Michigan Court Limits Ability to Sue Others for Environmental Cleanup Costs

The Michigan Court of Appeals has just recently issued a significant decision limiting the ability to sue liable parties for reimbursement of environmental contamination cleanup costs. Following the lead of a 2004 U.S. Supreme Court opinion limiting contribution rights under the federal Superfund law (CERCLA), the Michigan Court of Appeals held that Michigan's Natural Resources Environmental Protection Act (NREPA) prevents parties from seeking contribution from other liable parties unless and until the party seeking contribution is first sued by or settles with the government for those cleanup costs. Like the U.S. Supreme Court decision, this new Michigan Court of Appeals decision creates several possible pitfalls for parties entering into real estate transactions or agreements to pay for environmental cleanup costs.

In this case, Hicks Family Limited Partnership v. 1st National Bank of Howell (No. 268400), the Hicks family owned a piece of property that it wanted to develop. During the initial development phase, consultants discovered several buried drums containing hazardous substances. The Hicks family, wanting to move forward with the development, paid for the cleanup and removal of the drums. There was no suggestion that the Hicks family had anything to do with the contamination; in fact, the contamination was likely caused by a defunct company called G&G Paint Developers.

After the cleanup, the Hicks family wanted to recoup the costs of cleanup. Because G&G had no available assets, the Hicks family sued G&G's lender, 1st National Bank of Howell. The bank took title to the site in 1983 after G&G defaulted on a loan, thus subjecting it to potential liability under Michigan's environmental liability statute, NREPA. The Michigan Court of Appeals rejected the claim and held that the Hicks family could not bring a claim for contribution under NREPA, and would have to foot the entire cleanup bill itself even though it did not cause the contamination in the first place. The ruling was based on language in the Michigan statute that was similar to language in CERCLA, and on the same reasoning applied by the United States Supreme Court in Cooper Industries, Inc. v. Aviall Services, Inc., 125 S. Ct. 577 (2004), to limit contribution rights under CERCLA.

The combination of Cooper Industries and Hicks Family exposes the unwary to the risk of paying entirely on their own for a cleanup of contamination they did not cause. Careful planning with knowledgeable counsel is necessary to address this risk in any new real estate transaction, or any decision to spend money on cleanup costs. Moreover, for businesses already embroiled in environmental litigation, the Hicks Family decision creates the potential for a new defense to contribution claims. Again, consultation with knowledgeable counsel is essential to assess the risks and opportunities.

If you have any questions about the environmental cleanup liability, call any member of the Environmental Law Practice Group.