Black Horse Lane Assoc., L.P. v. Dow Chemical Corporation

228 F.3d 275 (3rd Cir. 2000)

Opinion Date: September 20, 2000
Real Property Law
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CONTRACTS; REASONABLENESS—A “reasonable time,” as read into a contractual obligation, is usually an implication of fact, not of law, and is derived from the context of the circumstances and the intentions of the parties.

A developer purchased a contaminated factory site. As part of the agreement, the seller promised to undertake certain remediation efforts, including cleaning the soil and the ground water beneath the property. A preliminary requirement was that the seller reach agreement on an approved plan with the New Jersey Department of Environmental Protection (DEP). That condition was satisfied. It took about two years to satisfactorily remediate the contaminated soil. On the other hand, after fourteen years, despite efforts by the Seller, remediation of the ground water had not been achieved. The buyer, having run out of patience, brought an action against the seller for, among other things, breach of contract. The contract did not specify a time within which the remediation was to be complete. Therefore, it argued that under New Jersey law, “reasonable time” must be read into the contractual obligation. The lower court found no justification for implying a “reasonable time” for performance because, in its view, such a term was not “necessary to give business efficacy to the contract as written.” The lower court also dismissed the breach of contract claim on the alternative ground that the buyer did not meet its burden of presenting evidence “from which a reasonable jury could conclude that [the seller] breached its obligation to perform remediation and obtain DEP approval pursuant to the Clean Up Plan within a ‘reasonable time.’” Instead, the lower court held that, as a matter of law, in the context of the regulatory clean-up, it could not be shown that a reasonable time for completion would have been less than fourteen years. “Evidence of a slow and ineffective clean-up process, without more, cannot reasonably support an inference that fourteen years is unreasonable.” Under New Jersey law, “[w]here no time is fixed for the performance of a contract, by implication a reasonable time was intended.” Because of that, the Court of Appeals rejected the lower court’s conclusion that a reasonable time provision was not implicit in the agreement. Nevertheless, it agreed with the lower court’s alternative basis for dismissing the breach, i.e., “that a reasonable time period has not expired.” What constitutes a reasonable time under New Jersey law “is usually an implication of fact, and not of law, derivable from the language used by the parties considered in the context of the subject matter and the attendant circumstances, in aid of the apparent intention.” Under the law, the complaining party bears the burden of proof on that issue and it failed to meet that burden. In essence, the buyer’s argument was “that because the clean up of the Property has taken longer to finish than the parties originally anticipated,” the seller had breached the agreement “as it had not completed the clean up within a ‘reasonable time.’” Given the nature of the contractual obligation specifically that “the remediation and detoxification of the Property is a large effort which, by its very nature, is a lengthy and time-consuming process,” the Court found that the buyer simply failed to demonstrate that the time period that had already expired was unreasonable.

The buyer also argued that its seller breached the implied covenant of good faith and fair dealing. In particular, it argued that the seller did not meet that standard because it had continually attempted to get the New Jersey Department of Environmental Protection to relieve it of certain obligations, rather than move forward in a single-minded way to comply with the original, approved remediation plan. The Court found no bad faith in the actions of the seller, holding that it was perfectly appropriate for the seller to question whether the standards in the approved clean up plan had continued validity. The fact that it questioned certain aspects of the plan did not constitute evidence that the seller acted in bad faith, a necessary element to show breach of the duty of good faith.

The buyer also endeavored to collect certain costs pursuant to the seller’s obligation under CERCLA to compensate the buyer for “necessary costs of response.” Here, however, the only costs claimed were the fees paid by the buyer to its environmental consultant. The lower court and the Court of Appeals found that those fees were not recoverable under CERCLA “because they have nothing to do with any effort by plaintiffs to detoxify the Property or to prevent a minimized relief of hazardous substances.” The work apparently consisted solely of reviewing quarterly reports submitted by the seller. The buyer’s consultant never visited the property, never monitored the contamination or the clean up of the property, and never gathered data related to the investigation or remediation of the property. Whether those expenses were characterized as pre-litigation expenses or merely to make the buyer feel comfortable about the course of the remediation, according to the Court, they were not “response costs.” They were the costs of the buyer overseeing the process.

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