Real Property Law

Landowner Liable As Discharger Even Though No Contaminants Discharged After Purchase

State of New York v. Speonk Fuel Inc.

NYLJ 10/20/04, p. 22, col. 1

Court of Appeals

(6-1 decision; memorandum opinion; dissenting opinion by R.S. Smith, J.)

In an action by the state to recover costs for the cleanup and removal of oil contamination, both the state and the landowner appealed from an Appellate Division order holding the landowner liable for the cleanup costs, but holding that the 6-year statute of limitations on each claim by the state began to accrue at the time the state's Oil Spill Contamination Fund made a payment to cover cleanup and removal. The Court of Appeals affirmed, holding the landowner liable as a discharger even though no contaminants were discharged after the landowner's purchase of the property.

In 1985, Local Wrench, which operated a service station on the subject premises, tested its storage system for tightness, and one of its 4000 gallon tanks failed the tightness test. The tank was removed in January 1986. At that time, the state Department of Environmental Conservation (DEC) determined that it was not possible to clean up all the oil-contaminated soil resulting from past leakage, and advised Local Wrench to install groundwater-monitoring wells. DEC also advised Local Wrench that if it failed to investigate and remedy groundwater contamination, the agency would undertake the work and seek reimbursement under article 12 of the Navigation Law, commonly called the Oil Spill Act. Meanwhile, Speonk and its president, Mendenhall, contracted to purchase the service station and the real property on which it rested. On March 12, 1986, Speonk acquired title to the service station and storage system, and Mendenhall acquired title to the real property. Although Mendenhall had discussions with state representatives about remedial work, neither he nor Speonk agreed to undertake any remedial work. Local Wrench went out of business and its owner left the country. Subsequently, DEC hired contractors to clean up and remove the oil spill, and paid them with monies from the state's compensation fund. DEC disbursed monies intermittently from 1987 through 1996. Then, in 1996, the state brought this cost recovery action against Speonk and Local Wrench. The Appellate Division determined that a subsequent purchaser is liable when contamination caused by a prior owner continues to exist after purchase, and that the statute of limitations begins to run for each payment as soon as the fund makes a payment. The Appellate Division also concluded that a discharger is not entitled to challenge the reasonableness of the Fund's expenditures. Speonk appealed from the Appellate Division's liability determination, and the State appealed from its Statute of Limitations determination.

In affirming, the Court of Appeals majority held that Speonk's failure to take any action with respect to the contamination, despite its knowledge of Local Wrench's discharge, made it liable under the Navigation Law as a discharger. The court declined to specify the particular actions Speonk could or should have taken, but indicated that its failure to take any action resulted in liability. The court then upheld the traditional view that a cause of action for recovery of each payment made by the state fund accrued when the payment was made. Finally, the court noted that Speonk, as a discharger, was liable for all costs, and held that a discharger in Speonk's position had no right to contest the reasonableness of the state's expenditures. Speonk's only remedy was through an article 78 proceeding challenging the state's actions with regard to cleanup and removal as arbitrary and capricious.

Judge Robert Smith, dissenting, concluded that failure to clean up a discharge did not make Speonk a discharger within the meaning of the statute.

City's Compromise with Property Owner Construed As Forbearance Agreement

In re Delafield 246 Corp. v. City of New York

NYLJ 10/14/04, p. 25, col. 6

AppDiv, First Dept

(memorandum opinion)

In a landowner's article 78 proceeding seeking to enjoin the City of New York from selling or foreclosing on tax liens, the city appealed from the Supreme Court's invalidation of the challenged liens. The Appellate Division reversed and dismissed the proceeding, holding that a prior agreement with landowner's predecessor was a forbearance agreement rather than a reduction of the tax obligation.

The landowner purchased the subject property for $1 million at a 1991 foreclosure sale. Before that time, the property had become tax delinquent and, in 1990, the mortgagee had entered into an In Rem Installment Agreement with the city. Under the terms of that agreement, the mortgagee would make a down payment of $133,485, followed by 32 quarterly installments of $23,638. The agreement also provided that interest would continue to accrue on any unpaid principal balance, and that “the balance of principal and accrued interest remaining at the end of the stated number of installments shall be paid in a lump sum … ” When the current owner purchased at the mortgagee's foreclosure sale, the purchase was “ subject to all unpaid taxes, assessments and water rates, … including, but not limited to, all obligations and payments required to be made with respect to the mortgaged premises, as provided in the In Rem Agreement.” The owner made the 26 installment payments remaining under the terms of the In Rem Agreement, but did not make a lump sum payment of the balance due. When the city authorized the sale of tax liens on the premises, the purchaser of the tax liens notified the owner that if the balance due were not paid within a year, the property would be subject to foreclosure. The city later reacquired the tax liens, and the owner brought this proceeding to enjoin the city from selling or foreclosing. The Supreme Court granted the requested relief, concluding that the language of the In Rem agreement was ambiguous, and that owner would not have purchased the premises if it had believed that the accrued interest would amount to over $3 million.

In reversing, the Appellate Division first noted that the City's Finance Department is charged by statute with collecting real property taxes, and is directed to charge specified interest on unpaid taxes. The court noted further that while the city has power to enter into a forbearance agreement to postpone foreclosure, the city lacks power to forgive or compromise a real property tax debt. Finally, the court concluded that neither the city nor its agencies could be estopped from carrying out its statutory duty to collect taxes. The court noted that the amount of taxes due were a matter of public record, and dismissed owner's petition.

Landowner Liable As Discharger Even Though No Contaminants Discharged After Purchase

State of New York v. Speonk Fuel Inc.

NYLJ 10/20/04, p. 22, col. 1

Court of Appeals

(6-1 decision; memorandum opinion; dissenting opinion by R.S. Smith, J.)

In an action by the state to recover costs for the cleanup and removal of oil contamination, both the state and the landowner appealed from an Appellate Division order holding the landowner liable for the cleanup costs, but holding that the 6-year statute of limitations on each claim by the state began to accrue at the time the state's Oil Spill Contamination Fund made a payment to cover cleanup and removal. The Court of Appeals affirmed, holding the landowner liable as a discharger even though no contaminants were discharged after the landowner's purchase of the property.

In 1985, Local Wrench, which operated a service station on the subject premises, tested its storage system for tightness, and one of its 4000 gallon tanks failed the tightness test. The tank was removed in January 1986. At that time, the state Department of Environmental Conservation (DEC) determined that it was not possible to clean up all the oil-contaminated soil resulting from past leakage, and advised Local Wrench to install groundwater-monitoring wells. DEC also advised Local Wrench that if it failed to investigate and remedy groundwater contamination, the agency would undertake the work and seek reimbursement under article 12 of the Navigation Law, commonly called the Oil Spill Act. Meanwhile, Speonk and its president, Mendenhall, contracted to purchase the service station and the real property on which it rested. On March 12, 1986, Speonk acquired title to the service station and storage system, and Mendenhall acquired title to the real property. Although Mendenhall had discussions with state representatives about remedial work, neither he nor Speonk agreed to undertake any remedial work. Local Wrench went out of business and its owner left the country. Subsequently, DEC hired contractors to clean up and remove the oil spill, and paid them with monies from the state's compensation fund. DEC disbursed monies intermittently from 1987 through 1996. Then, in 1996, the state brought this cost recovery action against Speonk and Local Wrench. The Appellate Division determined that a subsequent purchaser is liable when contamination caused by a prior owner continues to exist after purchase, and that the statute of limitations begins to run for each payment as soon as the fund makes a payment. The Appellate Division also concluded that a discharger is not entitled to challenge the reasonableness of the Fund's expenditures. Speonk appealed from the Appellate Division's liability determination, and the State appealed from its Statute of Limitations determination.

In affirming, the Court of Appeals majority held that Speonk's failure to take any action with respect to the contamination, despite its knowledge of Local Wrench's discharge, made it liable under the Navigation Law as a discharger. The court declined to specify the particular actions Speonk could or should have taken, but indicated that its failure to take any action resulted in liability. The court then upheld the traditional view that a cause of action for recovery of each payment made by the state fund accrued when the payment was made. Finally, the court noted that Speonk, as a discharger, was liable for all costs, and held that a discharger in Speonk's position had no right to contest the reasonableness of the state's expenditures. Speonk's only remedy was through an article 78 proceeding challenging the state's actions with regard to cleanup and removal as arbitrary and capricious.

Judge Robert Smith, dissenting, concluded that failure to clean up a discharge did not make Speonk a discharger within the meaning of the statute.

City's Compromise with Property Owner Construed As Forbearance Agreement

In re Delafield 246 Corp. v. City of New York

NYLJ 10/14/04, p. 25, col. 6

AppDiv, First Dept

(memorandum opinion)

In a landowner's article 78 proceeding seeking to enjoin the City of New York from selling or foreclosing on tax liens, the city appealed from the Supreme Court's invalidation of the challenged liens. The Appellate Division reversed and dismissed the proceeding, holding that a prior agreement with landowner's predecessor was a forbearance agreement rather than a reduction of the tax obligation.

The landowner purchased the subject property for $1 million at a 1991 foreclosure sale. Before that time, the property had become tax delinquent and, in 1990, the mortgagee had entered into an In Rem Installment Agreement with the city. Under the terms of that agreement, the mortgagee would make a down payment of $133,485, followed by 32 quarterly installments of $23,638. The agreement also provided that interest would continue to accrue on any unpaid principal balance, and that “the balance of principal and accrued interest remaining at the end of the stated number of installments shall be paid in a lump sum … ” When the current owner purchased at the mortgagee's foreclosure sale, the purchase was “ subject to all unpaid taxes, assessments and water rates, … including, but not limited to, all obligations and payments required to be made with respect to the mortgaged premises, as provided in the In Rem Agreement.” The owner made the 26 installment payments remaining under the terms of the In Rem Agreement, but did not make a lump sum payment of the balance due. When the city authorized the sale of tax liens on the premises, the purchaser of the tax liens notified the owner that if the balance due were not paid within a year, the property would be subject to foreclosure. The city later reacquired the tax liens, and the owner brought this proceeding to enjoin the city from selling or foreclosing. The Supreme Court granted the requested relief, concluding that the language of the In Rem agreement was ambiguous, and that owner would not have purchased the premises if it had believed that the accrued interest would amount to over $3 million.

In reversing, the Appellate Division first noted that the City's Finance Department is charged by statute with collecting real property taxes, and is directed to charge specified interest on unpaid taxes. The court noted further that while the city has power to enter into a forbearance agreement to postpone foreclosure, the city lacks power to forgive or compromise a real property tax debt. Finally, the court concluded that neither the city nor its agencies could be estopped from carrying out its statutory duty to collect taxes. The court noted that the amount of taxes due were a matter of public record, and dismissed owner's petition.