Minnesota Environmental Response and Liability Act
Suppose you were an owner of real estate in the 1960’s. Suppose also that you leased the real estate you owned to an oil company in 1961. The oil company placed fuel tanks on the real estate. In 1962 the oil company spilled fuel on your real estate. It slowly seeped into the soil and eventually contaminated the ground water as well as the soil. In 1988 the city where the land is located condemned the property.
Now fast forward to today. The city sues you for the cost of the clean up based on current real estate law.
Can you be held liable to clean up your real estate today when the fuel spill is discovered? The answer, believe it or not, is quite possibly yes.
Many real estate owners in Minnesota are facing these liability issues today as a result of the Minnesota Environmental Response and Liability Act (“MERLA”).
MERLA is what is called a “superfund” law. It was enacted primarily to identify and clean up abandoned and existing sites contaminated by hazardous substances. The key features of MERLA are that it:
1. Imposes joint and several liability on responsible persons;
2. Imposes strict liability, that is, liability without regard to fault or negligence, on responsible persons;
3. Imposes liability retroactively, that is, persons responsible for contamination prior to enactment of MERLA are nonetheless liable;
4. Imposes severe penalties for noncompliance with statutory requirements or government orders in appropriate cases; and
5. Allows the recovery of clean up costs by one responsible party against other responsible parties including attorneys fees.
The general rule of liability under MERLA is that a person is responsible for a release of a hazardous substance or a pollutant or contaminant from a facility if a person: (1) owned or operated the facility when it was contaminated; (2) owned or possessed a hazardous substance, or pollutant or contaminant and arranged for its disposal, treatment or transportation; or (3) knowingly accepted a hazardous substance or pollutant or contaminant. A “release” is any spilling, leaking, dumping, escaping or discharging of any hazardous substance.
MERLA does have an “innocent” landowner exception which excludes certain landowners from liability. This section essentially makes an innocent landowner liable only if they knew or reasonably should have known that a hazardous substance was released on the real estate.
What should landowners do to protect themselves from the actions of their tenants? The answer is to address the possibility of environmental contamination up front by including an indemnification and hold harmless provision in the lease. The indemnification claim should expressly cover environmental hazards. Obviously, the value of an indemnity to a landowner is only as valuable as the indemnitor’s financial strength. Because the indemnitor may eventually become insolvent, its financial strength should be examined as fully as practicable. It should be noted that, even with an indemnification clause, a landowner could face large attorneys fees defending against the MERLA claim and moving for Summary Judgment on the indemnification. One possible way to protect yourself is to include a provision calling for attorneys fees for a lessor required to defend against a MERLA due to the action of the lessee.
What if you didn’t include an indemnification provision in your lease in the 1960’s? You may find yourself in a lawsuit seeking to prove that you did not know or could not have known about the release of a hazardous substance that was spilled over thirty years ago. You should check insurance policies that you had at that time (if you can find them) to see if the liability is covered.
Tenants who want to be protected from liability resulting from uses of the real estate prior to their occupancy, should negotiate with landowners for an indemnity clause against liability for environmental contamination which occurred prior to their occupancy. The obvious problem with this solution is that litigation could still result over whether subsequent operations caused the release of the hazardous substance or earlier operations caused the release of hazardous substances.
MERLA presents a new risk for landowners or tenants to consider before buying or leasing real estate. The possible consequences and solutions should be addressed up front to avoid problems before they happen. If the release of the hazardous substance occurred before you knew about the MERLA requirements, you will still have to deal with the potential liability you face from a MERLA suit.
For more information, please call Attorney Brad Kletscher at Barna, Guzy & Steffen, (763) 780-8500.
Thomas P. Malone and Bradley A. Kletscher have experience in MERLA litigation as well as a wide variety of other areas involving business disputes.