500 Associates v. Natural Resources & Envi., No. 2004-CA-000339-MR.

• Decision Date: 22 September 2006
• Docket Number: No. 2004-CA-000339-MR.,No. 2004-CA-000451-MR.
• Citation: 204 S.W.3d 121
• Parties: 500 ASSOCIATES, INC., Appellant, v. NATURAL RESOURCES AND ENVIRONMENTAL PROTECTION CABINET, Appellee. Vermont American Corporation, Cross-Appellant, v. 500 Associates, Inc.; and Natural Resources and Environmental Protection Cabinet, Cross-Appellees.
• Court: Kentucky Court of Appeals

Page 121

204 S.W.3d 121

500 ASSOCIATES, INC., Appellant, v. NATURAL RESOURCES AND ENVIRONMENTAL PROTECTION CABINET, Appellee.

Vermont American Corporation, Cross-Appellant, v. 500 Associates, Inc.; and Natural Resources and Environmental Protection Cabinet, Cross-Appellees.

No. 2004-CA-000339-MR.

No. 2004-CA-000451-MR.

Court of Appeals of Kentucky.

September 22, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Glenn A. Cohen, Paul J. Hershberg, Cynthia L. Effinger, Louisville, KY, for Appellant, 500 Associates.

Charles G. Middleton III, Dana L. Collins, Louisville, KY, for Appellee, Vermont American Corporation.

Barbara M. Pauley, Troy A. McPeak, Frankfort, KY, for Appellee, Environmental Cabinet.

Before HENRY, JOHNSON, and SCHRODER, Judges.

OPINION

JOHNSON, Judge.

500 Associates, Inc. (500) has appealed from the November 4, 2003, opinion and order of the Franklin Circuit Court which assessed liability for environmental contamination at a vacant industrial lot located at 500 East Main Street in downtown Louisville, Kentucky, (the property site) where hazardous substances have been released. Vermont American Corporation (VAC) filed a cross-appeal in this case, appealing the same order.¹ Having concluded that the circuit court's ruling was not clearly erroneous, we affirm.

FACTS

On February 12, 1998, the Natural Resources and Environmental Protection Cabinet, now known as the Environmental and Public Protection Cabinet, (the Cabinet) instituted the underlying action by filing an administrative complaint against VAC and 500 to hold both responsible for characterization and remediation of the property site. The Cabinet filed this case based on evidence collected by the Cabinet's Division of Waste Management (DWM)² which the Cabinet claimed showed a violation by both parties of Kentucky's Superfund statute, KRS³ 224.01-400, by failing to comply with certain obligations regarding alleged hazardous substances that were released on the property site.⁴ The Cabinet sought its response costs from VAC and 500, as well as substantial civil penalties.

From 1949 to 1986, VAC owned the subject property site and operated thereon its American Saw and Tool Division, where it manufactured circular saw blades and hand tools. During this 37-year period, VAC generated various hazardous wastes associated with its electroplating and metal heat treatment operations.⁵ VAC was registered with the Cabinet as a large-quantity hazardous waste generator and produced an average of 65,470 gallons of waste water per day. VAC released untreated waste water and hazardous substances on numerous occasions during its ownership.

In March 1986 VAC closed its manufacturing operations and undertook steps to decommission the property. VAC hired Petrochem to restore the buildings to acceptable industry standards. All decommissioning took place inside the buildings, except for some cleaning and the partial removal of a roof on one of the buildings. These activities generated additional hazardous waste. After decommissioning, residues from the chemicals VAC had used and wastes it had generated were left in pits and trenches.

Subsequently, in 1986, 500, a group of commercial⁶ real estate developers, were working on a redevelopment plan and became interested in purchasing the buildings on the property and negotiations with VAC ensued. In 1987, 500 and VAC entered into a contract for purchase, which granted 500 access to the property for purposes of conducting an environmental audit. 500 then conducted a cursory pre-purchase investigation and inspection into the condition of the building and hired an environmental consultant named Ro-Tech, Inc. to evaluate VAC's decommissioning work. Ro-Tech inspected the property for hazardous chemicals and wastes. At this time, the principals of 500 had specific knowledge of the potential for discovery of hazardous materials at the property site, since they had purchased an industrial parcel next to the property which was contaminated with asbestos.⁷

Ro-Tech conducted an on-site inspection; obtained information regarding the decommissioning work performed by Petrochem; reviewed records concerning VAC's operations, wastes, and permits; and discussed the condition and cleanup of the property with VAC's environmental, health, and safety director Tim Daniel. Ro-Tech questioned Daniel regarding hazardous chemical spills and he represented that VAC had experienced only one hazardous chemical spill in 1982, involving approximately 100 gallons of nickel. According to Daniel, VAC had subsequently reported this spill to the Jefferson County Metropolitan Sewer District (MSD), but neither VAC nor MSD believed that the nickel spill posed an environmental hazard. Ro-Tech did not take any samples of environmental media or take samples of soil or groundwater as part of its assessment of the property site. Further, Ro-Tech did not review available public documents about the property.

In discussing the property with 500, Ro-Tech identified at least one hazardous substance, chromium, as a bi-product of VAC's operations. However, Ro-Tech concluded that Petrochem had followed adequate procedures in the decommissioning of the facility based upon the standards in existence at the time, and that VAC had adequately decontaminated the plating and waste treatment areas. Accordingly, Ro-Tech's report to 500 gave the site a clean bill of health prior to 500's purchasing the property, and recommended no further testing. On August 31, 1987, 500 purchased the property from VAC.⁸

500 claims that for more than a decade after it acquired the property, it had no knowledge of any spills. Accordingly, it took no extraordinary steps when it set about to remodel the structure. However, the Hearing Officer found that 500 was made aware by Ro-Tech's report that hazardous materials were handled on the site by VAC, that Ro-Tech failed to take soil samples, and that Ro-Tech identified at least one hazardous substance, i.e., chromium, on the property. In 1990, 500 demolished a portion of one of the buildings in order to create a courtyard, which was the same part of the property where VAC formerly conducted electroplating and waste water treatment operations. In doing so, 500 moved concrete and exposed the earth below. Also during 1990, 500 entered into an agreement to sell the property to Doe Anderson Advertising Agency. Doe Anderson hired its own environmental consultant, ERCE, to conduct a two-tier, pre-acquisition assessment of the property, which unlike the assessment conducted by 500, included a review of available public records and soil and groundwater sampling. Analytical results revealed presence of various inorganic constituents, elevated levels of metals, and volatile organic compounds. Further, samples from installed groundwater monitoring wells indicated various inorganic constituents along with chlorinated solvents exceeding the groundwater Maximum Containment Levels in 401 KAR⁹ 34:060. Because extensive releases of hazardous waste had occurred at the property, and because ERCE's investigation revealed the residual effects of those releases, the level I pre-acquisition assessment included a recommendation to undertake further investigation of the potential environmental impact.

500 received a copy of the initial assessment in the fall of 1990. 500 claimed that this was when it first learned of contamination at the property, and acknowledged that samples taken from beneath the concrete floors revealed contamination. However, 500 stated that it contacted VAC after the findings of ERCE and repeated its request for information regarding the contamination. VAC provided no information, and again denied having any spills or releases during the operations that might have been the origin of contamination. 500 did not share ERCE's findings with the Cabinet, and it did not notify the Cabinet about contamination at the property after learning about it in 1990.

Despite information it had obtained from several sources, 500 still failed to take any remedial action at the property in response to data uncovered through the sampling analysis. ERCE then commenced a level II pre-acquisition assessment in order to identify concentrations of hazardous materials in the soil, water, and air. ERCE took four samples from the remaining pit and trench draining systems in three of the buildings. This report identified residual contamination in the pits in one of the buildings. Analytical results confirmed the presence of various inorganic constituents and volatile organic compounds.

In 1991, 500 retained a second consulting firm, Law Environmental, Inc., to conduct soil sampling on the property. Analytical results from 44 soil and soil gas samples across the property detected volatile organic compounds. Law Environmental confirmed the presence of hazardous substances, but found that the source was likely another property. 500 neither reported the results of Law Environmental's investigation to the Cabinet, nor took remedial action. However, Doe Anderson withdrew from the purchase agreement after these findings were made.

The Cabinet, in September 1994, began its investigation of the property by requesting information from VAC and 500 about releases of hazardous substances. On March 13, 1996, the Cabinet conducted groundwater sampling of the wells that were installed in 1990. Relying on the data developed during this sampling, the Cabinet informed 500 and VAC of the contamination and of their obligations under KRS 224.01-400. VAC denied that the site was a source of contamination, and claimed that 500 caused the releases when it demolished part of the building where VAC had conducted electroplating operations. The Cabinet's investigation confirmed the existence of contamination on the property site and in the groundwater. In 1996 the Cabinet informed VAC and 500 that both were obligated to characterize and remedy the releases on the property.

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