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Gavora, Inc. v. City of Fairbanks

United States District Court, D. Alaska

July 25, 2017

GAVORA, INC., Plaintiff,
v.
CITY OF FAIRBANKS, Defendant.

          MEMORANDUM OF DECISION AND ORDER

          SHARON L. GLEASON UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         This is an action alleging environmental pollution that is brought by Gavora, Inc. against the City of Fairbanks pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), 42 U.S.C. §§ 9601-9675.[1] The case relates to environmental contamination at and around the Shopper's Forum Mall, located at 1255 Airport Way in Fairbanks, Alaska (the “Property”). Gavora is the current owner of the Property; it seeks an order requiring the former owner, the City of Fairbanks, to pay for 66% or more of all past and future clean-up costs.[2] The City asserts that its responsibility for the clean-up costs is far less.

         Gavora, Inc. initiated this action on June 16, 2015. On September 20, 2016, the Court granted summary judgment in part to Gavora under CERCLA § 107(a).[3] The City then filed an amended answer seeking equitable allocation of past and future response costs at the Property under CERCLA § 113(f).[4] The case proceeded to a four-day bench trial in Fairbanks, Alaska beginning on May 22, 2017.

         Federal Rule of Civil Procedure 52(a) provides that “[i]n an action tried on the facts without a jury . . . the Court must find the facts specially and state its conclusions of law separately.” Having considered all the testimony, the exhibits admitted into evidence, and the parties' submissions and arguments, the Court now makes the following Findings of Fact and Conclusions of Law and Equity.[5]

         II. FINDINGS OF FACT

         1. In or around 1938, the City acquired the Property.

         2. In 1961, the City leased a portion of the Property to Tice Electric Co. Tice or a sublessee operated a self-service laundry operation beginning in or around 1961 that operated in the Tice Center that was then located at the north end of the Property. The self-service laundry included coin-operated dry cleaning machines.

         3. The self-service laundry operation continued at the Tice Center until approximately 1966.

         4. A laundry operation that included dry cleaning then began shortly thereafter in a former annex building that was then located just south of the former Tice Center location. That operation was in existence when Gavora acquired the master lease in 1976. Gavora had previously acquired all of the shares of the prior master leaseholder, B & B Company, in 1974. (Ex. S).

         5. Gavora's lease with the City was valid until 2016. The lease accorded Gavora a contractual right to purchase the Property from the City at fair market value at any time during the term of the lease. (Ex. Q at 4).

         6. Beginning in 1976, Gavora subleased part of the Annex building at the southern end of the Property to dry cleaners that operated there until approximately 2001 (or perhaps 2002). (Ex. L). There have been no dry cleaning operations on the Property since that time.

         7. At no time did either the City or Gavora conduct dry cleaning operations on the Property. The City owned its utilities between 1961 and 1997 and received property tax revenue for the Property. It also received rent from Gavora. Gavora, in turn, received rent from the dry cleaning operators.

         8. PCE (tetrachloroethylene) and TCE (trichloroethylene) are chlorinated solvents and environmental contaminants.

         9. Dry cleaning operations may cause PCE and TCE contamination in the groundwater and soil. There is PCE and TCE contamination at the Property, which the Court finds is due to the dry cleaning operations that took place there from 1961 until approximately 2001. A substantial majority of the contamination is due to the dry cleaning operations that were in the Annex from 1976 until 2001. The percentage of the overall contamination that was caused by the Annex operation is not capable of precise quantification. Based on the evidence presented at trial, the Court estimates that between 80% and 90% of the total on-site PCE and TCE contamination was from operations at the Annex from 1976 to approximately 2001.

         10. In 1992, PCE and TCE were discovered in the soil and groundwater at Fairview Manor, a large commercial property located north of the Property on the other side of Airport Way. Fairview Manor was owned by the City at that time. (Ex. 6 at 4).

         11. The direction of the groundwater flow at the Property is from southeast to northwest.

         12. Beginning in the 1990s, the City actively worked with a consultant and the Alaska Department of Environmental Conservation (ADEC) to address the contamination at Fairview Manor. Patrick Smith, the Development Manager for the City of Fairbanks, and Larry Crouder, the City Engineer, were both active participants in that process. To the extent Mr. Smith testified he was not actively involved in that process, the Court found that testimony not credible.

         13. In 1999, monitoring wells were installed near the southern edge of the Fairview Manor property, just across the street and downgradient from the Property. The wells demonstrated that the contaminants at the Fairview Manor “originate from an upgradient, off-site source(s).” (Ex. 6 at 4). The City was informed of that fact at that time.

         14. The Property is an upgradient off-site location relative to Fairview Manor. At trial, Mr. Smith's testified that he did not know this fact until recently. The Court finds this testimony not credible, given Mr. Smith's long career with the City of Fairbanks, first as the right-of-way manager, and then as the property and development manager. Knowledge of underground water movement would appear to be essential in those jobs, particularly with the Chena River flowing directly through Fairbanks, to the north of Fairview Manor.

         15. Based upon the Court's consideration of all the evidence presented at trial, the Court finds that in 1999, Pat Smith knew, or at the very least should have known, that it was likely there was PCE and TCE contamination at the Shopper's Forum Property as a result of the longstanding dry cleaning operations at that site and Mr. Smith's knowledge of the PCE and TCE contamination found downgradient to the Property at Fairview Manor.

         16. On October 13, 2000, ADEC added the Shopper's Forum Property to its database of contaminated sites. An undated entry in ADEC's file indicated that “assessment and historical review indicate releases have occurred from at least two historic drycleaners that have operated on the property.” It also indicated that samples from the Annex at the south end of the Property “detected high concentrations of PCE and TCE in soil and groundwater.” And “[t]here appears to have been a smaller release from the former drycleaner located along the north end of the property.” (Ex. 13 at 1).

         17. In a letter dated March 7, 2001 from ADEC to the City's Fairview Manor consultant, which was copied to City Engineer Larry Crouder, ADEC agreed with the City's consultant that the source of the PCE and TCE contamination at Fairview Manor was from an off-site contaminant source. The letter specifically referenced “the location of a dry cleaning company up-gradient” as a reason for concurring in the City consultant's assessment. (Ex. 8 at 2).

         18. A letter dated April 19, 2001 from the City's Fairview Manor consultant addressed to the City of Fairbanks, to the attention of Patrick Smith, indicated that Mr. Smith had discussed with the City's consultant on that project that the City might choose not to make public the fact that the City knew that there was PCE/TCE contamination in the area, citing, among other reasons “contractual circumstances and/or concerns.” (Ex. 9 at 2). The letter specifically confirmed that there was contamination to the southwest of the Fairview Manor property. The consultant recommended that the “City of Fairbanks should ask to be kept routinely informed of any contamination/remediation projects” regarding “suspected offsite sources” adjacent to the Fairview Manor property. (Ex. 9 at 3).

         19. Later that same year, in September 2001, Gavora indicated its intent to exercise its option to purchase the Property from the City. (Ex. 10). Mr. Smith prepared a memorandum to the Mayor regarding the proposal, in which he opined that the City had been subsidizing Gavora because the rent paid by Gavora under the lease was substantially below fair market rent.

         20. In a letter dated March 29, 2002 from Gavora to the City's Mayor, Mr. Paul Gavora wrote about the upcoming commercial appraisal that the parties had agreed would be used to value the Property for the intended sale. In that letter, Mr. Gavora noted that “[t]he industry standard for commercial appraisals includes . . . environmental concerns.” He stressed that “the instructions provided to MAI appraiser, Mr. King, must be consistent with industry standards and mutually agreed upon.” (Ex. Z at 2).

         21. Shortly thereafter, the City-retained appraiser valued the Property. Patrick Smith, on behalf of the City of Fairbanks, wrote to the appraiser and directed that “[t]he appraisal shall be performed under the Uniform Standards of Appraisal Practice” (USPAP). (Ex. AB).

         22. In approximately April 2002, Mr. Smith met with the appraiser for approximately half an hour to discuss the Property, but at no time did he advise the appraiser that there was likely environmental contamination at the Property from the dry cleaning operations. The appraiser indicated that he had had “in-depth discussions of the property and valuation issues with Mr. Pat Smith of the City of Fairbanks.” (Ex. 11 at 11). The appraisal included “a specific assumption” that there was no environmental contamination on the Property. (Ex. 11 at 13). The USPAP recognizes that appraisers are not experts in detecting environmental contamination and notes that an appraiser “becomes aware of contamination through disclosure by the client.” If such a disclosure is made, the USPAP requires an appraiser to identify that fact in the appraisal. (Docket 64-1 at 164-65).

         23. In June 2002, ADEC had prepared a Site Characterization Plan for Fairview Manor regarding PCE and TCE as a follow up to the detection of these solvents at that property. The report concluded that the former and current dry cleaners at the Property was one potential source for the contamination at Fairview Manor. It also identified a former service station located to the east of Fairview Manor and the sanitary sewer lines as potential sources. (Ex. 12 at 15).

         24. The Real Estate Purchase Agreement for the Property between the City and Gavora was signed on May 14, 2002. The City cooperated with Gavora to expedite the closing, as a result of which Gavora was able to defer $157, 000 in taxes. (Ex. 28).

         25. The Real Estate Purchase Agreement specified that Gavora had done “due diligence” prior to the purchase, and had “inspected the property, [was] familiar with its condition, and accept[ed] same ‘as is, where is'.” (Ex. AM at 2).

         26. The City did not disclose to Gavora the likelihood of environmental contamination in the form of PCEs and TCEs on the Property prior to the sale, although the City knew, or at least should have known, of that likelihood.

         27. There was no evidence presented that Gavora had the Property tested for environmental contamination prior to its purchase. It is unclear why Gavora did not take steps to insure that the Property did not have environmental contamination prior to purchasing it.

         28. ADEC sent out Potentially Responsible Party (PRP) letters to Gavora, the City, and Tice Electric on June 5, 2009. (Ex. AN). An internal ADEC email written at that time stated “[s]ince we have not linked the contamination to dry-cleaning operations ...


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