GEORGE A GALLAGHER III V RICHFIELD EQUITIES LLC
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STATE OF MICHIGAN
COURT OF APPEALS
GEORGE A. GALLAGHER III,
UNPUBLISHED
April 14, 2009
Plaintiff/Counter-DefendantAppellee,
and
DAVID FERGUSON, SHARON FERGUSONMILLER, SUZAN INMAN, JEANNE JOHNSON,
SANDRA KIPP, JAMES DILLARD, DAVID
FERGUSON, and the RONALD FERGUSON
EDUCATION TRUST,
Intervening Plaintiffs/CounterDefendants/Third-Party Defendants,
v
RICHFIELD EQUITIES, LLC and RICHFIELD
LANDFILL, INC, d/b/a GENESEE LANDFILL,
No. 283246
Genesee Circuit Court
LC No. 05-082225-CK
Defendants/CounterPlaintiffs/Third-Party PlaintiffsAppellants.
and
KITTREDGE KLAPP, the DANIEL FERGUSON
SUBTRUST, and RONALD FERGUSON,
Third-Party Defendants.
Before: Cavanagh, P.J., and Fort Hood and Davis, JJ.
PER CURIAM.
Defendants/counter-plaintiffs/third-party plaintiffs Richfield Equities and Richfield
Landfill (“defendants”) appeal as of right a final judgment in favor of plaintiff/counter-defendant
George A Gallagher III (“plaintiff”). The judgment is based on the trial court’s dismissal of
defendants’ counterclaims against plaintiff. This matter arises out of defendants’ purchase in
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2001 of a troubled landfill in Genesee County. The landfill had a history of operating problems,
and defendants were aware that it was in bad condition when they purchased it, but the landfill’s
problems turned out to be more significant than defendants knew when they closed on the
purchase. Upon incurring significant environmental remediation expenses, defendants stopped
making payments to plaintiff, whereupon plaintiff commenced this suit.
Defendants
counterclaimed for fraud, misrepresentation, breach of contract, and statutory liability pursuant
to the Natural Resources and Environmental Protection Act (NREPA), MCL 324.101 et seq. We
affirm in part, reverse in part, and remand.
A trial court’s ruling on a motion for summary disposition is reviewed de novo. Coblentz
v City of Novi, 475 Mich 558, 567; 719 NW2d 73 (2006). A motion decided on the basis of
MCR 2.116(C)(10) entails consideration of all evidence and all legitimate inferences therefrom
in the light most favorable to the nonmoving party; summary disposition is warranted where the
evidence shows no genuine issue as to any material fact. Id., 567-568. We also review de novo
as a question of law the proper interpretation of both contracts and statutes. Detroit Fire
Fighters Ass’n, IAFF Local 344 v City of Detroit, 482 Mich 18, 28; 753 NW2d 579 (2008).
After reviewing the record, we find the trial court’s factual determinations entirely
supported by the evidence. Originally, plaintiff’s father and Ronald Ferguson each owned 50
percent of the shares of Richfield Landfill, Inc., which in turn was the corporate entity that
owned the landfill. Ferguson was the president of the landfill until his death. Until he died, he
“ran everything.” The landfill closed in 1991,1 and Ferguson died in 1992. At that time,
Ferguson’s interest passed to his trust. Roughly contemporaneously with Ferguson’s death,
plaintiff purchased his father’s interest and became president, apparently just because someone
needed to. Because the landfill was closed, plaintiff believed that he only had two
responsibilities: to maintain the fence around the landfill, which was frequently damaged by
trespassers, and to maintain the level of leachate in the landfill.
Particularly relevant to this case, leachate is a hazardous substance that is created when
water – such as from precipitation – percolates through the waste in a landfill, picking up
chemicals as it goes. It accumulates at the bottom of the landfill on an impermeable liner. If it is
not pumped out and removed, it will eventually build up to the point at which it overflows the
liner and contaminates the surrounding soil.
Plaintiff received a salary for his position as president. However, the landfill had no
income after it closed, and most of the money expended on its bills came from plaintiff’s father.
Neither Ferguson’s trust, the trust’s trustee, nor the trust’s beneficiaries contributed any money,
and apparently they did not provide any other form of input into anything plaintiff did.2 At some
1
Plaintiff believed that the landfill “ran out of space to dump,” but apparently it was actually
closed because the owners failed to comply with a consent judgment reached with the
Department of Environmental Quality in 1989, and so the landfill became “unlicensed.”
2
Defendants included claims against these parties, but defendants have not appealed the
dismissal of any of those claims.
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point during plaintiff’s tenure as president of the landfill, his father decided to stop contributing
any more money. Among other matters, plaintiff had previously retained one or more companies
to pump leachate on a regular basis, but with no more money forthcoming, plaintiff terminated
that regular pumping. Gallagher testified that he “supposed” that leaking leachate could
contaminate groundwater, leading to expensive clean-up requirements, but he had “[n]ot really”
given the matter any consideration.
The three primary principals of defendant Richfield Equities, LLC, were C. Thomas
Toppin, an attorney; Bernhard Rumbold, a chartered chemist3; and Frederick Hambleton, who
held a doctorate in chemical physics. Rumbold and Hambleton had engaged in a variety of prior
business ventures, at least one of which involved some kind of hazardous waste, but they had no
prior direct experience with a landfill. They had some interest in the Richfield Landfill for many
years, but did not become seriously interested in purchasing it until two or three years before the
purchase. In the meantime, they were aware that the landfill had problems. In particular, they
were aware that it had actually had prior leachate “outbreaks,” although none that appeared
recent. They were also aware that the landfill had “legal problems” because the Department of
Environmental Quality believed that there was a “major pollution” concern. Moreover, they
observed that “the landfill was in a pitiful condition,” although they believed plaintiff’s
assertions “ that the landfill had been maintained and run in accordance with the law and that all
of the necessary stuff that’s done in stewardship of the landfill had been done.” Defendants did
not receive from plaintiff all of the records they contend they should have received, but they
made no written request.
The contract for the sale of the Richfield Landfill to Richfield Equities was signed in
May 2001, but it was contingent on whether Richfield Equities could obtain a consent order from
the DEQ that would permit the Landfill to resume operations. The closing actually occurred in
escrow; the DEQ gave Richfield Equities the consent order in August 2001. In the meantime,
Richfield Equities had access to the Landfill site but no right to do anything with it. During the
entire first half of 2001, before closing, the principals were aware that leachate levels in the
landfill were elevated. Indeed, although there was testimony that finding an actual
contamination plume was very difficult, the first step in investigating leachate was the simple
and relatively accurate step of checking the level in the leachate drainage sump. Hambleton did
so on several occasions, and at the time Richfield Equities took over, those levels were actually
more than one foot higher than permitted by the DEQ. Despite being aware of those levels, and
despite being advised by the DEQ “that [the DEQ] believed there were contamination issues with
the groundwater,” Richfield Equities closed on the purchase because, on the basis of the data and
“verbal information we had,” Richfield Equities believed “that that was not the case.”
It turned out, on subsequent investigation, that leachate had escaped from the landfill and
contaminated the surrounding soils. The cost of remediation was significant, and although
3
A chartered chemist is a professional qualification in the United Kingdom that is approximately
equivalent to a professional chemist in the United States. Rumbold and Hambleton were both
originally from the United Kingdom.
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Richfield Equities initially paid regular “royalties” due under the sale agreement, when it
concluded that the cost of remediation constituted an offsetting claim, it ceased making payments
to plaintiff; plaintiff commenced this suit on the basis of defendants’ failure to make payments.
Defendants’ “defense” was to commence a counterclaim asserting that, for one reason or
another, plaintiff was liable for some or all of the cost of remediating the leachate contamination.
The merits of that counterclaim are the subject of this appeal, although we note that defendants
have tacitly abandoned their tort-based claims.4
We first briefly address defendants’ claims based on breach of contract. Defendants
assert, and we agree, that a contractual warranty term is essentially a bargained-for purchase by
the buyer of insurance from the seller that some fact is as represented. It is therefore not
defeated by the buyer’s mere suspicion that those facts are actually untrue, so long as the buyer
genuinely relied on the warranty being – in the abstract – a part of the contract. See Galli v Metz,
973 F 2d 145, 150-151 (CA 2, 1992), which is not binding on this Court, but we find persuasive.
It is therefore true that the buyer’s “reasonable reliance” on the facts stated in a contractual
warranty term is not the standard for evaluating whether the seller is liable for breaching that
term. However, a buyer cannot genuinely rely on a warranty term if it should be patently
obvious to the buyer that those facts are blatantly false. Hardy v Stoepel, 162 Mich 676, 677678-679; 127 NW 703 (1910). More importantly in this case, a buyer cannot rely on a
contractual warranty that was not included in the contract. Id.
Defendants concede that the contract did not include an explicit statement that leachate
had been properly pumped. In fact, the contract contains almost the opposite. The sale
documents included at least two explicit statements that the Department of Environmental
Quality was asserting violations of rules pertaining to contamination. Defendants contend that
plaintiff failed to disclose “material liabilities” that could give rise to significant obligations like
the cost of leachate remediation. But the contract documents, when read as a whole, treat the
environmental concerns specially. Plaintiff’s failure to pump leachate unambiguously falls under
the umbra of “ongoing rules violations” claimed by the Department of Environmental Quality.
All parties were aware that the DEQ was alleging groundwater contamination. The contract does
not contain any provision seeming to warrant that the DEQ’s position is incorrect. Rather,
environmental matters are addressed specifically, and within that context, violations of DEQ
rules are carved out as an area in which the buyer must beware. We simply find no warranty in
the contract on which defendants could have relied pertaining to environmental contamination of
the sort alleged.
Defendants also assert that plaintiff is liable under the terms of the Natural Resources and
Environmental Protection Act (NREPA), MCL 324.101 et seq. We lack a record sufficient to
4
The trial court held that defendants could not prevail on any tort-based fraud or
misrepresentation claims because it was unreasonable for them to have relied on plaintiff’s
statements that leachate had been properly pumped during his tenure as president. In a nutshell,
defendants’ claims in this appeal are that they still have remaining causes of action that are
meritorious irrespective of whether their reliance was unreasonable.
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determine this, but we agree that the trial court misconstrued one of the sections on which
defendants rely.
“The NREPA (formerly the Michigan Environmental Response Act, [(MERA, MCL
299.601 et seq)], is a complex statutory scheme intended to provide for the identification of
environmental contamination and to provide for response activities at such sites.” Gumma v D &
T Const Co, 235 Mich App 210, 220; 597 NW2d 207 (1999). Among other provisions, MCL
324.20126 provides that “various persons shall be liable for costs related to the removal of the
environmental contaminants.” Id. In particular, it imposes liability on “[t]he owner or operator
of a facility if the owner or operator is responsible for an activity causing a release or threat of
release,” MCL 324.20126(1)(a), and “[t]he owner or operator of a facility at the time of disposal
of a hazardous substance if the owner or operator is responsible for an activity causing a release
or threat of release.” MCL 324.20126(1)(b). A “‘[r]elease’ includes, but is not limited to, any
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, or disposing of a hazardous substance into the environment.” MCL
324.20101(bb).5 “Such an owner or operator is jointly and severally liable for ‘[a]ny ...
necessary costs of response activity incurred by any . . . person consistent with rules relating to
the selection and implementation of response activity[.]’ MCL 324.20126a(1)(b).” Howell Twp
v Rooto Corp, 258 Mich App 470, 479-480; 670 NW2d 713 (2003).
In relevant part,6 the NREPA defines “owner” as “a person who owns a facility,” MCL
324.20101(z), and it defines “operator” as “a person who is in control of or responsible for the
operation of a facility.” MCL 324.20101(y). The definitions under the predecessor MERA were
substantially identical. “Owner” was defined as “a person that owns a facility,” MCL 299.603(t),
and “operator” was defined as “a person that is in control of or responsible for the operation of a
facility.” MCL 299.603(u). In examining the definitions under the MERA, this Court explained
that, because they were defined in the present tense, the predecessor to MCL 324.20126(1)(a)
must be interpreted “as applying to current owners or operators of a facility.” Farm Bureau Mut
Ins Co of Michigan v Porter & Heckman, Inc, 220 Mich App 627, 642-643 n 11; 560 NW2d 367
(1996). The trial court correctly concluded that MCL 324.20126(1)(a) was inapplicable to
plaintiff because plaintiff was neither an owner nor an operator at the time of the suit.7
Significantly, however, this Court in Farm Bureau Mut Ins carefully distinguished
subpart (a) from, among other things, subpart (b): “the remaining ‘operator’ provisions . . . apply
to noncurrent operators; provision b applies to operators of the facility at the time the disposal
occurred, i.e., former operators. . .” Farm Bureau Mut Ins Co of Michigan, supra at 643 n 11.
This is entirely consistent with the distinction drawn in the present statute:
MCL
5
It is undisputed that the leachate contamination at issue in this case constitutes a “release”
within the meaning of the NREPA.
6
The NREPA and the MERA both contain numerous, detailed exceptions to these definitions,
none of which are pertinent to this case.
7
We note also that we agree with the trial court’s disposal of all other subparts of that statute,
other than subpart (1)(b).
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324.20126(1)(a) applies to owners or operators who are responsible for a release, and MCL
324.20126(1)(b) applies to owners or operators who were responsible for a release.
The trial court held that plaintiff was also not liable under MCL 324.20126(1)(b) because
he was never an owner or operator “at the time of disposal of a hazardous substance.” A
“disposal” is defined as “the discharge, deposit, injection, dumping, spilling, leaking, or placing
of any hazardous substance into or on any land or water so that the hazardous substance or any
constituent of the hazardous substance may enter the environment or be emitted into the air or
discharged into any groundwater or surface water.” MCL 324.20101(i). This definition appears
to be functionally identical to a release, but phrased so that the hazardous substance could enter
the environment, as opposed to actually doing so. We therefore disagree with the trial court’s
finding that a “disposal” depended on whether the landfill was operationally receiving waste.
Although there is no Michigan case law on point, the similar and often persuasive8
federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42
USC 9601 et seq (CERCLA), apparently reaches the same conclusion. Under that framework,
“‘disposal’ stand[s] for activity that precedes the entry of a substance into the environment and
‘release’ stand[s] for the actual entry of substances into the environment.” United States v 150
Acres of Land, 204 F 3d 698, 706 (CA 6, 2000). Thus, accumulation of a hazardous substance to
the extent that it could escape into the environment constitutes a “disposal.” “Disposal” as
defined in 150 Acres of Land does require some kind of active human conduct. Id. at 705-706.
Therefore, no “disposal” takes place if a party merely passively fails to remove contaminants that
have come onto their property, even if the party knows of the contamination. Bob’s Beverage,
Inc v Acme, Inc, 264 F 3d 692, 697-698 (CA 6, 2001).
Plaintiff argues that leachate accumulation is passive and therefore cannot constitute a
“disposal.” But we find that “disposal” actually constitutes a perfect description of leachate
accumulation in a landfill that precipitates a “release” thereof into the surrounding soil. This is
not a situation of passive failure to do anything about a preexisting condition: both federal cases
were concerned with property owners who just happened to inherit a preexisting condition and
proceeded to ignore it. In contrast, it is undisputed that pumping leachate was an affirmative
obligation of whomever was ultimately responsible for maintaining the landfill. Plaintiff made a
conscious, voluntary decision to cease doing so. Although this does not rise to the level of
actively placing hazardous substances into the landfill, it goes beyond merely ignoring a
preexisting condition. We find plaintiffs decision to cease pumping leachate as required to be a
sufficiently affirmative human activity to render the leachate accumulation a “disposal” under
the NREPA.
Although plaintiff was never technically the owner of the Richfield Landfill, he was “a
person who is in control of or responsible for the operation of a facility.” Because leachate
accumulation is a “disposal,” plaintiff was an “operator” of the landfill “at the time of disposal of
a hazardous substance.” MCL 324.20126(1)(b). However, it is not clear to us from the record
8
See, e.g., Genesco, Inc v Michigan Dep’t of Environmental Quality, 250 Mich App 45, 50; 645
NW2d 319 (2002).
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whether there is any outstanding factual dispute as to whether plaintiff’s failure to pump leachate
actually caused the release of that leachate. We therefore cannot determine whether plaintiff was
“responsible for an activity causing a release.” If so, he meets the definition of a liable party
under MCL 324.20126(1)(b).
The trial court’s holding that plaintiff cannot be a liable party under MCL
324.20126(1)(b) is reversed; the trial court is affirmed in all other respects. We remand for
further proceedings consistent with this opinion. We do not retain jurisdiction.
/s/ Mark J. Cavanagh
/s/ Karen M. Fort Hood
/s/ Alton T. Davis
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