U.S. Home Corp. v. Settlers Crossing, LLC

• Decision Date: 18 July 2014
• Docket Number: Civil Action No. DKC 08–1863.
• Court: U.S. District Court — District of Maryland
• Parties: U.S. HOME CORPORATION v. SETTLERS CROSSING, LLC, et al.

33 F.Supp.3d 596

U.S. HOME CORPORATION

v.SETTLERS CROSSING, LLC, et al.

Civil Action No. DKC 08–1863.

United States District Court, D. Maryland.

Filed July 18, 2014.

Kristen Nichole Nesbitt, Meng–Wei Peggy Chu, Renee N. Sewchand, Goodell Devries Leech and Dann LLP, Baltimore, MD, Adam B. Lavinthal, David L. Harris, David S. Sager, Jason E. Halper, Lowenstein Sandler PC, Ryan J. Cooper, Goodell Devries Leech and Dann LLP, Roseland, NJ, Daniel Petrocelli, David Marroso, O'Melveny and Myers LLP, Los Angeles, CA, for U.S. Home Corporation.

John J. Sabourin, Jr., Joseph Severino Luchini, Stephen Todd Fowler, Thomas R. Folk, Reed Smith LLP, Falls Church, VA, Kara L. Fischer, Timothy Francis Maloney, Veronica Byam Nannis, Joseph Greenwald and Laake PA, Lawrence Roger Holzman, The Holzman Law Firm, Greenbelt, MD, Eric A. Kuwana, John Arthur Rosans, Katten Muchin Rosenman LLP, Washington, DC, Jennifer Cecelia Ryan, Timothy J. Patenode, Katten Muchin Rosenman LLP, Chicago, IL, for Settlers Crossing, LLC, et al.

MEMORANDUM OPINION

DEBORAH K. CHASANOW, District Judge.

After more than six years of litigation, in a case generating over 700 docket entries, this contract dispute involving the proposed sale of 1,250 acres of land in Prince George's County, Maryland, has narrowed to two basic issues: whether there are materials present on the property of a type, from a source, and to a degree sufficient to breach the environmental representations and warranties of the parties' contract, and whether the seller's conduct in responding to a formal request for entry constituted a material breach. In order to resolve those issues, a bench trial was held from March 31 to April 15, 2014. Upon consideration of the evidence adduced at trial, and the parties' arguments with respect thereto, the court now issues findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a).¹

I. Background

On November 15, 2005, Plaintiff/Counter–Defendant U.S. Home Corporation (“U.S. Home”), a subsidiary of Counter–Defendant Lennar Corporation (“Lennar”; together with U.S. Home, “Purchaser”), entered into an agreement to purchase the sole membership interest in Defendant/Counter–Plaintiff Washington Park Estates, LLC (“WPE”), held by Defendant/Counter–Plaintiff Settlers Crossing, LLC (“Settlers Crossing”). The agreement (“Purchase Agreement”) contemplated that, at the time of settlement, WPE would hold title to approximately 1,250 acres of undeveloped real estate in Prince George's County, Maryland, known as the Bevard property (“the Property”). Thus, by acquiring Settlers Crossing's membership interest in WPE, U.S. Home would acquire the Property, upon which it planned to build a large residential community. Concomitantly with the Purchase Agreement, U.S. Home entered into a contract with Defendant/Counter–Plaintiff Bevard Development Company (“BDC”), pursuant to which BDC was to complete certain development work on the Property (“Contract for Services”). The combined price of the Purchase Agreement and Contract for Services was $200 million, and U.S. Home paid deposits totaling $20 million. Defendant Steven Sandler (“Mr. Sandler”)—who controlled Settlers Crossing, WPE, and BDC (collectively, “Seller”)—personally guaranteed Seller's obligations under the contracts, promising repayment of the deposits in the event of a breach. (ECF No. 649, stipulations).

For several months prior to entering into the agreements, Purchaser was given free access to the Property in order to conduct feasibility testing. As reflected in the Purchase Agreement, Seller provided U.S. Home with “all site plans, lease agreements, title reports, surveys, environmental reports, soil studies, arch[a]eological studies, geotechnical reports and other tests, studies and documents prepared by third parties pertaining to the Property ... in [its] possession[.]” (JTX 41 ¶ 9).² Those reports included a 2001 Phase I Environmental Site Assessment (“ESA”) conducted by Schnabel Engineering North, LLC (“Schnabel”), Schnabel's September 2004 update to the Phase I ESA, a Phase I Archaeological Survey conducted by URS Corporation, Inc. (“URS”), and reports of geotechnical and subsurface investigations prepared by Hardin–Kight Associates, Inc. (“Hardin–Kight”). (ECF No. 649 ¶ 11).

The stated purpose of Schnabel's 2001 Phase I ESA was “to obtain information that would allow the development of an opinion regarding the potential for ‘recognized environmental conditions' being present on or near the site that could present major development difficulties, liability exposure, or the need for Phase II sampling and testing.” (JTX 25, at SCH0000061). Schnabel defined the term “recognized environmental conditions,” in accordance with guidelines set by the American Society for Testing and Materials (“ASTM”), as

the presence or likely presence of any hazardous substances or petroleum products on a property under conditions that indicate an existing release, a past release, or a material threat of a release of any hazardous substances or petroleum product into structures on the property or into the ground, ground water, or surface water of the property.

(Id. ). The report noted that “the site and adjacent properties ha[d] been used agriculturally and mined for sand and gravel since 1957” and that “Area 1 was heavily mined and replenished with fill material that has the potential to contain heavy metals, sludge, and varying debris.” (Id. at SCH00000599).³ Schnabel opined that the “[p]otential fill material throughout Area 1” constituted a “ ‘recognized environmental condition [ ]’ under the ASTM guidelines” (id. at SCH00000616), and advised that the “extent and character of the fill material w[ould] be identified upon completion of the geotechnical portion of th[e] investigation” (id. at SCH00000599).

Schnabel updated its Phase I ESA in 2004 “to document changes to the site and surrounding area that may have occurred since the previous report was issued.” (JTX 29, at ECC 00001129). In initially summarizing its prior work, Schnabel noted the results of its geotechnical investigation:

According to the original ESA[,] date[d] May 25, 2001, Area 1 was heavily mined for sand and gravel approximately 10 years before the original report. The area was suspected to contain large amounts of fill[,] possibly containing debris, sludge, and heavy metals. Subsequently, a geotechnical study was performed by Schnabel in May and June of 2001 to assess subsurface conditions of Area 1. Twenty-two soil borings were advanced to a maximum depth of twenty-five feet. Fill/possible fill ranges in depth from approximately 2.0 to 18.0 feet below the surface elevation. However, no debris, sludge, or heavy metals were noted.

(JTX 29, at ECC 00001138). Schnabel found “[n]o significant changes to the subject properties ... since the previous assessment” (id. at ECC 00001129); identified no “recognized environmental conditions” on the Property (id. at ECC 00001150); and recommended “no additional environmental investigations” (id. at ECC 00001129). It cautioned, however, that “[a]ll conclusions are qualified by the fact that no soil or ground water sampling or chemical testing was conducted under this contract.” (Id. at ECC 00001135).

URS provided a report of its Phase I Archaeological Survey in June 2005, the stated purpose of which was “to evaluate the presence or absence of archaeological resources” on the Property. (JTX 35, at USH–00029069). URS noted that the Property was “known to have extensive prehistoric and historic occupations,” but that “most of the area is also known to have been mined by the Silver Hill Sand & Gravel Company in the late twentieth century.” (Id. ). It generally attributed the lack of artifacts found on the Property to “disturbed fill layers” and other “soil characteristics [that] reflected the mining process[.]” (Id. ). This conclusion was supported by information it learned regarding the prior mining operation:

The largest pieces of the three property assemblages are comprised of land purchased from descendants of the Bevard family, who operated Bevard Farms and the Silver Hill Sand & Gravel Company....

Despite the name Bevard Farms, much of the project area is known to have been mined for sand and gravel under the auspices of the Silver Hill Sand & Gravel Company. The following promotional material for the Mud Cat Dredge describes what took place at the project area during the cleaning of the gravel, and accounts for the ground conditions observed there during the recent survey:

... At Silver Hill, the gravel is scrubbed to remove a 10% clay content.

After the gravel is washed, the slurry containing suspended clay and mud runs into a slurry pond where fines settle out. In the process of running 2,500 tpd, as much as 500 cu. yds. of the clay-mud mixture [is] generated and added daily to the slurry pond.

....

Originally, the Silver Hill crew cleaned the pond with traditional dragline and clamshell techniques. Then the company installed a Mud Cat™ portable hydraulic dredge.

According to [Sonny] Bevard, the Mud Cat™ sucks and pumps the clay-mud mixture a distance of 3,800 ft. through an 8–in. discharge pipe. “We decided to reclaim and raise the level of the land,” said Bevard, “and the only way to get the clay substance to dry out enough for the land to be stable is to spread [it] out in very thin layers. We plow furrows, much like forming ridges for a row of seeds, and direct the Mud Cat's™ pipe discharge over the furrows, pouring the substance in thin layers over the land.”

Once the clay dries, the land is plowed again to further aerate it before another layer is added to the surface. After it is completely reclaimed, the land will be sold for building development.

(Id. at USH–00029077). The URS report further observed that a wastewater treatment plant operated on the Property and that sludge from that plant had been applied to a small portion:

Running through the project area is the Piscataway Wastewater

...