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Leaky Tanks and Oily Water

  

Joni RoachPublished in Michigan Environmental Law Journal, Fall 2018, Vol. 36, No. 2, Issue 105 [view full issue].
Cite: 36 Mich Env Law J 2 (2018)

by Joni Roach, Research Attorney, Michigan Court of Appeals

In September 2015, the Michigan Department of Environmental Quality (DEQ) filed a lawsuit against BP, PLC, BP Holdings North America Limited, and BP America, Inc., (collectively BP), arguing that BP used false or misleading statements when it applied for financial reimbursement from the Michigan Underground Storage Tank Financial Assurance Fund (the Fund).[1] Specifically, the DEQ alleged that BP failed to disclose insurance coverage for the cleanup of leaking petroleum storage tanks; therefore, the DEQ claimed that BP was doubly reimbursed.

The Fund

The Fund, established in 1989, partially reimbursed gas station owners and operators for the cost of corrective actions addressing leaking underground storage tanks.[2] The Fund was financed by a 7/8 cent per gallon fee on all refined petroleum sold in or imported into the state.[3] Applicants were asked to certify statutory and regulatory compliance,[4] and to disclose insurance coverage.[5] The Fund was insolvent by 1995.[6] The Fund stopped accepting new applications for reimbursement in June 1995; however, the Fund continues to make payments for approved applications.[7]

Fraud Allegations

Allegations that oil companies, including BP, were doubly reimbursed for the clean-up of leaking storage tanks—once from state government funds and again from insurance companies—have been made in other states.[8] Thomas Schruben, an environmental consultant who formerly worked as an environmental engineer at the U.S. Environmental Protection Agency, and attorney Dennis Pantazis of Wiggins Childs Pantazis Fisher Goldfarb LLC, discovered evidence that oil companies “double dipped” by accepting state funds and insurance payments for the same tank clean up.[9] Several states, including Colorado, New Mexico, Arizona, and Utah reached settlement agreements with oil companies on the basis of their evidence.[10]

In March 2015, Ohio filed a lawsuit against BP. According to an official press release from the Ohio Attorney General’s office, Ohio claimed that “BP wrongfully obtained $33.3 million in reimbursements . . . after submitting its applications to the Petroleum Board, claiming it had no insurance for the leaks when it actually had layers of insurance and often accepted insurance money for the same releases.”[11] Ohio accused BP of various violations of Ohio law, including subrogation, indemnification, breach of contract, unjust enrichment, negligent misrepresentation, and conversion.[12] That case is scheduled for trial in July and August 2019.[13]

Dep’t of Environmental Quality v. BP

Meanwhile, BP moved for summary disposition in the Michigan case pursuant to MCR 2.116(C)(7), on the basis of the statute of limitations.[14] BP asserted that the DEQ’s claim accrued on June 29, 1995, at the latest, because the Fund did not accept new applications after that date and the lawsuit was brought on the basis of alleged fraudulent statements made in BP’s applications for reimbursement.[15] Thus, BP contended that the six-year statute of limitations expired in 2001, which was 14 years before the DEQ filed its complaint in 2015.[16] 

The trial court denied BP’s motion.[17] The trial court applied a common-law discovery rule that paused the accrual of DEQ’s claim to allow the DEQ to use discovery to produce more specific information regarding’s BP’s alleged fraudulent conduct and pinpoint the accrual date of the claim.[18] In addition, the trial court determined that a public policy exception applied to the statute of limitations in this case.[19] Finally, the trial court concluded that MCL 600.5821(4)[20] exempted the DEQ’s claims from the statute of limitations.[21]

BP filed an application for leave to appeal the trial court’s decision with the Michigan Court of Appeals, which was granted.[22] In an unpublished opinion, the Court of Appeals determined that the six-year statute of limitations for personal actions in MCL 600.5813[23] barred the DEQ’s claims.[24] The Court explained that the state and its subdivisions, including the DEQ, were subject to the six-year statute of limitations for personal actions pursuant to MCL 600.5821(3).[25] As a result, the “statutory framework preclude[d] application of the common-law discovery rule” and any public policy exceptions.[26] The Court determined that “statutes of limitations reflect public policy considerations” because “[t]hey balance a plaintiff’s opportunity to bring a lawsuit with a defendant’s opportunity to defendant against a lawsuit while protecting courts from the burden of stale claims.”[27] Finally, the Court concluded that the DEQ’s claims were not exempt from the statute of limitations under MCL 600.5821(4), because this case did “not concern costs incurred during maintenance, care, or treatment of any individual.”[28]

The Court also rejected the MDEQ’s argument that it was not subject to the statute of limitations because this was actually an action in rem, which proceeds against the property at issue itself.[29]  The Court explained that MDEQ’s suit was not an action in rem because BP had not “been adjudged responsible for civil fines or criminal penalties.”[30] Finally, the Court rejected the MDEQ’s argument that the Legislature’s intent to apply MCL 324.21548(2)[31] retroactively defeated the statute of limitations.[32] The Court explained that “[r]etroactive application of a statute does not breathe new life into a claim already barred by the statute of limitations.”[33]

The Court stated that the MDEQ made allegations of false, misleading, or fraudulent claims by BP in a letter that was prepared on November 16, 2010.[34]  Thus, the Court concluded that the letter showed “that the MDEQ knew or should have known about [its] claims no later than November 16, 2010.[35] The Court explained that even if BP “fraudulently concealed the basis of the MDEQ’s claims, the MDEQ should have brought suit within two years of its November 2010 letter.”[36] 

Consequently, the Court summarized that “the six-year statutory period of limitations applied to the MDEQ’s claims” and that “[e]ven assuming fraudulent concealing of the claims, the MDEQ brought suit more than two years beyond its discovery of the claims.”[37] The Court reversed the trial court’s denial of BP’s motion for summary disposition and remanded the case to the trial court to grant summary disposition in BP’s favor under MCR. 2.116(C)(7).[38]

A New Fund; A New Hope?

The Environmental Protection Agency has called leaky underground storage tanks “the single largest threat to groundwater in the United States.”[39] Many of these tanks were built in the 1950s and 60s, and have corroded over time.[40] Michigan has approximately 9,000 leaking underground storage tanks, one of the highest in the country.[41] However, despite the risk posed by these leaking tanks and the insolvency of the fund, all hope is not lost. In 2012, the Legislature created an advisory board to recommend a new fund for the clean-up of leaking underground storage tanks, the Michigan Underground Storage Tank Authority (MUSTA).[42] Based on the board’s recommendations, the Legislature created the MUSTA Fund in 2014.[43] The MUSTA Fund utilizes many private-insurance components, such as claim limits, claim periods, and deductibles.[44] Interestingly, an individual who knowingly submits a fraudulent request for payment or indemnification to the MUSTA Fund is guilty of a felony punishable by a maximum of five years’ imprisonment, a maximum fine of $50,000.00, or both.[45] Optimistically, the MUSTA Fund, which started accepting applications in 2015,[46] will benefit from the Legislature’s additional fraud protections and help Michigan decrease the number of dangerous leaking underground storage tanks that may affect its water.


[1] Michigan Underground Storage Tank Financial Assurance Act, MCL 299.801 et seq., repealed by 1994 PA 451.

[2] Clifford A. Knaggs, Michigan’s Financial Assurance Experience, MUSTFA to Insurance to MUSTA, p 2, (accessed September 12, 2018).

[3] Id.

[4] Id.

[5] Dep’t of Environmental Quality v. BP, unpublished per curiam opinion of the Court of Appeals, issued December 12, 2017 (Docket No. 333864), pp 1-2.

[6] Knaggs, p 3; Pete Bosanic, New Michigan UST Cleanup Fund Signed Into Law, (accessed September 12, 2018).

[7] Dep’t of Environmental Quality, unpub op at 2.

[8] Mica Rosenberg, Exclusive: Duo Tracks Double Dipping in U.S. Oil Firms’ Toxic Tank Clean Up, Reuters (Feb 10, 2014).

[9] Id.

[10] Id.  For example, Colorado signed settlement agreements with three oil companies for $35 million.  Id.

[11] Ohio Attorney General, Ohio Sues BP for $33 Million in Wrongful Oil Tank Clean-Up Compensation (March 2, 2015).

[12] Id.

[13] Stipulated Proposed Case Schedule, June 14, 2018, (accessed September 12, 2018).

[14] Dep’t of Environmental Quality, unpub op at 2.

[15] Id. at 4.

[16] Id.

[17] Id. at 1.

[18] Id. at 3; see also Trentadue v. Buckler Lawn Sprinkler, 479 Mich 378, 388-389; 738 NW2d 664 (2007) (stating that under the common-law discovery rule, “a claim does not accrue until a plaintiff knows, or objectively should know, that he has a cause of action and can allege it in a proper complaint”).

[19] Dep’t of Environmental Quality, unpub op at 3.

[20] MCL 600.5821(4) states that

[a]ctions brought in the name of this state, the people of this state, or any political subdivision of this state, or in the name of any officer or otherwise for the benefit of this state or a political subdivision of this state for the recovery of the cost of maintenance, care, and treatment of persons in hospitals, homes, schools, and other state institutions are not subject to the statute of limitations and may be brought at any time without limitation, notwithstanding any contrary provisions of a statute.

[21] Dep’t of Environmental Quality, unpub at 3.

[22] Dep’t of Environmental Quality, unpublished order of the Court of Appeals, entered November 21, 2016 (Docket No. 333864),

[23] Pursuant to MCL 600.5813, “[a]ll other personal actions shall be commenced within the period of 6 years after the claims accrue and not afterwards unless a different period is stated in the statutes.”

[24] Dep’t of Environmental Quality, unpub op at 2.

[25] MCL 600.5821(3) states that “The periods of limitations prescribed for personal actions apply equally to personal actions brought in the name of the people of this state, in the name of any officer of this state, or otherwise for the benefit of this state, subject to the exceptions contained” in MCL 600.5821(4); Dep’t of Environmental Quality v. BP, unpublished per curiam opinion of the Court of Appeals, issued December 12, 2017 (Docket No. 333864), p 2.

[26] Dep’t of Environmental Quality, unpub at 3.

[27] Id.

[28] Id.

[29] Id. MCL 324.21548(9), in pertinent part, states that “[m]oney owed pursuant to this section constitutes a claim and lien by the authority upon any real or personal property owned either directly or indirectly by the person.”

[30] Dep’t of Environmental Quality, unpub op at 3-4.

[31] MCL 324.21548(2) provides:

A person who makes or submits or causes to be made or submitted either directly or indirectly any statement, report, application, claim, bid, work invoice, or other request for payment or indemnification under this part knowing that the statement, report, affidavit, application, claim, bid, work invoice, or other request for payment or indemnification is false, misleading, or fraudulent, or who commits a fraudulent practice, is subject to a civil fine of not more than $50,000.00 or twice the amount submitted, whichever is greater. In addition to any civil fine imposed under this subsection, a person found responsible under this subsection shall pay restitution to the authority for the amount received in violation of this subsection. The legislature intends that this subsection be given retroactive application.

[32] Dep’t of Environmental Quality, unpub op at 4.

[33] Id.

[34] Id.

[35] Id.

[36] Id.

[37] Id.

[38] Id. at 5.

[39] Exclusive: Duo Tracks Double Dipping in U.S. Oil Firms’ Toxic Tank Clean Up.

[40] Id.

[41] See United States Environmental Protection Agency, The National LUST Cleanup Backlog: A Study of Opportunities, State Summary Chapter: Michigan, September 2011, p 3, (stating that as of April 2009, Michigan still had 9, 169 leaking underground tanks in its backlog); see also New Michigan UST Cleanup Signed into Law (explaining that Michigan has 8,500 leaking underground tanks). Michigan was invited to participate in the EPA’s backlog study because it had one of the largest backlogs in the United States. United States Environmental Protection Agency, p 3.

[42] MCL 324.21524; Saulius K. Mikalonis, Plunkett Cooney, New Michigan Underground Storage Tank Fund Helps Owners Comply With Release Requirements (posted May 23, 2016) (accessed September 12, 2018).

[43] 2014 PA 416.

[44] New Michigan Underground Storage Tank Fund Helps Owners Comply With Release Requirements.

[45] MCL 324.21548(1).

[46] New Michigan UST Cleanup Signed into Law.


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