November 20th, 2012
2012 has turned out to be a significant year for NJ Spill Act litigation. Two opinions from this fall have been particularly notable to transactional attorneys because they involved a very common scenario encountered in urban areas-namely, properties with a history of numerous dry cleaner operators.
Because dry cleaners are small businesses, their environmental impacts are often overlooked in commercial real estate transactions. However, these operations use relatively large volumes of hazardous substances. Moreover, because of poor housekeeping, dry cleaners have historically had a high frequency of spills and discharges. Indeed, prior studies have estimated that 75% of the 30,000 dry cleaners in existence at that time discharged Tetrachloroethylene or Perchloroethylene (PCE) into the soil or groundwater.
One common source of contamination is discharge of contaminated wastewater into the septic systems or sewers where PCE would leak from cracks and joints into groundwater. In fact, manufacturers of dry cleaner recommended that the machines be connected to the sewer system. PCE was also often spill on floors during transfer of clothing from washers to dryers or during product transfers. The PCE would then flow into floor drains and then enter the septic system or sewer. Other sources of contamination was spills or leaks from outside waste drums holding spent solvent, storage tanks holding virgin product and used filters that were disposed in dumpsters. Another source of spills could be condensation of heated vapors vented to building exteriors. PCE can erode asphalt and penetrate concrete. Thus, unless dry cleaners had floors with sealant, PCE spills likely migrated into the environment
Most dry cleaners are small business with limited resources who often did not purchase insurance policies that could help pay for cleanups. As a result, property owners are often forced to incur the costs of remediating the contamination caused by their tenants. Further complicating the task of the landlord is that dry cleaners frequently change ownership. Thus, it can be difficult to establish which tenant was responsible for the contamination.
This brings us to the decision of the New Jersey Supreme Court in New Jersey Dep’t of Environmental Protection v. Dimant , 212 N.J. 153 (NJ 2012) where the New Jersey Supreme Court ruled that there must be some nexus or connection between a discharge and alleged contaminated for a party to be liable under the NJ Spill Compensation and Control Act (Spill Act).
As with many groundwater contamination cases, this one started with an accidental discovery of a contaminated drinking water well. In March 1988, elevated levels of PCE were detected during a potable water test in connection with routine residential real transaction. The seller notified the Middle Brook Regional Health Commission (MBRHC) who conducted an investigation. From 1988 to 1989, MBRHC sampled 86 residential wells in a 365-acre area of Bound Brook that later became known as the Longwood Avenue Groundwater Contamination Area. MBRHC found elevated concentrations of PCE, TCE and DCE in 41 of the wells along with gasoline constituents in another 14 wells. MBRHC enlisted the help of the New Jersey Department of Environmental Protection (NJDEP) to find the source of the contamination.
Because groundwater was believed to flow in a southeasterly direction towards the Raritan River and Middle Brook, NJDEP and MBRHC suspected the source of the contamination was a cluster of buildings on West Union Avenue which is also known as Route 28. The potential sources were believed to a building owned by Rita Lapinski (the “Lapinski Property) where a series of dry cleaners had operated since the 1950s, Zaccardi’s Cleaners (Zaccardi’s) located immediately east of the Lapinski Building, two other dry cleaners (Michael James Cleaners and Bound Brook Cleaners) east of Zaccardi’s as well as a former Mobil gas station located immediately west of the Lapinski Building. In addition, two federal superfund sites were located in the area, the American Cyanamid site and the Brook Industrial site.
The MBRHC and NJDEP collected two samples from theLapinskiBuilding. The first sample was collected from fluid in a grated pit near the dry cleaner equipment. The sample turned out to have 195,000 ppb of PCE. The NJDEP subsequently performed a dye test to see whether the fluid in the pit had drained into the groundwater. The dye was only detected in the sanitary sewer system.
NJDEP collected a second sample from the liquid dripping from an exhaust pipe protruding from theLapinskiBuilding, approximately five feet above the pavement ground. The laboratory analysis detected PCE in excess of 3,000 ppb. After the Sammans stopped using the dry cleaner units, they sealed the grated hole behind the dry cleaning units and sealed the discharge pipes.
Samples collected from the Zaccardi property also detected PCE and its breakdown products. Michael James Cleaners was the largest dry cleaner in the area but NJDEP did not collect any samples from that site because the owner said he never used PCE. Interestingly, NJDEP later found leaking USTs containing solvents and petroleum.
NJDEP apparently did not pursue enforcement at the time. In the early 1990s, the NJ Spill Compensation Fund (Spill Fund) financed an extension of the public water supply to the affected residences. The Spill Fund also paid for point-of-entry treatment systems.
In 2000, NJDEP conducted an unknown source investigation. Soil samples from the Lapinski property revealed trace levels of PCE, TCE and DCE. The groundwater samples showed PCE above the MCL and MTBE. PCE and TCE were also detected in the soil and groundwater at Zaccardi’s but at levels lower than those detected at the Lapinski property. NJDEP concluded that Sue’s and Zaccardi’s were the primary sources of the Longwood Avenue Ground Water Contamination Area because the residential wells with the highest concentrations of contaminants were those located directly behind Lapinski and Zaccardi properties and the presence of the PCE degradation-by-products in the soil samples suggested the contamination had been present for a long enough time to have reached the drinking water wells.
In 2004, the NJDEP and the Spill Fund filed a complaint against seeking cost recovery and declaratory judgment seeking natural resources damages as well as compelling the defendants to complete remediation of the groundwater. The lawsuit was filed against Lapinski and Zaccardi, as property owners at the time of the discharge of hazardous substances. Also named as defendants was Sue’s Clothes Hanger, Inc., (Sue’s), the dry cleaner that operated at the Lapinski property in 1988, the principals of Sue’s, and Zaccardi Cleaners and its principals. Sue’s, in turn, filed a third party complaint for contribution and indemnity against prior dry cleaners that operated at the Lapinski property. Lapinski and Zaccardi settled with NJDEP. The principals of Sue’s filed for bankruptcy and received a discharge, leaving Sue’s as the remaining defendant.
The principals of Sue’s, Chouchan and Riad Sammans, had purchased a laundromat business from Bharat Shah and Priti Shah (the “Shahs”) in May 1987. The Shah’s who had operated the Laundromat from 1985 through 1987, had used two small dry cleaning machines for some types of clothing that was dropped off by customers. The Sammans continued the self-serve laundromat and also operated the dry cleaning machines a couple times a week for drop-off laundry until 1989. Used PCE was stored in a reservoir beneath the dry cleaning units though some PCE was vented during the drying process through an exhaust pipe that extended through the wall to the outside of building.
At the trial, the NJDEP witness testified that she had observed dripping from the pipe extruding from the Lapinski property but could not recall the condition of the asphalt beneath the pipe. In contrast, she testified that the asphalt below the two vent pipes at the Zaccardi property was stained and so eroded that she was able to observe the underlying concrete pad.
According to the court, she indicated that the grated pit was not a source of groundwater contamination “because sewer lines are usually not a source of contamination” (More on that conclusion at the end of this post). Thus, while it was her opinion that the Lapinski property had contributed to the contamination found in the residential wells, she conceded she could not determine which of the dry cleaner operators had caused the contamination. While she concluded that a discharge had occurred at the Lapinski property,
Following the bench trial, the judge made the following findings of fact:
- The soil and groundwater contamination preceded Sue’s dry cleaning operation;
- The dye test showed that the PCE in the grated pit was not a source of a groundwater contamination;
- There was no evidence that the drip from the exhaust pipe was continuous or intermittent and there was no evidence that the pavement beneath pipe showed any signs of cracking or erosion of the asphalt;
- The fact that the NJDEP took no other action between 1988 and 2004 regarding the outside drip was circumstantial evidence that the NJDEP did not consider the drip to be significant;
- There were dry cleaning operations at the Lapinski building since the 1950s and no evidence that the PCE in the groundwater or soil at the Lapinski premises came from Sue’s operation ;
- NJDEP’s primary witness was unable to establish when the PCE at the Lapinski building occurred.
As a result, the trial court ruled that NJDEP had not established by a preponderance of the direct and circumstantial evidence that there was a nexus between any discharge by defendant Sue’s Clothes Hanger and the groundwater contamination at issue. The court reasoned that even though the Spill Act established strict liability for the consequences of a hazardous substance discharge, NJDEP still had to show threw was some connection between a discharge and the contamination that required remedial action.
NJDEP appealed, arguing that the trial court had erroneously created a de minimis discharge exception to Spill Act liability and that the weight of the evidence had demonstrated the discharge from Sue’s had caused the contamination of the residential wells. The Appellate Division affirmed, expanding on the trial court’s reasoning in a published opinion. N.J. Dep’t of Envtl. Prot. v. Dimant, 418 N.J. Super. 530 (2011).
NJDEP argued that the Spill Act must be interpreted and applied broadly so that any discharge would impose liability on all operators handling that product even where the discharge was de minimis, and that a direct causal connection between the discharge and the damages was not required. In advancing this argument, NJDEP pointed to CERCLA caselaw holding that a plaintiff did not have to establish a direct causal connection between a defendant’s release and a plaintiff’s response costs.
The appellate division found the CERCLA reliance misplaced, noting that even under CERCLA plaintiffs had to prove a release caused the incurrence of response costs. The Court went on to explain that in determining the scope of the phrase “in any way responsible”, Spill Act cases had generally focused on the connection between the discharge and an alleged discharger or the owner of the property, and had not expressly stated the necessity for further proving a “nexus” between a discharge and damages resulting from the discharge. However, the court said such a requirement was implicit in these holdings. Indeed, the court went on to say that it was also evident from the definition of a “discharge” which explicitly refers to resultant “damage”. The court also noted that definition of “cleanup and removal costs” included all direct and indirect costs associated with a discharge.
The appellate division said that plaintiffs had the burden to demonstrate that defendant had some connection to the damages caused by the PCE contamination, or had added to any contamination already caused by past operation. The court characterized as speculation NJDEP’s argument that discharges from the vent pipe could have flowed across the driveway onto the soil or leaked into the groundwater through unseen cracks in the asphalt. The appellate division said there was no evidence in the record that asphalt driveway was cracked or eroded, or that the contaminated discharge did not evaporate soon after hitting the asphalt and before getting into the soil or groundwater. The court noted that while there was testimony that sewer pipes are not usually a source of groundwater contamination unless there is a “major crack in the lines,” the record was devoid of proof that the integrity of the sewer line had been compromised in any way. In the absence of any evidence linking the defendant to a discharge that caused the contamination, the appellate division affirmed the trial court decision.
NJDEP petitioned the Supreme Court, asserting that the Appellate Division had unsettled the law by engrafting a common law causation standard for Spill Act liability. Examples of inappropriate causation analysis cited by NJDEP was the duration of time that the pipe at Sue’s was leaking, whether other parties may also have discharged PCE in the area, the low amount of PCE directly observed to have been discharged, and the NJDEP’s delay in pursuing cost recovery. NJDEP also contended that the undisputed evidence of Sue’s PCE discharge from the exhaust combined with the fact that the highest concentrations of PCE in the groundwater beneath Sue’s property created the necessary causal nexus to impose liability under the Spill Act.
The Supreme Court began its analysis by stating that all parties agreed that some “nexus” must be shown for Spill Act liability but disputed the nature of the nexus. The Court said there were two separate occurrences that qualified as discharges: (1) a spill or leak “into the waters or onto the lands of the State”; or (2) a spill or leak “into waters outside the jurisdiction of the State when damage may result” inside the state. Thus, the Court agreed that a discharge had occurred while Sue’s operated because there was at least one occasion when the exhaust emitted an uncontrolled drip of liquid with a high concentration of PCE onto the ground.
The Court also said the fact there was asphalt between the soil and the dripping pipe was irrelevant in determining if there was a discharge because the liquid was leaking into open air space under which there was no structure to contain it. The Court also held there was no de minimis exception to the Spill Act’s prohibition against the discharge of a hazardous substance. Instead, the Court said that the determinative question was not if there was a discharge at Sue’s but whether the NJDEP has connected the discharge that did occur to the relief it has sought against Sue’s.
Reviewing the legislative history of the Spill Act, the Court said when the phrase “in any way responsible” was added in 1979, the legislature intended to apply joint and several liability to a broader class of responsible parties and not just to those who were active participants in the discharge of hazardous substances.
The Court said that the decisions cited by the Appellate Division to support its nexus requirement actually concerned a distinctly separate question about holding liable a party who was not directly responsible for the discharge that had occurred but who nevertheless had some control over the direct discharger in each matter. However, the Court went on to say that these cases underscored the important point that the phrase “in any way responsible” requires some connection between the discharge complained of and the alleged discharger
At this point, it looked like the NJDEP might prevail. However, the Court then went on to explain that even after finding that a party is responsible for a discharge, a plaintiff must demonstrate a nexus between the discharge for which a person may be in any way responsible and the contamination for which cleanup and other related authorized costs are incurred. After reviewing the evidence in the case, the Court said there was no basis to set aside the rulings of the lower courts.
The Court rejected NJDEP’s argument to adopt the federal standard for causation in CERCLA cases, finding important differences between CERCLA and the Spill Act. First, the Court observed that the Spill Act renders parties jointly liable for damages while CERCLA permits divisibility among responsible parties. The Court acknowledged that the Spill Act had a mechanism for allocating liability in the form of a contribution action but said that the difference between the Spill Act’s apportionment process and that provided for in CERCLA is that a CERCLA defendant who can prove “that a reasonable basis for apportionment exists” will only be liable in the first place for the damages attributable to that defendant, not for the entire cost of remediating the release.
Second, the Court said that CERCLA has its own unique legislative history that has informed courts on the subject of causation. In contrast, neither the Spill Act nor its corresponding legislative history, the Court concluded, definitively address the level of causation needed to impose liability on a discharger. The Court said that the NJDEP had only had to prove that an unlawful discharge occurred which was the responsibility of the discharger or other responsible party. The Court noted that early drafts of the Spill Act distinguished between liability for cleanup expenditures and liability for damages, suggesting an intent to treat liability for cleanup costs distinct from liability for damages.
The Court said that while the legislative history did not to provide a conclusive answer on the requisite connection between liability and all forms of relief under the Spill Act, its review of the statutory language and legislative history led to the conclusion that there was no basis for importing a proximate-cause analysis. The court said the causation standard to be applied to Spill Act claims must accommodate the multiple forms of relief available under the statue that ranged from includes injunctive relief to recovery of damages.
To obtain injunctive relief, the Court continued, a plaintiff must show proof of the existence of a discharge. However, to recover damages, the Court said there must be a reasonable link between the discharge, the putative discharger, and the contamination at the specifically damaged site. While a plaintiff need not trace response costs to each defendant in a multi-defendant case, the Court said it is not enough for a plaintiff to simply prove that a defendant produced a hazardous substance, that the substance was found at the contaminated site and ask a court connect the dots.
Applying these principles to the facts of the case, the Court said that the trial court found that the NJDEP had failed to connect the discharge from the pipe during Sue’s operation to the soil or groundwater damage. The Court said the case was not about discharge of PCE onto asphalt but about contaminated drinking water. The Court held that NJDEP never presented sufficient proof of how the drip of fluid containing PCE observed at Sue’s one day in 1988 resulted in the contamination of the groundwater in Bound Brook.
To the extent that the NJDEP asserted there was a sufficient connection to support having Sue’s study the contamination and determine a remedy for its discharge, the Court ruled that it would be fundamentally unfair to saddle Sue’s with such an investigatory obligation, on a joint and several liability basis, considering more than a decade had passed since NJDEP first discovered the dripping pipe during Sue’s operation. Thus, the Court affirmed the dismissal of the claim seeking to have Sue’s study the contamination and determine a remedy for the pollution of this site.
In 1992, a California study by the California Regional Water Quality Board-Central Valley Region found PCE leaking from sewers to be the leading cause of contamination from dry cleaners. . (See Izzo, “Dry Cleaners – A Major Source of PCE in Ground Water” ). In the two decades since that study, numerous large PCE groundwater plumes have been identified in many states that have been caused by leaking sewers. This commentator feels that had NJDEP introduced these studies into evidence to show how sewer systems are a common source of groundwater contamination, the trial court would have been hard pressed to ignore the potential liability of Sue’s. It is hard to fathom why NJDEP was so quick to dismiss the potential for contamination from the sewer system.