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Can an Oral Contract Ever be an Enforceable Promise to Fund an Environmental Remediation?

When someone says the word "contract," what comes to mind? For most, it would probably be a signed piece of paper that sets out certain legally enforceable promises made between two parties. But oral contracts can exist, too, and an oral contract can be just as enforceable as a written contract. The problem is that proving the contents of an oral contract is difficult precisely because there is no written record of the agreement. 

The difficulty of proving the contents of an oral contract increases exponentially in the context of a complicated, multiyear environmental investigation and remediation. The recent case of Volunteers of Am. of W. N.Y., Inc. v. Rochester Gas & Elec. Corp., 2014 U.S. Dist. LEXIS 94447 provides some important lessons on how to document rights and responsibilities in an environmental remediation. To borrow a phrase from the criminal law world: what you say can be used against you in a court of law...

The Volunteers of America of Western New York, Inc. ("VOA") purchased a parcel of land that Rochester Gas & Electric Corp. ("RG&E") had formerly owned. After discovering contamination at the property, VOA eventually entered into a Memorandum of Understanding ("MOU") with RG&E. Under the MOU, VOA agreed to enter the property into New York State's Brownfield Cleanup Program ("BCP"), and RG&E agreed to contribute funding towards the investigation of the property.

Notably, the MOU contained an "Understanding Clause" stating that the parties would amend the MOU or negotiate a new MOU if the investigation identified contamination that required remediation. As is typical for written contracts, the MOU also contained a provision stating that the MOU could only be amended in writing-not orally.

While the parties later entered into three written addenda to the MOU, each dealt with funding or a new step in the investigation, and not an ultimate remedy for the property. In 2012, according to the complaint, RG&E "verbally [sic] agreed VOA could begin discussing with the [New York State Department of Environmental Conservation] the concept of a permanent construction cap" to cover the surface of the property and prevent human exposure to residual contamination at the property.

VOA was unable to secure final NYSDEC approval for any type of site cap before it and RG&E reached a disagreement over the proposed design. RG&E refused to fund VOA's proposed design, so VOA filed a lawsuit in the United States District Court for the Western District of New York. It claimed that RG&E breached the MOU as well as "subsequent written and/or verbal agreements" to fund the cap. Specifically, VOA alleged that RG&E's oral agreement that VOA could discuss with the NYSDEC the general concept of a cap constituted an oral contract that required RG&E to fund the specific cap of VOA's design.

The court was not impressed. Citing the Second Circuit's four-part oral contract test articulated in Winston v. Mediafare Entertainment Corp., 777 F.2d 78, 80 (2d Cir. 1985), District Judge Michael Telesca wrote that both parties had "expressed a clear intent not to be bound" by oral statements because the MOU specifically stated that it could only be amended in writing.

The clear intent of the parties, as documented by the MOU alone, was sufficient to defeat VOA's claim that an oral contract obligated RG&E to fund the cap. But the court also noted that the remaining factors of the test all favored RG&E: RG&E never began performance of its alleged obligation to fund the cap, the parties never agreed on the specific cap design as the final remedy for the site, and the NYSDEC had not even approved the cap as the final remedy for the property. Most importantly, the court refused to recognize the existence of an oral contract for the cap funding because "a contract for an expensive and complex remediation-construction project is the type of agreement usually reduced to writing."

Given the complexity of most environmental investigations and remediations, it is probably unlikely that one party can bind another through oral statements alone. But as the Volunteers of America case demonstrates, the difficulty of proving the existence of an oral contract does not stop some parties from litigating the question in federal court. Therefore, it is always best not only to include a provision that the contract can only be amended in writing , as the parties did here, but also to clearly document rights and obligations in a written amendment, as VOA failed to do here.

For more information on documenting your rights and responsibilities by contract in undertaking an environmental investigation or remediation, contact one of the attorneys at Periconi, LLC.

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