This month, in Markmik, LLC v. Packer (unreported decision, No. 23-P-736), the Massachusetts Appeals Court affirmed a trial court’s finding that a less expensive cleanup option requiring buyers to accept an activity and use limitation (“AUL”), with no diminution in value damages, was appropriate given a guaranty by sellers that was silent about the level of cleanup committed to.

The lawsuit concerns property buyers who brought an action against sellers to recover their costs for remediating a property in Oak Bluffs on Martha’s Vineyard where a gas station has operated since the 1920s (the “Property”).  In or about 2000, buyers purchased the Property to relocate their liquor store and continue operating the gas station.  Buyers were aware of petroleum releases requiring cleanup to comply with Massachusetts Department of Environmental Protection (“DEP”) regulations.  As part of the $1.3M sale of the Property, buyers agreed to pay the first $35,000 worth of cleanup costs for remediating the Property to satisfy the DEP, with sellers being responsible for additional costs (the “Guaranty”). 

In 2005, DEP issued a Notice of Responsibility to buyers informing them of their liability under the General Laws of Massachusetts, chapter 21E, as a “Potentially Responsible Party” and requiring buyers to remediate historic contamination to achieve a level of No Significant Risk for all substantial hazards at the Property.  Sellers’ Licensed Site Professional (“LSP”) conducted investigations and submitted various reports to DEP; however, remediation was not completed.

In June 2015, DEP issued a Notice of Noncompliance to buyers requiring them to submit a temporary or permanent solution to DEP by the end of 2015.  Investigation by buyers’ LSP concluded that on-site underground tanks were the source of contamination and that there was potential for migration of vapor and groundwater contamination onto two adjacent properties, a restaurant and an ice cream store.  Of the LSP’s three permanent remedial solutions, option 3 was the most inexpensive (estimated to cost $514,202) and the only one requiring the imposition of an AUL on the Property.

Plaintiffs brought their lawsuit under several causes of action, alleging that sellers were responsible for the cleanup costs since the contamination occurred during their ownership in the 1990s.  In November 2021, the Superior Court of Massachusetts granted the plaintiffs’ motion for summary judgment as to the breach of contract cause of action but left for trial determination about the damages that plaintiffs were entitled to. 

At trial, the Superior Court judge considered which of the three remedial options was in line with the reasonable expectation of the parties at the time of entering into the Guaranty and concluded that the most inexpensive option, option 3, was suitable.  In choosing the only option that would place an AUL on the Property, the court noted that up until 2017, at which point zoning laws were changed, the Property could only be used for commercial purposes.  Since, the Property had been used as a gas station for a century, the Court held that when buyers purchased the Property, they had no reasonable expectation that the Property could ever be used for residential purposes, and that if buyers wanted the Property to be improved to allow for residential use, then they would need to bear those costs.  Accordingly, the court held that plaintiffs are entitled to judgment in their favor in the amount of $479,202 ($514,202 - $35,000) for breach of contract.

Sellers appealed, asserting that the judge applied a standard that was arbitrary and inconsistent with the evidence and that the award of damages amounted to unjust enrichment.  In sellers’ view, buyers were entitled to a temporary solution requiring continuous monitoring for an indefinite period.  Buyers, in their cross appeal, argued that they were entitled to additional reimbursement for costs incurred to assess contamination and develop remediation plans, and for prejudgment interest from the date of the breach.

The Massachusetts Appeals Court affirmed the trial court findings and holding, stating that without the full record, and in light of deference afforded to a trial judge in a jury-waived trial, the court had no definite and firm conviction that the trial judge had committed a mistake.  Accordingly, the court affirmed that the language of the Guaranty was ambiguous because cleanup costs were not defined.  Based on the evidence at trial, the court held that parties intended cleanup costs to cover a permanent solution, and option 3 imposing an AUL on the Property appropriately reflected that intention.

The decision reinforces the court’s consideration of the reasonable expectations of parties at the time of contracting, both to interpret an agreement and award damages.  Here, buyers bought the Property with the knowledge of the presence of contamination though apparently without knowledge about the extent of contamination and costs for satisfying DEP.  While the difference in cost between options 2 and 3 was just over $70,000, the court refused to make the plaintiffs better off by either selecting a remedial option that did not require the imposition of an AUL on the Property or awarding damages for diminution in value.     

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