Southeast Kansas Construction and Demolition Landfill (SEK) Closure Sparks Legal Debate

“I’m not interested in closure,” said writer, actor and television producer Larry David.  “Some people have heart attacks and die, right?  There’s no closure.”

In line with his cranky persona, he was deprecating the coming to terms with a significant event, gaining acceptance, and moving on. When you’re talking about closure, what you say or hear depends on who’s in the conversation.  For waste managers, closure is the work required when a landfill’s active life ends.  A squabble about precisely when this undertaking is triggered ended up in the Kansas courts.  

In 1998, John and Rosemary Massa contracted to sell a 40-acre parcel to Southeast Kansas Construction and Demolition Landfill (SEK) for use as a construction and demolition landfill, waste tire monofill and processing operation, and open burn pit facility (collectively referred to here as the Landfill).  

The sale contract, which, by its terms, was binding on individuals and entities with a subsequent interest, required SEK to obtain a permit from the Kansas Department of Health and Environment (KDHE) and comply with applicable environmental laws, regulations and permits.  After KDHE issued the permit, the Massas signed a deed conveying the property.  The Landfill opened in May 1999.

The contract contained two provisions relating to compliance with state law and regulations. According to Paragraph 8 of the contract:

                 Buyer agrees during the period of time that he will be using the real estate purchased

                 herein for [Landfill] that Buyer will . . . comply . . . with all laws, ordinances,

                 permits, orders, statutes, rules, permitting and licensing requirements, determinations

                 and regulations . . . relating to the protection of the environment . . . .

Paragraph 9 stated:

                 Buyer is purchasing the real estate herein solely for the purposes of operating a

                 [Landfill] in conformance with the laws of the State of Kansas and as a condition

                 precedent to Buyer's obligation to close herein, Buyer will apply for the appropriate

                 permits . . . and upon receiving said permits Buyer shall thereafter  immediately

                 proceed to close.

A repurchase option was addressed in Paragraph 10:

                 When Buyer, or its assigns or grantees, finish the exploitation of said land for the

                 purpose of the operation of [Landfill] or upon the expiration of twenty (20) years,

                 whichever shall first occur, Sellers may exercise their option to repurchase the real

                 estate herein by notifying Buyer within ninety (90) days of Buyer's termination of

                 operations . . . , or the expiration of twenty (20) years from the date of the execution of

                 this Agreement that Sellers desire to repurchase said real estate, . . . . 

                 In no event, shall the exercise of the exclusive option herein granted interfere with

                 Buyer's obligations to close its operation as a [Landfill] in compliance and

                 conformance with the then existing rules and regulations of the State of Kansas . . . .                                                               

The contract was amended, in 2008, to allow SEK to sell the property.  SEK subsequently did so and transferred its permit to another entity, which then sold the property and transferred the permit to GT Management (GT) subject, of course, to the contract.  GT took over operating the Landfill in 2009.

Approaching the 20-year mark, in 2017, the Massas notified GT they intended to exercise the option and asked the company to begin the process of closure.  GT agreed to reconvey the property but, as the Landfill had capacity remaining, the company had no desire to shut it down.  Besides, as GT read the contract, the exercise of the repurchase option did not compel closure.    

Whether friction with GT played a role is unclear, but the Massas transferred their contract rights to South Mulberry Properties. Soon afterward, South Mulberry filed suit against GT in Crawford County District Court.  In February 2019, Judge Lori A. Bolton Fleming granted partial summary judgment in favor of South Mulberry, finding that Paragraph 10 required GT to close the Landfill when the option to repurchase was exercised and before it transferred the property to South Mulberry.  She rejected GT's contention that it was obligated to close only when the Landfill reached its permitted capacity.

After this initial victory, South Mulberry sought an additional ruling that GT would be contractually or statutorily responsible for any KDHE-required clean-up of waste that had been dumped and buried on its land located just north of the Landfill.  After discovery of the waste, in March 2018, South Mulberry contacted the KDHE and, with the help of a neighbor, dug test holes that revealed buried construction and demolition debris mixed with small amounts of household trash.  The parties agreed that one of GT's predecessors, rather than GT itself, was responsible for the waste. 

South Mulberry argued that the contract required GT to deal with the waste as part of its obligation to close the Landfill and the permit required the current operator to mitigate a prior operator's conduct.  As factual support, South Mulberry presented the affidavit of an individual who had worked at a quarry north of the Landfill.  He stated that between 1999 and 2008, he observed someone from the Landfill digging pits and hauling and covering waste on the property north of the Landfill.  Based on these observations, he had been able to locate and uncover the waste when digging the test holes. 

Judge Bolton denied South Mulberry’s request, ruling that even if the neighbor's statements were accurate, the contract and the permit did not address off-site conduct or liability for trespasses or contract breaches by prior owners nor does Kansas law require GT to remediate such off-site dumping.  With this order, the court resolved all pending claims. GT continues to own and operate the Landfill.

On appeal, GT challenged the district court's finding that South Mulberry's exercise of the repurchase option required it to close the Landfill.  For its part, South Mulberry argued that the district court was wrong in not holding GT responsible for addressing the off-site waste.

 A three-judge panel overturned the grant of partial summary judgment finding that neither the contract nor state law requires closure of the Landfill when ownership of the underlying property changes hands.   The appeals court, however, upheld Judge Fleming’s decision on the off-site waste issue.

“Reading the contract as a whole, we find the parties intended the Landfill be operated in compliance with all applicable statutory and regulatory provisions governing its operation at all times, including at the time of closure or transfer of the property,” said the panel. “Like the parties, we necessarily focus on the specific language of paragraph 10 because it addresses the particular point of contention between the parties.  *  *  *  The plain language of paragraph 10 does not impose an absolute obligation on GT to close the Landfill.  * * *  The parties did not agree that GT would close the Landfill when the option was exercised; they agreed that closure obligations would be in conformance and compliance with the KDHE regulations in effect at the time the option was exercised.” 

The appeals court focused on the phrase "in no event" in paragraph 10, which makes it clear that the exercise of the option would not affect closure and post-closure obligations, no matter what rules and regulations might be in effect at the time the option is exercised.  For now, no law or other dictate required closure. Neither party disputed the fact that the Landfill has a valid permit and has remaining capacity.   And, GT had provided KDHE, in 2016, with an irrevocable letter of credit to meet its financial assurance obligations.

“The district court ruled that GT was the owner and operator of the Landfill and therefore responsible for meeting all closure and post-closure requirements . . . ,” the panel wrote, before continuing:  “The court's ruling also requires closure of the Landfill before the transfer of title occurs. We find no basis for these findings in the language of the contract or the applicable KDHE regulations.”

South Mulberry also argued that nothing in the agreement indicated the Massas or South Mulberry ever intended to operate the Landfill, that closure costs would be daunting, and, for good measure, that GT is financially able to cover the cost of closure.

As the appeals court saw it, these present day circumstances have no bearing on what the parties intended when the contract was signed.  “No language in the agreement suggests that the relative financial condition of either party is a factor to be considered in allocating the burdens of closure,” the opinion stated.   “Furthermore, the contract does not require repurchase of the property – if it does not make financial sense, South Mulberry can decline to exercise the option

*  *  *  Whether South Mulberry ever intended to operate the Landfill is ultimately of no consequence in determining GT's closure obligations. What is clear from the contract is that the

parties intended that GT's closure obligations were dependent upon and derived from the KDHE regulations in effect at the time of the option.”

What about the off-site waste issue? South Mulberry argued that the district court was wrong in not forcing South Mulberry to address the offsite waste, thus shifting potential responsibility for clean-up. The appeals court agreed with the lower court’s denial of a judgment in favor of South Mulberry, but for a different reason. 

Litigants may seek a court determination resolving a legal uncertainty with a ruling on the rights, duties or obligations of one or more parties.  However, such an order, known as a declaratory judgment, must involve an actual controversy where a claim is “ripe” for adjudication.  Courts routinely decline to prematurely entertain disputes.  Judges want issues that have materialized and not those that are future, contingent or speculative.

“South Mulberry seeks to shield itself from liability in any future KDHE action to avoid an obligation that the KDHE has not yet imposed – and might never impose,” concluded the opinion. “We find the issue is not ripe and affirm the district court's denial of South Mulberry's request for declaratory relief.”

South Mulberry Properties, L.L.C. v. GT Management, L.L.C., No. 124,039, Kan. Ct. App., October 21, 2022.