Lowry Air Force Base Redevelopment
When the U.S. Air Force closed the Lowry Air Force Base in Denver, the site became an attractive opportunity for redevelopment. Richmond, Standard Pacific, Metropolitan, and Touchstone (the "Homebuilders") purchased finished lots in an area of Lowry called the Northwest Neighborhood for the purpose of building single-family residential homes. After the Homebuilders began construction, the Colorado Department of Public Health and Environment (CDPHE) discovered asbestos in the soil in the Northwest Neighborhood. CDPHE issued compliance advisories (the "Advisories"), directing the Homebuilders to cease all construction activities in the Northwest Neighborhood and ordering them to investigate and remediate the asbestos contamination. The Air Force refused to respond to the Advisories on behalf of the Homebuilders, despite clear statutory and contractual obligations to do so. The Homebuilders therefore undertook the investigation and remediation activities required by the Advisories at their own expense. Investigation and remediation ultimately cost the Homebuilders approximately $9 million in out-of-pocket costs and related damages.
Partnering with Brownstein Hyatt Farber Schreck’s highly regarded Natural Resources Group, the Homebuilders brought a lawsuit against the Air Force, asserting claims for indemnification under Section 330 of the National Defense Authorization Act and breach of deed covenants. Following a two-year legal battle, the U.S. Court of Federal Claims found that the Air Force caused the asbestos contamination by demolishing a number of asbestos-contaminated buildings prior to transferring the property to private parties. Additionally, the Court found that the broad indemnity language of Section 330 required the Air Force to compensate the Homebuilders for costs arising out of that contamination and the related issuance of the Advisories.
This case is the first ruling by any federal court which interprets the United States' indemnification obligations for former military property under Section 330 of the National Defense Authorization Act. With 22 major military bases slated for closure across the country by 2011, more and more lenders, insurers and real estate developers will be involved in military base redevelopment. By securing this decision, Brownstein has helped protect developers from the often-exorbitant costs of cleaning up environmental contamination caused by the Armed Services on former military enclaves.
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