Ferris Avenue Realty, LLC v. Huhtamaki, Inc.

• Decision Date: 18 February 2011
• Docket Number: C.A. PB 07-1995
• Parties: FERRIS AVENUE REALTY, LLC v. HUHTAMAKI, INC. as successor to HUHTAMAKI FOODSERVICE, INC. and HUHTAMAKI-EAST PROVIDENCE, INC.
• Court: Superior Court of Rhode Island

FERRIS AVENUE REALTY, LLC v. HUHTAMAKI, INC. as successor to HUHTAMAKI FOODSERVICE, INC. and HUHTAMAKI-EAST PROVIDENCE, INC.

C.A. No. PB 07-1995

Superior Court of Rhode Island

February 18, 2011

DECISION

SILVERSTEIN, J.

Before this Court is a Super. R. Civ. P. 56 motion for summary judgment brought by Plaintiff Ferris Avenue Realty, LLC (Ferris Avenue) against Defendant Huhtamaki, Inc. as corporate successor to Huhtamaki Foodservice, Inc. and Huhtamaki-East Providence, Inc. (Huhtamaki). Ferris Avenue seeks summary judgment as to liability on Count II of its First Amended Complaint for breach of the indemnity agreement and on all five counts of Defendant's First Amended Counterclaims. Huhtamaki has asserted counterclaims for (1) fraudulent inducement; (2) fraudulent misrepresentation; (3) negligent misrepresentation; (4) breach of contract; and (5) breach of the implied covenant of good faith and fair dealing.

I Facts and Travel

Ferris Avenue is a Rhode Island limited liability company engaged in the business of real estate ownership, management, and development. Huhtamaki Foodservice, Inc. was a Delaware corporation authorized to do business in the State of Rhode Island and engaged in the sale of paper products. See Stringer Dep. Tr. 25:1-27:13, May 19, 2010. Huhtamaki-East Providence, Inc. was a Rhode Island corporation engaged in the manufacturing of paper products and the owner of real estate located at 275 Ferris Avenue East Providence, Rhode Island (Property). Id. By January 2010, both Huhtamaki Foodservice, Inc. and Huhtamaki-East Providence, Inc. had been merged into Huhtamaki, Inc., a Kansas corporation with its principal place of business in DeSoto, Kansas and authorized to do business in the State of Rhode Island. Id.

The Property consists of approximately 22.21 acres, portions of which had either been used as a disposal area or had been contaminated by "residual No. 6 fuel oil."^1[] See Stringer Dep Ex. 11 § 2.0; Def.'s Opp'n Mem. Ex. B ¶ 5. The Property has been "improved with a 320, 000 square-foot manufacturing building, a paint shop, a hazardous materials storage shed, a carpenter's shop, several additional small outbuildings, a water tower (for fire suppression), and associated paved parking areas." See Stringer Dep. Ex. 11 § 2.0. Additionally approximately five acres at the northeast end of the Property were undeveloped and vegetated. Id.

In or about 2003, the Property was listed for sale with two commercial real estate brokers, Hart Corporation and NAI/MG Commercial Real Estate (collectively, Brokers). See Stringer Dep. Tr. 34:2-25, May 19, 2010. On March 3, 2003 Granoff Associates, LLC (Granoff), Ferris Avenue's managing member, sent the Brokers a written offer to purchase the Property through its own broker, CB Richard Ellis. See Ferris Avenue Dep. Tr. 3:18-25, Sept. 30, 2010; Stringer Dep. Tr. 41:13-16, May 19, 2010; Stringer. Dep. Ex. 8. Granoff offered $3, 400, 000 to purchase the Property, but required a Representations and Warranties Agreement and an Indemnity Agreement Regarding Hazardous Materials (Indemnity Agreement) (collectively, Subject Agreements) for its benefit and as partial consideration for the purchase price. See Stringer Dep. Tr. 45:6-23, May 19, 2010; Stringer Dep. Ex. 8. Huhtamaki accepted and signed Granoff's offer on March 6, 2003. See Stringer Dep. Tr. 46:1-5, May 19, 2010.

Although a purchase and sale agreement was not drafted, Ferris Avenue and Huhtamaki "heavily" negotiated the Indemnity Agreement before executing it at the time of the Closing.^2[] See Stringer Dep. Tr. 71:13-23, 79:4-8, May 19, 2010. The Indemnity Agreement covered all 22.21 acres purchased by Ferris Avenue and its provisions survived the sale of the Property. See Def.'s Opp'n Mem. Ex. D. Under its terms, Huhtamaki covenanted and agreed to "indemnify, protect and hold harmless [Plaintiff] from and against any and all Damages (including without limitation reimbursement of clean-up costs)" directly or indirectly arising out of the presence or release of various hazardous substances existing on the Property on or prior to the Closing.^3[] Id. § 2.

The Indemnity Agreement also provided separate procedures by which the parties could assert and resolve indemnification claims. See id. § 6. Where a third party asserted a claim against it, Ferris Avenue was required to give Huhtamaki notice (Claim Notice) "with reasonable promptness" and to cite the "nature of and specific basis for [the] claim" and "the amount or estimated amount thereof to the extent then feasible." Id. § 6(a). Huhtamaki was thereafter required to respond within 10 days from delivery or mailing of the Claim Notice (Notice Period) and notify Ferris Avenue of (1) whether it disputed liability, or (2) whether it [would] defend Ferris Avenue against the claim or demand. Id.

In those instances in which Ferris Avenue possessed claims against Huhtamaki that were unrelated to a claim or demand from a third party, Ferris Avenue was simply required to "send a Claim Notice with respect to such claim to the Indemnitor." Id. § 6(c). Any disputes of the claim by Huhtamaki were to be resolved by litigation. Id.

In addition to its indemnification obligations, under the Indemnity Agreement, Huhtamaki generally agreed to "retain responsibility for any investigation or remediation measures required by the Rhode Island Department of Environmental Management ["RIDEM"] and/or the U.S. Environmental Protection Agency that exist[ed] at the time of the Closing." See Def.'s Opp'n Mem. Ex. D § 3. Huhtamaki retained responsibility for, among other things, "finaliz[ing] the Environmental Land Use Restriction agreement." Id. These obligations extended only to the soil and groundwater conditions existing at the time of the Closing, and were satisfied "upon the issuance by the applicable authority of a 'certificate of completion' . . . confirming the work required by such authority ha[d] been completed and that no further work was required." Id.

In accordance with section 3, Huhtamaki prepared and the parties negotiated an Environmental Land Usage Restriction (ELUR) based on a template provided to them by RIDEM. See Steeves Dep. Tr. 22:1-3, Mar. 31, 2009; Stringer Dep. Tr. 38:8-10, May 19, 2010. Robert Steeves (Steeves), Huhtamaki's corporate environmental manager, was responsible for its preparation and submission, and Rochelle Stringer (Stringer), Huhtamaki's general counsel, also reviewed and approved the language. See Steeves Dep. Tr. 21:19-22:3, Mar. 31, 2009; Stringer Dep. Tr. 38:4-39:23, May 19, 2010. Although at the time of the Closing, an ELUR had not been finalized, one had been submitted to RIDEM in connection with Huhtamaki's April 29, 2003 Site Investigation Report (SIR). See Stringer Dep. Tr. 73:20-23, May 19, 2010; Stringer Dep. Ex. 11. This ELUR (Proposed ELUR) only prohibited residential use on a small portion (Affected Parcel) of the Property that was "determined to contain soil . . . contaminated with residual #6 fuel oil in excess of applicable leachability criteria." Id.

On or about April 30, 2003, Ferris Avenue's environmental consultant, Pamela McCarthy (McCarthy), emailed Steeves to question whether the Proposed ELUR would apply to the "area around the loading dock or for the entire site, " as she "was not aware of any other environmental issues that need[ed] to be addressed." See Steeves Dep. Ex. 10. McCarthy stated that her inquiry was the result of a conversation with a RIDEM representative, Jeff Crawford (Crawford), who indicated that "the ELUR would have to be placed on the entire lot since a Site Investigation Report [had] not completed for the entire site." Id.

Several days later, Steeves emailed Stringer to update her on his telephone conversation with McCarthy and to discuss whether Huhtamaki should complete a SIR for the entire Property. See Steeves Dep. Tr. 44:2-24, Mar. 31, 2009; Steeves Dep. Ex. 11. In part, Steeves wrote:

"[Pam's] understanding from Jeff Crawford @ [sic] RIDEM is that the ELUR must address the entire site, not just the residual oil – impacted area we proposed. The reason – we had never submitted a site-wide [SIR]. Before I call Jeff to see whether her information is correct, we need to decide whether to offer to produce such a report. . . . Pam stated that she planned to advise the buyer that it made no difference to her whether [the ELUR covered a] small area or the whole site. It would be a lot cheaper to broaden the ELUR than to compile a site-wide report, and if it makes no difference to the buyer, I can't see why we'd spend the money." See Steeves Dep. Ex. 11 (emphasis added).

On May 14, 2003, McCarthy emailed Brian Gill, a Granoff employee, and John Garrahy, Granoff's counsel, explaining that while the ELUR in its current form "was written in such a way that the restriction was only placed on the UST/loading dock area, " it was unacceptable to Crawford, and "a revised ELUR [would] probably be required by Huhtamaki."^4[] See Ferris Dep. Ex. Z. Although the ELUR had not been finalized, on May 22, 2003, the Property was sold to Ferris Avenue and the Indemnity Agreement was executed by the parties.^5[] The deed (Deed) conveying the Property to Ferris Avenue contained no language limiting the use of the Property or restrictions against subdivision or zoning changes. See Stringer Dep. Tr. 76:4-22, 133:24-134:7, May 19, 2010; Stringer Dep. Ex. 15.

On August 6, 2003, Steeves informed Stringer by email that RIDEM had "agreed to go with the soil management deed restriction on the '[A]ffected [P]arcel' only, but want [sic] an overall restriction on the entire [P]roperty for 'no use of groundwater for potable' and 'no use of the [P]roperty for residential development.'" See Steeves Dep. Tr. 71:23-72:25, Mar. 31, 2009; ...