Drr, L.L.C. v. Sears, Roebuck and Co., Civil Action No. 94-401 MMS.

• Decision Date: 17 December 1996
• Docket Number: Civil Action No. 94-401 MMS.
• Citation: 949 F.Supp. 1132
• Court: U.S. District Court — District of Delaware
• Parties: DRR, L.L.C., a Delaware Limited Liability Corporation, Plaintiff, v. SEARS, ROEBUCK AND CO., a New York corporation, Defendant.

949 F.Supp. 1132

DRR, L.L.C., a Delaware Limited Liability Corporation, Plaintiff, v. SEARS, ROEBUCK AND CO., a New York corporation, Defendant.

Civil Action No. 94-401 MMS.

United States District Court, D. Delaware.

Argued November 12, 1996.

Decided December 17, 1996.

Christopher J. Battaglia, of Biggs & Battaglia, Wilmington, DE, for plaintiff.

Donald M. Ransom and Stacey L. Cummings, of Casarino, Christman & Shalk, Wilmington, DE; Of Counsel: Stuart J. Lieberman and Robert J. Cash, of Goldshore & Wolf, Plainsboro, NJ, for defendant.

OPINION

MURRAY M. SCHWARTZ, Senior District Judge.

I. INTRODUCTION

Plaintiff DRR, L.L.C., ("DRR"), a Delaware corporation, has filed suit against defendant Sears, Roebuck & Co. ("Sears"), a New York corporation, for claims arising out of its purchase of certain real property in Wilmington, Delaware. Docket Item ("D.I.") 1 at ¶ 2 of Complaint. Pursuant to a 1992 purchase and sale agreement, Ralph and Rosalind Paul ("the Pauls" or "Paul") bought property from Sears. Id. at ¶ 3. The Pauls later assigned their interest to DRR. Id. at ¶ 4. Following settlement, DRR began to redevelop the property. Id. at ¶ 9. In doing so, it discovered five 2,000 gallon underground storage tanks containing oil and oil compound. Id. at ¶ 10.

As a result of this environmental hazard, DRR ceased its redevelopment efforts and removed the tanks at an alleged expense of over $63,000.00. Id. at ¶ 18. DRR originally filed an action in the Delaware State Superior Court alleging Sears was responsible for the expenses incurred in DRR's clean-up of the tanks and the concomitant delay in redevelopment. Id. Count I of the complaint alleges a cause of action against Sears for fraud, and Count II is an action in strict liability against Sears for violating the Delaware Hazardous Substance Cleanup Act ("DHSCA"), DEL.CODE ANN. tit. 7, § 9101 et seq. (1991).

Sears answered, removed to this Court, and filed a counterclaim against DRR. In Count I of the counterclaim, Sears alleges, under the terms of the sales contract, DRR must indemnify, defend and hold harmless Sears from all costs arising from this lawsuit. D.I. 6 at 6, ¶ 6. In Count II, Sears alleges a breach of contract claim against DRR, because Sears made a demand that DRR indemnify, defend, and hold harmless Sears and DRR refused that demand. Id. at ¶ 8. In Count III, Sears alleges DRR violated its duty of good faith and fair dealing with Sears. Id. at 7, ¶ 13. For Counts I and II, Sears seeks attorney fees and a declaratory relief that DRR must abide by the sales contract and indemnify, defend, and hold harmless Sears from all claims and cost relating to this litigation. Id. at 6, ¶ 6(a), (b); id. at 7(a), ¶ 9(a), (b). Sears asks for the same relief for Count III, but also asks for compensatory and punitive damages. Id. at 8, ¶ 13(d).

Sears filed a motion for summary judgment on both of DRR's counts, and DRR responded with a motion for partial summary judgment limited to its fraud claim. This Court has original jurisdiction pursuant to 28 U.S.C. § 1332. For the reasons below, Sears' motion will be granted.

II. FACTUAL BACKGROUND

This dispute centers around the sale of Sears' Wilmington, Delaware store. The store was an old one; it had opened in 1950 and undergone significant reconstruction, including the addition of a new automotive service center in 1965. D.I. 76 at Exh. 1. Sears was looking to relocate to a more choice location in the Wilmington area. The Pauls were looking to prevent urban decay from engulfing their commercial investments in the immediate area. D.I. 25 at ¶ 4. To those ends, Sears entered into discussions with the Pauls regarding the sale of the store, including the automotive center. D.I. 73 at 16. By any account, Mr. Paul is an astute businessman, well-versed in commercial real estate dealings. D.I. 73 at 59.

Discussions yielded, on April 1, 1992, a proposed purchase and sales contract. The terms of the proposed contract are quite clear, and the result of negotiation through counsel. Paul was given a 120-day option to purchase the store for three million dollars. D.I. 73 at 32-34. In paragraph seven of the contract, the parties agreed that Sears "has not made any representations with respect to the condition of the Premises, and Purchaser [Paul] will otherwise accept it in an `as is' condition." D.I. 73 at 18. Further, the contract provided Paul with a 120-day period prior to settlement in which he could pursue due diligence tests and various other environmental studies of the store. D.I. 73 at 21-23. Finally, the other contractual provision relevant to this case is paragraph thirteen. Paragraph thirteen provides, in pertinent part:

13. Environmental Indemnification and Hold Harmless.

(a) ... [B]ecause Purchaser acknowledges that it will have ample opportunity to investigate the Premises, Purchaser agrees to indemnify, defend and hold harmless Seller ... from any claims, costs (including reasonable attorneys fees and court and arbitration costs), expenses, direct or indirect, causes of action, penalties, liabilities, losses and damages actually sustained and incurred by Seller ... arising from, alleged to arise from, or caused by, in whole or in part, the condi- tion of the Premises and specifically including any state or federal environmental claims arising because of hazardous material, ... or which arise from Purchaser's failure to perform obligations under this agreement.

(b) Purchaser shall be responsible for all reasonable attorney's fees incurred by Seller in connection with the environmental condition and/or environmental liabilities associated with the Premises. Counsel for Seller shall be selected by Seller and not Purchaser.

(c) This indemnity shall survive the closing.

D.I. 73 at 21 (emphasis added).

Counsel for Paul who negotiated the contract freely admitted that Paul was well aware of the legal significance of the "no representations" and "as is" clauses contained in paragraph seven. And although the Pauls were principally concerned about an asbestos problem (candidly acknowledged by Sears), Paul was also cognizant of the broad scope of the indemnification provision. Counsel for Paul interpreted the provision for his client: "Sears is saying they are not going to pay any of the costs to clean up any kind of problem you might encounter." D.I. 73 at 61-62.¹ Therefore, counsel for Paul appropriately recommended a Phase I environmental investigation.

Paul decided to forego the investigation, however; he simply let the sales contract lapse by failing to close within the 120 day period. D.I. 73 at 32. Two months later, however, the parties resuscitated the first contract by reducing the sales price from three million dollars to one million dollars and setting a new closing date. D.I. 73 at 32-34. Paul agreed to take the property on the same terms and without further investigation; he was also aware the indemnification clause fully applied to the final sale. Prior to closing, the Pauls validly assigned their rights to purchase the property to plaintiff DRR, a limited liability company created for the express purpose of redeveloping the former Sears store.

In a letter before closing, Sears sent a letter to the Pauls that read: "Sears hereby confirms to you its intention to remove at Sears [sic] sole and exclusive expense, the oil storage tank located at the Sears Auto Center. ..." D.I. 73 at 36. There were also four gas tanks in the general vicinity of the one oil storage tank. Sears was fairly certain the gas tanks had been removed but promised Paul that if they were still there, it would remove them at Sears' expense. D.I. 76 at Exhibit ("Exh.") 4. Sears eventually removed one oil tank sometime after closing, no gas tanks were found, and in Paul's opinion, "everything worked out well[.]" D.I. 73 at 37. Unfortunately, the relationship between the parties did not remain copacetic for very much longer.

Apparently, at the time of the renovation in 1965, a total of six 2,000 gallon underground storage tanks of waste oil were abandoned. Sears had removed one tank it knew about, but that left a total of five oil tanks, oozing with hazardous materials, still hidden in the earth. They would not stay hidden for long. In December of 1993, while excavating a portion of the parking lot, a DRR construction manager discovered oil-stained soil. D.I. 24 at 2, ¶ 9. Construction ceased immediately. By December 9th of 1993, DRR had discovered and removed five tanks and the 3,500 gallons of oil and water that remained in them. D.I. 76 at Exh. 6. Both parties agree a Phase I environmental investigation would have disclosed the existence of the tanks. D.I. 75 at 13.

This discovery triggered a flurry of fruitless correspondence. DRR's contracting counsel wrote:

I recognize that the Contract of Sale clearly cast the environmental responsibility on Ralph Paul, and I agree that he accepted that contractual provision, and is in the process of discharging that responsibility as to the asbestos problem in the building itself. However, Sears' pre-contract representations to him that there was one buried tank, and that Sears would remove it at no cost to him, led him to believe that Sears was accepting the responsibility for all underground tanks.

D.I. 73 at 40. Sears did not budge. The next step was another flurry of papers; this lawsuit, these motions.

Certain pertinent details regarding the parties' precontractual actions came to light. First, it appears Sears was not aware the five tanks at issue were still present at the time of closing. An internal Sears memorandum — entitled "Proposal to Sell" — contained a report on the property by Environmental Engineer Berradine Palka. D.I. 73 at 116-21. The report disclosed that one of the "environmental concerns" of the property was: "The original auto center was attached to the retail store. There had been a total of six 2000 gallon underground storage tanks for motor oil and used oil....