Federal Court’s Dismissal of Buyer’s Fraud Action in Allegedly Contaminated Gas Station Sale Highlights the Need for Land Purchasers to Conduct Independent Environmental Assessments

Posted by in Environmental Litigation, Land Use & Development, Remediation on October 1, 2012

A Washington federal district court denied purchaser Pyramid Gold, Inc.’s claim that it was misled as to the level of contamination present at the gas station it purchased from BP West Coast Products, LLC.   Pyramid Gold agreed to the sale after receiving an environmental baseline assessment conducted by BP West Coast that revealed contamination below reporting and remediation action levels imposed by Washington state law.  However, when Pyramid Gold entered into negotiations to sell the property five years later, its potential buyer discovered contamination exceeding levels requiring cleanup under Washington state law.   Ultimately the potential sale failed, and Pyramid Gold and its owner, Hatem M. Shalabi, filed suit against BP West Coast and other BP entities alleging fraud and negligent misrepresentation in the land sale transaction.  The defendants filed a motion to dismiss all defendants except BP West Coast (“non-party defendants”) as non-parties to the sales agreement, and seeking summary judgment in favor of BP West Coast on the elements of fraud and negligent misrepresentation.

The court granted the non-party defendants’ motion to dismiss based upon plaintiffs’ failure to plead any factual basis for their inclusion.  The court also granted BP West Coast’s motion for summary judgment on the fraud and negligent misrepresentation claims, finding that plaintiffs failed to prove at least one element common to both: “reliance on the truth of the representation of an existing fact.”  In fraud and negligent misrepresentation claims, reliance on a representation is only justified when reasonable under the circumstances, and requires that the plaintiff have exercised due care and diligence on his own part in ascertaining relevant facts at his disposal.  Here, the court found that reasonable minds could not differ that plaintiffs were not justified in their reliance on any alleged statement by BP West Coast that there was little or no contamination on the property.  The court considered that BP West Coast’s baseline environmental assessment report was conducted by a third party consultant and clearly stated that some contamination on the property existed.  Pyramid Gold received the report, but nevertheless agreed under the terms of the sales agreement that it was buying the property “solely in reliance on its own investigation” and acknowledged that BP West Coast was selling the property “as is.”  In fact, Pyramid Gold never conducted its own environmental assessment.  In the course of the transaction, Pyramid Gold further acknowledged that BP West Coast was making no representation or warranty as to the accuracy of the third party consultant’s environmental assessment.  While Pyramid Gold argued that it was ignorant as to the contents of the agreement on this issue, the court gave no weight to that argument.  It is well-settled under Washington law that a party who is afforded the opportunity to read a plain and unambiguous written instrument cannot claim to be ignorant of its contents.  Accordingly, the court granted BP West Coast’s motion for summary judgment, entering judgment for the defendant.

The Pyramid Gold case highlights the need for land purchasers to be well-informed of the environmental terms in land sale transactions and to conduct independent environmental assessments of subject properties out of an abundance of caution, even in the face of a seemingly reliable environmental assessment conducted by the seller or third-party consultants retained by the seller.

Shalabi and Pyramid Gold  v. Atlantic Richfield Co., et al., case no. 2:11-cv-00505-BHS (9/20/12 W.D. Wash.)

by Clare Bienvenu & John D. Edgcomb

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