KEVIN J. CAREY, Bankruptcy Judge.
On June 8, 2008, LandSource Communities Development, LLC, and affiliated entities
On May 19, 2009, Barclays Bank PLC, as administrative agent under the Super-Priority Debtor-In-Possession First Lien Credit Agreement, filed the Second Amended Joint Chapter 11 Plan of Reorganization for LandSource Communities Development LLC and each of its Affiliated Debtors (the "Plan") (D.I. 1685). Pursuant to Article XIII(A) of the Plan and the Second Plan Supplement (D.I. 1895), the Lease was to be assumed as of the Plan's effective date, subject to a cure amount claim of $0. On July 6, 2009, Berco objected to the cure amount (D.I. 2034) (the "Berco Cure Amount Objection"), claiming that the cure amount owed to Berco under the terms of the Lease was $800,000, i.e., the same amount as the Berco Claim.
On June 23, 2009, the Debtors filed the Fifth Omnibus Objection (Substantive) to Claims (the "Claim Objection") (D.I. 1905), claiming, inter alia, that the Berco Claim should be disallowed because (i) the Lease provides that Berco is responsible for the cost to clean up any oil spill or release, and (ii) Newhall has paid all property taxes that are its responsibility in full and, further, that any share of production/royalty taxes owed by Newhall were withheld from royalty payments owed by Berco to Newhall and paid by Berco to the taxing authorities.
On July 20, 2009, the Court entered an order confirming the Plan (the "Confirmation Order") (D.I. 2151). The effective date of the Plan was July 31, 2009.
On October 2, 2009, the Court entered an Agreed Scheduling Order (D.I. 2468) for the Berco "Contested Matter," which was amended by Order dated February 5, 2010 (D.I. 2618), setting deadlines for discovery, mediation, and dispositive motions.
On August 6, 2010, Newhall filed a reply (D.I. 2989) and a response to Berco's evidentiary objection (D.I. 2990).
Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056, provides not to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
The moving party bears the burden of establishing the absence of a genuine dispute as to a material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). ("[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact."). When the nonmoving party bears the burden of persuasion at trial, the moving party "may meet its burden ... by showing that the nonmoving party's evidence is insufficient to carry that burden." Foulk v. Donjon Marine Co., Inc., 144 F.3d 252, 258 n. 5 (3d Cir. 1998) (quoting Wetzel v. Tucker, 139 F.3d 380, 383 n. 2 (3d Cir.1998)).
Once the moving party has carried its initial burden, the opposing party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Summary judgment cannot be avoided by introducing only "a mere scintilla of evidence," Sarko v. Penn-Del Directory Co., 968 F.Supp. 1026, 1031 (E.D.Pa.1997) (citation omitted), aff'd 189 F.3d 464 (3d Cir. 1999), or by relying on "conclusory allegations, improbable inferences and unsupported speculation." J. Geils Band Emp. Benefit Plan v. Smith Barney Shearson, Inc., 76 F.3d 1245, 1251 (1st Cir.1996). "Brash conjecture coupled with earnest hope that something concrete will materialize, is insufficient to block summary judgment." Id., quoting Dow v. United Bhd. of Carpenters, 1 F.3d 56, 58 (1st Cir.1993).
Newhall supported its Summary Judgment Motion with documents provided through the declaration of Andrew Irgens, an attorney for Newhall (D.I. 2820). Berco objected to the documents, arguing that (i) the declaration does not set forth adequate facts to find that the declarant has sufficient knowledge about the attached documents to authenticate the documents, (ii) the documents may include statements that are hearsay, and (iii) Newhall did not request the Court to take judicial notice of any documents.
Newhall filed a response to Berco's evidentiary objection (D.I. 2990) which (i) asks the Court to take judicial notice of Exhibits A through M; (ii) disputes Berco's objection to the authenticity of Exhibit N, which is a copy of the Lease, identical to the one attached to Berco's Claim, and (iii) attaches an affidavit of Cris Perez, Newhall's Regulatory Compliance Manager, (the "Perez Affidavit") to identify and authenticate the documents marked as Exhibits N through Z, as well as new exhibits AA, BB and CC.
First, I will overrule Berco's objection to copies of pleadings, orders, and excerpts from the Plan in this bankruptcy case, which are attached as Exhibits A through M to the Irgens Affidavit. I will take judicial notice of Exhibits A through M pursuant to Federal Rule of Evidence 201, which provides in pertinent part:
Fed.R.Evid. 201(b). See In re Indian Palms Assoc., Ltd., 61 F.3d 197, 205 (3d Cir.1995) (A court may take judicial notice of an adjudicative fact under Federal Rule of Evidence 201 that is not subject to reasonable dispute "as long as it is not unfair to a party to do so and does not undermine the trial court's fact finding authority."). It is not unusual for a Court to take judicial notice of its docket. See Meyers v. Heffernan, 740 F.Supp.2d 637, 640 n. 4 (D.Del.2010) ("The court may take judicial notice of documents from the docket of a bankruptcy proceeding."), Official Comm. of Asbestos Claimants v. Asbestos
Second, Berco's objection to Exhibits N through Z, based on the declarant's lack of personal knowledge, will also be overruled due to Newhall's substitution of the affidavit of Chris Perez. Rule 56(c)(4) provides:
Fed.R.Civ.P. 56(c)(4). In the affidavit, Mr. Perez states that his duties include "coordinating with government agencies regarding energy-related issues and overseeing oil remediation and lease operations." Perez's affidavit also states that he had direct interactions with Berco regarding the Environmental Incident and was familiar with the documents and correspondence related to the Environmental Incident at the time the documents were originally created and exchanged. Mr. Perez's affidavit serves to authenticate the documents as required by Fed.R.Evid. 901. "The requirement of authentication or identification as a condition precedent to admissibility is satisfied by evidence sufficient to support a finding that the matter in question is what its proponent claims. [The Third Circuit Court of Appeals has] repeatedly noted that `[t]he burden of proof for authentication is slight.'" Lexington Ins. Co. v. Western Penna. Hosp., 423 F.3d 318, 328 (3d Cir.2005) quoting McQueeney v. Wilmington Trust Co., 779 F.2d 916, 928 (3d Cir.1985).
Finally, I will also overrule Berco's objection based upon possible hearsay within Exhibits N through Z. The Perez affidavit sufficiently supports a business records exception to hearsay. Fed.R.Evid. 803(6). Syracuse v. Orion Refining Corp. (In re Orion Refining Corp.), 397 B.R. 245, 251 (Bankr.D.Del.2008) (Documents attached to a declaration by the records custodian were business records under Fed.R.Evid. 803(6) for considering a motion for partial summary judgment).
Accordingly, Berco's evidentiary objections are overruled.
The Berco Claim includes a claim for reimbursement or indemnification of approximately $600,000 for clean-up of the Leased Premises due to the Environmental Incident. Berco also asserts that Newhall's failure to reimburse Berco for the costs incurred in connection with the Environmental Incident is a default under the Lease, which must be cured if the Lease is to be assumed.
Newhall argues that Berco has no claim for the costs incurred in connection with the Environmental Incident because the Lease provisions demonstrate that Berco accepted the equipment, including pipelines, on the Leased Premises on an "as-is, where-is" basis, and agreed to maintain, repair and replace the pipeline and other existing facilities at its sole cost and expense. In response, Berco argues that it has a valid indemnification or contribution claim against Newhall based on the following: (i) notwithstanding the "as is" provisions, Newhall had a duty to disclose known defects that were not readily discernable by Berco, (ii) Newhall should reimburse Berco's clean-up costs related to the attempted clean-up of "legacy oil" that
The burden of proof as to the validity of the claim shifts between parties. In re Sea Containers, Ltd., 2009 WL 2208128, *2 (Bankr.D.Del. July 22, 2009) citing In re Allegheny Int'l, Inc., 954 F.2d 167, 173 (3d Cir.1992). The shifting burdens of proof are described in Allegheny Int'l as follows:
Allegheny Int'l, 954 F.2d at 173-74 (citations omitted). Newhall, relying on language of the Lease, has met its obligation to go forward to refute the bases alleged in support of the Berco Claim, as well as the Berco Cure Amount Objection. The burden now reverts back to Berco to prove the validity of its claim. In the summary judgment context, this means that Newhall (as the moving party) must show that Berco's evidence is insufficient to prove its claim; Berco then must show, by more than a mere scintilla of evidence, that there are material facts for trial.
California's Civil Code provides that "[t]he language of a contract governs its interpretation, if the language is clear and explicit, and does not involve an absurdity." Cal. Civ.Code § 1638.
The Lease provides that Berco is responsible for damages to the Leased Premises while it is operating thereon pursuant to Section Seven, which provides in pertinent part:
(Perez Aff., Ex. N) (emphasis added). Berco argues that Section Ten(f) of the Lease limits its clean-up responsibilities to damages caused by its negligence or wrongful act, and the pipeline break was not the result of Berco's actions. Section Ten(f) provides:
(Perez Aff., Ex. N). This section does not limit Berco's obligation to damages arising from its negligence or wrongful acts; it also imposes responsibility to clean-up substances arising from a breach of any obligation under the Lease — which would include Berco's obligation under Section Seven to be responsible for any damages caused by "overflow or escape of oil."
Notwithstanding the foregoing Lease language, Berco asserts that other acts or omissions of Newhall or other applicable laws support its claim for reimbursement or contribution of the Environmental Incident clean-up costs.
Newhall responds that is not responsible for the costs of the Environmental Incident because Newhall did not make any representations as to the condition of the pipelines on the Leased Premises, yet Berco agreed to take all equipment "as-is" and "where-is" and, further, agreed to maintain, repair and replace the pipeline during the Lease term. Section Two of the Lease provides:
(Perez Aff., Ex. N) (emphasis added).
California courts have recognized that an "as is" provision "puts potential buyers on notice that the seller makes no warranties about the quality or condition of the thing sold. In practice, it serves as a kind of `red flag' warning the buyer that the goods or property to be sold may not be in perfect condition or of ideal quality." Shapiro v. Hu, 188 Cal.App.3d 324, 333, 233 Cal.Rptr. 470, 475 (Cal.Ct.App.1986). See also Lingsch v. Savage, 213 Cal.App.2d 729, 742, 29 Cal.Rptr. 201 (Cal.Ct.App. 1963) ("[T]he use of an `as is' provision seems to convey the implication that the property is in some way defective and that the buyer must take it at his own risk.").
In response, Berco argues that, despite the "as-is" "where-is" language, Newhall had a duty to disclose facts regarding the pipelines that were not readily discernable or ascertainable by Berco. California courts have recognized that an "as-is" provision does not provide a seller with general immunity from liability for fraud. Lingsch, 213 Cal.App.2d at 740-41, 29 Cal.Rptr. 201. In the Lingsch decision, the plaintiff alleged the defendants sold real property to the plaintiff, knowing at the time of the sale that "the building was in a state of disrepair, and that units contained therein were illegal and that the building had been placed for condemnation by the proper officials." Lingsch, 213 Cal. App.2d at 732-33, 29 Cal.Rptr. 201. The Lingsch Court wrote:
Lingsch, 213 Cal.App.2d at 742, 29 Cal.Rptr. 201 (citations omitted).
Berco received a copy of Newhall's 1997 Environmental Inspection of the Leased Premises, but Berco argues that the fact that the Environmental Inspection report was nearly eight years old at the time the Lease was signed may give rise to the assumption "that there were conditions existing, known or which should have been known to [Newhall] that were material and should have been disclosed to [Berco]."
Despite Berco's vague objection about what Newhall "should have" known, there are no allegations that Newhall knew, or intentionally concealed. any information about the property or equipment from Berco. Berco's conclusory inferences raise no more than a "metaphysical doubt" about possible non-disclosures. Berco's arguments are insufficient to overcome the "as is" and "where is" provisions of the Lease.
Berco argues that Newhall, as owner of the Leased Premises, is required to indemnify or reimburse Berco for the clean-up costs under the Comprehensive Environmental Response, Compensation, Liability Act, 42 U.S.C. § 9601 et seq. ("CERCLA"). In response, Newhall argues that CERCLA does not apply to spills of crude oil.
To establish a prima facie CERCLA claim, a plaintiff must allege four elements, including a release or threatened release of a "hazardous substance."
United States v. Alcan Aluminum Corp., 964 F.2d 252, 266-67 (3d Cir.1992). The undisputed facts show that the Environmental Incident occurred as part of Berco's use of the Leased Premises for the
In its response to the Summary Judgment Motion, Berco admits that it failed to obtain insurance for the Leased Premises at the time of the Environmental Incident. Berco argues that insurance was not required because the parties never attached the "Insurance Requirements" as Exhibit B to the Lease. Section Seven of the Lease provides in pertinent part:
(Perez Aff., Ex. N). Berco now asserts that it is entitled to be reimbursed for the Environmental Incident clean-up costs from Newhall's insurance on the Leased Premises. However, Berco's argument does not explain any legal theory under which Berco's failure to obtain insurance shifts any responsibility for the clean-up costs to Newhall, so that Newhall should make a claim against its insurance for payment.
Berco also argues that it is entitled to be reimbursed for the Environmental Incident clean-up costs because those costs may have included clean-up of "historical seepage" (i.e., oil that naturally seeps from the earth). Since historical seepage is not caused by Berco's operations, Berco argues that it is not responsible to pay for its clean-up. Newhall argues in response that Berco has failed to provide any evidence of historical seepage or of costs to cleanup historical seepage.
Berco's response to the Summary Judgment Motion states that "[d]uring the time of the remediation, not only was there an attempted clean up of the surface spill, but as well, there was the attempted clean up of "legacy oil" that naturally seeps from the earth." (Berco Response at 2). The only information in support of this statement is (i) reference to a website (http://geomaps.wr.usgs.gov/seeps/losangeles.html)
The Incident Briefing
None of the conclusory statements in Berco's Response and Bercaw's Declaration support a claim for costs to clean-up historical seepage. See Blair v. Scott Specialty Gases, 283 F.3d 595, 608 (3d Cir. 2002) ("In order to satisfy the standard for summary judgment, the affiant must ordinarily set forth facts, rather than opinions or conclusions. An affidavit that is essentially conclusory and lacking in specific facts is inadequate to satisfy the movant or non-movant's burden.") (internal punctuation omitted). Although the website and the Incident Briefing speculate that the Leased Premises could contain historical seepage, Berco presented no facts identifying any historic seepage on the clean-up site. This is not a matter of weighing evidence, but a matter of lack of evidence. The parties agree that the Environmental Incident occurred due to a break in the pipeline. There are no facts alleged about the percentage of clean-up costs attributable to historical seepage. Berco cannot defeat the Summary Judgment Motion with conjecture about the theoretical possibility of encountering historical seepage on the Leased Premises and a declaration setting forth conclusory statements.
Berco also asserts that Newhall must reimburse Berco for the Environmental Incident clean-up costs from the "Lease Performance, Abandonment and Restoration Fund," which was established by Section Six of the Lease, consisting of (i) funds in the amount of $26,000 accrued from payments made by previous oil and gas lessees for the eventual plugging and abandonment of oil and gas wells, and (ii) monthly payments by Berco (the "Lease Fund"). (Perez Aff., Ex. N). Newhall argues that the Lease Fund is held as security to ensure that Berco complies with its Lease obligations and not to reimburse Berco for its clean-up costs. Newhall is correct.
The purpose of the Lease Fund, set forth in Section Six (c) of the Lease, is "(1) to secure the full and faithful performance of the obligations of Lessee under this Lease and (2) ultimately, to partially defray the cost and expense incurred by Lessor in the performance of its abandonment of the Current Wells and clean-up and restoration of the Leased Premises as herein provided." (Id.). Newhall is permitted to retain the Lease Fund until the
(Id.). I have already determined that Berco is responsible for the Environmental Incident cleanup costs. Therefore, if Newhall paid the Environmental Incident clean-up costs from the Lease Fund, Section Six (e) would require Berco to reimburse the Lease Fund and restore its balance within ten days thereafter. It would serve no legitimate purpose to allow payment of Berco from the Lease Fund, only to require Berco to reimburse and restore the Lease Fund.
Berco also claims that Newhall has failed to pay property taxes on the Leased Premises over several years, as required under Section Eighteen (b) of the Lease, and demands "immediate payment and reimbursement." (Berco Response, Ex. A). Berco further alleges that Newhall failed to pay property taxes that were due prior to the execution of the Lease and that Newhall's nondisclosure of the delinquent taxes is a breach of the Lease.
Newhall argues that Section Eighteen (a) of the Lease provides that Berco is solely responsible to pay the following taxes and assessments:
(Perez Aff., Ex. N). Berco is not required to pay any tax on the royalty interest reserved to Newhall, but Newhall argues that if Berco elects to pay Newhall's portion, Section Eleven (b) of the Lease makes it clear that Berco may recoup Newhall's share of the taxes from royalties paid by Berco to Newhall.
Newhall also asserts that Section Eighteen (b) of the Lease requires Newhall to pay only those taxes assessed against "the interest owned by Lessor (or any of its subsidiaries) in the surface of the Leased Premises (and improvements of Lessor and its subsidiaries thereon)...." (Perez Aff., Ex. N). Newhall asserts that it has paid all surface taxes in full. (Perez Aff. Ex. Y)
Berco attached copies of "Secured Tax Statements" to its claim, which contain handwritten notations of a check number and date, asserting that the statements show payment of taxes that were Newhall's responsibility. Newhall, however, argues that the Lease imposes separate tax obligations upon Berco. Section Eighteen (a) of the Lease requires that:
(Perez Aff., Ex. N). Section Eighteen (c) also obligates Berco to pay (without reimbursement by Newhall) all taxes "referable to any operations or acts of [Berco] ... on the Leased Premises including (without limitation) the drilling or operation of any well or wells, the production, extraction, severance or removal of any hydrocarbon, or for any product thereof, or the transportation thereof away from the Leased Premises." (Id.).
The Lease requires Berco to pay all taxes assessed with respect to the oil, gas and hydrocarbon leasehold estate, except for the amount due on the royalty interest reserved to Newhall. The evidence offered by both parties with respect to the tax obligations is incomplete and raises a issue of material fact regarding whether payments by Berco satisfied Berco' own tax liabilities or Newhall's tax liabilities. Because there are factual issues regarding the tax claim, summary judgment will be denied.
For the reasons set forth above, Berco's evidentiary objection to the Declaration Filed in Support of Newhall's Summary Judgment Motion is overruled. Further, for the reasons stated above, Newhall's
An appropriate order follows.
In re: LANDSOURCE COMMUNITIES, DEVELOPMENT LLC, et al.
AND NOW, this 11th day of January, 2013, upon consideration of the following:
and the respective responses and objections thereto, and for the reasons set forth in the foregoing Memorandum, it is hereby
and it is further
(Perez Aff., Ex. N). Berco also argues that Newhall "as the long time land owner" should have made additional disclosures to Berco to address inspections or repairs made in response to a 1994 earthquake in the vicinity or the possibility of "historical seepage" (i.e., oil that naturally seeps from the earth). (Berco Response to the Summary Judgment Motion (D.I. 2940) ("Berco Response") at 10). Neither of these alleged events supports a reasonable inference that Newhall purposefully withheld information from Berco in connection with these matters.
The term "hazardous substance" means:
42 U.S.C. § 9601 (emphasis added).