The Michigan Court of Appeals has held that a trial must be held on whether the shareholders of a corporation that did not disclose to a buyer of the corporation and its properties that underground storage tanks (USTs) were located on property violated a purchase agreement and, thus, are potentially liable for contamination from the USTs. The decision reverses a trial court ruling granting summary disposition to the corporation and its shareholders.
Imperial Oil Company, Webb Oil Company and Lewis C. Johnson, Inc. (collectively, Imperial) purchased Remus Independent Oil Company and its corporate holdings which included a property on which a gas station was located (collectively, Remus). Remus made representations and warranties that there was no basis for or exposure to liability existing on the gas station site. Remus also warranted that it knew of no existing or threatened fact or condition that might cause a material, adverse change in the company's business after Imperial acquired it. Remus agreed to indemnify plaintiffs for "any and all damages . . . or deficiencies of any nature resulting from . . . breach of representation, or warranty contained in this agreement [or] any material inaccuracy in any such . . . representation . . . or warranty." Later excavation revealed petroleum contamination and abandoned USTs on the site. Imperial began cleaning up the contamination and then sued Remus and its individual shareholders for contribution and indemnification for cleanup costs and breach of warranty.
The trial court granted summary disposition to Remus and the individual shareholders, and dismissed the indemnification claim against them, holding that Imperial had not raised triable claims against them. Under Michigan law, a court considering a motion for summary disposition must give the benefit of any reasonable doubt to the party opposing the motion, and must further determine if a factual accord might be developed which would leave open an issue on which reasonable minds could differ. The court of appeals held that this dismissal was in error because, given expert affidavit testimony presented to the trial court regarding the nature of the contamination on the property, reasonable minds could differ on whether the shareholders knew of the contamination at the time of the sale. In addition, although Imperial's liability in this situation arose from an amendment to the Michigan Environmental Response Act (Act 307, now Part 201 of the state Natural Resources and Environmental Protection Act) subsequent to the sale, there remains the possibility that, even without the statutory change, the contamination might have caused a "material adverse change" in plaintiffs' business. Also, reasonable minds could differ on whether Imperial's liability arose from a material inaccuracy in the shareholders' representation that they knew of no "condition" which could cause such a "material adverse change." Therefore, because reasonable minds could reach differing conclusions on the basis of the evidence presented to the trial court, the appeals court overturned the trial court's grant of summary disposition and held that the matter must be brought to trial.
Imperial Oil Co. v. Remus Independent Oil Co., No. 187659 (Mich. Ct. App. Mar. 11, 1997).
This article was written by Walter J. Kramarz, a partner in our Environmental Law Department, and previously appeared in the May 1997 edition of the Michigan Environmental Compliance Update, our monthly newsletter published by M. Lee Smith Publishers.