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Aug 2014
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August 14, 2014

New Ruling Could Make Michigan Property Owners Liable for Environmental Cleanup


A recent Michigan Court of Appeals (COA) ruling in a case involving leaking underground storage tanks has the potential to reverse nearly two decades of liability protection enjoyed by property owners under Michigan’s cleanup law, known as Part 201. 
 
In Department of Natural Resources and Environment v. Strefling Oil Company, the Court not only found that the current owner-operator of underground storage tanks was responsible for a leak, it ruled that those who owned the real estate where it operated were also liable for the contamination.  While the opinion was “unpublished,” which means it is not binding on future lawsuits nor does it necessarily set precedent, it is worth keeping a close eye on.  The Court’s opinion could be construed to impose strict liability on landlords and other parties who do not contribute to the contamination.
 
Here’s the background:  Contrary to nearly two decades of interpretation, the COA held in Strefling that mere familiarity with the use of underground storage tanks in the petroleum business is sufficient to render a property owner liable for the cost of environmental cleanup under Michigan’s Natural Resources and Environmental Protection Act (NREPA), even though the property owner did not own or operate the tanks.
 
One defendant in the case, Strefling Oil Company, owned, filled and operated underground storage tanks on three parcels of property in Berrien County. The underground storage tanks at each property leaked petroleum products into the ground.  Strefling Oil acknowledged that it was an “operator” of the tanks and that the three parcels of property were “facilities” under Part 201 of NREPA. 
 
The issue before the Court was whether Strefling Oil was “responsible for an activity causing a release” such that it would be a liable party under Part 201.  The court held that the acts of filling and operating the tanks were activities causing “a” release of petroleum products.  Accordingly, Strefling Oil was liable for the contamination under Part 201.
 
Until now, the prevailing understanding within the industry was that Part 201’s standard assessing responsibility for an activity causing a release required a plaintiff to establish a link between an act of a defendant and a release of a hazardous substance.  Indeed, the plain language of the statute seems to require as much, allowing Strefling Oil to argue that it was not a liable party because there was no evidence that any of its activities actually caused a release.  The company argued that it was equally likely that a prior owner or operator caused the release of hazardous substances at the properties. 
 
But the COA rejected that argument.  The Court reasoned that the plaintiff was not required to prove that a specific activity of Strefling Oil caused a release, but was only required was to show that Strefling Oil filled and used the tanks at each site to find the company liable under Part 201.
 
The Court went a step further with the property owners.  Strefling Real Estate Investments (SREI) and Ronald Strefling owned the three parcels of real property at issue in the case.  The court found that:
  • SREI and Ronald Strefling had extensive involvement in the oil business
  • Strefling Oil was a family business that delivered fuel to commercial and residential customers
  • Ronald Strefling and SREI members served as officers for Strefling Oil and had duties in the general operation of the company
  • Ronald Strefling worked on fuel dispensers and delivered fuel to and performed maintenance on underground storage tanks 
Based on those facts, the court held that SREI and Ronald Strefling were liable for activities at the property under Part 201 based on nothing more than their familiarity with the use of underground storage tanks on their property.  The COA concluded these included activities causing a threat of release because the use of underground storage tanks on the property may reasonably have been anticipated to have caused a release of petroleum products into the soil.
 
How Strefling Could Impact Your Business
 
Michigan has long been a pioneer among states when it comes to imposing liability for environmental contamination.  In 1995, changes to the law moved Michigan from a “strict liability” state to one where owners would only be liable if they were “responsible for an activity causing a release,” provided a purchaser secured a baseline environmental assessment, or BEA, at the time of acquisition.  Limiting liability in this way spurred businesses to buy and rehabilitate thousands of brownfield sites throughout the state.
 
But the July ruling in Strefling could change all that.  The court concluded that the landlord’s familiarity with the operations of the tenant was enough to make the landlord “responsible for an activity causing a release” and hence liable for the contamination.  The defendants are now considering an appeal of the ruling, and several trade associations in the state may support that appeal to ensure the case doesn’t turn back the environmental clock.  Additionally, a legislative fix may be in the works.
 
The Resources, Energy and Environmental Practice Group at Warner Norcross will update you on the progress of the case.
 
If you have questions, please contact John Byl (616.752.2149, jbyl@wnj.com) or Scott Watson (616.752.2465, swatson@wnj.com).

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