Coleman et al v. Atlantic Richfield Company et al
Filing
79
ORDER granting in part and denying in part 53 , 56 Motions for Partial Summary Judgment. Signed by Hon. Michael A. Telesca on October 24, 2012. (MES)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
________________________________________
BRUCE COLEMAN AND ROCHESTER AUTO
MAINTENANCE, INC.,
Plaintiffs,
07-CV-6117
DECISION AND ORDER
v.
ATLANTIC RICHFIELD COMPANY,
BP OIL CORPORATION,
UNITED REFINING COMPANY OF
PENNSYLVANIA, AND JOHN DOES
Defendants,
________________________________________
INTRODUCTION
Plaintiffs,
Bruce
Coleman
(“Coleman”) and
Rochester
Auto
Maintenance, Inc. (“Rochester Auto”) (collectively, “Plaintiffs”),
bring this action for damages, reimbursement and/or contribution
for
environmental
response
costs
relating
to
environmental
contamination at 2472 Monroe Avenue, in the Town of Brighton, New
York (the “Site”).
Plaintiffs allege causes of action under New
York Navigation Law and for negligence, public nuisance, implied
indemnification
and
restitution.
Defendants
United
Refining
Company (“URC”), Atlantic Richfield Company (“ARCO”), and BP Oil
Corporation
(“BP”)1
(collectively,
“Defendants”)
now
move
for
partial summary judgment arguing that the Plaintiffs can not
recover lost profits based on a lost sale of the Site.2 Defendant
1
BP Products North America, Inc. was incorrectly sued as BP Oil Corporation.
2
URC also contends that Plaintiffs’ damages should be limited for other reasons.
However, such arguments are beyond the scope of this motion, which the parties agreed would
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URC also argues that its liability is limited by a Bill of Sale and
Release (the “Release”) entered into by Coleman and URC when
Coleman purchased the Site from URC in April 1985.
For the reasons set forth below, URC’s motion for summary
judgment based on the Release is denied. URC, ARCO and BP’s motion
for summary judgment on the issue of lost profits is granted.
Accordingly, Plaintiffs’ claim for lost profits is dismissed with
prejudice.
BACKGROUND
History of the Site and Sale to Coleman:
ARCO owned the Site from approximately 1936 to 1970 and BP
owned the Site from 1970 to 1971, during which time both ARCO and
BP operated the Site as a gasoline service station.3
URC owned,
operated and supplied gasoline to the site from 1971 until 1985,
when it sold the site to Coleman.
Coleman purchased the Site from URC by Warranty Deed and a
Release on April 2, 1985.
The Release applied to the purchase of
“[a]ll personal property of the Seller [URC]”, and specifically
included and excluded certain pieces of personal property from the
definition of personal property contained in the Release.
The
definition of “all personal property” specifically includes “three
be limited to URC’s liability under the Bill of Sale and Release and Plaintiffs’ ability to recover
lost profits. (Docket No. 45.)
3
The facts are taken from the parties’ submissions pursuant to Local Rule 56 (a). (Docket
Nos. 53, 57 and 78).
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10,000
gallon
underground
storage
tanks”.
The
Release
also
provides as follows:
It is understood that in the sale of this
property,
there
are
no
WARRANTIES
OF
MERCHANTABILITY, there are no warranties which
extend beyond the description on the face
hereof, and this property is sold as is and
with all faults.
It is further understood that the above
described equipment was formerly used for the
storage and/or handling of gasoline or other
petroleum products....
Purchaser as part of the consideration for
this sale, hereby fully releases and forever
discharges [URC, its] successors and assigns,
from any and all actions, causes of action,
liability
claims and
demands whatsoever
arising out of the ownership, possession, use
or installation of the above described
property.
Purchaser
further
agrees
to
indemnify and hold [URC, its] successors and
assigns, harmless from any and all liability
for damages and losses of any kind, to person
or property, caused in any manner by the
ownership, use or installation of the above
described property.
URC Exhibit J (Docket No. 53-12)(emphasis added).
Coleman did not intend to use the three underground storage
tanks that were included within the definition of the purchased
property in the Release.
Although he agreed to purchase the three
underground storage tanks, he planned to remove the tanks and
construct a building on the Site.
Four underground storage tanks were eventually discovered and
removed in November 1985 during Coleman’s construction of a Jiffy
Lube, which opened in 1986.
Plaintiff, Rochester Auto, operated
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the Jiffy Lube at the Site from 1986 through 2004. The tanks
appeared to be in good condition when they were removed, but
petroleum stained soil was also found and removed with the tanks,
as required by the Monroe County Department of Health.
Plaintiff
was not aware of any further contamination, including groundwater
contamination.
Sale to Eureka Petroleum, Inc.
In 2003, Coleman was approached by Paul Morabito about
purchasing the Jiffy Lube business from Rochester Auto. At the
time, Coleman owned several Jiffy Lube locations, and Morabito
proposed that his company, Eureka Petroleum, Inc. (“Eureka”),
purchase Coleman’s six Jiffy Lube businesses in the Rochester area.
For the six businesses, including real estate and buildings, Eureka
agreed to pay $7,500,000, $1,672,958 of which was specifically
allocated to the Jiffy Lube site which is the subject of this
lawsuit. Coleman and Eureka signed a Letter of Intent to this
effect on November 7, 2003.
Coleman characterized the sale as
“well above true market or appraised value.”
The last appraisal
for the Site before that time was in 1994, which valued the Site at
$680,000.
Eureka and Coleman began to negotiate a formal purchase
agreement, and Eureka engaged Teeter Environmental Services, Inc.
(“Teeter”) to perform a phase II environmental assessment of the
Site.
Teeter
reported
significant
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petroleum
contamination
including groundwater and soil contamination.
Based on this
report,
and
Eureka
refused
to
purchase
the
Site,
two
other
properties that were also contaminated. Eureka agreed to lease the
Site
and
affiliate
the
-
other
Monroe
two
contaminated
Petroleum,
LLC)
properties
and
(through
purchase
the
contaminated properties at the previously agreed upon price.
an
nonThe
Lease Agreement with Monroe Petroleum provided that the Site would
be purchased if it was remediated and Coleman received a “no
further action letter” from the New York State Department of
Environmental Conservation (“NYSDEC”) within 10 years.
The lease
was executed on March 8, 2004 and provided for a thirty year term
with an option to renew.
After entering into the lease, Coleman engaged Soil Air and
Water Environmental Services (“SAW”) to remediate the Site. SAW
presented two options to Coleman - (1) installation of a dual phase
extaction system or (2) the complete excavation and off-site
disposal of the contaminated soil.
Based on the lease with Monroe
Petroleum, Coleman chose to install the extraction system, because
excavation would cause a disruption to the operations of Monroe
Petroleum. Plaintiffs state that such disruptions were prohibited
by the lease which required them to “use [their] best efforts...to
minimize disruption” to the Site.
The projected timeline for the
remediation was a minimum of two years.
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The remediation system was put in place in March 2006, but due
to a billing dispute with SAW, the remediation system was shut down
from June 2006 through August 2007.
Plaintiffs state that despite
this setback, remediation was eventually resumed.
The NYSDEC
approved the shutdown of the system in December 2010 because it was
not fully successful. Other methods of remediation have been
undertaken, but, as of the filing of the instant motion, the
remediation was still not completed.
In late 2006, DDS Management LLC (“DDS”) purchased Eureka and
its affiliates and assumed responsibility for leasing the Site.
DDS continued to pay rent to Coleman for the Site until it filed
for bankruptcy in late 2007 or early 2008. Coleman then evicted DDS
from the Site.
The lease provision that required DDS to purchase
the Site, provided that Coleman completed the remediation within 10
years, was, therefore, not realized due to DDS’s bankruptcy and
eviction from the Site.
Coleman did not attempt to sell the property to another buyer,
but leased portions of the property to an adjacent business for
parking and to several cell phone companies for cell towers.
In
late 2011, Plaintiff leased the Site to Valvoline Instant Oil
Change.
There is also no evidence in the record that a sale of the
Site is not possible due to the contamination - notwithstanding the
fact that Eureka refused to purchase the Site before it was
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remediated - and Plaintiff admittedly has preferred, for various
reasons, to lease the Site.
DISCUSSION
Rule 56 provides that, “[t]he court shall grant summary
judgment if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). When considering a motion
for summary judgment, all genuinely disputed facts must be resolved
in favor of the party against whom summary judgment is sought. See
Scott v. Harris, 550 U.S. 372, 380 (2007).
If, after considering
the evidence in the light most favorable to the nonmoving party,
the court finds that no rational jury could find in favor of that
party, a grant of summary judgment is appropriate. See Id. at 380
(citing Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475
U.S. 574, 586-587).
A.
The Release
URC argues that it is entitled to summary judgment on all of
Plaintiffs’ claims based on the Release, which specifically states:
“Purchaser...hereby fully releases and forever discharges [URC,
its] successors and assigns, from any and all actions, causes of
action, liability claims and demands whatsoever arising out of the
ownership, possession, use or installation of the above described
property.”
encompass
It contends that this language is broad enough to
any
and
all
liability
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related
to
environmental
contamination that may have occurred prior to the sale of the Site
to Coleman based on its use as a gasoline service station. URC Mem.
of Law at 10-14, Docket No. 54.
Plaintiffs
argue
that
summary
judgment
is
inappropriate
because the Release only exempts URC from liability arising out of
Coleman’s “ownership, possession, use or installation” of the
property covered by the Release, namely the three underground
storage tanks, and does not cover any liability arising out of
events that may have occurred while URC owned the Site.
Pl. Mem.
of Law at 5-15, Docket No. 66. Plaintiffs also argue that the
origin of the contamination is unknown and that it could have
originated from property that is not covered by the Release, for
example, the fourth underground storage tank that was discovered on
the property.
URC responds that the Release insulates it from liability
related to its operation of the Site as a gasoline service station
because Coleman was aware at the time of the sale that the Site was
operated in this manner and that the underground storage tanks
contained gasoline and were used to facilitate the operation of the
gasoline service station. URC further argues that the inclusion of
the
word
“installation”
in
the
language
of
the
Release
unambiguously establishes the parties’ intent that the Release
cover liability arising out of the “ownership, possession, use or
installation” by URC, as the underground storage tanks were already
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installed at the time of Coleman’s purchase. URC Reply at pg. 2-7,
Docket No. 70.
The Court must construe the Release to give meaning to the
contract as a whole and give effect to the parties’ intention, as
it can be ascertained from document itself.
See e.g. Beal Sav.
Bank v. Sommer, 8 N.Y.3d 318, 324-325 (2007).
While contracts to
indemnify are strictly construed in New York, where the parties
clearly intend to allocate liability for environmental damage, the
Court will enforce the contract. See e.g. Buffalo Color Corp. v.
Alliedsignal, Inc., 139 F.Supp.2d 409, 419-420 (W.D.N.Y. 2001).
The Court finds that the Release, which states that Coleman
“fully releases and forever discharges [URC, its] successors and
assigns, from any and all actions, causes of action, liability
claims
and
demands
whatsoever
arising
out
of
the
ownership,
possession, use or installation of the above described property”,
is
broad
enough
to
include
liability
for
environmental
contamination arising out of the “ownership, possession, use or
installation”
of
the
Consolidated
Aluminum
purchased
Corp.,
property.
5
F.3d
See
10,
Olin
15-16
Corp.
(2d
v.
Cir.
1993)(contract to indemnify for “all liabilities and indebtedness
of Olin related to its [aluminum business]” sufficiently broad to
include liability for environmental damage); cf. Buffalo Color, 139
F.Supp.2d at 420-425 (finding no duty to indemnify where contract
Page -9-
limited indemnification to specific liabilities, which were not
broad enough to include environmental contamination).
The Court also finds that the Release is unambiguous in
providing
for
a
release
of
liability
for
URC’s
“ownership,
possession, use or installation” of the property, including for
leaks that may have occurred due to URC’s use or ownership of the
three underground storage tanks that are included within the
definition of property.
It is undisputed that the underground
storage tanks were installed prior to Coleman’s purchase of the
Site and the property described in the Release.
The specific
inclusion of the phrase “installation of the above described
property”, therefore, unambiguously relates back to the date that
the underground storage tanks were installed.
Accordingly, the
Court finds that the Release covers liability related to both
Coleman’s and URC’s ownership, possession, use or installation of
the property. Cf. New York v. Tartan Oil Corp., 219 A.D.2d 111,
114-5 (3rd Dept. 1996)(finding that the contract only included
indemnification for prospective oil leaks where it stated that
leaks “may” occur and that Tartan would indemnify the previous
owners for such leaks, but the contract did not contain any
language relating to a past leak or the past conduct of the
previous owners).
However, while the Release covers liability for environmental
contamination that may have occurred during the time when URC owned
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the Site, the Release does not insulate URC from liability related
to its ownership or use of other property that is not specifically
covered by the Release.
The property covered by the Release is
defined as: “all personal property of the Seller” and then it
excludes and includes certain items within the meaning of “all
personal property”. Specifically, it includes “three 10,000 gallon
underground tanks”.
Because the phrase “all personal property of
the Seller” is qualified by a list of specifically included and
excluded pieces of personal property, the Court finds that the
Release is not broad enough to insulate URC from liability for
other, unspecified, property, particularly the fourth underground
storage tank. If the parties intended to include other property
within the Release, they would have done so; rather, the parties
qualified the definition of personal property to include “all
personal property of the Seller” with a list of included and
excluded property. This is clearly indicative of their intent to
include only “three 10,000 gallon underground tanks” within the
definition of “all personal property” applicable to this Site.
Further,
had
the
parties
intended
the
Release
to
cover
all
liabilities stemming from the Site’s use as a gasoline service
station, the Release could have been drafted to reflect that
intent.
See Beal, 8 N.Y.3d 318, 324 (a court must give meaning and
effect to the contract as a whole); see also Omni Berkshire Corp.
v. Wells Fargo Bank, N.A., 307 F.Supp.2d 534, 540 (S.D.N.Y. 2004)
Page -11-
(“A contractual provision should be read so as to avoid rendering
any part of the contract superfluous or without effect.”).
This
conclusion is further supported by the fact that contracts to
indemnify in New York must be strictly construed.
See Tartan, 219
A.D.3d at 115 (citing Hooper Assocs. v. AGS Computers, 74 N.Y.2d
487, 491 (1989).
The parties agree that a fourth underground storage tank was
found during excavation of the Site by Coleman in 1985.
The
parties also agree that the origin of the leak that created the
contamination is unknown.
Accordingly, the Court finds that there
are material issues of fact with respect to whether URC is released
from liability for the environmental damage to the Site, because
the damage could have been caused by property that was not included
within the Release, for example, the fourth underground storage
tank.4
Therefore, URC’s motion for summary judgement in its favor
based on the Release is denied.
B.
Lost Profits
Defendants URC, BP and ARCO contend that Plaintiffs’ claim for
lost profits because of the failed real estate transaction between
Coleman and Eureka is too speculative because, among other reasons,
he still owns the Site and he could sell it for profit at any time.
4
Plaintiffs submit evidence of other potential sources of contamination in an effort to
create a material issue of fact. However, because the Court has found that the existence of a
fourth underground storage tank which was not covered by the Release is sufficient to create a
material issue of fact, the Court need not determine whether Plaintiff has presented other material
issues of fact with respect to this discrete issue.
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Moreover, they contend that he is limited to recovering damages for
injury to real property or remediation costs.
Defendants, BP and
ARCO also argue that Plaintiffs have not presented evidence of loss
of value in the Site, but this argument is outside the scope of
this motion, which the parties agreed would be limited to whether
Plaintiffs could recover lost profits based on the lost sale to
Eureka in 2004. (Docket No. 45.)
Plaintiffs argue that the requested damages are not too
speculative
and
($1,672,958)
is
the
agreed
sufficient
upon
sale
evidence
price
of
their
for
lost
the
Site
profit.
Plaintiffs also argue that the sale was not completed due to the
contamination and that the circumstances that prevented realization
of the lease provision requiring Monroe Petroleum to purchase the
remediated property were out of their control.
Lastly, they
contend that they were not required to mitigate their damages by
selling the Site at a time when “[t]here was no market for the
Site” - during the current economic crisis.
Both parties cite Amco Intl., Inc. v. Long Island Railroad
Co., 302 A.D.2d 338 (2nd Dept. 2003) and Steitz v. Gifford,280 N.Y.
15 (1939), to support their respective positions as to whether
Plaintiffs are entitled to “lost profits” from the failed 2004 sale
to
Eureka.
In
Amco,
the
court
held
that
lost
profits
were
recoverable where plaintiffs were prevented from installing silos
to store inventory on contaminated property and incurred lost sales
Page -13-
as a result. The plaintiffs in Amco introduced evidence of prior
sales to establish the amount of profits lost over the period in
question. 302 A.D.2d at 340. In Steitz, the plaintiff was entitled
to recover lost profits which were calculated as the difference
between the price actually received for produce on the open market
and the price he would have received under contracts he held to
sell his produce, because he could not sell the produce at the
contract price due to an accident for which the defendant admitted
liability. 280 N.Y. at 19-22.
The plaintiff in Steitz produced
evidence of lost profits based on its sale of produce from the
property at a loss.
In both Amco and Steitz, the “lost profits” were based on the
sale of goods, or the lack of sales, the amount of which could be
reasonably determined based on prior sales or the actual sale of
the goods at a loss.
Here, Plaintiffs have not sold the Site at a
loss compared to the price offered by Eureka in 2004.
Plaintiffs
also have not shown that they would have sold the Site to another
buyer, but for the contamination.
And significantly,
Plaintiffs
admit that since the bankruptcy of DDS, they have preferred to
lease the Site rather than sell it.
Even accepting the argument that, but for the contamination,
the sale to Eureka would have been completed, Plaintiffs have not
offered evidence of the existence of an actual sale of the Site or
even a proposed sale from which the Court could determine whether
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Plaintiffs have actually incurred a loss.
Plaintiffs have not
attempted to sell the Site since 2004 and offer no information
regarding whether the market value of the Site has decreased such
that the Site could not be sold, either for profit or at a loss.
Plaintiffs have not cited, and the Court has not found, any legal
authority to support their lost profits theory.
The Court finds,
therefore, that a claim for lost profits is not the proper measure
of damages in this case.
Accordingly, Plaintiffs’ claim for lost
profits is dismissed with prejudice.
CONCLUSION
For the reasons discussed herein, the Court denies URC’s
motion for summary judgment based on the Bill of Sale and Release,
as there are material issues of fact with respect to the source of
the contamination and whether it is covered by the Release.
The
Court grants Defendants’ motion for summary judgment with respect
to
Plaintiffs’
claim
for
lost
profits,
which
constitute
an
inappropriate measure of damages in this case. Plaintiffs’ claim
for lost profits is therefore dismissed with prejudice.
ALL OF THE ABOVE IS SO ORDERED.
S/ MICHAEL A. TELESCA
HON. MICHAEL A. TELESCA
United States District Judge
Dated:
Rochester, New York
October 24, 2012
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