U.S. Postal Service v. Phelps Dodge Refining Corp.

• Decision Date: 02 January 1997
• Docket Number: No. 92 CV 3855 (JG).,92 CV 3855 (JG).
• Citation: 950 F.Supp. 504
• Parties: UNITED STATES POSTAL SERVICE, Plaintiff, v. PHELPS DODGE REFINING CORPORATION and Phelps Dodge Corporation, Defendants.
• Court: U.S. District Court — Eastern District of New York

Page 504

950 F.Supp. 504

UNITED STATES POSTAL SERVICE, Plaintiff, v. PHELPS DODGE REFINING CORPORATION and Phelps Dodge Corporation, Defendants.

No. 92 CV 3855 (JG).

United States District Court, E.D. New York.

January 2, 1997.

Zachary W. Carter, United States Attorney, Eastern District of New York, Brooklyn, New York by Stanley N. Alpert, Jennifer C. Boal, and Charles S. Kleinberg, Assistant United States Attorneys, for Plaintiff.

Daniel M. Abuhoff, Harry Zirlin, and Stuart Hammer, Debevoise & Plimpton, New York City, for Defendants.

AMENDED FINDINGS OF FACT AND CONCLUSIONS OF LAW

GLEESON, District Judge:

INTRODUCTION

The United States Postal Service (the "Postal Service") has sued Phelps Dodge Refining Corporation ("Phelps Dodge") and its parent, the Phelps Dodge Corporation, alleging that defendants have breached an agreement for the sale of real property located in Maspeth, New York. Specifically, the Postal Service claims that Phelps Dodge breached an obligation to excavate lead- and cadmium-containing soil on the property that was the subject of a remedial action plan approved by the New York State Department of Environmental Conservation (the "DEC"). Plaintiff also claims that the agreement was based on a mutual mistake of fact that went to the heart of the bargain. In addition, plaintiff alleges that Phelps Dodge breached an obligation to remove all asbestos-containing materials from the property and to obtain a release of the City of New York's interest in portions of the property. Plaintiff seeks rescission of the contract of sale or, in the alternative, reformation of the contract's indemnification provision and damages for Phelps Dodge's breach.

A bench trial was held from June 7-20, 1995, and summations were held on July 13, 1995. In accordance with Rule 52(a) of the Federal Rules of Civil Procedure, this Court makes the following Findings of Fact and Conclusions of Law. For the reasons set forth below, the contract of sale is rescinded. Phelps Dodge is ordered to return the $14,740,000 that was paid for the property. In addition, interest must be paid on that sum from August 13, 1992, the day the complaint was filed, at the rate of 9 percent per annum.

FINDINGS OF FACT

The Agreement

1. The property that is the subject of this case is known as "Laurel Hill," and is referred to herein as the "site," the "property" or the "Phelps Dodge site." It consists of approximately 37 acres in a heavily industrialized area of Maspeth, Queens. The property is under and slightly east of the Kosciusko Bridge, on the Queens side of the Newtown and Maspeth Creeks, which comprise one body of water that runs east-west under the bridge. The creeks flow into the East River and are subject to its tidal influences.

2. The site was occupied by industrial users for more than 100 years. As early as 1875, a sulfuric acid plant was in operation there. In 1888, a copper refining plant and "phosphate works" was operated there on landfill placed between the Long Island Railroad tracks, which run east-west through the property, and the bulkhead along Newtown Creek. Ore and copper smelting were conducted there (in coal-fired furnaces until 1920, when the conversion to oil was made), as well as the repackaging of bulk acids that were apparently produced on the site. Phelps Dodge purchased the property in the late 1920s. It expanded and rebuilt the smelting plant and added, by 1939, a tin plant, a silver refinery and a nickel refinery. Phelps Dodge also built a copper sulphate plant, which produced copper sulfate and copper sulfate-based pesticides. Phelps Dodge ceased its operations on the property in 1983. Its activities produced hazardous wastes and introduced various contaminants into the soil and groundwater at the site, including lead and cadmium.

3. In 1985, the United States Postal Service considered purchasing the site for use as a mail processing plant. It retained a consulting firm, Sverdrup-Gilbane, which reported after a site evaluation that soil samples in the "footprint" area of the site, i.e., where the rectangular building would be constructed, exceeded the test limits for lead and cadmium. Sverdrup-Gilbane further reported that the extent of the contamination could not fully be defined without additional studies. A May 1985 report by Sverdrup-Gilbane provided a preliminary estimate that 15,000 cubic yards of contaminated soil (with a "hauling" volume of 16,500 cubic yards) would have to be excavated from the site, at a cost of approximately $3.9 million.

4. The Postal Service gave Sverdrup-Gilbane's report to Phelps Dodge and suggested that Phelps Dodge conduct further studies and work with the New York State Department of Environmental Conservation ("DEC") to design a plan to remediate the hazardous wastes.

5. In March 1986, Phelps Dodge's environmental consultant, Fred C. Hart Associates ("Hart"), issued a report that reflected Hart's study of the site. The report set forth several options for the remediation of wastes on the site, including excavation (with off-site removal of the excavated material) and an impermeable cap of concrete or asphalt over the contaminated soil. Hart recommended a cap. The DEC, however, criticized Hart's study and recommendation in May 1986 because of, among other things, insufficiencies in the data upon which it was based. The DEC further suggested that a cap might be inconsistent with future construction on the site. Penetrating the cap in the course of construction would expose the workers to hazardous soil and create airborne particles as well. The DEC recommended more testing, using proper protocols, before a best available solution could be determined.

6. The 1985 negotiations between Phelps Dodge and the Postal Service regarding the purchase of the site broke down. James T. Coe, Director of the Postal Service's Office of Real Estate, commenced a new round of negotiations with Phelps Dodge during the summer of 1986. On July 30, 1986, the Board of Directors of Phelps Dodge's parent company, the Phelps Dodge Corporation, approved the sale of the Phelps Dodge site to the Postal Service.

7. On August 13, 1986, Phelps Dodge and the Postal Service executed an Option and Contract for sale of the Phelps Dodge site (the "Option and Contract") for a purchase price of $14,640,000. (Plaintiff's Exhibit ("PX") 34). The Postal Service wanted the site available for the construction of a General Mail Facility ("GMF") for Queens, New York. A GMF is a mail processing and distribution center. The Postal Service communicated its planned use for the site to Phelps Dodge and informed Phelps Dodge that it was necessary to remove any contamination from the footprint of the proposed Postal Service building. Phelps Dodge needed and received the details of the Postal Service's planned construction in order to propose a remedial plan that would be approved by the DEC.

8. The Option and Contract, at § 2.01(a), provided that, of the purchase price:

TWO MILLION SIX HUNDRED SIXTY-TWO THOUSAND TWO HUNDRED ($2,662,200.00) DOLLARS [shall be paid] at the time of execution and delivery of this Contract, by check of the United States Treasury, drawn on a Federal Reserve Bank to the order of the Title Company, as Escrow Agent ("Escrow Agent"), who shall hold and disburse the proceeds of said check ("Option Payment"), and interest earned thereon, in accordance with the provisions of an agreement between Seller, Purchaser and said Escrow Agent ("Escrow Agreement") ...

9. The Option and Contract, at § 2.02, provided:

In the event Purchaser shall default in the performance of its obligations to (i) purchase the Premises in accordance with the provisions hereof, or (ii) make all payments to Seller required hereunder, Seller, as Seller's sole remedy, shall have the right to receive from Escrow Agent the Option Payment and all interest and other sums earned on the Option Payment as liquidated damages for all loss, damage and expense suffered by Seller, including, without limitation, the loss of its bargain....

10. The Option and Contract, at § 16, provided:

It is understood and agreed by the parties hereto that Purchaser agrees to purchase the Premises provided that the Board of Governors of Purchaser grants approval of the purchase of the Property at its meeting to be held on September 8th and 9th, 1986.... In the event such approval shall be granted and such notice be served by September 16, 1986, the service of said notice shall be deemed the exercise by Purchaser of the option to purchase the Premises, this Option Agreement shall become a binding agreement for purchase and sale, and in that event (i) the Purchase Price set forth in § 2.01 shall be increased by ONE HUNDRED THOUSAND ($100,000.00) DOLLARS from FOURTEEN MILLION SIX HUNDRED FORTY THOUSAND ($14,640,000.00) DOLLARS TO FOURTEEN MILLION SEVEN HUNDRED FORTY THOUSAND ($14,740,000.00) DOLLARS....

11. The Option and Contract, at § 14.01, provided:

Neither this Contract nor any provisions hereof may be waived, modified, amended, discharged or terminated except by an instrument signed by the party against whom the enforcement of such waiver, modification, amendment, discharge or termination is sought, and then only to the extent set forth in such instrument.

12. The Option and Contract, at § 18.01, provided:

Purchaser has been advised that Seller has filed a remedial plan (the "Remedial Plan") with the DEC requesting the approval thereof and that negotiations are now pending between representatives of Seller and of the DEC with references to modifications of the Remedial Plan acceptable to the DEC and to Seller. Seller agrees to proceed with its application with reasonable diligence and continuity so that the final Remedial Plan may be approved without delay. Upon receiving final approval or acceptance of, or equivalent indication of the approval of the Remedial Plan (any one of which being referred to herein as the "approval"), Seller...