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Hull v. Lewis

A-5403-07T3 (N.J. Super. App. Div. 2009) (Unpublished)

LOANS; ENVIRONMENTAL LIABILITY — A borrower who relies on an environmental report that its lender obtains from the lender’s environmental consulting firm may have no claim against the consulting firm or the lender if, in fact, the report is incorrect because, under most circumstances, a property owner’s reliance on a report obtained from its lender would be unreasonable reliance.

An individual purchased property. He sought financing from a financial institution. One of the conditions of the loan commitment he received was that he obtain a satisfactory appraisal and Phase I environmental audit. The lender hired an environmental consulting firm to conduct the environmental assessment. Based on a “paper review,” the consultant issued a report indicating no obvious areas of environmental concern that would call for a more detailed site investigation. Based in part on this report, the lender issued the loan and the buyer purchased the property. Thereafter, the buyer tried to sell the property. The new contract of sale permitted a Phase II site investigation. The results of this audit revealed that there was significant groundwater contamination. The then-current owner sued both his lender and his environmental consultant claiming that they had a duty to notify him of the results of the Phase I audit that was performed when he purchased the property.

The Chancery Division released the lender and environmental consultant on summary judgment. It noted that there was no evidence indicating that the buyer relied on the bank’s satisfaction with the results of the audit to close the transaction, and even if he had, such reliance would have been unreasonable. The property owner appealed, claiming summary judgment should not have been granted because discovery had not been completed and genuine issues of fact existed.

The Appellate Division affirmed, holding that while summary judgment is generally inappropriate where discovery has not been completed, it was appropriate here because the property owner had not pointed to any discovery that might reveal an issue of material fact. It also ruled that the bank’s intention in approving the loan was irrelevant to the instant dispute because it had no bearing on whether the property owner reasonably relied on the environmental report or the bank’s approval of the mortgage as an assurance that the property was not environmentally contaminated. The Court agreed with the lower court that the property owner’s reliance upon the bank’s acceptance of the audit results was unreasonable.


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