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Cdr-Wantagh, Inc. and Christine D. Rivera, Individually and As Trustee For the Benefit of v. Shell Oil Company and Motiva Enterprises LLC

December 20, 2011


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


Plaintiff CDR-Wantagh, Inc. ("CDR Wantagh"), and Christine D. Rivera ("Rivera") (collectively "plaintiffs") seek judgment against defendant Shell Oil Company ("Shell"), as Tenant, and its assignee, defendant Motiva Enterprises, LLC ("Motiva") (collectively "defendants" or "Shell")*fn1 for certain payments based upon an expired Lease (the "Lease") of a former gas station premises located at 32-30 Sunrise Highway, Wantagh, New York (the "Premises").


A. DEC Spill Proceeding and Nature of Dispute

The Premises was the subject of a Spill Proceeding opened by the New York Department of Environmental Conservation ("DEC") in 2001, after Shell reported finding evidence of contamination at the site. The DEC proceeding continued following the expiration of the Lease, and was not formally closed until that agency issued a No Further Action Letter ("NFAL") in September 2007.

The central issue is whether Shell is required, under Article 22.C of the Lease (entitled "Post-Termination Rent on a Month-to-Month Basis Until Corrective Action is Completed"), to pay post-termination rent and real estate taxes from October 1, 2006 when Shell ceased making payments until September 10, 2007 when the DEC issued its NFAL, thereby concluding the Spill Proceeding.*fn2

B. Text of Article 22 of Lease and Parties' Summary

Judgment Motions

Before addressing Article 22.C, a brief recitation of Articles 22.A and 22.B is required. Article 22.A of the Lease, entitled "Contamination Indemnity," provides in pertinent part:

Subject to the conditions and limitations contained in this article, SHELL agrees to indemnity 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. (Pls.' Ex. 1, Art 22.A at 10-11.)

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 may complete the corrective action before or after expiration of this LEASE. (Id., Art. 22.B at 11-12).

As noted, the provision at the center of the present dispute is Article 22.C. That Article provides:

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 [plaintiffs] or another tenant.. . . .

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. (Id., Art. 22.C, at 12-13 (emphasis added).)

Both parties previously moved for summary judgment. Those applications were denied by Memorandum and Order dated March 31, 2009, with the Court concluding that the pivotal portion of the Lease, Article 22.C, is ambiguous in that: [a] rational juror could find[, as plaintiffs maintain,] that until the spill proceeding was officially closed via a No Further Action letter, Plaintiffs would be unable to use or rent the Premises due to the uncertainty surrounding its environmental status. On the other hand, a reasonable factfinder could [adopt the defendants' position and] find that the Premises were usable as of March 20, 2007, the date the DEC stated that redevelopment of the DEC should not be delayed due to the spill case as "the soils do not create an unacceptable exposure pathway to new construction." (Mar. 31, 2009 Mem. and Order at 20 (citation deleted)).

C. Positions of the Parties

Plaintiffs contend, relying in part on the testimony of their expert witness, Herbert M. Balin, Esq., "that, prior to the issuance of the No Further Action Letter by the DEC, a 'reasonable' future tenant (such as North Fork) 'would be unable to use or rent the Premises.'" (Pls.' Post-Trial Mem. at 4-5 (internal emphases deleted).)

The defendants' position in opposing the relief requested is multifaceted. However, its primary focus is upon the disjunctive nature of the two events listed in Article 22.C, the first of which to occur will bring about the end of Shell's obligation to make post-lease payments. In defendants' view, plaintiffs' reliance on September 10, 2007, that being the date that the NFAL was issued by DEC, is misplaced. Instead, the argument continues, the controlling date, quoting from Article 22.C, is the time when "Shell's corrective action no longer substantially prevent[ed] the Premises from being used by [plaintiffs] or another tenant," which, at the latest, was March 20, 2007, i.e. the date of the DEC's letter to the Town of Hempstead indicating that "[r]edevelopment of the site should not be delayed due to the spill case." (Defs.' Ex. 53.)

D. Bench Trial

The case was tried before me, non-jury, on the following days in 2011: March 21st, March 22nd, March 23rd, May 12th and May 21st. The purpose of this Memorandum and Order is to furnish my post-trial Findings of Fact and Conclusions of Law pursuant to Fed. R. of Civ. P. 52(a)(1).


A. Lease Agreement Between Plaintiffs and Shell

1. Plaintiffs are the owners of the Premises located at 3230 Sunrise Highway, Wantagh, New York. (Compl. ¶1.)

2. Prior to 1982, Rivera's father owned the Premises and negotiated a lease with Shell Oil Company for the operation of a gasoline service station. (Tr. 32:4-18.)

3. In 1982, Rivera assumed management of the Premises and has managed the Premises continuously since that time. (Tr. 32:7-12.)

4. Rivera is not familiar with the terms of the earlier lease that her father negotiated with Shell. (Tr. 164:6-9.)

5. Rivera does not know how many terms in the Shell Lease were brought forward from the prior lease. (Tr. 164:20-165:6.)

6. Plaintiffs and Shell entered into a Lease dated September 27, 1996 for the continued operation of a gasoline service station on the Premises. (Pls.' Ex. 1.)

7. The Lease was for a term commencing on October 1, 1996 and expiring on September 30, 2006. (Id., Art. 3.)

8. The record is muddled as to whether Shell, or plaintiffs' predecessor in title, or plaintiffs through their counsel, or some combination thereof, drafted Article 22.C and thus bear responsibility for its ambiguity.*fn3 (Compare Tr. 36:3-6 (Rivera on direct: "Well, Shell prepared the lease and presented it to us. And we then basically negotiated the rent and the term of the lease."), with Tr. 164:4-165:6 (Rivera on cross-examination: "I'm not that familiar with that lease at all" [referring to the lease her father had earlier negotiated with Shell for the Premises, including the question of whether that lease had an article mirroring, or substantively akin to Article 22.C]); see also Tr. 165:21-25.)

9. The Shell Lease expired in keeping with its terms on September 30, 2006. (Joint Pre-trial Order, Stipulated Fact # 8.)

10. Defendants returned the keys to the Premises under cover letter dated December 8, 2006. (Defs'. Ex. 38; Tr. at 72:17-24.)

11. The parties entered into a settlement agreement in April 2007, resolving plaintiffs' claims to post-termination rent for the period October 1, 2006 through January 31, 2007, and real property taxes for October 1, 2006 through December 31, 2006. (Joint Pre-trial Order, Stipulated Fact #23).

B. The Premises' Environmental History

12. The investigation of the Premises began with a voluntary assessment program instituted by Shell ("GRASP") in 2001 which involved the testing of soil and groundwater beneath multiple gas station sites to determine if such sites had "some ...

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