Richmond American Homes: An Important Victory for Developers of Former Military Property
The recent federal court ruling in Richmond American Homes of Colorado, Inc. v. U.S., 75 Fed. Cl. 376 (2007), is a significant victory for developers of former military property that has been transferred under base closure laws. In Richmond, the U.S. Court of Federal Claims ruled that environmental remediation costs incurred by developers of the former Lowry Air Force Base were the responsibility of the federal government under Section 330 of the National Defense Authorization Act for Fiscal Year 1993, Pub. L. 102-484, 106 Stat. 2315, 2371, 10 U.S.C. § 2687 note.
In Richmond, the United States Court of Federal Claims ruled that cleanup costs incurred by developers of the former Lowry Air Force Base were the responsibility of the federal government pursuant to the statutory indemnification scheme provided by Section 330 of the National Defense Authorization Act for Fiscal Year 1993. The Lowry Air Force Base in Denver, Colorado, was among several military installations selected for closure under the Base Closure and Realignment Act (BRAC), Pub. L. 101-510, as amended, §§ 2901-11, 104 Stat. 1808, 10 U.S.C. 2687 note.1 After closure of the base in 1991, the Lowry Redevelopment Authority (LRA) purchased the property from the Air Force in order to improve the lots and subsequently convey them to various homebuilders, including the plaintiffs in the Richmond case. In the process of improving and developing the lots, however, the plaintiffs discovered substantial asbestos-containing material in the soil. The Colorado Department of Public Health and Environment (CDPHE) issued several “compliance advisories” to the plaintiffs directing them to investigate and remediate any asbestos-containing material discovered in the soils on-site. The “compliance advisories” informed the plaintiffs that they could incur substantial penalties if they did not comply. As a result of the advisories, the plaintiffs began extensive remediation of the soil and, in doing so, suffered damages in excess of $9 million, including costs associated with investigation, remediation, attorneys’ fees, homeowner expenses and overhead.
The plaintiffs demanded reimbursement of their remediation costs from the Air Force under Section 330(a)(1) of the National Defense Authorization Act. Generally, Section 330(a)(1) provides that the Department of Defense (DOD) must indemnify certain statutorily-defined parties against claims for personal injury or property damage caused by the release of hazardous substances by the DOD. The release of hazardous substances must be the result of DOD activities at a military installation that has been closed pursuant to the base closure law. Section 330(a)(1) was designed to encourage economic development at former military facilities by lessening the risk of potentially devastating liability to businesses and developers. The Air Force refused to reimburse the plaintiffs for their cleanup costs, after which the plaintiffs filed suit against both the Air Force and DOD (Government).
In denying the plaintiffs’ request for reimbursement, the Government maintained that a “claim” must first have been filed against the plaintiffs in order for the indemnification provision of Section 330(a)(1) to be invoked against the Government. The Government further contended that, even if prior compliance advisories instituted by the Colorado Department of Public Health and Environmental Compliance (CDPHE) against the plaintiffs constituted a claim, these were not claims for personal injury or property damage, as required by the statute. Generally, the Government urged the court to adopt a narrow interpretation of the scope of its obligations under Section 330(a)(1), contending that the indemnification obligation would only come into play if a “third party” sued for personal injury or property damage.
What Constitutes a Claim?
The court rejected the Government’s assertions that the term “claim” should be held to a strict and limited meaning. Instead, the court applied an expansive construction of the word “claim” and concluded that the “compliance advisories” issued by the CDPHE were sufficient. The Richmond court was clear that a third party does not have to sue the new owner of the property for personal injury or property damage in order for the Section 330(a)(1) indemnification obligation to be triggered. While the court did not elucidate on the specific types of claims that would trigger Section 330(a)(1) responsibility, it did engage in a lengthy analysis of the compliance advisories issued by the CDPHE. Of importance to the court was the fact that CDPHE’s exertion of regulatory authority in issuing the advisories was not “a mere invitation to voluntary action” but clearly directed the recipients to take compliance action or face the consequences of paying fines later. The “teeth” in the compliance advisories seemed to be the deciding factor for the court in its determination that the advisories constituted “claims.” Further, the court rejected the argument that a third party claim is required, but noted that it would have no trouble characterizing CDPHE’s involvement as a third party claim even if such a claim were required.
In reaching the conclusion that “the protections of Section 330(a)(1) are sweeping” and should be applied broadly, the court looked to the basic broad language of the statute and its legislative history indicating that the statute was intended to “help facilitate a safe and timely transfer of base property to other productive uses.”2 A narrow construction of the statute would contravene the basic purpose behind its enactment. Accordingly, the court concluded that a broad application of Section 330(a)(1) was warranted and denied the Government’s motion for summary judgment. At present, it is unknown whether the Government will appeal the ruling.
In sum, the Richmond decision is an important victory for those involved in BRAC projects. While the ramifications of the court’s ruling remain to be seen, the decision is likely to result in a new wave of litigation by those seeking reimbursement for a broad range of claims under Section 330(a)(1).
1 In 1988, Congress established the Defense Base Closure and Realignment Commission, which reviews U.S. military bases and recommends installations that should be closed or realigned and sold for private development. The Lowry Air Force Base was among those selected during the second round of closures in 1991.In 1988, Congress established the Defense Base Closure and Realignment Commission, which reviews U.S. military bases and recommends installations that should be closed or realigned and sold for private development. The Lowry Air Force Base was among those selected during the second round of closures in 1991.
2 The court found that the statute is broadly written and provides a broad range of examples of the types of claims for which DOD must provide indemnification:
[T]he Secretary of Defense shall hold harmless, defend, and indemnify in full the persons and entities described in paragraph (2) from and against any suit, claim, demand or action, liability, judgment, cost or other fee arising out of any claim for personal injury or property damage (including death, illness, or loss of or damage to property or economic loss) that results from, or is in any manner predicated upon, the release or threatened release of any hazardous substance or pollutant or contaminant as a result of [DOD] activities at any installation (or portion thereof) that is closed pursuant to a base closure law.
10 U.S.C. §2687 (West 2007).