Landfill/Estate Buyout Option: Kansas Court of Appeals Determines Whether Contract and/or Applicable Law Imposes Closure Obligation | Mitchell, Williams, Selig, Gates & Woodyard, LLC

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The Kansas Court of Appeals (“Court of Appeals”) addressed in an October 21 opinion an issue arising from a contract that provided the right to redeem the real estate occupied by the landfill. See South Mulberry Properties, LLC v GT Management, LLC., 2022 WL 12127266.

The issue addressed was whether the current owner/operator of the landfill was obligated to undertake the closure of the landfill upon transfer to the party that held the property buyout option.

GT Management, LLC, (“GT”) owns land on which it operates a landfill under license from the Kansas Department of Health and Environment (“KDHE”). South Mulberry Properties, LLC, (“SMP”) would have held an exclusive option to buy back the real estate occupied by the landfill. SMP has decided to exercise this option to buy back the building.

The issue examined was whether the underlying contract and applicable law required GT to close in accordance with applicable regulations before transferring ownership to SMP.

A lower court ultimately found, pursuant to motions for summary judgment, that:

  • The applicable contract requires GT to close the dump before it is transferred to SMP.
  • GT is not responsible for the treatment of off-site waste found on the property north of the landfill.

The Court of Appeal upheld the lower court’s decision that GT was not responsible for the offsite waste treatment. However, he reversed the lower court’s decision and found that neither the contract nor Kansas law required the landfill to be closed before title to the real estate transferred.

In considering the issue of closure, the Court of Appeal cited various paragraphs of the relevant contract. It noted, on reading the contract as a whole, that the parties intended that the landfill be operated in accordance with all the applicable legislative and regulatory provisions. This has been stated to include at the time of closing or transfer of ownership.

The contract was found not to require GT to close the landfill simply because SMP exercised its exclusive buyout option. It states in the relevant part:

The clear wording of paragraph 10 does not impose an absolute obligation on GT to close the landfill. Rather than creating an independent contractual obligation for GT to be responsible for closing the landfill, the closing obligations are those required by Kansas law at the time of closure. Thus, the contract states that “in no event” will the exercise of the option interfere with GT’s obligation to close the landfill “in accordance with and in accordance with the then current rules and regulations of the State of Kansas or such other governmental entity which shall have jurisdiction over such transaction. (Emphasis added.) The parties did not agree that GT would close the landfill when the option was exercised; they agreed that the closure obligations would be in accordance and consistent with KDHE regulations in effect at the time the option was exercised It is fair to say that the parties did not know what closure obligations GT would ultimately have because these obligations were based on the regulations in force at the time of the exercise of the option rather than on the regulatory requirements at the time of the signature of the contract.

GT’s obligation to close the landfill was considered to arise from KDHE rules and regulations. The Court of Appeal noted that there are no KDHE rules or regulations requiring the landfill to be closed simply because it is sold or transferred.

The trial court’s denial of a declaratory judgment for SMP finding that it was not responsible for the offsite waste was correct. However, the proper basis for the denial was that the matter was not ripe for decision. The Court of Appeal noted that SMP:

Seeks to protect itself from liability in any future action by the KDHE to avoid an obligation which the KDHE has not yet imposed – and may never impose.

Accordingly, the issue is not considered mature.

A copy of the notice can be downloaded here.

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