810.513.3044 PH
Specializing in Environmental Law and Real Property Law

Kevin Lavalle

Fraud in the Sale of Property

Purchasers of real estate frequently claim they were misled about the condition of a property. With the sizzling real estate market, sales are rushed and due diligence is often an afterthought. Purchasers are often surprised to learn that fraud requires something more than a misleading or false statement. The recent case of Plets v Triple L Land Development, LLC shines a light on the elements of an actionable fraud case.

The Plets Plaintiffs owned property that was formerly used for auto repair. Automotive service shops have historically used a variety of hazardous substances that could potentially contaminate the soil and groundwater. Plaintiffs agreed to sell the property to Defendant. The sales contract stated:

“This offer is contingent on … (2) receiving satisfactory evidence the land and soil …is free of contaminants and pollution and proof is provided.

Defendant ultimately purchased the property on a land contract.

Plaintiffs’ environmental consultant had collected soil and groundwater samples. It prepared a Phase II Report indicating the property was contaminated. There was a factual dispute as to whether the Phase II report had been provided to the Defendant. Plaintiffs’ real estate agent claimed she sent a copy of it to the Defendant’s agent. Defendant’s agent denied ever receiving that copy.

After the sale, Defendant sought to transfer the property to another party. The new purchaser performed its own Phase II Environmental Assessment of the property. It also confirmed the presence of contaminants in the soil and groundwater. Based on the new information, the Defendant stop paying the land contract. Plaintiffs sued the Defendant for breach of contract. Defendant counterclaimed and sought to void the land contract on the basis of fraudulent inducement.

The Trial Court granted summary disposition to the Defendant. The Court of Appeals was not convinced that Defendant had established a claim for fraud. It reversed and remanded the case for further proceedings.

To prove fraud, a party must establish six elements: (1) that the opposing party made a material representation; (2) that the representation was false; (3) that when the opposing party made the representation, the opposing party knew that it was false, or made it recklessly, without knowledge of its truth and as a positive assertion; (4) that the opposing party made the representation with the intention that the party would act upon it; (5) that the party acted in reliance upon it; and (6) that party suffered damage.

The COA agreed that the Defendant had established the first three elements of fraud. However, the Defendant was required to prove more than just a false representation. It also had to prove that (1) Plaintiffs made the false representation with the purpose of inducing Defendant to enter into the purchase; and (2) it purchased the property in reliance on Plaintiffs’ false representation.

The COA held that Defendant had failed to provide evidence unequivocally establishing reliance. If Defendant had received a copy of the Phase II Report from the Plaintiffs’ real estate agent, it would be difficult to claim reliance on any contrary representations of the Plaintiffs about the property’s condition. Conversely, if Defendant never received the Phase II Report, it could claim reliance on Plaintiffs’ representation that the property was clean because it had no other way of knowing the property was contaminated. The issue of whether Defendant was justified in relying on Plaintiffs’ representation would have to remain unresolved until it was determined whether the Defendant actually received a copy of the Phase II Report.

Answering the question of whether Defendant received a copy of the Phase II Report was also necessary to determine whether the Plaintiffs’ intended to defraud the Defendant. If the Phase II Report was sent to Defendant’s agent as Plaintiffs’ agent claimed, reasonable minds could conclude that Plaintiffs had no intent to defraud Defendant. On the other hand, because Plaintiffs did not correct Defendant’s misunderstanding about the true condition of the property, reasonable minds could also conclude the opposite.

As illustrated by Plets, it’s not enough to say the seller told me everything was fine but it wasn’t. That’s the beginning of the analysis, not the end. Each and every element of a fraud claim has to be proved. Sometimes, that is easier said than done.

Causation Requirements in Toxic Torts

The Michigan Court of Appeals has offered much needed guidance to those considering pursuing toxic tort claims. That guidance, found in the case of Powell-Murphy v Revitalizing Auto Communities Environmental Response Trust, 2020 WL 4722070 (2020), sets forth what a plaintiff must show to overcome the sometimes difficult causation requirement required in these type of claims.

Powell-Murphy involved workers at the United States Postal Service Metroplex Processing and Distribution Center in Pontiac, Michigan (the “Metroplex” facility). Plaintiffs claimed the Metroplex facility was built on land containing pools of contaminants. Decomposition of those contaminants resulted in the generation of methane and other toxic gasses. Plaintiffs alleged they were exposed to hazardous levels of those gases while working at the Metroplex facility and as a result, suffered a variety of physical ailments.

Toxic torts are a type of negligence action. In any negligence action, the plaintiff must show that but for the defendant’s actions, the plaintiff’s injury would not have occurred. In a toxic tort action, that requires the plaintiff to show that the complained of substance is capable of causing an injury AND the substance caused that injury. That can be a difficult hurdle to meet. The causes of many illnesses like cancer are not fully understood. In addition to the toxicity of a particular substance, exposure (concentration and duration) also plays a role. With these factors in mind, what is a plaintiff required to show to allow a jury to make a reasonable inference based on the facts.

The Powell-Murphy court stated the mere existence of a toxin in the environment is not enough to establish causation without proof that the particular level of exposure could cause the plaintiff’s symptoms. Quoting Justice Markman’s concurring opinion in Lowery v Enbridge, 500 Mich 1034, 1043 (2017), the court stated “causation requires not simply proof of exposure to the substance, but proof of enough exposure to cause the plaintiff’s specific illness.”

The court acknowledged plaintiffs had presented testing evidence to show the presence of methane in parts of the Metroplex facility had increased over pre-construction levels. However, the court noted the absence of any evidence of the specific levels of methane (or other potentially harmful toxins) in or around the Metroplex facility to which Plaintiffs were exposed. Without that information, the court concluded a fact-finder could not determine whether the alleged exposure could have caused plaintiffs’ injuries.

The lesson to be learned from Powell-Murphy is that all plaintiffs asserting a toxic tort claim must show the estimated amount and duration of exposure at issue before the fact-finder can reasonably conclude that exposure to the defendant’s toxin in the amount and duration alleged is capable of causing the alleged injury.

IS CERCLA STANDING IN THE WAY OF A NEW SANDBOX

In Atlantic Richfield Company v Christian, 140 S. Ct. 1335 (2020), the U.S. Supreme Court touched upon the ramifications of being a Potentially Responsible Party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act, U.S.C.A. § 9601 et. seq. (“CERCLA”). Atlantic Richfield involved the Anaconda Copper Mining Company. Anaconda previously operated three copper smelters in Montana. Emissions from its smelters resulted in elevated levels of arsenic and lead being deposited over a widespread area some 300 square miles in size. Atlantic Richfield had purchased Anaconda in 1977. A few years later, the area around the smelters was designated a Superfund Site. Since that time, Atlantic Richfield has been working to remediate the Site.
A group of landowners brought suit against Atlantic Richfield in state court. Those landowners sought to recover restoration damages from Atlantic Richfield in order to clean up their property in conformance with their own cleanup plan. By design, the landowners’ plan was intended to achieve a degree of cleanup that exceeded what Atlantic Richfield and the EPA had agreed upon. While Atlantic Richfield’s plan would have allowed up to 250 ppm of arsenic to remain in the soil after cleanup, the landowners plan set the arsenic limit at 15 ppm. The landowners plan included excavation of contaminated soil down to two feet below grade; the EPA approved plan only required one foot of excavation.
Atlantic Richfield defended the action by claiming any award of restoration damages was improper because the landowners’ cleanup plan exceeded what was required under the EPA approved plan. In doing so, it claimed the landowners were PRPs. If the landowners were PRPs, their restoration plan would need EPA approval pursuant to Section 122(e) (6) of CERCLA, which governs inconsistent response actions.
The Montana Supreme Court held that the landowners were not PRPs and thus, no EPA approval of their restoration plan was needed. The U.S. Supreme Court disagreed. CERCLA imposes liability on status. The court noted that if a person owns property where hazardous substances are located, that person is a PRP regardless of whether they actually played a role in causing the contamination. Because there was no disputing that contaminants were located on the landowners’ property, the court considered them PRPs.
The statute of limitations had run against the landowners. Because they were no longer subject to a lawsuit for recovery of cleanup costs, the landowners claimed they could not be considered PRPs. The court stated the landowners could not simply escape their status as PRPs because they were no longer subject to suit. Even if a person is not subject to suit, they are still a PRP under CERCLA.
The landowners claimed if they were PRPs, the government would have an easement over their property requiring them to obtain EPA approval for ordinary improvements like installing a sandbox for their grandchildren. While acknowledging CERCLA’s broad definition of remedial action, the court noted its reach is limited. It called out to the grandchildren of Montana to rest easy. Remedial action does not include planting gardens, installing sprinklers or sandboxes.
Lastly, the landowners claimed it was unfair to treat them as PRPs because they never received notice of those settlement negotiations between Atlantic Richfield and the EPA. Once again, the court did not believe the landowners could simply escape their status as PRPs because they were not provided notice of settlement negotiations. EPA has a policy of not suing innocent landowners which the court suggested explained why the EPA did not include them in settlement negotiations. Even if the landowners should have received notice, the Court held that lack of notice was not determinative of their status as PRPs. In the end, the court held that EPA approval of the landowners’ cleanup plan was required.

Damage to Trees

If a tree falls in the woods, someone may not hear it, but somebody might pay for it if that tree was cut on property of another without permission. Michigan has a statute making it a trespass to remove trees from the land of another. MCL 600.2919 states:

Any person who:

(a) cuts down or carries off any wood, underwood, trees, or timber or despoils or injures any trees on another’s lands, …without the permission of the owner of the lands, or on the lands or commons of any city, township, village, or other public corporation without license to do so, is liable to the owner of the land or the public corporation for 3 times the amount of actual damages.

Treble damages apply when the trespass is willful as opposed to casual or involuntary. If a person knows where the property line is, or it is visibly marked, and one enters anyways without the owner’s permission, that trespass is willful.

In the process of removing larger trees, many smaller ones can be damaged. In Skeels v Starrett, 57 Mich 350, 354 (1885) the court held where the action was for wrongful cutting, and it was alleged that removal of timber injured the remaining timber, the value of the remaining timber was also an element of damages.

In addition to cleanup of the property being a compensable damage, it is subject to trebling. The court in Miller v Wykoff, 346 Mich 24, 26-27(1956) stated that damages subject to trebling could also include cleanup costs to remove the tree tops, debris and fill in the stump holes on the property that was logged.

All things considered; it would seem to be a lot less expensive to get one’s wood supply from a local lumber yard than an unwilling land owner.

Cass River Cleanup

I’d like to thank my team members from the Tuscola County Democratic Committee and Republican Buzz for helping me on Saturday, September 21st. You guys were awesome. We removed so much junk from one mile of the river, we couldn’t transport all of it to the takeout point and were forced to stage the rest along the river. Glad to report the staged material was removed this week. A big thanks goes out to Gene Suuppi of the Cass City Greenway for organizing another successful cleanup. Well done my friend. Nothing would make him happier than seeing more people at next year’s cleanup…

Henry v Dow Revisited

In Henry v Dow Chemical 2017 WL 239069, the Michigan Court of Appeals addressed the application of the statute of limitations to claims arising from the presence of dioxin contaminationalong the Tittabawassee River in Saginaw County. The plaintiffs claimed they sustained injuries in 2002 when the MDEQ released a series of bulletins advising residents of proposed cleanup activities. The defendant claimed information about the dioxin contamination was known to the public in the early 1980sand the cause of action accrued in 1984 at the latest. The Court of Appeals held the bulletins issued by the MDEQ in 2002marked the creation of the damageelement necessary to support the plaintiffs’ claims for nuisance and negligence.

The holding of the Court of Appeals was reversed by the Michigan Supreme Court in Henry v Dow Chemical Co., 501 Mich 965 (2018). The Court stated a claim accrues at the time the wrong upon which the claim was based was done regardless of the time when the damage occurred. The claimed “wrong” was the presence of dioxin in the soil of Plaintiffs’ property. Thus, the plaintiffs’ claims accrued the date that dioxin was first present on their property.

In Robinson v MT Clark, Inc. 2018 WL 6252544, in reliance on Dow, the Michigan Court of Appeals dismissed the plaintiff’s claim for ingestion of water contaminated with gasoline constituents. The plaintiff claimed the statute of limitations began to run when she was notified that her well water was contaminated. The Court held the statute of limitations began to run seven years earlier when she moved into her house. At that time, she began to ingest the water that admittedly tasted bad due to contaminants already present in the well. The Court of Appeals agreed that the plaintiff’s claims were time barred.

Similarly, in Burton v Michigan Sugar Company, 2019 WL 1211455, the plaintiffs sued the defendant in 2016 on account of odors emanating from its sugar beet processing plant. While the severity of the odors increased in 2013 [three years before the suit was filed], the evidence showed that noxious odors were being released over a decade before. As such, the Court of Appeals held that plaintiffs’ claims were time barred and ordered that they be dismissed.

It appears that the door opened by the Court of Appeals in Dow is now officially shut.

Michigan Zoning of Short-Term Rentals

Whether deserved or not, many believe that the negative aspects of short-term rentals such as Airbnb, VRBO and Booking.com outweigh their benefits. They get blamed for a variety of problems including increased noise, litter, traffic and parking, to name a few. Some municipalities have taken steps to regulate short-term rentals by using  their zoning ordinances. Michigan courts have generally treated these attempts favorably. See Concerned Property Owners of Garfield Township, Inc. v Charter Township of Garfield, 2018 WL 5305235.

Michigan House Bill 4046 seeks to amend the Michigan Zoning Enabling Act to prohibit a local zoning ordinance from being used to regulate vacation and short-term rentals. The proposed amendment defines short term rental to mean the rental of a single-family residence, a family house or dwelling up to four units, or any unit or group of units in a condominium, for less than 28 days at a time. An identical bill to HB 4046 was introduced in 2017 but did not make it out of committee.

HB 4046 attempts to place short-term rentals on equal footing with traditional single family owner occupied dwellings by providing that a short term rental: 1) constitutes a residential use of the property and is a permitted use in all residential zones, 2) is not subject to a special use or conditional use permit or procedure different from those required for other dwellings in the same zone, and 3) is not a commercial use of property.

HB 4046 explicitly states that it does not prohibit regulation of short-term rentals for such things as noise, advertising, traffic or other conditions if the regulation is applied on a consistent basis to both rental and owner-occupied properties. While the prospects for HB 4046 to become law may not be favorable based on past history, the increase in popularity of short-term rentals ensures that this battle is far from over.

Bills seek to change way cleanups are conducted

Two recent bills simultaneously introduced into the Michigan House of Representatives and Senate seek to change the way that remedial action is selected. By way of background, remedial action includes such things as cleanup, removal, containment, isolation, destruction, or treatment of a hazardous substance released into the environment. Pursuant to MCL 324.20120a, the MDEQ may approve remedial action in certain enumerated categories:

a. Residential

b. Nonresidential

c. Limited Residential

d. Limited Nonresidential

The MDEQ has developed cleanup criteria for the residential and nonresidential categories. Remedial actions that fall into a limited category generally involve the use of land use restrictions and/or site-specific cleanup criteria. Under MCL 324.20120a, the person conducting the remedial action has the option of choosing the category of it.

House Bill 4212 and Senate Bill 116 would modify the way remedial action is chosen. If enacted, they would require that all remedial action meet the cleanup criteria for unrestricted residential use if technically feasible. If use of the residential cleanup category is technically infeasible, the proposed legislation would require that the category of remedial action that is implemented be the one with the most stringent cleanup criteria that is technically feasible. That standard would appear to take away all or almost all of the discretion to choose the category of remedial action. If passed, this legislation would represent a major shift in the way remedial action is currently being implemented.

STORMWATER UTILITY ACT REBORN

In 2017, I wrote a blog post on Michigan House Bill HB 4100, which sought to create the “Stormwater Utility Act.” The proposed Act was intended to confer legal authority upon local units of government to regulate stormwater runoff. HB 4100 was referred to committee, where it presumably died a peaceful death.

HB 4100 has been resurrected and was recently reintroduced as Senate Bill No. 756. SB 756 has been referred to the Senate Committee on local government. With local units of government asking legislators to provide them with greater protection from liability for flooding, providing them  with tools to address stormwater would appear to be an idea whose time has come.

Scaling Back Relief for Flooded Property

The Governmental Immunity Act grants governmental agencies broad immunity for tort liability. The Act contains an exception for liability arising from overflows or backups from sewage disposal systems however. The “sewage disposal event exception” to governmental immunity is the sole remedy for obtaining damages resulting from overflows or backups of sewage regardless of the legal theory. More often than not, this exception is invoked after one’s basement floods. The Michigan House of Representatives is considering House Bill 4290, which would expand governmental immunity for flooding claims.

There currently is no limitation on the amount of rain that must fall to invoke the sewage disposal event exception. House Bill 4290 would change that. It would impose a precipitation threshold on recovery. If enacted, House Bill 4290 would limit recovery for flooding damages to weather events where: 1) 1.7 inches or more of precipitation falls with one hour or 2) 3.3 or more inches of precipitation falls within a continuous 24-hour period. If it rains an inch and the creek begins to flow through your basement, you’re out of luck regardless of whether you have a paddle or not.

House Bill 4290 is intended to protect municipalities from paying damages for an increasing frequency of deluges. Not surprising, the bill has enthusiastic support from municipalities. However, if a person’s basement floods every time it rains, why punish an innocent homeowner who has no control over the situation. In those instances, extending immunity isn’t going to provide any incentive to fix the problem.