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CDR-Wantagh, Inc. v. Shell Oil Co.

March 31, 2009


The opinion of the court was delivered by: Hurley, Senior District Judge


This action arises out of the interpretation of a lease provision governing payment of post-termination rent and property taxes. Plaintiffs CDR-Wantagh Inc. ("CDR") and Christine D. Rivera, individually and as Trustee for the benefit of James Delyanis (collectively, "Plaintiffs"), move for partial summary judgment pursuant to Federal Rule of Civil Procedure ("Rule") 56 with respect to their first cause of action. Defendants Shell Oil Company ("Shell") and Motiva Enterprises LLC ("Motiva") oppose Plaintiffs' motion and cross-move for summary judgment pursuant to Rule 56 dismissing all of Plaintiffs' claims. For the reasons that follow, both motions are denied.


The material facts, drawn from the Complaint and the parties' Local 56.1 Statements, are undisputed unless otherwise noted.

I. The Lease Agreement Between Plaintiffs and Shell

Plaintiffs are the owners of the premises located at 3230 Sunrise Highway, Wantagh, New York (the "Premises"). Pursuant to a lease agreement dated September 27, 1996 (the "Lease"), Plaintiffs leased the Premises to Shell for use and occupancy of a gasoline service and automobile repair station. In or about 1998, Shell assigned its rights as a tenant under the Lease to Motiva. The Lease was for a Primary Term commencing on October 1, 1996 and expiring on September 30, 2006. Pursuant to its terms, the Lease expired on September 30, 2006.

The instant dispute revolves around a provision in the Lease governing post-termination rent, to wit Article 22.C. Before addressing Article 22.C, a brief recitation of Articles 22.A and 22.B is required.

Article 22.A of the Lease, which is entitled "Contamination Indemnity," provides in pertinent part as follows:

Subject to the conditions and limitations contained in this article, SHELL agrees to indemnify and hold [Plaintiffs] harmless from both the requirement of performing corrective action and/or the cost of performing corrective action and the cleanup of contamination, if any, of the environment and soil at the Premises and/or other property, arising from SHELL's use of the Premises and which are ordered by any federal, state or local governmental unit or agency, and for reasonable attorney fees and court costs incurred as a result of any such contamination.

SHELL agrees to perform any such corrective action and cleanup of contamination, which is ordered by an aforementioned governmental unit or agency, when such contamination is caused by SHELL's use of the Premises. . . . This indemnity and hold harmless obligation of SHELL shall terminate on the earlier of (1) the date the applicable governmental units or agencies state that no further action is required to be taken with regard to the environmental condition of the Premises or (2) the date three (3) years after the expiration of SHELL's tenancy. (Lease, Art. 22.A, attached as Ex. D to the Decl. of Christine D. Rivera in Supp. of Pls.' Mot. For Partial Summ. J ("Rivera Decl.").)

Article 22.B, entitled "Testing and Corrective Action," provides, in part:

Prior to expiration of this Lease, but no earlier than 180 days before such expiration, SHELL shall test the condition of the Premises for the presence of petroleum contamination. If SHELL determines the data available indicates the presence of subsurface petroleum contamination that may require corrective action, SHELL shall take corrective action with respect to petroleum contamination caused by SHELL's use of the Premises if, and to the extent, required in a manner approved by the governmental authority exercising jurisdiction over the matter. SHELL shall complete the corrective action with respect to petroleum contamination caused by SHELL's use of the Premises, at its choice, either to: (i) the satisfaction of or acquiescence by such governmental authority or (ii) the applicable or regulatory requirements. Any corrective action performed by SHELL will be performed in accordance with applicable or regulatory requirements. SHELL may complete the corrective action before or after expiration of this LEASE. SHELL reserves its right, in its own or [Plaintiffs'] name if necessary, to challenge as unreasonable, arbitrary, or otherwise not in accordance with law, any plan of corrective action proposed by a governmental authority or any refusal by that authority to provide proof of satisfactory completion of corrective action by SHELL. (Id. Art. 22.B)

As noted, the provision in dispute is found in Article 22.C, which is entitled "Post-Termination Rent on Month-to-Month Basis Until Corrective Action is Completed." Article 22.C provides, in pertinent part, as follows:

In the event at the termination of this Lease there exists on or under the Premises contamination caused by SHELL's use or occupancy of the Premises for which corrective action is ordered by an applicable governmental agency, SHELL shall continue to pay rent to [Plaintiffs] on a month to month basis in the event SHELL's corrective action on the Premises in any respect substantially prevents the Premises from being used by LESSOR or another tenant. The monthly rental paid pursuant to this article shall be as follows: . . . .

Additionally, SHELL shall continue to pay all real estate taxes and charges in accordance with the provisions of Article 10 of this Lease. SHELL shall continue to pay such post-termination rent and any and all real estate taxes in accordance with the provisions of this sub-Article 22.C until the first to occur of: (1) such time as SHELL shall have obtained all applicable federal, state and local approvals regarding the satisfactory removal of SHELL caused contamination from the Premises, or (2) such time as SHELL's corrective action no longer substantially prevents the Premises from being used by [Plaintiffs] or another tenant. In consideration for SHELL's agreement contained in this article to pay monthly rent during SHELL's substantial impairment of the Premises, [Plaintiffs] grant SHELL reasonable access to the Premises after the termination of this Lease to perform corrective action and the cleanup of the contamination. [Plaintiffs] shall be entitled to access to the Premises after termination of the Lease in order to monitor and/or perform any corrective action and clean up concerning any contamination of the Premises, if any, caused by SHELL. (Id. Art 22.C (emphasis added).)

II. The Contamination on the Premises

The following facts regarding the contamination on the Premises are taken from Defendants' submissions, the majority of which Plaintiffs deny knowledge or information sufficient to form a belief as to their truth.

According to Defendants, in June 2001, Shell voluntarily conducted environmental testing of the Premises. Laboratory results from groundwater samples identified the presence of methyl tertiary butyl ether ("MTBE") in excess of New York State Department of Environmental Conservation ("DEC") action levels. These findings were reported to the DEC and spill case number 01-03924 was opened.

Defendants promptly commenced remediation efforts, which included installation of monitoring wells, and conducted groundwater testing between August 2001 and July 2005. In December 2003, a Site Exposure Assessment ("SEA") was completed by Defendants' consultants which showed a significant decline in MTBE levels and concluded that the contamination identified in 2001 no longer posed a risk to human health or the environment.

On February 28, 2006, Defendants submitted a Site Status Update Report/Closure Request ("2006 Closure Report") to the DEC, which updated the SEA with groundwater results obtained through July 2005. This report suggested that MTBE in groundwater flowing off-site would dissipate through a process called natural attenuation without on-site remediation, and recommended closure of the Spill Case.

By letter dated June 7, 2006, Defendants forwarded 12 environmental reports prepared by Defendants' consultants to Plaintiffs' attorneys, pursuant to Plaintiffs' request, including quarterly groundwater monitoring reports.

On September 30, 2006, the Lease terminated pursuant to its terms. Thereafter, in November 2006, Defendants removed underground storage tanks and related equipment from the Premises,*fn1 along with 353.40 tons of impacted soil. Twenty soil samples were collected and tested for the presence of gasoline related compounds. According to one of Defendants' consultants, "the removal of the soil was a conservative measure taken by Shell out of an abundance of caution." (Decl of David Puchalski, P.E., docket no. 29(4), ¶ 7.) Of the twenty samples analyzed, all were below DEC action levels with the exception of one sample for one compound which showed a concentration of MTBE slightly above DEC standards. According to Defendants' consultants, this isolated finding was insignificant with respect to the overall condition of the Premises.

Once Defendants were done removing their tanks and equipment, they did not engage in any further activity on the Premises. By letter dated December 6, 2008, the keys were returned to Plaintiffs because the Premises had been vacated.

One of Defendants' consultants prepared a Tank Excavation Assessment and Soil Excavation Report ("TEA"), dated January 18, 2007, that detailed the work done on the Premises and environmental testing conducted in connection with the soil samples. Defendants provided Plaintiffs, as well as the DEC, with a copy of the TEA. The TEA requested that spill case number 01-03924 be closed.

On January 31, 2007, Shell and Shell's consultants met with the DEC to discuss the data contained within the TEA. During the meeting, the DEC expressed concern that excess MTBE discovered in 2001 may have traveled off-site. In the absence of an identifiable source of the contamination found in 2001, the DEC requested that Shell perform additional modeling based on existing data contained within Shell's 2006 Closure Report and the TEA. Specifically, the DEC asked Shell to submit a one-dimensional transport model to demonstrate where the MTBE ...

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