Appellate Court Holds ELA Claim Time Barred and Petroleum Releases Statute Did Not Provide Private Cause of Action Against Former Operators

By:  David A. Temple, Drewry Simmons Vornehm, LLP

Earlier this month, the Indiana Court of Appeals provided guidance on the applicable statute of limitations for claims brought under the Indiana Environmental Legal Actions Statute (ELA), Indiana Code § 34-11-2-11.5, and the ability of a private party to bring a claim under the Indiana Petroleum Release Statute (PRS), Indiana Code § 13-24-1-1 et. seq. In Schuchman/Samberg Investments, Inc. v. Hoosier Penn Oil Co., Inc., 2016 WL 4140986 (August 4, 2016), the appellate court addressed ELA and PRS claims brought by the current owner and operator (SSI) of an environmentally contaminated Site against a former operator (Hoosier Penn), which previously operated the Site as a lubricant oil and antifreeze distribution center. Hoosier Penn had previously offered to purchase the Site from a prior owner for $1 with the understanding that Hoosier Penn would undertake remedial actions. The record established that knowledge and information about environmental impacts to the Site were known by various parties since 1994.

The appellate court found that a 1995 Environmental Disclosure Document for Transfer of Real Property (required at the time) was incorporated into the public deed record prior to SSI’s purchase of the Site. Before and after purchasing the Site, SSI received Phase I Environmental Site Assessments for the Site. Moreover, the President of SSI testified that prior to purchasing the Site he personally observed stained soil around the former above ground storage tanks (AST) and that SSI later had the top 2 feet of soil excavated and removed. SSI did not have any further testing done at that time to confirm if enough soil had been excavated to sufficiently remediate contamination. The President of SSI also testified that upon receiving the post-acquisition Phase I he believed that SSI was “stuck” with a potentially contaminated property. Subsequent investigations confirmed his fear as they revealed the presence of extensive environmental contamination of the Site. The trial court and appellate court found that SSI had actual knowledge sufficient to trigger the applicable statute of limitations in July 1998, more than 11 years before it filed suit.

The Court observed, that while “[t]he ELA does not include an express statute of limitation … it imposes a limitation on the types of damages recoverable in an ELA claim in the form of a ten-year look back period.” The Court of Appeals was clear that this ten-year “look back period” is not a statute of limitations because it “says nothing of the time frame within which an ELA claim must be brought or the events that trigger the running of that period.” The court affirmed the trial court’s application of the six (6) year statute of limitations for damages to real property, Indiana Code § 34-11-2-7(3), finding that SSI sought to recover costs incurred to remediate its own property, not someone else’s property for which it might seek contribution from other owners and operators.

The Court further noted that Hoosier Penn’s argument in favor of the ten (10) year “catch-all” statute of limitations produced an absurd result.   According to the Court, applying the ten-year statute:

“would subject an innocent purchaser of contaminated property to a shorter statute of limitation than a property owner who had contributed to the property’s damaged condition. Indeed, purchasers could theoretically extend the applicable statute of limitation by releasing hazardous substances onto their own property.”

The appellate court refused to “endorse such an illogical result”, holding that SSI’s ELA claim was time barred by the six (6) year statute of limitations for damage to real property.

Concerning SSI’s claim under the PRS statute, the appellate court held that SSI lacked standing to bring a claim under the PRS “[because IDEM did not incur remedial costs pursuant to [Indiana Code § 13-24-1-2] and consequently passed no costs on to SSI pursuant to [Indiana Code §13-24-1-4(a)], SSI cannot recover from other responsible parties pursuant to Section 4(b).” The appellate court found the language of the PRS clear and unambiguous. The PRS extends a limited right of recovery to private parties where the State has incurred remediation costs pursuant to Section 2 and passed those costs onto an owner, operator, or responsible party seeking recovery.

A take away from Schuchman/Samberg is to be vigilant in performing your due diligence obligations prior to and after purchasing potentially contaminated property. As the Court of Appeals noted:

Under Indiana’s discovery rule, a cause of action accrues, and the limitations period begins to run, when a claimant knows or in the exercise of ordinary diligence should have known of the injury.

Had SSI done more in an expedited manner and had not waited eleven (11) years to bring a claim under the ELA, the outcome surely would have been different.