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January 29, 2018

Legal Update
Dylan Sanders

Massachusetts high court clarifies scope and time limit for property owner’s “residual damage” claim under hazardous material cleanup law

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When does the three-year statute of limitations begin to run, under the Massachusetts hazardous waste cleanup statute, for a property owner’s claim for property damage that is not resolved by a cleanup? A January 19 decision of the Massachusetts Supreme Judicial Court announced an important clarification of the answer. Under General Laws Chapter 21E, the clock on such claims does not begin to run when the owner first learns that her property has been contaminated, but only when the owner learns that the damage is permanent and cannot be reasonably remediated, and also knows (or should have discovered) the identity of the party responsible for the contamination. The decision, in Grand Manor Condominium Association v. City of Lowell, revived a condominium’s property-damage claim against the city of Lowell for contamination from a city-operated landfill, for damage caused decades before the condominium’s construction.

Chapter 21E

Chapter 21E identifies five categories of “potentially responsible parties” who may be required, when hazardous waste is discovered at a property, to participate in cleanup of the site. The current owner of the site is first on this list, but the statute provides her (and other PRP’s who incur cleanup costs) with the right to bring suit against other responsible parties to recover the cleanup costs incurred, and for residual damage to the property not addressed by the cleanup—for example, diminishment of the property’s value.

In the case of a property owner’s suit to recover her cleanup response costs, Chapter 21E requires that the suit be brought within three years after the latest of four specified dates, one of which is the date as of which the owner has incurred all of the costs she seeks to recover.  In the case of a suit for property damage, Chapter 21E, § 11A requires that such a suit be brought “within three years after the date that the person seeking recovery first suffers the damage or within three years after the date the person seeking recovery of such damage discovers or reasonably should have discovered that the person against whom the action is being brought is a person liable pursuant to this chapter for the release or threat of release that caused the damage, whichever is later.”

The Grand Manor case

The land on which the Grand Manor condominium is built had originally been the site of a quarry owned and operated by the city of Lowell. Later, between 1945 and 1954, excavated areas of the former quarry were used as a solid-waste landfill. In 1983, the city conveyed the now-covered landfill to a real estate developer, who constructed the condominium.

In January 2009, the condominium association and unit owners learned that testing of soil samples taken during a minor construction project indicated a release of hazardous materials on the property. By April 2009, the owners had learned that the contamination was related to the city’s prior use of the site as a landfill.

The Massachusetts Department of Environmental Protection notified both the owners and the city of their responsibility for cleanup of the site. In July 2009, the city assumed responsibility for performing all remaining response actions. Three years later, in June 2012, the city submitted a required report to MassDEP describing the nature and extent of the contamination and the appropriate remedial measures to address the contamination. The report (a “Phase III” report, under the pertinent regulations, known as the Massachusetts Contingency Plan or MCP) concluded that the entire condominium site was contaminated, and that full remediation of the contamination would not be feasible.

In October 2012, the owners filed suit against the city, seeking both reimbursement of the response costs they had incurred before the city’s takeover and damages for permanent residual harm to the property.

The city argued that the residual harm claim was barred by the three-year statute of limitations, because the owners had known both of the damage to the site and the city’s responsibility since at least April 2009. The trial judge presented this question to the jury, which agreed with the city that the owners’ claim for residual harm was untimely, and awarded only the owners’ response costs.

The SJC’s Decision

On appeal directly to the SJC, the owners emphasized that it was not until June 2012, when the city submitted the report to MassDEP concluding that the property would not be fully remediated, that the owners had any reason to know there was permanent damage to the property. After that, they promptly filed suit in October 2012. The SJC agreed that Chapter 21E, § 11A must be interpreted to start the three-year period for a residual damage claim only when a plaintiff is on notice that she has such a claim, and “such notice is separate from a plaintiff’s notice that environmental contamination has occurred.” Notice of a residual damage claim occurs only “once the plaintiff learns whether or not remediation and response costs will fully compensate the plaintiff for the harm he or she has suffered, as well as the identity of the party who caused such harm. This will not ordinarily occur until the plaintiff learns that the damage to his or her property is not reasonably curable by the remediation process.” (Emphasis added.)  Moreover, the SJC said in most instances a plaintiff would not learn that she had suffered permanent property damage “until the MCP process is sufficiently advanced to identify residual damage.” In most cases, such notice will not occur until an MCP Phase III report has been prepared.

In holding that the statute of limitations for a claim for permanent property damage begins to run only when the plaintiff knows the harm is permanent, the SJC’s decision went against the overwhelming authority from other cases, in other contexts, that have held that limitations periods begin to run once a plaintiff first has notice that she may have a claim—enough notice that an reasonable person would be prompted to inquire further about the matter—and not when the plaintiff knows the full extent of her harm. Application of these general rules to mean that the period for a Chapter 21E claim for residual property damage runs from first notice of contamination, the SJC said, “makes little sense.”

“If the limitations period for [a residual-damage claim] begins as soon as a plaintiff learns of contamination, he or she could be forced to bring suit before knowing whether there is a cognizable claim under [the residual-damage provision]. Plaintiffs would be put in the difficult position of choosing between whether to sue immediately, and potentially recover nothing, or to wait for more information, and potentially find their claim… time barred.”

Theoretically, this dilemma could be avoided by an owner’s filing suit and then seeking to stay the action until it became clear whether there was permanent damage. The SJC, however, was reluctant to force a plaintiff to use court resources before knowing whether they have a claim. The dilemma also could be avoided by the owner’s seeking a “tolling agreement” with another potentially responsible party, but that requires cooperation from the other party that may not be forthcoming.

Moreover, the SJC reasoned, “requiring plaintiffs to bring a claim [for residual harm] early in the assessment and remediation process, before clarification of whether there is residual property damage, and certainly any realistic understanding of the extent of that damage, would therefore be wasteful for both the parties and the court system.”

Finally, the court added, given the required phased reporting on response actions to MassDEP, the MCP provides predictable points in a remediation under the MCP at which it is typically determined from a technical standpoint whether it is feasible to fully remediate the contamination at a site—and the SJC appeared to find appeal in the idea of aligning the start of the limitations period for a residual harm claim with this predictable point.

The Grand Manor decision reflects a practical approach from the SJC that acknowledges the reality that the assessment of contamination at a site, and the selection and implementation of remedial alternatives, often take years, and its often only at the end of such phases that it becomes reasonably clear whether a site can be fully remediated and, if not, the extent of the residual harm. The decision brings clarity to an important area of Chapter 21E, and not just to claims for permanent property damage. The court also said that claims for temporary property damage, such as loss of use of property, “are tied to the period of time reasonably necessary to repair the damage,” and that the MCP-mandated phase reports “would bring clarity to such claims as well.” Thus, the Court said, its interpretation of the statute of limitations for claims for permanent damage would also apply to claims for temporary damage. The court’s linkage between the real-world regulatory timeline of an actual response action and the legal requirements that govern the timing of property damage claims is an approach that can be expected to significantly shape the evolution of the case law in this area.