Future Use of Polluted Site May Affect Allocation of Clean-up Costs

An owner who has incurred remedial action costs and then seeks to recover those costs from prior operators may not want to highlight its intended future use of the property.  In a recent environmental cost-recovery case, a Federal District Court assigned a 25 percent share to the owner, Yankee Gas, stating the most relevant consideration was its plans to use the site as a future training facility for its employees.  Yankee Gas Services v. UGI Utilities, No. 3:10-cv-580 (MRK) (D. Conn. March 30, 2012).  The Yankee Gas case is a typical environmental clean-up case involving the equitable allocation of remedial action costs between a site owner and its operators.  The owner understood the nature of its tenant’s operations, knew they were likely to cause environmental harm, and benefitted from the tenant’s operations in the form of rent.  While these facts were considered, the court said “the most relevant consideration” was the owner’s plan to use the property for its own purposes (i.e., as a training facility for its employees.)

The court’s focus on the planned future use appears to be a new twist on a common equitable factor:  the potential benefits to be realized by the land owner when the site is cleaned up.  In deciding to assign the owner a 25 percent share, the court seemed to look beyond the potential economic benefits of a cleaned-up property and instead focused on the nature of the owner’s future use.  The court also didn’t appear to be overly influenced by the owner’s dual role as both an owner and an operator.  While the court assigned the owner a share of the 75 percent allocated among the operators, it did not provide any indication that the owner’s dual role was a factor.

Yankee Gas’s expert witness also didn’t help its cause, and this case stands as a lesson as to why a lawyer should be familiar with an expert’s prior testimony in related cases.  At issue was the expert’s prior testimony suggesting that a “typical owner’s share” is 20 percent.  Despite, Yankee Gas’s best attempts to argue for a zero share, it was stuck with what its expert had stated previously.  The court also took issue with Yankee Gas’s expert’s inability to offer any reason as to why his client (the owner) should not be allocated a share in this case.

Yankee Gas provides support to site operators who wish to argue for the site owner taking a greater share of liability.  It also seems to make future site use a key consideration, likely as part of any court’s consideration of the potential benefits to be realized by the land owner.