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246 Sears Road Realty Corporation v. Exxon Mobil Corporation

September 18, 2012

246 SEARS ROAD REALTY CORPORATION, PLAINTIFF,
v.
EXXON MOBIL CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Azrack, United States Magistrate Judge:

MEMORANDUM AND ORDER

This case concerns a dispute between plaintiff 246 Sears Road Realty Corp. ("plaintiff") and defendant Exxon Mobil Corp. ("Exxon") stemming from Exxon's lease of a gasoline service station from plaintiff and Exxon's subsequent remediation of a fuel spill on the property. After Exxon's lease ended in May 2004, the parties entered into extensive negotiations regarding an agreement that would permit Exxon to access the property in order to conduct the remediation. That agreement (the "Access Agreement") was signed on December 1, 2005, and Exxon completed its remediation efforts in December 2008. In March 2009, plaintiff filed suit against Exxon alleging that Exxon, through its acts and omissions during its tenancy and the subsequent remediation, breached its obligations under the lease and Access Agreement.

Presently before the Court is plaintiff's motion to amend its complaint to add fraud claims based on Exxon's failure to disclose information both before and after the execution of the Access Agreement. The Honorable Nicholas G. Garaufis referred this motion to me for decision. ECF No. 79.

Plaintiff's proposed fraud claims focus on a provision in the Access Agreement that called for plaintiff to purchase certain underground storage tanks from Exxon. Plaintiff alleges that Exxon failed to disclose information about those tanks and the remediation in an attempt to shift the costs of the remediation to plaintiff.

As explained below, plaintiff's motion to amend its complaint is denied. For the majority of plaintiff's proposed fraud allegations, plaintiff cannot show good cause for raising these claims seven months after a court-ordered deadline for amending the pleadings. Moreover, not only is plaintiff's proposed complaint futile, but undisputed evidence offered by Exxon also indicates that plaintiff's proposed claims are meritless.

I. FACTUAL BACKGROUND

A. The Spill and Remediation

The following facts are taken from plaintiff's proposed amended complaint ("PAC") and the attached exhibits. Decl. of Richard W. Young in Supp. of Pl.'s Mot. to Amend ("Young Decl."), ECF Nos. 72--75.

1.Events Leading up to Execution of the Access Agreement

Plaintiff is owned by Natale ("Nat") and Anthony Castagna. PAC ¶ 9. In 1984, Exxon leased a parcel of land in Brooklyn ("the premises") from plaintiff for use as a gasoline service station. Id. ¶ 4. The premises had been operating as a gasoline service station since the 1940s. Id. ¶ 6.

A variance from the City of New York allowed plaintiff to operate a gasoline and service station on the premises. Id. ¶ 7. However, the variance would be lost if a gasoline station was not operated at the premises for a continuous period of two years. Id. ¶ 8.

During Exxon's lease, the premises contained eleven underground storage tanks ("USTs"). Id. ¶ 11. There were three 3,000-gallon USTs and eight 550-gallon USTs (collectively the "Small Tanks") as well as five 4,000-gallon USTs (the "Large Tanks"). Id. ¶¶ 11--12. During its tenancy, Exxon used the Large Tanks, which were registered to Exxon. Id. ¶¶ 12, 82. The Small Tanks, which had been de-registered, were never used by Exxon. Id. ¶¶ 11, 82. The premises also contained lines and piping associated with USTs, as well as two underground oil tanks that stored used motor oil and fuel oil to heat the building on the premises. Id. ¶ 13. Exxon operated a gas station on the premises until May 14, 2004, when its lease expired. Id. ¶ 21. According to the lease, when Exxon surrendered the premises, the premises had to be "in as good condition as" when the lease began. Id. ¶ 14.

At some point during Exxon's tenancy, the premises became contaminated by motor vehicle fuel. Id. ¶¶ 17, 19. In March 1990, New York State Department of Environmental Conservation ("DEC") assigned the premises a "SPILL REPORT," which would remain open until December 2008. Id. ¶¶ 18, 113; Dep. of John Durnin*fn1 ("Durnin Dep.") 164, Young Decl., Ex. F. Plaintiff alleges that Exxon was obligated to remediate this contamination. PAC ¶ 19.

In April 2003, DEC conducted an on-site inspection of the premises, which identified several violations concerning the USTs and accompanying lines. Id. ¶¶ 22--25; Sept. 3, 2003 Ltr. from DEC to Exxon ("Sept. 3, 2003, Ltr."), Young Decl., Ex. E; Notice of Violation, Young Decl., Ex. E. In June 2003, DEC inspectors were scheduled to inspect the premises again. PAC ¶ 30. In September 2003, DEC issued Exxon a Notice of Violation directing Exxon to correct the above violations. Id. ¶ 30; Notice of Violation; Sept. 3, 2003, Ltr.

Around the same time as DEC's April 2003 inspection, on-site monitoring wells, which had been installed on the property, revealed contaminants, and Exxon was finding an increase in "gasoline constituents" in the groundwater. PAC ¶¶ 26-27. In November 2003, Exxon issued a status report update for the premises, indicating that 1,131 gallons of contaminated water had been removed and that Exxon would continue quarterly groundwater sampling. Id. ¶ 31.

In January 2004, DEC approved Exxon's work plan for the premises, which provided for, inter alia, the installation of off-site monitoring wells to determine the extent of the contamination. Id.; Jan. 15, 2004, Ltr. from John Durnin to Melissa Winsor,*fn2 Young Decl., Ex. G. That same month, Exxon compared the costs of bringing the USTs into compliance versus removing them, and decided to proceed with a remediation plan that involved removing the USTs and other equipment on the premises. PAC ¶ 37. Exxon was aware that if the USTs were removed, plaintiff would no longer be able to operate the Premises as a gasoline station and that Exxon "could lose its Certificate of Occupancy."*fn3 Id. ¶ 39. Exxon allegedly failed to disclose to plaintiff its plan to remove all of the USTs. Id. ¶ 40.

In February 2004, Exxon notified plaintiff that it would not renew the lease and instead proposed that plaintiff and Exxon enter into an access agreement that would enable Exxon to remain on the premises to perform remediation operations. Id. ¶ 20.

On March 26, 2004, Nat Castagna contacted Geological Services Corporation ("GSC"), Exxon's consultant in charge of the remediation project, in an attempt to obtain information about the premises. Id. ¶ 34. At the time, Nat Castagna was not aware that there was an active environmental case at the site. Id. ¶ 44.

On March 30, 2004, an employee at GSC advised Maria Kobe, an Exxon employee, that he was making copies of environmental reports and asked whether he should send copies to Nat Castagna. Id. ¶ 46. Although Kobe responded that Castagna's requests should be directed to her and that she would forward the reports to Castagna, neither she nor Winsor, Exxon's Remediation Territory Manager, ever forwarded the reports or any other documents filed with DEC to Castagna. Id. ¶¶ 28, 47--48.

Beginning in May 2004, the parties engaged in "extensive negotiations," which would culminate in the signing of the Access Agreement on December 1, 2005. Id. ¶¶ 71--72.

In a letter dated August 30, 2004, Durnin informed Winsor that although the concentrations of groundwater contamination on the premises had decreased over the past twelve years, contamination was still present. Id. ¶ 50; Aug. 30, 2004, Ltr. from Durnin to Winsor ("Aug. 30, 2004, Ltr.") Young Decl., Ex. K. The letter goes on to state that "[t]here is a potential that some or all" of the USTs on the premises "could be contributing to the groundwater contamination" and that "[t]he source of this contamination must be identified and removed." Aug. 30, 2004 Ltr. Exxon was directed to prepare a Corrective Action Plan ("CAP"), which would have to be approved by DEC and would lead to "the closure of the site."*fn4 Id. Although Exxon had previously proposed continuing groundwater monitoring and sampling, Durnin informed Winsor that monitoring alone would not be sufficient. Id.

Between September 2004 and March 2005, DEC and Exxon exchanged a series of letters. In September 2004, GSC submitted a proposed CAP to DEC that provided for closure and removal of all USTs and piping on the premises "as approved by the property owner." PAC ¶ 53. On November 4, 2004, Durnin advised Winsor that Exxon was required to submit an Underground Storage Tank Divestiture Plan ("USTDP") for removal of the USTs. Id. ¶ 54. On December 10, 2004, GSC submitted the USTDP, which called for removal of all the USTs and accompanying lines. Id. ¶ 56. The USTDP provided that removal of all tanks was subject to approval of the "property owner." Id. ¶ 57. On March 14, 2005, GSC submitted a remediation schedule for the CAP that incorporated certain modifications that DEC had requested. Id. ¶ 59.

On March 29, 2005, Durnin advised Exxon that DEC had approved the CAP and USTDP. Id. ¶ 60; Mar. 29, 2005 Ltr. from Durnin to Winsor, Young Decl., Ex. L.

In an internal Exxon email dated April 21, 2005, Joanne Wallach, an Exxon employee, wrote:

Recommend waiting for the [DEC] attorney (Lou Oliva) to contact [plaintiff's] attorney regarding access, before placing a dealer under agreement to re-open. The [DEC] is only going to discuss granting [Exxon] access to the site, not requiring the tanks to be removed. We should hear back in a week. Ultimately, it is a business decision to re-open or pull tanks. If the [DEC] places pressure on the [plaintiff] for access, maybe the [plaintiff] will want to have the tanks removed.

PAC ¶ 64.

Between April and June 2005, Exxon compared the costs of two different remediation plans. Id. ¶¶ 65, 68. One plan, estimated to cost $800,000 to $850,000, did not involve the removal of any of the USTs. Id. ¶ 65; May 11, 2011, Email, Young Decl., Ex. M; May 12, 2011, Email, Young Decl., Ex. M. Instead, under that plan, a remediation system would be installed that would require Exxon to monitor the premises over a period of eight to ten years ("remediation system plan"). PAC ¶ 65; May 11, 2011, Email. This plan would have allowed the premises to remain operating as a gas station. PAC ¶ 65. The other plan, which would last six months and cost $350,000, involved removal of all the USTs and excavation of the soil ("UST removal plan"). Id. ¶ 66. Plaintiff alleges that this plan would have rendered the premises vacant and no longer operational as a gasoline service station. Id. Plaintiff further alleges that, although Exxon was aware of this fact, "Exxon chose" the UST removal plan as it was less costly for Exxon. Id. ¶ 67.

2. Omissions

Plaintiff alleges that, prior to the execution of the Access Agreement in December 2005, Exxon failed to disclose to plaintiff numerous pieces of information discussed above. PAC ¶¶ 51, 62, 63, 68, 135. Specifically, plaintiff claims that prior to the execution of the Access Agreement, Exxon should have disclosed: (1) the extent of the contamination on the premises ("Omission #1")*fn5 ; (2) that DEC had approved the CAP and USTDP submitted by Exxon ("Omission #2"); (3) that the lines were faulty and the subject of a Notice of Violation issued by DEC ("Omission #3"); (4) that plaintiff's permission was necessary pursuant to the approved CAP and USTDP before any remediation could begin ("Omission #4"); (5) information about the two alternative remediation options that Exxon compared between April and June 2005 ("Omission #5"), id. ¶¶ 65--66; and (6) that Exxon had chosen the remediation plan that involved removal of all of the USTs and that would render the premises vacant and no longer operational as a gasoline service station ("Omission #6"). Plaintiff also alleges that Exxon failed to disclose information contained in a July 14, 2006, letter from Durnin to Winsor ("Omission #7"), which is discussed more fully infra. Id. ¶¶ 95, 97. In sum, the PAC alleges that Exxon's failure to disclose the information above constitutes fraud.

3.Access Agreement Signed in December 2005

On December 1, 2005, plaintiff and Exxon finally signed the Access Agreement that they had been negotiating since May 2004. Id. ¶¶ 71--72. Plaintiff was represented by an attorney, Leonard Kramer. See id. ¶¶ 64, 73, 98.

The Access Agreement granted Exxon access to the premises for the purpose of conducting environmental testing and/or remediation operations. Access Agreement at 1. In return, Exxon was required to pay plaintiff $13,750 per month, including retroactive monthly payments going back to May 15, 2004. Id. ¶ 3(a). Exxon was required to make this monthly payment until Exxon reasonably determined that it no longer needed access to the entire premises and that plaintiff could lease the premises for use as a service station. Id. ¶ 3(d). Once Exxon no longer needed to access to the entire premises, it was only required to pay a portion of the rent attributable to the percentage of the premises that Exxon would use. Id. ¶ 3(d).

The Access Agreement provides that "[i]f [Exxon] undertakes any remediation," it will continue such remediation until the applicable governmental agencies indicate that no further remediation is required and issue a "closure letter" indicating that the "Spill Number" has been removed. Id. ¶ 1(b). Exxon was required to provide plaintiff with copies of all environmental test results "which Exxon Mobil files" with any governmental agency. Id. ¶ 1(c).

Exxon retained the sole right to negotiate with any governmental agency concerning a remediation plan for the premises provided that "the execution of said plan does not diminish the value of the Premises." Id. ¶ 1(e).

Paragraph five of the Access Agreement, which discusses the USTs, states:

In addition to the parties' rights under the Lease, in order to perform remediation required by any Governmental Authority, [Exxon] may use, move, remove, or alter any building, structure, curbing, pavement, driveway, improvement, machinery, or other equipment located on the Premises without incurring any liability to [plaintiff] therefor provided it restores any building, machinery, equipment and other facilities necessary for the preservation of the use of the Premises as a gas service station in accordance with the requirements of the Board of Standard Appeals or other applicable governmental authority. Those items which [Exxon] does not remove belong to [plaintiff]. The tanks and lines shall remain on the Premises and be purchased by [plaintiff] for the nominal consideration of $10.00 subject to the terms of a bill of sale provided by Exxon Mobil to Owner, provided, however, that the [Small Tanks] located adjacent to the [Large Tanks system] shall be removed, if feasible, as part of the remediation undertaken by [Exxon] in accordance with the requirements of the [DEC]. With regard to the determination of whether it is feasible to remove the [Small Tanks], feasibility shall be based upon structural concerns, minimizing damage to the improvements on the Premises, and similar matters rather than the cost of removal. If such removal is not feasible, then [Exxon] and [plaintiff] agree that [Exxon] may abandon such tanks in place in accordance with the requirements of, and with the approval of, the [DEC]. . . .

Id. ¶ 5 (emphasis added).

4.Exxon's Attempted Sale of the USTs

Shortly after the Access Agreement was signed, but before any remediation work had begun or Exxon had signed the consent order, Exxon attempted to sell the Large Tanks to plaintiff. PAC ¶¶ 86, 90. The proposed bill of sale offered by Exxon included a provision that required plaintiff to "agree[] that any leak or overfill discharge discovered at any time after the effective date of [the] bill of sale shall be [plaintiff's] responsibility and shall be deemed to have occurred after ownership of [Exxon's] interest in the tanks and lines passed to [plaintiff]."*fn6 Id.

ΒΆ 87. Plaintiff alleges that Exxon sought to sell plaintiff the Large Tanks pursuant to the above bill of sale because that would have enabled Exxon to shift the cost of the ...


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