ENVIRONMENTAL TIP: "No Further Action" Letters Do Not Preclude Further Action

January 09, 2006

Facts

Patsy Purchaser proposes to buy a convenience store and gas station adjacent to a residential neighborhood.  As part of her due diligence, Patsy learns the Seller, Ima Slick, had  previously replaced underground gasoline storage tanks on the property, had discovered contamination in excess of Texas action levels, and had remediated the contamination, obtaining a No Further Action letter from the Texas Commission on Environmental Quality, a copy of which she provided to Patsy.  In reliance on that letter, Patsy decides no further investigation is necessary and goes ahead with the acquisition. 

 
Consequence

Shortly thereafter, Letty Guss, landowner of the adjacent residential neighborhood, while excavating for a swimming pool, detects strong hydrocarbon odors in the soil.  Letty hires an environmental consultant who determines that gasoline has migrated from the previously leaking underground storage tanks and is present in quantities in excess of the Texas action levels.  Letty sues Patsy for the hydrocarbon contamination.

Patsy files a motion for summary judgment, arguing that the TCEQ No Further Action letter bars Letty’s tort claims.  The court denies the motion for summary judgment, holding that when contamination is present at levels in excess of state action levels, a No Further Action letter does not protect the landowner.


Lesson

Although state regulators may approve a cleanup, buyers should not rely solely on No Further Action letters and should consider conducting further environmental due diligence.  This due diligence may involve looking beyond the regulatory approval and into the specifics of the remediation because: state action levels change periodically; state action levels are often tied to property use; and sometimes (as in the case this example is drawn from) the regulators just let one slip by.  Even if the state approved the cleanup, if it were not completed to a protective level, No Further Action letters will not protect purchasers from later-filed tort claims and further regulatory involvement.  See Ronald Holland’s A-Plus Transmission & Automotive, Inc. v. E-Z Mart Stores, Inc., 2005 WL 3178184 (Tex App.—San Antonio 2005, no pet. hist.).

If you have any questions, please conduct Mary Mendoza, Heather Davis, or other members of our Environmental Practice Group.

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