A recent decision sheds light on the U.S. government’s cleanup obligations in land sales involving former military sites.  In Hamilton Square, LLC v. United States, No. 20-1285 (Fed. Cl. July 15, 2025), the U.S. Court of Federal Claims allowed a key environmental remediation claim to proceed while dismissing others in a suit alleging the Navy breached its obligation to remediate newly discovered petroleum and chloroform contamination at a property in Novato, California.

Hamilton Square, LLC (“Hamilton”) purchased the 2.7-acre parcel from the Navy in 2005 following base closure activities pursuant to the Defense Base Closure and Realignment Act of 1993.  The property had previously been used as a Naval Exchange gas and public works station and was known to be affected by petroleum contamination.  Prior to the transfer, the Navy conducted cleanup activities and issued a Finding of Suitability to Transfer (“FOST”) and FOST amendment in 2003, which disclosed residual petroleum impacts and asserted that the property was environmentally suitable for commercial use.  The deed of sale included a covenant, required under CERCLA § 120(h)(3)(A)(ii)(II), warranting that the Navy would undertake “any additional remedial action found to be necessary after the date of [the] Deed for any hazardous substance existing on the Property prior to the date of [the] Deed.”  

In 2019, Hamilton’s consultant detected chloroform in soil vapor samples, which had not been identified in earlier Navy sampling or the original FOST.  Hamilton argued that the Navy was obligated under the deed to perform further remediation and also claimed that previously undisclosed petroleum contamination required cleanup.  Hamilton sued for breach of contract and breach of the implied duty of good faith and fair dealing.  The U.S. government brought a motion for summary judgment. The Court had previously dismissed some claims but allowed two to proceed: (1) breach of contract based on the Navy’s alleged failure to remediate newly discovered chloroform and petroleum contamination, and (2) breach of the implied duty of good faith and fair dealing. 

On the plaintiff’s claim for chloroform remediation, the Court held that Hamilton presented sufficient evidence to establish a genuine issue of material fact as to whether the chloroform existed on the property prior to the transfer.  Because the deed includes a covenant requiring the Navy to conduct additional remediation for preexisting hazardous substances, the Court declined to dismiss the breach of contract claim related to chloroform.  The Court also rejected the government’s argument that Hamilton failed to give proper notice of the contamination, concluding that the notice provisions in the deed were not strict conditions precedent to enforcement.

 On the plaintiff’s claim for petroleum remediation, the Court ruled that Hamilton could not recover.  Petroleum is excluded from CERCLA’s definition of “hazardous substances,” and the Navy had already disclosed known petroleum contamination in both the FOST and Covenant to Restrict Use of Property (“CRUP”).  Hamilton argued that the petroleum contamination at the property was larger, more expansive and more severe than disclosed.  However, the Court found no evidence that Hamilton encountered a “previously unidentified release” of petroleum, which was the threshold required under the deed for triggering any further obligations.

Hamilton also alleged that the Navy breached the implied duty of good faith and fair dealing by failing to diligently perform all ongoing obligations required by the deed, including ongoing corrective actions.  The Court dismissed this claim, finding that the Navy’s duties were governed by the express terms of the deed and that Hamilton could not rely on the implied covenant to impose broader or ongoing remediation duties not contemplated in the contract.  The Court held that the claim either duplicated the express terms of the deed or improperly sought to expand the Navy’s obligations beyond what the parties had agreed to.

The decision underscores the importance of carefully negotiating and reviewing deed covenants in federal land transactions, performing pre-purchase due diligence, understanding which contaminants are covered under CERCLA and which are not, and promptly documenting and communicating discoveries of contamination—even when notice procedures are not absolute prerequisites.  While the Court left open the possibility of relief for newly discovered CERCLA-listed contaminants like chloroform, it drew a clear line on petroleum—consistent with CERCLA’s statutory exclusions.

The case will now proceed to trial solely on Hamilton’s claim that the Navy breached its contractual duty to remediate newly discovered chloroform contamination.  The outcome of that trial may further clarify the scope of post-transfer remediation obligations under CERCLA-based deed covenants.

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