeals for the Sixth Circuit affirmed the district court's decision, holding that a stockholder of a corporation, such as Livingstone, is not liable as an operator under CERCLA for activities of the corporation that caused the contamination unless circumstances justify piercing the corporate veil to hold the stockholder liable as an individual. In determining the standard for piercing the corporate veil, the Sixth Circuit looked to Michigan law, which provides that "there must be such a unity of interest and ownership that the separate personalities of the corporation and its owner cease to exist, and the circumstances must be such that adherence to the fiction of separate corporate existence would sanction fraud or promote injustice." In this case, the Sixth Circuit found that there were no facts present to justify piercing the corporate veil and, therefore, Livingstone was not liable as an operator for cleaning up the property under CERCLA.
c. Chrysler Corp. v. Ford Motor Co., 972 F. Supp. 1097 (E.D. Mich. 1997). Kaiser-Frazer Corporation ("KFC") produced motor vehicles at the Willow Run Manufacturing plant and, in the early 1950s, experienced financial difficulties. In order to finance performance of defense contracts with the United States government, KFC formed a new entity, Kaiser Manufacturing Corporation ("KMC"), whose assets and profits could be insulated from KFC. KMC subsequently purchased KFC's assets and assumed its liabilities in 1956. KFC sold its stock in KMC to American Motors Corporation ("AMC"), which was later purchased by Chrysler Corporation ("Chrysler").
Chrysler filed a lawsuit against Ford Motor Company and other parties ("Defendants") who entered into a consent decree to implement a remedial action plan for the Willow Run Creek Superfund Site, which contained waste generated from the Willow Run Manufacturing plant formerly owned and operated by KFC. Although Chrysler received a notice from EPA that it was a potentially responsible party ("PRP") for the contamination at the site, Chrysler was not a party to the consent decree. Chrysler brought the suit seeking a declaratory judgment that it was not liable for response costs under CERCLA or the Michigan Environmental Response Act ("MERA") (now Part 201 of NREPA, Mich. Comp. Laws 324.20101 et seq.) arising from of its 1987 purchase of AMC. Chrysler maintained that, although it was the successor to KMC, KMC did not "own," "operate," or "arrange" for disposal of hazardous substances at the Willow Run site as defined by CERCLA or MERA. Defendants filed a counterclaim asserting that Chrysler is liable as the successor to both KFC and KMC and is also directly liable as a result of Chrysler's activities at the Willow Run Airport.
Defendants argued that KMC was, in effect, the alter-ego of KFC and, accordingly, they sought to pierce the corporate veil between KMC and KFC to hold Chrysler, as the acknowledged successor to KMC, liable for all wastes disposed of by KFC. The court first addressed the "one determining question" of alter-ego liability, which was the existence of fraud or wrongdoing, as established in United States v. Cordova Chem. Co., 113 F.2d 572 (6th Cir. 1997). In addition to a unity of interest and ownership such that the separate corporate personalities cease to exist, some form of culpable conduct is required. Therefore, the "claimed functional integration of KMC and KFC . . . could not be sufficient to pierce the corporate veil unless there was an additional showing that this was done for a wrongful purpose." The court held that the intentions of KMC and KFC were fully lawful, and were, indeed, approved by the United States government, creditors and shareholders. There was no improper purpose apparent in the subsequent relations between the parent and the subsidiary. Because the court could find no evidence that the corporate form was abused in a manner that circumvented overriding public policy, there was no justification to pierce the corporate veil and, therefore, there was no basis for holding KMC responsible for waste disposal by KFC.
Defendants next argued that the joint venture between KMC and KFC made KMC liable for waste produced at KFC's Willow Run facility. The court ruled, however, that the necessary elements for a joint venture were not present in this case. Those elements are: (1) an agreement indicating an intention to undertake a joint venture; (2) a joint undertaking; (3) a single project for profit; (4) a sharing of profits, as well as losses; (5) contribution of skills or property by the parties; and (6) community of interest and control over the subject matter of the enterprise. Although Defendants' joint venture argument was based on KMC's contract for production of aircraft and KMC's subcontracts with KFC for performance of KMC's obligation to supply aircraft, the court held that the subcontracts were explicitly on a no-profit, no-loss basis, and the companies acted not as partners in a common enterprise, but as contractor and subcontractor.
The agreement entered into when KMC purchased the assets of KFC in 1956 included an assumption by KMC of "all liabilities of [KFC] existing on the closing date of every nature whatsoever, whether absolute or contingent." Defendants argued that this included CERCLA liabilities because KFC had already disposed of the waste that, in the future, would give rise to liability and, therefore, such action created an "existing" contingent liability. The court rejected this argument, holding that "[t]he KMC asset purchase from KFC took place decades before federal environmental enforcement became a reality. Neither the language nor the implied intentions of the parties indicates any reference to environmental costs whatsoever. . . . Neither is there any indication that the enforcement of state environmental law against KFC was an existing contingency at the time of the 1956 sale." 972 F. Supp. at 1109. In addition, when KMC and KFC entered into the agreement, neither party understood that the contingent liability that KMC was assuming would include environmental liabilities. The court, therefore, concluded that KMC did not assume CERCLA liability by virtue of the 1956 asset sale.
Defendants' last argument was that the 1956 purchase of assets constituted a de facto merger of the two companies, creating an alternative basis for successor liability. Under Michigan law, the requirements for a de factor merger are: (1) continuation of the enterprise of the seller corporation, with continuity of management, personnel, physical location, assets, and general business operations; (2) continuity of shareholders, resulting from the purchasing corporation's use of its own stock to purchase the acquired assets; (3) the seller corporation must cease ordinary business operations, liquidate, and dissolve as soon as legally and practically possible; and (4) the purchasing corporation must assume the liabilities and obligations of the seller necessary for the uninterrupted continuation of normal business operations of the seller. The court also rejected this argument. The court noted that the purpose of the de facto merger doctrine is to "prevent one company from transferring its assets to a second company and dissolving, thus sheltering its assets from creditors, and then continuing its former business as the second company." 972 F. Supp. at 1111. The court held that this was not the intent or effect of the 1956 sale. In addition, the sale of assets did not bring about a continuity of KMC and KFC operations. It was irrelevant in this case that KMC and KFC shared directors and managers and integrated operations because the relationship between the two was governed by joint operating agreements. KMC and KFC were maintained as separate entities after the sale.
The court held, therefore, that Chrysler was not the successor in interest of KFC and was neither liable for remediation costs at the Willow Run site attributable to KFC's waste disposal under CERCLA or MERA nor for any claims of public nuisance or unjust enrichment.
d. Freeport McMoran Resource Partners Ltd. Partnerships v. B&B Paint Co., No. 95-40451 (E.D. Mich. Oct. 31, 1997). Freeport-McMoran Resources Partners Limited Partnership ("Freeport-McMoran") sought recovery from 30 companies and individuals of costs that Freeport-McMoran had incurred in remediating the Forest Waste Landfill in Genesee County. Freeport-McMoran alleged that each of the defendants had sent solvents or other wastes in drums to the Berlin and Farro site (also in Genesee County) for treatment, and that the operators of the Berlin and Farro site transshipped the wastes from the Berlin and Farro site to the Forest Waste Landfill.
Ciba Specialty Chemicals, Inc. ("Ciba"), one of the defendants, moved to dismiss the complaint on grounds that it failed to identify the particular hazardous substance that each defendant allegedly contributed to the Forest Waste Landfill and that it failed to allege in sufficient detail how each of the defendants had allegedly "arranged to dispose" of hazardous substances at the Forest Waste Landfill. The court agreed with Ciba that the complaint had to specify which hazardous substance or substances each defendant allegedly disposed of, and that it was insufficient for the complaint to make a general conclusory allegation that each defendant had arranged to dispose of "CERCLA-defined hazardous substances."
The court held that the complaint was sufficiently detailed in its allegations, however, concerning how the defendants had "arranged to dispose" of their wastes at the Forest Waste Landfill. The court held that it was sufficient for Freeport-McMoran to allege that each defendant had either arranged for the transportation of hazardous substances directly to the Forest Waste Landfill, or had arranged for their transportation to the Berlin and Farro site, from where they had been transshipped to the Forest Waste Landfill.
Accordingly, the court dismissed the complaint, but allowed Freeport-McMoran 30 days within which to file an amended complaint containing more specific allegations.
e. Foamseal, Inc. v. Dow Chem. Co., 991 F. Supp. 883 (E.D. Mich. 1998). In order to resolve contribution issues stemming from contamination at the Metamora Landfill Superfund Site, 35 PRPs entered into a consent decree with EPA and agreed to perform response activities at the site. EPA is pursuing cost recovery actions under CERCLA against several non-settling PRPs and MDEQ also sued various PRPs to recover its costs at the site. The 35 settling PRPs sought contribution from a number of other PRPs. Twenty-two of those parties, including Foamseal, Inc. ("Foamseal") entered into a settlement agreement that included a contribution bar intending to protect them from any future liability at the site. Foamseal and the other plaintiffs sought the court's approval of this settlement agreement but a number of non-settling defendants objected to the settlement.
The United States District Court for the Eastern District of Michigan first noted its general concern with consent decrees that contain broad contribution bars that make it impossible for other PRPs to seek contribution for the remainder of the liability. The court stated that CERCLA settlements "must be based upon and roughly correlated to an acceptable measure of comparative fault, apportioning liability among PRPs according to rational estimates of fault." 991 F. Supp. at 885. In this case, the court found that the settlement was not "outside the ballpark" and roughly approximated the settlors' liability. In response to objections about the inclusion of contribution bars in the settlement, the court applied the Uniform Comparative Fault Act ("UCFA"), which provides that an agreement "between a claimant and a person liable discharges that person from all liability for contribution, but it does not discharge any other person liable upon the same claim unless it so provides." The UCFA continues, however, that "the claim of the releasing person against other persons is reduced by the amount of the released person's equitable share of the obligation." Therefore, there is a risk, properly borne by the claimant, that the ultimate liability of the settling defendant may exceed the settlement amount. Accordingly, the court approved the settlement agreement.
f. United States v. Akzo Nobel Coatings, Inc., 990 F. Supp. 897 (E.D. Mich. 1998). EPA brought suit against Akzo Coatings, Inc. ("Akzo"), Dow Chemical Company ("Dow"), and Gage Products Company ("Gage") (collectively, "defendants") to recover responses costs incurred by EPA in connection with the Metamora Landfill Superfund Site. The defendants filed a motion asking the court to dismiss EPA's claims because they were barred by the statute of limitations. CERCLA provides that EPA may commence a civil action to recover the costs of a remedial action within six years after "initiation of physical on-site construction of the remedial action." The defendants argued that EPA had initiated "physical on-site construction" in November 1986 when it began to construct two storage pads upon which excavated drums would be placed prior to disposal. The defendants also argued, alternatively, that physical on-site construction began no later than late March 1989, when certain documents indicated that the State of Michigan may have installed mobile office trailers and utility hook-ups on the site. All these activities occurred more than six years before EPA filed its cost recovery complaint on March 31, 1995.
The district court rejected these arguments, accepting EPA's contention that the construction of the storage pads and even the partial excavation of drums and their placement on the pads constituted part of the "remedial design," rather than "remedial action." EPA based its argument on an explicit statement in EPA's record of decision that it would be necessary to dig test pits and excavate a limited number of drums to determine how many total drums would need to be excavated "so that better cost estimates for the project may be made." The court rejected Akzo's argument based on the trailer and utility hook-ups, in part, because EPA submitted evidence that these events occurred in April 1989 (within the limitations period) rather than in late March 1989. Alternatively, the court held that the placement of the office trailer and the utility hook-ups was merely "preliminary or preconstruction steps" which were not sufficient to constitute the initiation of physical on-site activity.
g. United States v. BASF Corp., 990 F. Supp. 907 (E.D. Mich. 1998). EPA asked the court to approve a consent decree under which BASF Corporation and about 34 other settling parties ("Settlors") agreed to pay EPA $14,564,000 in partial reimbursement of $36,130,000 in response costs and interest that EPA had incurred at the Metamora Superfund Site. Akzo Nobel Coatings, Inc. and three other companies (collectively, "Akzo") that allegedly had disposed of hazardous substances at the site, but which had not participated in any previous settlements with EPA, objected to the entry of the consent decree on the grounds that it would not require the Settlors to pay a large enough percentage of EPA's past costs, and thus would leave the four non-settling companies potentially liable to EPA for an unfairly large share of EPA's past costs.
The district court approved the consent decree, reasoning that it was his duty only to determine whether the various consent decrees relating to the Site require the Settlors to pay "a percentage of the total cleanup costs that roughly approximates the proportion of the environmental damage attributable to their wastes." 990 F. Supp. at 911. In determining whether the consent decree required the Settlors to pay a fair share of the total cleanup costs, the court considered that the Settlors had entered into an earlier consent decree that required them to conduct a long-term remedial action at the site at an estimated cost of $31,265,000. The court found that the Settlors would be required to pay a total of approximately 68 percent of the total estimated site costs, which is only slightly less than the 69.5 percent that EPA had calculated as their "fair share," including a large portion of the so-called "orphan share."
h. Kalamazoo River Study Group v Rockwell Int'l Inc., No 1:95-CV-838, 1998 WL 111682 (W.D. Mich. Mar. 6, 1998). The Kalamazoo River Study Group ("KRSG") consists of four companies that operated paper mills on the Kalamazoo River ("River") in southwest Michigan. The members of the KRSG, who had discharged large quantities of PCBs to the River as a result of recycling a type of carbonless copy paper, entered into a consent decree with MDEQ that required the KRSG to conduct a remedial investigation/feasibility study ("RI/FS") of the River. The KRSG then sued eight other corporations in a CERCLA cost recovery and contribution action, seeking to recover some of the KRSG's costs of conducting the RI/FS. Three defendants moved for summary judgment on liability. The court granted two of the three motions.
Defendant Menasha Corporation ("Menasha") argued that its mill on the River used only PCB-free wood chips, kraft paper, and old corrugated containers in its recycling process, and, therefore, did not discharge any PCBs. The KRSG argued that very low levels of PCBs were found in Menasha's finished product on two occasions, and that Menasha's wastewater discharged to the River tested positive for PCBs on four occasions (at very low levels, all less than 1.0 part per billion ("ppb")). For purposes of the summary judgment motion, the court considered the evidence in the light most favorable to the KRSG, and assumed that some PCBs had entered Menasha's feedstock through recycled paper, and that some of those PCBs entered Menasha's wastewater stream and were discharged into the River. Nonetheless, the court held that the evidence, even viewed favorably to KRSG, was "not sufficient to support Plaintiff's allegations of liability. The frequency and quantity of PCB releases by Menasha is purely theoretical and speculative . . . . In comparison to the high level of PCBs that Plaintiff's members are responsible for, any PCBs released by Menasha fall far short of meeting the threshold-of-significance standard. The releases are so minimal by comparison that they do not equitably justify a response by Menasha." 1998 WL 111682, at *9
Defendant Pharmacia & Upjohn Company ("Upjohn") had used PCBs in certain dust control devices from 1950 through the mid-1980s at two of its properties. Upjohn occasionally rinsed some of the oil from these devices into a sewer that led to a POTW. PCBs were detected in the rinsewater at levels ranging up to 2.3 ppb. The court noted that these discharges did not go directly to the River, but instead were discharged to the Kalamazoo Wastewater Reclamation Plant ("KWRP"), which removed at least some of the PCBs, particularly after the city added advanced treatment in 1985. The court gave little weight to the testimony of a KRSG expert who estimated that before 1985, the KWRP would have been able to remove only about half of the PCBs discharged by Upjohn, so that the other half would have been discharged to the River. The court rejected the KRSG's arguments, considering them "speculative at best," because there was "little concrete information" concerning the various aspects of Upjohn's operations and the ultimate fate of any PCBs discharged from Upjohn's facilities. The court concluded that, at most, Upjohn's operations "resulted in the occasional and incidental release to the KWRP of very small quantities of PCBs," 1998 WL 111682, at *9, and the court, therefore, granted Upjohn's motion for summary judgment.
In contrast, however, the court refused to grant summary judgment to defendant Rock-Tenn Corporation ("Rock-Tenn"), which owned a recycled paperboard mill also located on the River. Rock-Tenn had acquired its mill from Mead Corporation ("Mead"). During Mead's ownership, a wastewater treatment lagoon at the mill had accumulated sludge containing PCBs in concentrations of up to 20,000 ppb. Rock-Tenn continued to use the wastewater treatment lagoon, although it contended that it did not add any new sources of PCB contamination. On three occasions, PCBs were detected in Rock-Tenn's wastewater effluent, between 0.19 and 0.47 ppb. The court refused to grant summary judgment to Rock-Tenn because the court believed that there was a question of fact whether Rock-Tenn continued to resuspend sediment from the treatment lagoon and discharge it to the River on a regular basis. The court distinguished Rock-Tenn's situation from Upjohn's in three ways: (1) Rock-Tenn's discharges resulted from daily wastewater treatment activities, rather than intermittent discharges; (2) Rock-Tenn's lagoons contained a high concentration of PCBs; and (3) Rock-Tenn discharged its wastewater directly to the River rather than to the sewage treatment plant.
a. Krstich v. Forrester, No. 96-CV-75636 (E.D. Mich. Dec. 10, 1997). For thirty years, Superior Polishing Company ("Superior") operated a chrome plating and polishing firm on property in Warren, ceasing operations in 1992. William Forrester ("Forrester") was Superior's sole officer and owned 98 percent of its stock.
Forrester received, or was aware of, several communications from the City of Warren, the Macomb County Health Department, and MDNR regarding spills of chromium into the storm drains or onto the soil near Superior's buildings, including a 1992 letter from MDNR stating that the agency considered the site contaminated and directing Forrester to have the soil tested and cleaned up. Forrester removed the soil and sent a letter to MDNR advising it of his cleanup efforts but did not consult with a waste disposal company and did not have the remaining soil tested for contamination. Forrester did not receive a reply from MDNR and considered the problem resolved.
Milan Krstich ("Krstich") offered to purchase the property in late 1992. Forrester did not tell Krstich or the real estate agent about the chromium spills or about the 1992 letter from MDNR because he believed he had been successful in cleaning up the site. Forrester and Krstich did not discuss the possibility of soil contamination when they met for the first time at the closing. The closing documents consisted of an offer to purchase (which contained a clause that had been revised to make any cleanup of hazardous waste underground the responsibility of Krstich), a land contract (which contained a clause stipulating that Forrester was not responsible for any cleanup or repairs to the building or property), and an indemnity agreement (which stated that Krstich agreed to assume the responsibility and cost of any cleanup required due to environmental contamination and hold Forrester harmless).
Shortly after the closing, Krstich obtained records from MDNR and Warren detailing the property's environmental contamination and attempted to rescind the land contract, but Forrester refused. In 1993, Krstich sought rescission in the Macomb County Circuit Court. At roughly the same time, EPA took control of the property to remove the contaminants.
Forrester filed for bankruptcy in 1995 and Krstich responded by instituting an adversary proceeding to have any obligation of Forrester's arising out of the Macomb County suit to be declared non-dischargeable. Krstich argued that Forrester committed silent fraud by not disclosing the environmental contamination. The bankruptcy court found that Forrester had not committed silent fraud and that, therefore, any obligation stemming from the Macomb County suit is dischargeable. The bankruptcy court held that Forrester did not owe Krstich a duty to disclose what he knew about the contamination, that the agreements between Forrester and Krstich nonetheless provided adequate disclosure, that Krstich had not proven that Forrester had intended to defraud, and that Krstich had not reasonably relied on Forrester's silence. Krstich challenged the bankruptcy court's findings in the United States District Court for the Eastern District of Michigan.
The bankruptcy court had held that the parties did not have a fiduciary or other relationship that would create a duty by Forrester to disclose and that Forrester's knowledge of the contamination was within the fair and reasonable reach of Krstich. The district court agreed with the bankruptcy court, holding that because Krstich was able to, and did, discover results of prior inspections of the property by simply obtaining the information from MDNR and Warren, Forrester did not have a duty to disclose the contamination. Having held that Forrester did not have a duty to disclose, the district court noted that Krstich could not present a prima facie case of silent fraud and, therefore, Forrester's potential obligation to Krstich was dischargeable under the Bankruptcy Code.
b. Stupak-Thrall v. Secretary of Agric., 988 F. Supp. 1055 (W.D. Mich. 1997). The United States Department of Agriculture's Forest Service ("Forest Service") administered a wilderness area ("Sylvania Wilderness") that included 95 percent of an inland lake ("Crooked Lake") located in Michigan's Upper Peninsula. The Forest Service promulgated a regulation ("Amendment 5") restricting motorboat usage within the Sylvania Wilderness to those motorboats equipped with electric motors up to a maximum size of 24 volts or 48 pounds of thrust and a slow no-wake speed. The plaintiffs, property owners and owners of recreational rental properties on Crooked Lake, objected to Amendment 5 because it affects their riparian right to the continued use of the entire lake for fishing, gas powered motorboating, and other recreational purposes. The plaintiffs claimed that after news was received about the passage of Amendment 5, they noticed an immediate decline in reservations for their rental properties by customers who sometimes brought their own boats and motors. The plaintiffs worried that if their customers are not allowed to use gas motors and are restricted to using electric trolling motors, they will not return to the resorts and they feared that their businesses would not survive. After their appeals to the Forest Service were denied, the plaintiffs brought suit against the Forest Service seeking declaratory and injunctive relief, including entry of judgment holding that Amendment 5 is an unconstitutional taking of their private property rights without due process of law.
Considering the parties' cross motions for summary judgment, the court first addressed the defendants' claim that the issues related to the Forest Service's authority to promulgate regulations for the Sylvania Wilderness which impact riparian rights were fully litigated in a prior proceeding, Stupak-Thrall v. United States, 843 F. Supp. 327 (W.D. Mich. 1994), aff'd, 70 F. 881 (6th Cir. 1995), vacated, 81 F. 651 (6th Cir. 1996), aff'd by an equally divided en banc court, 89 F. 1269 (6th Cir. 1996), cert. denied, 117 S. Ct. 764 (1997) (upholding a regulation ("Amendment 1") promulgated by the Forest Service prohibiting, among other things, the use of sailboats, houseboats, and un-burnable disposable food and beverage containers in the Sylvania Wilderness) ("Stupak-Thrall I"). The court held that to the extent the plaintiffs were challenging that portion of Amendment 1 restricting snowmobiling on Crooked Lake, the claim was barred because they should have raised the argument in Stupak-Thrall I when they challenged other portions of Amendment 1. The court held, however, that the issues presented in the instant case were not precluded by the prior litigation because Amendment 5 is a new rule with a different and much greater impact on the plaintiffs than Amendment 1. Amendment 5 raises issues of pre-existing use that were not present in the challenge to Amendment 1.
The court next turned to the issue of whether the Forest Service had the authority to issue Amendment 5 banning the use of gas motors by riparian owners on Crooked Lake. The defendants argued that the Wilderness Act of 1964, 16 U.S.C. 1131 et seq., which is incorporated by reference into the Michigan Wilderness Act of 1987, Pub. L. No. 100-184, 101 Stat. 1274 ("MWA"), clearly defines the Forest Service's authority with respect to most wilderness areas. The court noted, however, that the MWA specifically and unambiguously limits that authority "subject to valid existing rights." The court held that the plaintiffs' riparian rights were "valid existing rights" to which Forest Service regulations are subject under the wilderness acts and that those rights "include the right to continue their pre-existing right to engage in motor boating on the surface waters of the entire lake. To the extent that [Amendment 5] limits [the] plaintiffs' valid existing right to use gas powered motor boats on the surface of Crooked Lake, it exceeds the Forest Service's authority and is not in accordance with law." 988 F. Supp. at 1064.
The court also held that Amendment 5's restriction on the use of motor boats on Crooked Lake effected a taking of the plaintiffs' private property without just compensation. Michigan courts have recognized riparian rights as "property rights that, if interfered with by the government, requires the payment of just compensation." Mumagh v. McCarley, 558 N.W.2d 433, 435 (Mich. Ct. App. 1997). In this case, the motorboat restrictions in Amendment 5 directly and significantly affected fundamental attributes of the plaintiffs' ownership and enjoyment of their property: they have engaged in motorboat usage for, in the case of one plaintiff, more than fifty years, and the livelihood of another plaintiff depends on the use of motorboats by his fishing guests. "Given the size of Crooked Lake, the limitation on the size and type of motor would pose a significant restraint on the plaintiffs' exercise of their riparian rights . . . [and the] plaintiffs should be compensated for their loss." 988 F. Supp. at 1065.
The court, then, granted the plaintiffs' motion for summary judgment, entering a declaration that Amendment 5 is invalid as applied to the plaintiffs because it is beyond the Forest Service's authority under the MWA and constitutes a taking in violation of the Fifth Amendment. The court enjoined the defendants from enforcing Amendment 5 against the plaintiffs and their guests.
c. Berardo v. Emro Mktg., Inc., No. 94-CV-74606-DT (E.D. Mich. Feb. 19, 1998). In 1988, defendant Emro Marketing Company ("Emro") reported a release of gasoline from one of its gasoline stations. A site assessment revealed that contamination had spread beyond Emro's property boundary toward a nearby property in Harrison Township owned by Carol Berardo ("Berardo"). Although the contamination had not actually reached Berardo's property, she claimed that her property had decreased in value as a result of the contamination. Berardo sued Emro, alleging that the contamination constituted a trespass, a nuisance, and intentional infliction of emotional distress, among other claims.
The United States District Court for the Eastern District of Michigan granted Emro's motion for summary judgment and dismissed all of Berardo's claims. The court held that, in order for Berardo to recover under any of her theories of liability, she must "first prove that her property is contaminated." A claim of trespass, the court stated, requires an unauthorized and intentional intrusion upon the private premises of another. Because the contamination had not entered Berardo's property, the court held, no trespass existed.
Similarly, the court stated, Michigan law defines a private nuisance as "the intentional interference with the use and enjoyment of the land by those entitled to the use." Although nuisance "does not require a trespass," it "does require a showing of a `substantial interference with [the plaintiff's] use and enjoyment of [her] property.'" The court found that Berardo had operated a successful saloon business on her property both before and after the contamination had occurred and that her operation of the saloon had continued unimpaired by the contamination.
Berardo, however, attempted to show a "substantial interference" by alleging that the nearby contamination had caused a diminution in the value of her property. The court held that Michigan law does not recognize "nuisance claims based upon environmental contamination on adjacent or nearby property" where the plaintiff's "sole theory of nuisance [is] diminution in the value of their property." Because there was no substantial interference with the use of Berardo's property, the nuisance claim was dismissed.
Finally, the court dismissed Berardo's claim of intentional infliction of emotional distress. The court first noted that the Michigan Supreme Court "has never adopted the tort of intentional infliction of emotional distress into Michigan jurisprudence." Even if the tort was recognized in Michigan, the court held, it would not be found unless the conduct at issue was "extreme and outrageous conduct `going beyond all bounds of decency' that would be viewed by an average member of the community as `atrocious and utterly intolerable.'" In this case, the court found that the contamination arose out of a negligent act on property not even owned by the plaintiff, and there was no evidence that Emro caused the contamination "`intentionally or recklessly for the purpose of causing Plaintiff severe emotional distress.'"
B. State Developments
a. NAACP-Flint Chapter v. Governor, No. 95-38228-CV (Genesee County Cir. Ct. May 29, July 28, Oct. 2, and Dec. 30, 1997). The Genesee Power Station ("Power Station") applied for a permit to install a 35-megawatt steam electric generation plant using waste wood as its primary fuel. The Power Station is located in an industrial park in a sparsely populated area of Genesee Township, Genesee County, and may emit up to two tons of lead per year. A heavily populated minority neighborhood in Flint is located south of the facility and the plaintiffs, including the Flint Chapter of the National Association for the Advancement of Colored People ("NAACP") and residents of the nearby minority neighborhood, brought suit against the State of Michigan, the Power Station, and others, alleging that the nearby minority community would be adversely impacted by the emissions from the facility.
The plaintiffs initially alleged several causes of action against the defendants, but all claims against all defendants were eventually dropped or dismissed except one claim against the state alleging that the issuance of an air permit for the Power Station, and the resulting adverse impact on the neighboring minority community, violated the Elliott-Larsen Civil Rights Act, Mich. Comp. Laws 37.2101 et seq. ("Civil Rights Act"). The plaintiffs requested the court to order MDEQ to establish new permit issuance procedures that would take into account whether a proposed facility would disproportionately affect minority communities. Because all claims against the Power Station itself had been dropped, the plaintiffs no longer sought to block operation of the Power Station. A two-week trial on this issue was held in Genesee County Circuit Court. Although the court agreed with the plaintiffs that the lead emissions from the Power Station adversely affected the neighboring minority population, the court rejected the plaintiffs' claim that MDEQ policies violate the Civil Rights Act. "The Plaintiffs have failed to show that [MDEQ's] policy of not considering race in granting permits to polluting facilities caused African-Americans to be located near major polluting facilities . . . ." Therefore, the court dismissed the plaintiffs' civil rights claim.
The court held, however, that MDEQ's failure to consider the cumulative effect of the emissions from the Power Station and the existing environmental risks to which the community is exposed violates Article IV, Section 51, of the Michigan Constitution, which provides that the legislature shall pass laws necessary to protect public health, and Section 5511 of NREPA, Mich. Comp. Laws 324.5511, which requires MDEQ to refuse to issue an air permit to a facility that would pose an imminent and substantial endangerment to public health and the environment. The court found that MDEQ did not take into account the several different avenues of exposure to toxic chemicals, especially lead, that were already present in the Flint community when the permit was issued. In particular, the court noted that MDEQ did not consider residents' exposure to lead through background lead levels in the soil, soil contamination, and lead paint in older homes. Consideration of such factors, according to the court, is required under the Michigan Constitution and Section 5511 of NREPA.
The court also ruled that MDEQ's public participation procedures, which in this case included multiple public hearings and public comment periods, were inadequate. In this case, the Power Station is located in Genesee Township and had received zoning approval from Genesee Township. The court agreed with the plaintiffs that the emissions from the Power Station would adversely affect residents of Flint who live near the Power Station. "In these situations the state must have in place a procedure that gives adjoining communities a fair opportunity to be notified and heard concerning the siting of pollution facilities near their borders that pollute their communities."
The court directed MDEQ not to issue permits for major pollution sources until the agency has prepared, and the court has approved, new procedures that will require a comprehensive risk assessment, at the expense of the permit applicant. The new procedures must also provide "meaningful" opportunities for the public to participate in the permit approval process, especially when communities adjacent to the permit applicant's facility may be adversely affected by the permit. Although the court did not specify what procedures would be required to provide a meaningful opportunity for public participation, the court suggested that such procedures might include the opportunity to be heard before a board of neutral arbiters. The court stated that MDEQ must prepare the new procedures within 180 days and the plaintiffs will then have 90 days to review and comment on them.
The court's oral ruling was unclear as to whether the injunction against issuing new air permits would apply state-wide, or only in Genesee County. Final orders were issued by the court on July 28, 1997, that directed MDEQ to stop issuing air permits for major pollution sources only in Genesee County.
The court's order granted an injunction against MDEQ, requiring it to cease granting air permits for new "major air pollution sources" or "major modifications" of existing sources in Genesee County, until MDEQ develops and adopts procedures that will protect the public's interest and general welfare. A second order provides that the term, "major air pollution source" includes all "major sources" and "major modifications" under state and federal law and sets forth the policies and procedures that MDEQ must follow in revising its permit review procedures.
The State of Michigan appealed the May 29, 1997, decision and requested the court of appeals to grant a stay of the trial court's injunctive orders pending the appeal. This motion was granted on October 2, 1997. NAACP-Flint Chapter v. Governor, No. 205264 (Mich. Ct. App. Oct. 2, 1997)
Subsequently, on December 30, 1997, the Michigan Supreme Court rejected the NAACP's petition for leave to appeal the court of appeals decision to stay the injunction.
b. Appelt v. Department of Envtl. Quality, No. 96-08067-AA (Kent County Cir. Ct. Mar. 28, 1997). The plaintiffs are residents in the area of the Woodland Paving Company ("Woodland") plant and had complained for years about noxious odors emanating from the plant. They filed suit against MDEQ after it granted Woodland a permit to expand the plant's operations and to use recycled oil in its asphalt manufacturing processes. The residents argued that, with its existing operations, Woodland was already violating AQD Rule 901, which prohibits any emission of air contaminants that "unreasonably interfere with the comfortable enjoyment of life and property." Mich. Admin. Code r. 336.1901(b) ("Rule 901"). They further argued that granting the supplemental permit would make the odor problem even worse, resulting in a new violation of Rule 901. After studying the matter, conducting "odor modeling," and holding a public hearing on the matter, MDEQ had concluded that the odors from the Woodland plant were not of an intensity or duration sufficient to violate Rule 901 and the expansion of the plant would result in only a negligible difference in odor intensity which also would not violate Rule 901.
The plaintiffs argued that the decision to permit Woodland to expand production was not supported by substantial evidence. The court first noted that "substantial evidence means evidence which a reasonable mind would accept as sufficient to support a conclusion." Slip op. at 1-2. The court held that relying, as MDEQ did, on qualified experts met the "rational basis" standard. The court also rejected the plaintiffs' argument that their complaints about fumes from the plant necessarily meant that the plant "unreasonably" impaired their comfort and enjoyment, and ruled that reasonableness and the test under Rule 901 is objective, not subjective, and "just because [the plaintiffs] and their neighbors do not like what they smell coming from the plant does not mean that those odors unreasonably interfere with the comfortable enjoyment of life and property," which is necessary for finding of a violation of Rule 901. Slip op. at 4. The court held that it was required to defer to MDEQ's assessment and that the odors did not unreasonably interfere with the comfortable enjoyment of life and property. Therefore, the court affirmed MDEQ's issuance of the expansion permit to Woodland.
2. Water Resources
a. Friends of the Crystal River v. Kuras Properties, 572 N.W.2d 2 (Mich. 1997), and 577 N.W.2d 684 (Mich. 1998). Kuras Properties ("Kuras") sought a permit under the Wetland Act (now Part 303 of NREPA, Mich. Comp. Laws 324.30301 et seq.), to enable it to fill some of the wetland area on its Homestead Resort property for the development of a golf course. MDNR denied the permit based on Kuras' failure to demonstrate that no feasible and prudent alternatives to filling the wetlands existed and because insufficient information existed to show that an unacceptable disruption to aquatic resources would not occur as a result of the construction. Kuras petitioned for a contested case hearing and then filed an amended permit application that addressed MDNR's basis for denial of the permit. Kuras later submitted additional information that included studies showing that an unacceptable disruption of aquatic resources would not result and that no economically feasible and prudent alternatives to the proposed project site existed. MDNR denied the second permit application, concluding that, while there were no feasible and prudent alternatives, an unacceptable disruption of the aquatic resources would occur unless certain conditions were met in the construction and operation of the golf course.
The Michigan United Conservation Clubs ("MUCC") filed a suit in the Ingham County Circuit Court under MEPA seeking to block issuance of the construction permit. The court remanded the case to MDNR for development of a record and Friends of the Crystal River ("Friends") was granted intervenor status by the administrative law judge ("ALJ"). The ALJ issued a Proposal for Decision ("PFD") finding that MDNR should issue the construction permit to Kuras. The Natural Resources Commission ("NRC") made a final determination adopting the PFD as its findings of fact and conclusions of law. The case then returned to the Ingham County Circuit Court, where, by stipulation, MUCC was dismissed as a party. The circuit court affirmed the findings of the NRC and the ALJ. Friends appealed, claiming that the proposed development would violate the Wetlands Act and MEPA. The court of appeals, however, affirmed the trial court's findings of fact and conclusions of law and held that neither the Wetlands Act nor MEPA precludes the construction of the proposed golf course. Friends then appealed to the Michigan Supreme Court.
On March 31, 1998, however, the Michigan Supreme Court dismissed as moot Friends' application for leave to appeal and also vacated the opinions of both the Michigan Court of Appeals and the trial court, declaring them moot in light of the opinion by the United States Court of Appeals for the Sixth Circuit in Friends of the Crystal River v. Environmental Protection Agency, 35 F. 1073 (6th Cir. 1994) (EPA lacked authority to withdraw objection to Michigan's issuance of permit and to thereby return permitting authority to Michigan after such authority had been transferred to Army Corps of Engineers following Michigan's failure to timely comply with EPA objections). The Michigan Supreme Court held that, because EPA had withdrawn MDNR's authority to issue the permit, the ALJ and NRC decisions were "of no precedential force and effect in any future applications for dredge and fill permits." 577 N.W.2d at 684. The court further held that MDNR had no jurisdiction to issue any permit that did not resolve objections raised by EPA.
b. K & K Constr., Inc. v. Department of Natural Resources, 575 N.W.2d 531 (Mich. 1998). J.F.K. Company and Resorts & Company (collectively, "plaintiffs") own a 55-acre parcel of property ("Parcel 1") which is part of an 82-acre area in Oakland County. MDNR denied the plaintiffs' application for a permit to build a restaurant upon Parcel 1, determining that 28 acres of Parcel 1 were protected wetlands under the Wetland Act. The plaintiffs sought a declaratory ruling in the Michigan Court of Claims that the area was not wetland, an injunction prohibiting MDNR from enforcing the Wetland Act, and temporary and permanent takings damages. The plaintiffs subsequently submitted a second application for a permit to fill approximately 3.17 acres of wetland and to convert 5.36 acres of upland to wetland ("Goga Plan"). This application was also denied. The court of claims found that a taking had occurred because the wetland restrictions rendered the property worthless as commercial real estate and that the plaintiffs were entitled to compensation in the amount of $5,279,178.
On appeal to the Michigan Court of Appeals, MDNR first argued that the permit denial was not a taking because it was based on a fundamental principle of Michigan property law: the public interest in protecting natural resources. The court rejected Michigan's argument, and held that Michigan's "generalized invocation of public interest in the state Constitution, and the legislature's declarations in the [Wetland Act and MEPA] do not constitute background principles of nuisance and property law sufficient to prohibit the use of the plaintiffs' land without just compensation." 551 N.W.2d 413, 417.
The court also rejected Michigan's next argument that, because the Wetland Act was enacted before the plaintiffs acquired title to the land, they were precluded from receiving compensation. The court stated that because the permit denial was not based on a fundamental principle of nuisance or property law, "the timing of the regulation and the transfer of the land do not dictate" that the plaintiffs were not entitled to compensation. 551 N.W.2d at 418.
The court next considered what specific property was affected by the permit denial. To support its claim that the plaintiffs were not deprived of all economically beneficial use of their property, MDNR argued that the court of claims should have considered all 82 acres. The plaintiffs argued that the court should have considered only the 28 acres declared to be wetlands. In making its determination, however, the court of claims considered the 55 acres designated as Parcel 1. The court of appeals determined that this was not clearly erroneous. The other parcels in the 82-acre lot were zoned differently and there were slight differences in ownership in the parcels.
The court also found no clear error in the court of claims' determination that Parcel 1 was rendered essentially worthless as commercial real estate due to the permit denial. Because the 28-acre wetland portion of Parcel 1 was irregularly shaped, the court found that the remainder of Parcel 1 could not be developed around it.
Although MDNR argued that the court of claims had erred in rejecting its offer to cure the taking by permitting implementation of the Goga Plan, the court found no error. The court noted that Michigan did not offer to accept the Goga Plan until after the court of claims' determination that a taking had occurred. Moreover, the court found that the claims court actually took MDNR's approval of the Goga Plan into consideration when it determined the extent of the area taken. The court specifically did not include the portion of the land that could still be commercially developed under the Goga Plan and found only a temporary taking concerning the land that could be so developed. The court of appeals also rejected Michigan's contention that its offer to approve a permit for the Goga Plan eliminated the taking.
MDNR next challenged the trial court's determination that Section 21(4) of the Wetland Act, which establishes the method of computing just compensation for a taking, was unconstitutional. The court of appeals affirmed, holding that the determination of the measure of just compensation for a taking is a judicial, not a legislative question and that the court of claims properly found the offending limitation on judicial authority to be unconstitutional.
Finally, the court of appeals held that the trial court had not abused its discretion in its award of damages: $3,245,256, plus interest of $1,574,522, for the property taken and $459,400 for the temporary use of the property. The appeals court held that the award was based on evidence presented and the trial court had used a flexible approach in computing the damages.
On March 24, 1998, the Michigan Supreme Court reversed the court of appeals' opinion and remanded the case for further proceedings. The supreme court held that the trial court and court of appeals had incorrectly found that Parcel 1 was the only relevant parcel for the takings analysis. The supreme court held that, at the very least, parcels one, two, and four should be considered because they are bound together by their contiguity, the unity of ownership interest in all three parcels, and the proposed comprehensive development scheme involving all three of the parcels. In addition, the supreme court called into question whether parcel three should also be considered as part of the relevant parcel: it is contiguous with the other parcels, but it was not included in the development plan and it is unclear the extent to which the plaintiffs held an ownership interest in the parcel. The supreme court remanded the matter to the trial court, instructing it to determine the extent of ownership interest in parcel three and whether it is sufficiently connected to the other parcels to conclude that all four parcels should be considered in the takings analysis.
The Michigan Supreme Court also held that, when considering at least all of parcels one, two, and four, it was clear that there was not a categorical taking because the plaintiffs had not been denied all economically beneficial or productive use of land. They had not been prohibited from developing the remaining upland on parcel one, or almost all of parcels two and four. Although the commercial value of the land was reduced, it was certainly not rendered worthless. Thus, because the supreme court could not determine based on the record the value of all three parcels combined, either with or without the regulation, it reversed the court of appeals and remanded the matter to the trial court, directing the court to compare the value removed from the land with the value that remained to determine whether a taking had occurred.
c. Attorney General v. Delene Contracting, Inc., No. 92-973245-AZ (Ingham County Cir. Ct. May 29, 1997). The Michigan Attorney General ("Attorney General") brought suit against Delene Contracting, Inc. ("Delene") alleging that Delene's pond-building project was unlawful because it was done without the necessary permits or inspections and because it has had a harmful effect on wetlands and surrounding areas. Delene had connected a pond system to the Sturgeon River through more than four miles of connected ditches. In 1990, MDNR advised Delene that it lacked the permits required for the project. In 1992, after Delene failed to comply with MDNR's Cease and Desist Order, the court issued a preliminary injunction and authorized MDNR to access the property for discovery and compliance inspections. Delene failed to comply with the injunction. Delene also failed to file a timely answer to the complaint. The Attorney General sought entry of a default judgment against Delene, prohibiting Delene from undertaking any further activities in violation of several parts of NREPA, including Part 303 (wetlands), Part 301 (inland lakes and streams), Part 91 (soil erosion), Part 31 (water resources), Part 17 (MEPA), and Part 315 (dam safety). The Attorney General also sought an order requiring Delene to abate the public nuisances it created, correct the violations, and pay appropriate fines for the violations.
The court found that the flow of water through the ditch system transported approximately 2,300 cubic yards of sediment from the Delene property into waters of the state and adversely affected nearly 300 acres of wetlands. Surface water had been drained from wetlands, and other parcels had been drained, scraped, dredged, and filled. Wetlands had been transformed into grassed uplands or converted into open water ponds. The court found that the Delene project "denied the people of the state the benefits the wetland provided, including flood and storm control; wildlife cover, breeding, nesting, and feeding habitat; nutrients, nursery areas and sanctuaries for fish and aquatic life as well as pollution control and erosion control." Slip op. at 4. The court found that Delene had violated Part 303 of NREPA by: (1) constructing, operating and maintaining ponds and upland meadows in former wetlands; (2) draining, dredging, and removing soil and minerals from wetlands; (3) filling wetlands; and (4) refusing to allow MDNR inspections. The court also found that Delene had: (1) violated Part 301 of NREPA by connecting the pond system to the Sturgeon River without obtaining the required permits; (2) violated Part 315 of NREPA by creating dams without adhering to the requirements of that part; (3) violated Part 91 of NREPA by performing earth changes without the requisite permits; (4) violated Part 31 of NREPA by failing to use sediment controls which caused pollution and impaired the waters of the state and constituted a public nuisance; (5) violated MEPA by polluting the waters of the state, destroying and impairing wildlife, fish and aquatic life habitats; and (6) created public nuisances while undertaking its activities. The court also found that the violations were willful because they occurred over a number of years and "[i]t is beyond question" that Delene knew of the permit obligations.
The court, therefore, granted a permanent injunction prohibiting Delene from: (1) further dredging, filling, or removing soil or minerals, draining surface water, or constructing or maintaining any structure in any wetland; (2) further interfering with the natural flow of an inland lake or stream; (3) constructing a new dam or altering an existing dam involving a surface area of more than five acres; and (4) making any earth change of more than one total acre or within 500 feet of a lake or stream unless the necessary permits are first obtained. The court also ordered Delene to restore the area to its condition prior to the unauthorized activities, taking steps to control possible erosion and reestablish biological communities. In addition, the court ordered Delene to pay more than $1,338,000 in civil fines. The court stated that "[i]t appears that the likelihood that [Delene] will undertake the required restoration will be greatly enhanced if a fine is structured so that [Delene] can avoid some portion of the fine otherwise called for by [its] violations by satisfactorily completing the work according to schedule." Slip op. at 10. The court, therefore, ordered that if Delene posted a $1 million bond in favor of the State within 45 days and completed the restoration required according to the schedule in the order, the court would suspend $1 million of the fine.
a. Gelman Sciences, Inc. v. Fidelity & Casualty Co., 572 N.W.2d 617 (Mich. 1998). Gelman Sciences, Inc. ("Gelman") manufactured microporous filters at a facility near Ann Arbor, Michigan. Starting in 1964, contaminated rinse water from Gelman's manufacturing process was disposed of pursuant to a permit in a system of wastewater treatment ponds. In the late 1960s, one of the ponds leaked into a nearby marshy area. Gelman later began permitted disposal of wastewater through a spray irrigation system that did not, ultimately, eliminate certain contaminants. In 1985, the Washtenaw County Health Department discovered contaminated drinking water wells near Gelman's facility and identified Gelman as the cause. Gelman subsequently sued various insurers who had issued comprehensive general liability insurance policies ("CGLs") to it between 1963 and 1969 and had denied coverage for the required cleanup.
Arco Industries Corporation ("Arco") had operated an automotive parts manufacturing facility in Schoolcraft, Michigan, since 1967. Various volatile organic compounds ("VOCs") were used in the manufacturing process and were ultimately drained into an unlined seepage lagoon located behind the facility. In November 1985, MDNR notified Arco that the seepage lagoon was contaminated. After Arco was sued by Michigan, it entered into a consent decree whereby it agreed to pay Michigan $450,000 in cleanup costs and attorney fees, and to develop and implement a multimillion dollar groundwater and soil remediation program. Arco then sued its insurers which had denied coverage for the property damage, including American Motorists Insurance Company, which issued CGLs between 1968 and 1974.
In both Gelman's and Arco's cases, the respective Michigan Court of Appeals panels ruled that no "occurrence" took place prior to the discovery or manifestation of property damage at the respective facilities, and, consequently, the insurers had no coverage obligations for policies in effect prior to that manifestation. Under the CGLs, "occurrence" was typically defined as "an accident, including injurious exposure to conditions, which results, during the policy period, in . . . property damage, neither expected nor intended from the standpoint of the insured." At issue in both cases before the Michigan Supreme Court was the proper interpretation of the term "occurrence" and, specifically, whether in cases involving contamination, an "occurrence" was deemed to take place when contamination was released into the environment or when it was subsequently discovered by the insured.
The Michigan Supreme Court discussed the various trigger of coverage theories. Under the earliest trigger, the "exposure trigger," coverage is triggered when the environment is first exposed to contaminants. Under the "injury-in-fact" trigger, coverage exists at the time released contaminants cause actual environmental injury. Under the "manifestation trigger," which was adopted by both courts of appeals panels, coverage is not available until environmental injury is ultimately discovered or manifested. Finally, under the "continuous trigger," coverage is triggered continuously from the time of first exposure through the time of manifestation.
The court adopted the injury-in-fact trigger and reversed the court of appeals panels which had adopted the manifestation trigger. Applying the injury-in-fact trigger, the court held that, for Gelman, an "occurrence" took place, and coverage was triggered, when the groundwater contamination from Gelman's disposal of contaminants first occurred, and would continue to exist under any subsequent policy periods during which that contamination continued to occur. For Arco, the court affirmed the trial court's findings that VOCs were released and caused soil and groundwater contamination during each of the policy periods at issue.
The court adopted the injury-in-fact trigger on several grounds. First, according to the plain language of the policies at issue, an "occurrence" is defined as an accident that results in property damage during the policy period. That definition, the court explained, supports an injury-in-fact trigger. "[A]ctual injury must occur during the time the policy is in effect in order to be indemnifiable, i.e., the policies dictate an injury-in-fact approach. The manifestation trigger simply is not supported by the policy language." 572 N.W.2d at 623.
The court also agreed with Arco and Gelman that application of the manifestation trigger effectively converts expensive "occurrence" policies into less expensive "claims made" policies which provide a much more limited coverage. Under a claims made policy, coverage is available only where an actual claim is made against the insured during the policy period. Under an occurrence policy however, coverage is provided when the act occurs during the policy period, regardless of when any subsequent claim arising from the act is actually made against the insured.
The court noted that the court of appeals panels justified application of the manifestation trigger based on their "perception that determining the precise timing of actual property damage would be difficult, if not impossible." 572 N.W.2d at 625. While agreeing with the panels that the cases involved proof difficulties, the court stated that those difficulties, "cannot justify redrafting unambiguous policy terms in the guise of judicial interpretation," but that courts should instead "endeavor to determine which policies are triggered from the evidence presented." Id.
b. South Macomb Disposal Auth. v. American Ins. Co., 572 N.W.2d 686 (Mich. Ct. App. 1997). South Macomb Disposal Authority ("SMDA") operated four municipal landfills from the late 1960s to the mid-1980s. The landfills were licensed during their operation by state authorities, although the possibility of groundwater contamination due to high water tables was known. During their operation and following their closure, leachate leaked from the landfills and polluted the surrounding soil and groundwater. Neighboring residential property owners then sued SMDA, alleging personal injury and property damage claims based on nuisance, trespass, and negligence. In addition, in three different letters sent to SMDA, MDNR alleged that SMDA was responsible for the contamination and was in violation of the law. These letters also requested that SMDA submit to MDNR a work plan to address remediation of the contamination.
In response to the property owners' suits and MDNR's notice letters, SMDA sought coverage from its insurers. After the insurers denied coverage, SMDA sued for coverage. The trial court ruled that the three MDNR letters sent to SMDA constituted a "suit" and triggered coverage under the insurance policies. The court of appeals upheld this ruling.
One of the insurers, Westchester Fire Insurance Company ("Westchester"), argued that the trial court erred in rejecting its position that coverage was precluded because SMDA knew that the contamination would occur from operating the landfills, and consequently any loss from contamination could not be defined as an "occurrence." Westchester's policies provided coverage only for losses arising out of an "occurrence," which is defined as "an accident . . . which unexpectedly and unintentionally causes injury."
The policies did not indicate whether an objective or subjective perspective should be used in determining whether an "occurrence" took place. Westchester argued that an objective standard should be applied to determine whether SMDA expected or intended damage. Under an objective standard, no "occurrence" would be deemed to have taken place if the damage should reasonably have been expected or if the insurer should have known it was likely to occur. Under the subjective standard, however, no "occurrence" would be deemed to have taken place, and coverage would be barred, only if the insured intended to cause damage or actually knew (not just should have known) that damage was likely to result from its actions. Because the policy was ambiguous in this regard, the court construed the policy in favor of SMDA and adopted a subjective standard. The court then examined whether SMDA's conduct evidenced an intent to cause the contamination and whether SMDA was aware that harm was likely to follow from its operation of the landfills. Because no facts demonstrated that the contamination was expected or intended by SMDA, the court concluded that an "occurrence" had taken place and that coverage was, therefore, triggered under the Westchester policies.
The insurers also advanced several arguments that the pollution exclusions contained in their policies barred coverage for any release of contamination from the landfills. The policies' pollution exclusions barred coverage for damage arising out of the discharge of pollutants, unless the discharge was "sudden and accidental." First, the insurers argued that, in determining whether a discharge of pollutants was "sudden and accidental," the trial court failed to focus on the initial dumping of waste into the landfills, which was clearly not "accidental," as opposed to the subsequent leakage of leachate from the landfills. The court noted that the landfills were designed consistent with then-contemporary standards. The waste placed into the landfills was expected to be contained by the landfills, rather than discharged into the environment. The court reasoned that the relevant "discharge" upon which to focus in determining whether a discharge was "sudden and accidental" is the discharge into the environment, rather than the discharge into a containment structure, such as a properly engineered landfill. Accordingly, the court held that the leakage of leachate from the landfills into the surrounding soil and groundwater, rather than the initial dumping of waste into the landfills themselves, was the appropriate focus for determining the applicability of the pollution exclusion's "sudden and accidental" exception.
The insurers also disputed the trial court's ruling that it could not be determined whether the pollution exclusion applied to contamination at several of the landfills because there may have been other unknown sources of contamination which may have involved sudden and accidental discharges that further contaminated the landfills. SMDA contended that certain evidence before the trial court, including the existence of contaminants of unknown origin, supported the trial court's ruling. The court held that SMDA "has presented nothing beyond mere speculation" as well as "self-serving statements and unsubstantiated allegations" in support of its theory that unknown sources contributed to the contamination. 572 N.W.2d at 704. Accordingly, the court reversed the trial court's ruling that the sudden and accidental pollution exclusion did not apply to three of the landfills based upon the alleged existence of unknown sources of contaminants.
Although the trial court agreed with the insurers that the pollution exclusion barred coverage for all contamination caused by long-term leaking through the porous bottoms of the landfills, which could not be considered sudden and accidental, SMDA had presented evidence that at least some of the contamination resulted from three allegedly distinct and "sudden" leachate outbreaks from the landfills, and the trial court held that coverage might be available for those outbreaks. The insurers contended that the court should not adopt a "microanalytical" approach to isolating and characterizing the three alleged distinct outbreaks as "sudden and accidental," when the overall pattern of contamination caused by leakage through the porous bottoms of the landfills clearly was not. The court determined that the trial court properly isolated the alleged discrete discharges from the overall continuous leaking from the landfills because the outbreaks were identifiable and isolated, and they caused specific, traceable damage. Accordingly, the court of appeals held that SMDA could obtain coverage if it could demonstrate that any of the three alleged discrete leachate outbreaks were "sudden and accidental."
The first alleged outbreak occurred in 1971 and may have resulted from the plugging of the underdrain system at one of the landfill sites. The court held that the facts regarding this outbreak required further development in order to arrive at a determination about whether it was "sudden and accidental." The second and third alleged outbreaks apparently resulted from the development of erosion gullies, which the court concluded should have been expected by SMDA and, accordingly, could not possibly be considered "sudden and accidental."
The insurers also argued that the trial court erroneously held that coverage for SMDA was available under the policies' personal injury liability endorsements. These endorsements provided additional coverage for "personal injury" liability, which was separate from the policies' general liability coverage for bodily injury and property damage. "Personal injury" was defined, in pertinent part, under the endorsements as "wrongful entry or eviction, or other invasion of the right to private occupancy," and the endorsements did not contain any form of pollution exclusion. SMDA asserted that the neighboring residential property owners' claims against it were, effectively, claims for "wrongful entry" or "other invasion of the right to private occupancy." The court reversed the trial court's holding in favor of SMDA holding that the personal injury endorsement is limited by the pollution exclusion. "[T]o the extent the pollution exclusion clauses in the various policies bar plaintiff's claims, plaintiff may not seek coverage for those claims under the personal injury liability endorsements." 572 N.W.2d at 710. The court reasoned that it would be illogical to conclude that an insurer specifically excluded pollution claims under its general liability coverage only to then include them under the personal injury liability endorsement and that adopting SMDA's policy construction would result in an interpretation that would be unreasonable.
c. Farmers Petroleum Cooperative, Inc. v. Mutual Serv. Casualty Ins. Co., No. 191490 (Mich. Ct. App. July 22, 1997). In August 1994, agents of Farmers Petroleum Cooperative, Inc. ("Farmers") were installing a propane tank line at a private residence and struck a fuel line, causing a large amount of oil to leak into the ground. Farmers sued Mutual Service Casualty Insurance Company ("Mutual") when it denied coverage for cleanup costs incurred at the request of the owner of the residence. The trial court ruled that Farmers was entitled to this coverage. Mutual appealed.
Farmers first obtained coverage from Mutual in 1986 and this coverage was renewed annually for coverage periods up to and including the date of the spill in August 1994. The version of the policy in effect from 1988 until 1991 provided coverage for environmental cleanup costs incurred at the request of private parties, and excluded coverage for such claims if they were requested by government bodies; however, the revised version of the policy issued in 1991 precluded coverage for all cleanup costs, regardless of who requested that they be incurred. The court of appeals found that Mutual did not provide adequate notice to Farmers of this change in policy terms to overcome Farmers "reasonable expectation" that losses covered by the 1988 policy continued to be covered in the 1991 policy. Under Michigan law, when a renewal policy is issued without calling to the attention of the insured a reduction in coverage, the insurer is bound to the greater coverage contained in the earlier policy. Accordingly, the court of appeals affirmed the trial court's ruling that Farmers was entitled to coverage.
d. Hydrodynamics, Inc. v. Auto-Owners Ins. Co., No. 193389 (Mich. Ct. App. July 11, 1997). Hydrodynamics, Inc. ("Hydro") sought defense and indemnification from its insurer, Auto-Owners Insurance Company ("Auto-Owners"), for a suit filed against Hydro by property owners who sustained property damage when sewage backed up into their homes allegedly as a result of the failure of Hydro's "influent pumps." The trial court granted summary disposition to Auto-Owners, finding that the pollution exclusion contained in the policies precluded coverage.
Hydro argued on appeal that because the definition of sewage contained in the underlying complaint included "groundwater" and "rainwater," which are not necessarily "pollutants" as that term is defined in the Auto-Owners policy, the lower court erred in granting summary disposition because Auto-Owners owed a duty to defend Hydro against the claims until the exact nature of the damages to the complainants' homes could be determined. The Michigan Court of Appeals, however, held that the duty to defend is "not based solely on the terminology used in the pleadings" and that a court must "focus on the cause of the injury to determine whether coverage exists." Slip op. at 2. The court of appeals held that the complaint clearly indicated that none of the alleged damage was caused by groundwater or rainwater alone, but by an accumulation of rain and sewage back-up into their homes and that groundwater and rainwater are considered pollutants when mixed with effluent from sanitary sewers. Therefore, because there was no issue of material fact that the sewage back-up causing damage to the homes was a mixture of rainwater, groundwater, and other pollutants, the pollution exclusion precluded coverage and summary disposition was proper.
4. Environmental Remediation
a. Attorney General v. Oakland Disposal, Inc., 573 N.W.2d 300 (Mich. Ct. App. 1997). The State of Michigan sued Oakland Disposal, Inc. ("Oakland Disposal") and a number of related individuals and companies in Oakland County Circuit Court to compel them to remediate the Waterford Hills Sanitary Landfill ("Waterford Landfill") in Waterford Township, Oakland County. Oakland Disposal, which had operated the Waterford Landfill as a municipal solid waste landfill, filed a third-party complaint against more than 400 of its former customers, alleging that if there were any hazardous substances at the landfill, they must have come from the wastes of its customers.
Oakland Disposal's complaint did not specify what hazardous substances allegedly came from each third-party defendant. When some of the third-party defendants moved the circuit court to require a more definite statement, the trial court required Oakland Disposal to file an amended third-party complaint containing specific factual allegations for each third-party defendant. The court also required the third-party plaintiffs, including Oakland Disposal, to file a security bond of $500,000 in order to assure that funds would be available to reimburse the defendants' costs of defending the lawsuit if the plaintiffs fail to prove their case and the court determines that the plaintiffs must reimburse the defendants for those costs.
Although Oakland Disposal filed an amended third-party complaint that contained specific allegations for some (but not all) of the 430 third-party defendants, it did not file the $500,000 security bond. Oakland Disposal argued that it did not have the financial resources to file the bond and, therefore, asked the trial court to waive the bond requirement. The court refused to do so and dismissed Oakland Disposal's third-party complaint.
On appeal, the Michigan Court of Appeals ruled that it was within the circuit court's discretion to insist on a $500,000 bond under the facts of this case. The court of appeals agreed that the basis for the third-party complaint was questionable, noting that Oakland Disposal "named as third-party defendants nearly everyone who ever sent materials to [Waterford Landfill] but possessed no specific evidence linking any of them in particular to any specific hazardous waste." 573 N.W.2d at 305. The court held that the $500,000 bond was reasonable because, although it was large in total, it amounted to little more than $1,000 for each of the 430 third-party defendants.
b. Sew Indus., Inc. v. Florence I, Inc., No. 191762 (Mich. Ct. App. Nov. 4, 1997). While preparing its property for sale, Sew Industries, Inc. ("Sew") noticed heavy staining on the ground surrounding motor oil storage tanks on adjacent property belonging to Florence I, Inc. ("Florence"). Soil tests on Sew's property indicated that it was contaminated with two chemicals found in motor oil. The contamination was limited to a small area of Sew's property adjacent to the storage tanks on Florence's property. This led an environmental consultant to conclude that the staining on Florence's property was the cause of the contamination on Sew's property. Following a trial initiated by Sew seeking contribution under MERA, and also alleging negligence, public nuisance, and trespass, a jury found Florence liable on all four counts and awarded Sew $29,500 in damages. The trial court denied Florence's motions seeking a directed verdict, a judgment notwithstanding the verdict ("JNOV"), remittitur, and for a new trial, and Florence appealed.
On appeal, the Michigan Court of Appeals first held that the evidence presented at trial regarding the content of the soil samples on Sew's property and the staining near the motor oil tanks on Florence's property was sufficient to create an issue for the jury regarding whether the source of the contamination emanated from Florence's property. Therefore, because a motion for JNOV may be granted only if the facts presented preclude judgment for the nonmoving party as a matter of law, the trial court had not erred in denying the motion.
Florence next argued that Sew had failed to state a claim for contribution under MERA because there was no evidence of a release of a hazardous substance that posed a threat to the health, safety, and welfare of the general public. The court of appeals rejected this argument, holding that MERA's definition of "hazardous substance" specifically includes petroleum and the evidence provided during the trial indicated the presence of chemicals found in petroleum in the soil of the plaintiff's property, which supported a finding that there had been a release of petroleum.
The court also rejected Florence's argument that although Sew may only recover "necessary costs of response activity," Sew had incurred unnecessary costs by implementing the most expensive remedial activity. The court held that Sew's costs were reasonable and necessary, noting that the banks involved refused to close the sale of Sew's property unless the contamination was remedied and Sew's expert based his oil removal and disposal recommendation on Sew's needs and time constraints.
Florence argued that Sew had failed to comply with the prerequisites of MERA because it did not notify MDNR of the alleged contamination. The section relied on by Florence requires that "the owner or operator of a facility who obtains information that there may be a release at that facility shall immediately take appropriate action consistent with applicable laws and rules promulgated by the department." Former Mich. Comp. Laws 299.610a. The court held that this duty was owed by the owner or operator of the facility where the release occurred, which in this case was Florence, and that compliance with this provision was not a prerequisite to a suit under MERA. Therefore, the court of appeals found Florence's argument to be without merit.
To sustain a claim for public nuisance, the court of appeals held that a claimant essentially must show that the conduct complained of: (1) significantly interferes with the public's health, safety, peace, comfort, or convenience; (2) is proscribed by law; or (3) is known or should have been known by the actor to be of a continuing nature that produces a permanent or long-lasting, significant effect on these rights. Contrary to Florence's argument, Sew had presented sufficient evidence to support a finding that Florence had violated MERA, which was expressly enacted to preserve the public health, safety, and welfare, and because Sew incurred costs of remedial activity and was forced to delay the sale of its property as a result of the contamination, Sew had suffered a type of harm different from that of the general public. Sew had, therefore, presented evidence sufficient to support a public nuisance claim.
With regard to its motion for remittitur, Florence argued that the trial court had erred in denying its motion because Sew had failed to mitigate its damages and because the jury's verdict was excessive. However, because Florence did not raise the mitigation issue at the trial court level, the court of appeals would not consider it. Further, the court held that the jury's award of $29,590 was well within the range of evidence of damages presented.
The court of appeals next considered Florence's arguments that the trial court had abused its discretion in denying its motion for a new trial. The court held that the overwhelming weight of the evidence indicated that the source of the contamination was the staining from Florence's motor oil storage tanks and that, therefore, the weight of the evidence did not support Florence, the losing party. Although Florence argued that the jury's verdicts were legally and logically inconsistent because the jury found that Florence was liable on all four counts, but awarded damages on only one count, the court held that it was reasonable for the jury to award Sew damages in a single amount rather than to apportion it among the counts, particularly because all four counts arose from the same facts. Therefore, the trial court did not abuse its discretion in denying a new trial. The court of appeals, therefore, affirmed the ruling of the trial court.
c. Forest City Enterprises, Inc. v. Leemon Oil Co., 577 N.W.2d 150 (Mich. Ct. App. 1998). Forest City Enterprises, Inc. ("Forest City") owned property in Macomb County that included a retail dry cleaner and a separate gasoline station for at least 25 years. Leemon Oil leased the gas station for approximately four years from early 1982 through 1985. In 1983, a Leemon Oil tanker spilled about 2,250 gallons of gasoline at the gas station, but Leemon Oil immediately cleaned up the spill. In addition, the dry cleaner had discharged chlorinated solvents into a septic tank, apparently for many years, because Forest City had not told the dry cleaner that the property was served by septic tank rather than municipal sewer. In 1988, Forest City conducted an environmental assessment, which showed that the property was contaminated with both gasoline constituents ("BTEX") and chlorinated solvents associated with dry cleaning. Forest City spent almost $1,400,000 to remediate both the BTEX and the solvents.
Forest City sought to recover its cleanup costs from Leemon Oil, based on MERA, breach of contract, common law nuisance, and other theories. A mediation panel awarded $125,000 against Leemon Oil, but Forest City rejected the award and proceeded to a jury trial. The jury decided that 95.5 percent of the total damages were attributable to Forest City's own negligence. The trial court ruled on Forest City's MERA claim and determined that Leemon Oil's fair allocation of response costs was only $6,927. The court relied on the jury verdict to support the court's equitable allocation. Because Forest City had rejected a proposed mediation offer which was more favorable than the result at trial, the court ordered Forest City to pay Leemon Oil $98,000 in litigation costs. The court also ordered Forest City to reimburse Leemon Oil's expert witness fees of $38,000.
On appeal, Forest City argued that the trial court had misinterpreted the provisions of MERA concerning the rights of liable parties to seek payment from other liable parties. Forest City argued that the BTEX from the gasoline spill and the solvents from the dry cleaner had intermingled and created an indivisible environmental harm, so that Leemon Oil and the dry cleaner should each be held jointly and severally liable for all response costs, subject to Leemon Oil's right to seek contribution from other liable parties. The court of appeals rejected this argument for several reasons. The court rejected Forest City's assertion that under Section 12c of MERA (now codified at Mich. Comp. Laws 324.20129(1)) it was entitled to shift all of its costs to Leemon Oil if the harm is "indivisible" because the verdict clearly showed that Forest City itself had "contributed" to the harm, even if it had not directly caused any of the contamination, and, therefore, "is itself jointly and severally liable. Common sense dictates that the Legislature did not intend to allow a person who is itself liable under [Section 12] of MERA to escape liability by bringing a cause of action under [Section 12] against another liable person." 577 N.W.2d at 155.
The court of appeals held that once it is determined that both parties in a MERA action are jointly and severally liable, "the critical issue becomes one of contribution," and that in this case the trial court did the appropriate thing by allocating response costs between the parties using the criteria provided in MERA. 577 N.W.2d at 156. These allocation criteria include: (1) each party's relative degree of responsibility in causing the release; (2) each party's degree of involvement with and care exercised concerning hazardous substances; (3) each party's cooperation with authorities to prevent, minimize, or to respond to the release; and (4) other equitable factors.
Next, Forest City argued that the trial court's decision to allocate less than one percent of the total costs to Leemon Oil was unfair. The court of appeals observed that there was evidence that only about $153,945 of the total cost of $1,400,000 was attributable directly to BTEX contamination, and that the remaining 89 percent was attributable either solely to solvents from the dry cleaner, or to combined contamination from both sources. The trial court held that none of the 89 percent should be allocated to Leemon Oil, because: (1) Leemon Oil "had nothing to do with" the solvents from the dry cleaner; (2) the dry cleaner solvents had contaminated a much larger area than had been contaminated by gasoline; and (3) there was no dispute about the source of the dry cleaner solvents, whereas there was a dispute about the sources of the gasoline contamination. Forest City argued that it was not "at fault" for any of the contamination, but the court of appeals held that Forest City was at fault by not revealing the existence of the septic tank to the dry cleaner. The court also observed that "between Forest City and Leemon Oil, Forest City is the only party who should be charged with responsibility for the chlorinated solvents contamination." 577 N.W.2d at 156.
Forest City also argued that it was unfair for the trial court to require Leemon Oil to pay only $6,927 of the $153,945 costs attributed solely to gasoline contamination. The trial court had relied on the jury verdict on the common law claims to determine that Leemon Oil should pay only 4.5 percent of these costs, and it further supported this determination by the fact that Leemon Oil had occupied the gas station for only about 15 percent of the 25-year period. Moreover, Leemon Oil had presented expert testimony that leaks and spills had probably occurred during the period when other tenants operated the gas station, and it presented testimony that it had properly cleaned up its spill in 1983. The court of appeals concluded that the trial court did not commit error by relying on the jury verdict, even though this resulted in allocating to Leemon Oil only 4.5 percent of the response costs attributable to the gasoline contamination.
The court of appeals also rejected Forest City's argument that the trial court abused its discretion in requiring Forest City to pay Leemon Oil $98,000 in litigation costs and in awarding $38,000 in expert witness fees as costs to Leemon Oil. The court held that "mere recovery of some damages is not enough; in order to be considered a prevailing party, that party must show, at the very least that its position was improved by the litigation." 577 N.W.2d at 161. Because Forest City did not persuade either the jury or the trial court to award it an amount greater than the mediation panel had ordered, the court held that it was proper for the trial court to require Forest City to pay both litigation costs and the costs of Leemon Oil's expert witnesses.
5. Michigan Environmental Protection Act
a. Nemeth v. Abonmarche Dev., Inc., 576 N.W.2d 641 (Mich. 1998). Homeowners in Manistee sued the developers of a residential and marina development, Abonmarche Development, Inc. and Morren Construction and Engineering, Inc. ("Developers"), under MEPA and the Soil Erosion and Sedimentation Control Act ("Soil Erosion Act") (now Part 91 of NREPA, Mich. Comp. Laws 324.9101 et seq.). The trial court held that, due to Abonmarche's inadequate permit application, its Soil Erosion Act permit had been unlawfully issued and was invalid. The trial court further held that this violation of the Soil Erosion Act, i.e., excavating near a water body without a valid permit, established a prima facie case for injunctive relief under MEPA. Accordingly, the trial court ordered Abonmarche to refrain from conducting further excavation under the unlawfully-issued permit.
On appeal, the Michigan Court of Appeals reversed the trial court, holding that Abonmarche's failure to submit an adequate soil erosion control plan "did not `rise to such a level of impairment or destruction of a natural resource so as to constitute an environmental risk'" and that "the natural resource in question sand and its location, was not rare, scarce, unique, endangered, or of historical significance." The Michigan Supreme Court, however, reversed the court of appeals on this issue.
The Michigan Supreme Court held that, where a statute sets forth a standard for protecting the environment, such as the permitting requirements of the Soil Erosion Act, a violation of that standard may establish a prima facie case under MEPA. In reversing the court of appeals, the supreme court stated that it "does not necessarily follow that because the natural resources involved here may not be scarce or unique, no actual or likely pollution, impairment, or destruction exists. The MEPA does not require air, water, or other natural resources to be `scarce' or `unique' to be protected from actual or likely pollution, impairment, or destruction. Indeed, one of the primary purposes of the MEPA is to protect our natural resources before they become `scarce.'" 576 N.W.2d at 650. Thus, the court held that, where the purpose of a statute is to protect natural resources, a violation of that statute can establish a prima facie case under MEPA, even if the underlying statute does not provide for enforcement by a private citizen.
The Michigan Supreme Court upheld the court of appeals' decision that MEPA does not authorize the trial court to award attorney fees to a prevailing party. Section 1704(3) of MEPA provides that "[c]osts may be apportioned to the parties if the interests of justice require." Mich. Comp. Laws 214.1704(3). The supreme court noted that, under the general rule, attorney fees are not recoverable costs unless a statute, court rule, or some other exception provides the contrary. The court held that, because MEPA does not expressly include attorney fees in the "costs" that may be apportioned by the trial judge, the legislature did not intend to contradict the general rule against recovery of attorney fees.
b. Property Owners' Rights Ass'n v. Centerline of Calhoun County, Inc., No. 198305 (Mich. Ct. App. Feb. 6, 1998). Centerline of Calhoun County, Inc. ("CCC") purchased a 154-acre parcel in Calhoun County and planned to construct a shooting complex on the property involving trap, skeet, and sporting clay shooting, archery, and a rifle and pistol range. Before the complex was completed, but after some shooting had begun, the Property Owners' Rights Association ("PORA") filed a complaint for injunctive relief and a motion for a temporary restraining order alleging that the operation of the range would violate MEPA because the lead found in gun shot would pollute and/or impair the environment. The trial court found that PORA had failed to prove by a preponderance of the evidence that CCC's operation was likely to pollute or impair the environment and dismissed the case, awarding CCC costs in the amount of $5,474.50.
On appeal, PORA first argued that the trial court had erred in finding that the shooting complex was not likely to pollute or impair the environment in violation of MEPA. To sustain a MEPA claim, a plaintiff must make a prima facie showing that the conduct has or is likely to pollute, impair, or destroy the air, water, or other natural resources. Once a prima facie case has been established, a defendant may rebut the prima facie showing by a submission of evidence to the contrary. In this case, PORA relied largely on the testimony of its expert, a geologist with expertise in environmental contamination and site assessment. On cross-examination in response to the direct question of whether, in the expert's opinion, lead would leach at the site, however, the expert stated that "I gave you specific parameters or tests that can be conducted that will assist you in determining whether lead will leach, or if the potential is there, and I have not conducted any testing or evaluation of that to tell you specifically whether it will leach at this particular site or if it will be more favorable to leach at a specific location on this particular site." Slip op. at 3. CCC presented evidence that the shooting complex was built pursuant to 19 local, Michigan, and federal permits and that MDNR had assisted CCC in determining that the site was viable and determined that none of the shot fall zones were located in wetlands. CCC also presented testimony that it planned to reclaim the lead on the site after 60 tons of shot had been dropped. In addition, CCC's expert in soil chemistry testified that lead is very unlikely to leach in soils and that lead shot is unlikely to erode substantially. He further testified that lead shot is unlikely to impair the environment because it would "stay put" and lead compounds are very immobile and do not dissolve in water. Although he agreed that lead could become mixed with the soil and be present in dust, he testified that the level of vegetation on the site would diminish greatly the likelihood of such dust migrating. Finally, CCC's expert testified that the reclamation process planned by CCC would minimize the likelihood of an environmental threat. The court of appeals weighed this testimony and held that the trial court had not erred in concluding that PORA had not made a prima facie showing of probable harm to the environment. PORA's expert had not made site-specific tests and had stated that there was only a possibility that the lead contamination of the soil and water in and around the complex could reach unacceptable levels. The court of appeals held that even if PORA had established a prima facie case, the contrary testimony of CCC's expert was sufficient to rebut PORA's showing.
a. Sweepster, Inc. v. Scio Twp., 571 N.W.2d 553 (Mich. Ct. App. 1997). In 1986, Sweepster, Inc. ("Sweepster") purchased property for $3,500,000 from Chrysler Corporation ("Chrysler"). The property was located in Scio Township and consisted of 47 acres with approximately 440,000 square feet of industrial building space. The purchase agreement between Sweepster and Chrysler recognized that there were environmental problems associated with the property and required Chrysler to indemnify Sweepster for any existing contamination discovered at the property. In July 1988, the Washtenaw County Board of Public Health discovered solvent contamination in the groundwater beneath the property and ordered Sweepster to stop using its well water for drinking purposes. In response to this discovery, Chrysler supplied Sweepster with bottled water, hired environmental consultants to study the nature of the contamination, and paid for the construction of a new well, pumphouse, and pipeline.
Following the discovery of the contamination at the property, Sweepster appealed Scio Township's assessments of the property for the years 1990 through 1993, arguing that the discovery had rendered the property worthless. The Michigan Tax Tribunal disagreed, finding that "the best evidence of the property's value was the price paid by [Sweepster] in 1986 [because] the parties were aware of the environmental problems at the time and took this factor into consideration in negotiating the terms of the purchase agreement." The Tax Tribunal did, however, reduce the assessed value of the property "by ten percent to compensate for the `stigma' associated with contaminated property." 571 N.W.2d at 554.
Sweepster then appealed the Tax Tribunal's decision to the Michigan Court of Appeals, arguing that the Tribunal improperly considered the indemnity clause contained in the purchase agreement when assessing the value of the property. The court of appeals rejected this argument, holding that intangible value-influencing factors, such as indemnity agreements, should be reflected in the assessment process. "The indemnification agreement unquestionably affects the value of the subject property because it relieves [Sweepster] and its successors of the financial consequences of the contamination," the court stated. 571 N.W.2d at 555. The court further stated that Sweepster had already substantially benefited from the indemnity through the delivery of bottled water, the performance of a study of the property, and the installation of a new well. Therefore, the court held that the Tax Tribunal "properly took the indemnification agreement into consideration when determining the value of [Sweepster's] property." Id.
Sweepster also argued that the estimated cleanup costs for the contamination should have been deducted from the property's assessed value. The court rejected this argument as well, because "the indemnity provision expressly relieves [Sweepster] and its successors from paying the costs of remediating contamination caused by Chrysler's former operations on the site." 571 N.W.2d at 556. The court also noted that the Tribunal's 10 percent discount of the property's assessed value for the "stigma" associated with contamination counteracted any potential future costs that Sweepster may incur in enforcing the indemnity if Chrysler breaches its duties under the purchase agreement. Therefore, the court affirmed the Tax Tribunal's assessment of the property's value.
b. Country Corners, Inc. v. Township of Homer, No. 192059, 1997 WL 677856 (Mich. Tax Trib., Sept. 9, 1997). Country Corners, Inc. ("Country Corners") leases commercial property in Homer Township that is used as a grocery store, hardware store, and gas station. The lease provided Country Corners with an option to purchase the property for $440,000, and Country Corners had arranged to finance the purchase through a bank loan. Country Corners' lender required assurance that the underground storage tanks ("USTs") on the property complied with all applicable laws and that the property was not contaminated. While replacing the USTs, Country Corners discovered groundwater contamination and, although the source of the contamination was disputed, Country Corners' lender withdrew its commitment to finance the purchase. Country Corners then appealed Homer Township's assessments of the property for the years 1993 through 1996, arguing that the contamination had substantially reduced the property's value.
At the administrative hearing regarding Country Corners' appeal, Country Corners' appraiser testified that, if the property was uncontaminated, its market value would be $450,000; however, its current market value had been reduced to only $93,000 because of the contamination. While the hearing officer agreed that the value of the property was affected by the contamination, the hearing officer found that the value was not affected to the extent claimed by Country Corners. "That conclusion is simply not reasonable under these circumstances and is not supported by the market data nor the fact that the property's current use continues, as well as its income stream," the hearing officer stated. The hearing officer also concluded that a cleanup might not be required by MDEQ.
Based on the evidence in the case, including estimates to clean up the contamination, which ranged from $155,790 to $510,000, and the fact that no cleanup may ever be required, the hearing officer held that a reasonable adjustment in the property's value would be 20 percent, or a reduction of $90,000, for a five-year period. The hearing officer further stated that this adjustment should be removed or reconsidered after five years or when MDEQ requires cleanup. The Tax Tribunal adopted the hearing officer's findings and conclusions.
II. Administrative Rulemakings
A. EPA Final Rulemakings
2. Committee Reports