132 A.D.3d 1161
N.Y. App. Div.2015Background
- ExxonMobil sold 47 petroleum-contaminated gas-station sites to Lehigh entities and funded escrow accounts for remediation costs; Lehigh assumed environmental liability in the sale agreements.
- Lehigh hired Environmental Risk Solutions, LLC (ERS) as remediation contractor; ERS subcontracted on a fixed-price basis to Science Applications International Corporation (SAIC) via Project Specific Scopes of Work (PSSWs) under an existing Professional Services Master Agreement (PSMA).
- SAIC obtained regulatory closure (NFA letters) at 18 sites using remedial action plans and invoiced ERS/Lehigh; ERS later terminated SAIC for convenience and stopped paying some invoices.
- SAIC filed mechanic’s liens on seven sites and sued ERS and sought foreclosure of the liens (Action No. 1); Lehigh counterclaimed against SAIC (Action No. 2) for breach of PSSWs and fraud; the actions were joined.
- The trial court permitted foreclosure on six liens, dismissed Lehigh’s breach and fraud claims; appeals and cross-appeals followed. The Appellate Division affirmed.
Issues
| Issue | SAIC’s (Plaintiff) Argument | Lehigh/ERS (Defendant) Argument | Held |
|---|---|---|---|
| Interpretation of PSSWs: applicable cleanup standard | PSSWs allow SAIC to obtain Lehigh’s passive consent via the §5(p) review process and to use the §5(a)(3) regulatory-closure standard (NFA) instead of the stricter §5(a)(1) Cleanup Standard | PSSWs required SAIC to meet the stringent contract Cleanup Standard; DEC had to expressly find infeasibility before §5(a)(3) could apply | Court found PSSWs ambiguous, admitted parol evidence, and held course of performance showed Lehigh passively consented to SAIC using §5(a)(3) and obtaining NFA relieved SAIC’s remedial obligations at those sites |
| Effect of §5(g) (completion clause) | NFA receipt ends SAIC’s obligations despite conflicting §5(a)(1) language | Lehigh argued §5(g) required meeting the stricter Cleanup Standard before obligations cease | Court held course of performance showed parties treated NFA as terminating SAIC’s obligations; §5(g) ambiguity resolved by parol evidence in SAIC’s favor |
| Fraud claim | Lehigh alleged SAIC misrepresented contamination and intent to perform | SAIC argued no intent to deceive; communications were not actionable misrepresentations | Court dismissed fraud claim: no evidence of intent to deceive and Lehigh could not justifiably rely given its review rights and sophistication |
| Right to attorneys’ fees under PSMA §20.8 | SAIC sought fees under PSMA; Lehigh sought reciprocal enforcement | Lehigh argued it could enforce PSMA; SAIC argued it could enforce | Court held neither party could enforce PSMA fee provision against the other because Lehigh was not a PSMA party and third-party rights were limited to the PSSWs |
Key Cases Cited
- Murphy v. Duquesne Univ. of the Holy Ghost, 565 Pa. 571 (contract interpretation principle)
- Insurance Adjustment Bureau, Inc. v. Allstate Ins. Co., 588 Pa. 470 (parol evidence admissible to resolve ambiguities)
- Atlantic Richfield Co. v. Razumic, 480 Pa. 366 (course of performance as strong indicium of contract meaning)
- Sunbeam Corp. v. Liberty Mut. Ins. Co., 566 Pa. 494 (harmonize manifestations of intent with course of performance)
- McShea v. City of Philadelphia, 606 Pa. 88 (elements of breach claim under Pennsylvania law)
- New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308 (fraud claims duplicative of contract claims dismissed)