Archive for the ‘NJ Spill Act’ Category

Changes to NJ Brownfield Funding Program

Monday, April 9th, 2018

A little-noticed bill that was passed at the end of 2017 made significant changes to the NJ Hazardous Discharge Site Remediation Fund (HDSRF) grant and loan program. The legislation,  A1954 signed into law on 1/15/18. Below are a summary of the changes. Thanks to our friends at the Brownfield Coalition of the Northeast (BCONE) for providing us with this information. These changes will be discusses at the  9th Northeast Sustainable Communities Workshop to be held on May 23, 2018 at the New Jersey Institute of Technology, Newark, NJ

Fourteen changes by the Brownfields Office at NJDEP are:

  1. 25% matching grants for innovative technology and limited restricted use remedial actions have been eliminated from the program.
  2.  50% matching grants for innocent parties have been eliminated.
  3. Annual grant caps to municipal/county/redevelopment authorities are reduced from $3,000,000 to $2,000,000.
  4. The additional grant amount permitted in a Brownfield Development Area (BDA) is reduced from $2,000,000 to $1,000,000.
  5.  Annual loans caps are reduced from $1,000,000 per year to $500,000 per year.
  6. The statewide annual award cap for recreation/conservation; affordable housing; and renewable energy grants is reduced from $5,000,000 to $2,500,000.
  7. At least 30% of the moneys in the fund shall be allocated for grants to municipalities, counties, or redevelopment entities for PAs, SIs, RIs, and RAs of a site not located in a BDA.
  8. Moves sites in Planning Areas 1 and 2 down to the third priority from the second and makes BDAs the second priority.
  9.  Readiness to proceed has been added as a factor in prioritization of applications.
  10. NJEDA’s annual reporting requirements are to include the amount of remediation costs expended for each site for the previous calendar year and the remaining balance.
  11. NJEDA is required to adopt criteria for public entities that indicates that the property will be developed within a 3 year period from completion of the remediation.
  12. Places timeframes for completing remediation steps based on the date the grant is awarded for:

a. Preliminary Assessments or Site Investigation at 2 years after the date of the award.

b. Remedial Investigations at 5 years after the date of the award.

Failure to complete the task will result in cancellation of the award.

13. Requires the applicant of a supplement grant to demonstrate that the previous grant/loan award was fully expended or will be fully expended.
14. The law took effect on 1/15/18 and applies to any application for financial assistance or a grant from the HDSRF pending before the DEP on the effective date of the law or submitted on or after the effective date. It does not apply to any application determined to be technically eligible and recommended for funding by the DEP and pending before NJEDA on the effective date.

A summary of the changes for private party grants and loans is Attached

 

Kiddie Kollege Ruling Highlights Importance of Performing PAs in NJ Transactions

Wednesday, June 18th, 2014

Nearly eight years after a New Jersey day care was forced to close down because of mercury contamination, the legal fallout continues.  In the latest legal salvo involving the infamous Kiddie Kollege Daycare & Preschool, Inc, (Kiddie Kollege), a New Jersey trial court ordered the current property owner who leased the contaminated building to the daycare center to reimburse the New Jersey Department of Environmental Protection (NJDEP) $2.05MM. Perhaps more significant, the court also awarded treble damages of $6.1MM against the former owner of the thermometer manufacturer.

Following is a summary of the key facts and legal proceedings involving the Kiddie Kollege case. Readers who want a more detailed discussion of the tortured history of this site can click Here.

The property had been owned by Accutherm, Inc. (Accutherm) from 1984 to 1992 and used to manufacturer mercury thermometers. When Accutherm ceased operating, it failed to comply with the Site Industrial Recovery Act (ISRA) which requires certain industrial establishments that are transferred or closed to undergo environmental investigation and remediation if required. After Accutherm ceased paying its property taxes, Franklin Township sold two tax certificates to the bank then held a mortgage on the property. Eventually, the current property owner, a real estate broker, purchased a third tax certificate from the township and acquired the prior two tax lien certificates that had been sold to the bank. The current owner then acquired title by foreclosure judgment, renovated the building and leased it to Kiddie Kollege. The daycare was shut down in July 2006 after it was learned that the building that the building that housed the daycare had previously to manufacturer mercury thermometers and had mercury vapor levels at least 27 times the regulatory limit. Approximately one-third of the children and staff members were found to have elevated levels of mercury.  

The controversy spawned the filing of class action lawsuits on behalf of children who attended Kiddie Kollege as well as employees of the daycare center, an insurance declaratory judgment action and several individual personal injury actions. In Baughman v. United States Liab. Ins. Co., 662 F. Supp. 2d 386 (D.N.J., 2009), a federal district court granted summary judgment in favor of the second set of operators of the day care center that their insurer was obligated to defend and indemnity them under the comprehensive general liability (“CGL”) policy. The insurer had argued that claims for medical monitoring were not legal damages as defined under the policy and that the pollution exclusion barred coverage. The court said that since the underlying suits all allege harm due to exposure to mercury contamination inside the Kiddie Kollege building and, the contamination did fall within the scope of “pollution”. The court went on to say the fact that some toxins might have spread beyond Kiddie Kollege did not change that fact that the underlying suits sought damages for bodily injury arising from their exposure to mercury inside Kiddie Kollege.  The court subsequently awarded attorney fees as well. Baughman v. United States Liab. Ins. Co., 723 F. Supp. 2d 741 (D.N.J. 2010)

In 2010, the property owner and daycare operators settled a class action lawsuit brought by parents for $1MM. Following a bench trial, a judge ordered that a $1.5MM trust fund be established to pay for long-term medical monitoring with the property owner and Franklin Township each required to contribute $525K, Gloucester County pay $300K and the State of New Jersey $150K. Just before the judge announced his verdict, the County had agreed to settle the lawsuit $950K. Another judge subsequently awarded $1.6MM in attorneys’ fees to plaintiffs’ lawyers. Meanwhile, the building was demolished in 2010 with the debris hauled away to an Indiana hazardous waste site.

2014 Trial Opinion

In New Jersey Department of Environmental Protection v Navillus Group, et al, No. L-1260-12 ((Super. Ct-Law. Div. – Gloucester County May 14, 2014), the court finally got around to addressing the Spill Act liability of the defendants. The court made important rulings on the Spill Act innocent purchaser defense and divisibility of liability under the Spill Act.

Like many other states, New Jersey has enacted its own an innocent purchaser defense that requires a property owner demonstrate that it did not know and had no reason to know of discharges of hazardous  substance by performing an “all appropriate inquiry”.  However, contrary to most states, New Jersey has not adopted the federal All Appropriate Inquiries rule but instead has its own unique definition for satisfying “all appropriate inquiry.” Under N.J.S.A.  58: I 0-23.11g(d)(2), an “all  appropriate  inquiry” is defined as  “the performance of a preliminary assessment, and site investigations, if the preliminary assessment indicated that a site investigation is necessary.” 

A Preliminary Assessment, in turn, is defined at N.S.S.A. § 58:10B-1 as “the first phase in the process of identifying areas of concern and determining whether contaminants are or were present at a site or have migrated or are migrating from a site, and shall include the initial search for and evaluation of, existing site specific operational and environmental information, both current and historic, to determine if further investigation concerning the documented, alleged, suspected or latent discharge of any contaminant is required. The evaluation of historic information shall be conducted from 1932 to the present, except that the department may require the search for and evaluation of additional information relating to ownership and use of the site prior to 1932 if such information is available through diligent inquiry of the public records

In the Navillus decision, the trial court found that the Sullivan defendants could have learned of the discharge of mercury contamination by researching the historical records or if they followed their attorney’s advice and engaged an environmental professional to perform a preliminary assessment before proceeding to foreclose the tax sale certificates.  Instead, the court said the Sullivan relied on the 1996 EPA report. Though the Sullivan defendants misunderstood the report, the court said the EPA report could have been properly interpreted by an environmental lawyer and put into better context by an environmental consultant. Since the EPA report confirmed the presence of mercury at the site, the Sullivan defendants should have known about the mercury contamination and thus did not qualify for the innocent purchaser defense.

The court also found there was a basis to pierce the corporate veil of Jim Sullivan Inc because the Sullivan defendants disregarded corporate formalities and commingled corporate assets. Moreover, the individual sibling Sullivan defendants were liable as general partners of Navillus.

The court also found that the president of Accutherm was personally liable under the state Water Pollution Control Act pursuant to the responsible corporate officer doctrine. In addition, the court found that as the sole shareholder, CEO and corporate officer had sufficient control over the Accutherm operations to be personally liable as a “person in any responsible” under the Spill Act.  

We cannot conclude a discussion on the Spill Act innocent purchaser defense without reminding lenders, their borrowers, real estate lawyers and out-of-state environmental lawyers that the Spill Act innocent purchaser’s defense requires performing a pre-acquisition Preliminary Assessment and possibly a Site Investigation. The NJDEP PA technical guidance specifically states that the ASTM Phase I “is NOT an acceptable replacement for a preliminary assessment in New Jersey” Unfortunately, many lenders and borrowers are unaware that there are many differences between a PA and an ASTM E1527 phase 1 ASTM. Thus, purchasers of New Jersey properties who are concerned about potential Spill Act liability should not simply rely on a lender’s ASTM Phase 1 but either supplement the phase 1 with a PA or ordered a combined PA/ASTM Phase 1.

The purpose of the PA is to identify all current and historical potential areas of concern.  The NJDEP Preliminary Assessment Technical Guidance contains a Data Gathering Checklist that is intended to serve as a tool to ensure that all the required data gathering/diligent inquiry had been completed. Unlike AAI, for example, a PA specifically  REQUIRES review of tax records, deeds,  historical chain of title. and business directories  (such as McRae’s Industrial Directory, New Jersey Industrial Directory). The consultant is also required to assess protectiveness of prior remedial actions in contrast to the ASTM CREC which does not require EP to determine if controls are actually enforceable and if human exposure is under control. Other differences include that a PA does not have a “Reasonably Ascertainable” limitation that  allows a consultant to abandon a search for information based solely on time constraints. Instead,  the NJDEP PA technical guidance specifically states that “All efforts to contact a source of information or obtain documents/records should be fully pursued before the inspector completes the data gathering portion of the preliminary assessment.”   

Click here for a more detailed list of the significant differences between a PA and AAI/ASTM phase 1 report. We welcome input on this chart from LSRPs and others familiar with PA process. 

NJ Shopping Center Owner Waits Too Long to Bring Spill Act Claim

Wednesday, September 25th, 2013

Commercial property owners and asset multi-family buildings usually retain property managers firms to handle the daily operations of properties ranging from leasing, record-keeping, routine maintenance and emergency repairs. We previously discussed on how the importance of property managers understanding environmental issues, particularly the nuances of the requirements heating oil tanks for multi-family buildings. A recent New Jersey case involving a leaking heating oil UST at a shopping center reinforces this point.

In Morristown Assocs. v. Grant Oil Co., 2013 N.J. Super. LEXIS 130 (App. Div. 8/23/13), a New Jersey appeals court held that an owner of a shopping center waited too long to bring claims against several heating oil companies and the prior owners of a dry cleaning business for remediation costs and for other damages caused by a leaking fuel line.

In this case, the plaintiff acquired the shopping center in 1979 where Plaza Cleaner was a tenant. Before plaintiff purchased the property, Plaza Cleaner had installed a heating oil underground storage tank (UST) to feed the steam boiler used in the dry cleaning process. The UST was located  under a concrete slab floor. A number of heating oil companies delivered oil to Plaza Cleaners until 2003 when the tenant converted to natural gas in. The heating oil was pumped from a delivery vehicle through an external fill pipe protruded from an exterior wall. The fuel traveled through an internal feed line to the UST that was located under the basement. Sometime during this period, the fuel line developed holes which allowed the oil to seep into the soil and groundwater.

As is frequently the case, the plaintiff learned of the contamination when oil was observed in a groundwater monitoring well installed on an adjoining property owner in 2003 as part of a due diligence. The adjacent property owner contacted the plaintiff’s property manager to advise them that the investigation identified Plaza Cleaners as the source of the oil contamination.

When the UST and pipes associated with Plaza Cleaners were removed in 2004, the UST was found to be intact but the fuel line had holes as big as two inches in diameter. At the trial, plaintiff’s expert testified that the corrosion occurred because of improper design of air conditioning venting directly above the fill pipes, which caused rainwater and acidic water to accumulate around the pipes. Since 1988, it was estimated that between 9,400 and 14,670 gallons of heating oil leaked into the environment from the corroded fuel line

The plaintiff filed a lawsuit in July 2006 against the prior owner as well as the fuel oil companies under the Spill Act, the New Jersey Environmental Rights Act,  and common law negligence. The plaintiff asserted that the oil companies failed to inspect the pipes and the UST to ensure they were not leaking.  The defendant oil companies filed motions for summary judgment on several grounds, including that the plaintiff’s claims were barred by statute of limitations (SOL). Plaintiff opposed the motions, arguing that the Spill Act did not contain an SOL for private contribution actions.

The first issue the trial court had to resolve was if the Spill Act had a statute of limitations and if so, what was the applicable period.  The court ruled that the six-year SOL applied to plaintiff’s claims.

Then the court turned to when the SOL commenced. Plaintiff sought to invoke the discovery rule which New Jersey courts have applied to avoid the harsh effects that might result from a mechanical application of SOL. Under the discovery rule, the “clock” for filing a claim may be tolled or not begin ticking until a party discovers or should have discovered by an exercise of reasonable diligence and intelligence that they may have a basis for an actionable claim. Based on the discovery rule, plaintiff argued the SOL began to run in 2003 when the property manager learned of possible contamination caused by the dry cleaner. However, the oil companies asserted that the plaintiff’s should have discovered potential contamination from the Plaza Cleaner UST in 1999 when the supermarket UST was removed and because of the staining on the exterior wall of the dry cleaner.

The plaintiff testified he was unaware of the UST at the dry cleaner and also first became aware of the contamination in August 2003 The plaintiff’s president testified that 1993 environmental audit performed in 1993 as part of refinancing a mortgage did not identify USTs and that he first learned of the UST at the dry cleaner in August 2003 when the property manager was informed of the sampling results from the adjacent monitoring well.

The plaintiff had retained two management companies to supervise the operation of the shopping center. The president of the management company that operated the shopping center from 1988 to 1995 and again beginning in 2002 testified that he never saw anything to indicate there was a UST or any environmental problems at Plaza Cleaners. He also said did not remember seeing the extensive staining on the alleyway wall beneath the fill line. He said that he first became aware of an environmental problem when he was informed about the advised by the adjacent The second management company that operated the property from 1999 to 2002  had hired a consultant to remediate a leaking UST at the supermarket tenant. The owner of that management company testified in deposition that he was aware of the UST tank at Plaza Cleaners and that he had discussed the 1999 tank removal from the shopping center with the plaintiff.

The trial court said the discovery rule was an equitable remedy that courts applied when a party through no fault of its own is unable to take reasonable actions promptly to bring appropriate litigation and that the circumstances in this case did justify such relief. The court found that the plaintiff should reasonably have discovered the contamination at Plaza Cleaners no later than 1999. Any lack of knowledge by the plaintiff or its property manager by that date, the court went on, suggested a lack of diligence in attending to the property. The trial court estimated that there had been hundreds of oil deliveries to Plaza Cleaners between 1979 and 2003 and that plaintiff should have become cognizant of them at some point. In so holding, the court said

“A landowner has a fundamental  duty historically and settled in our law to make reasonable observations of the conditions on its property and to take reason-able care to insure that dangers do not exist on that property.. . . Anyone with any degree of reasonable knowledge must have known that there was an oil tank in the vicinity of Plaza Cleaners. There was an exterior fill pipe on the wall which was readily visible. There was a vent pipe in the same vicinity which was reasonably visible.”

On appeal, plaintiff argued the trial court erred because the Spill Act statutory defenses did not include contain a statute of limitations and prior caselaw had rejected application of general SOLs to Spill Act contribution actions.

In support, plaintiff cited to Pitney Bowes v. Baker Industries, Inc., 277 N.J. Super. 484 (App. Div. 1994) where the court rule that strict application of the New Jersey statute of repose would defeat the legislative intent of the Spill Act to impose strict liability on those responsible for contamination. A statute of repose sets an absolute time period for filing claims regardless of when a plaintiff discovered or should have discovered it has been damaged. In contrast, an SOL establishes the time period when a particular action may be brought. The appellate court in Morristown Associates said that unlike the statute of repose, an SOL is not “patently repugnant or inconsistent” with the purposes of the Spill Act. Because the Pitney decision involved the application of a statute of response and not an SOL, the appeals court declined to follow Pitney.

The plaintiffs also relied on the unpublished opinion in Mason v. Mobil Oil Corp., 1999 N.J. Super. Unpub. LEXIS 7(App.Div. 6/8/99) that did involve application of the SOL to a Spill Act contribution claim. In that case, there the plaintiffs purchased two adjacent lots there had been formerly used a gasoline station and a contiguous third lot. After demolishing the structures on their property, plaintiffs contracted to sell the property to Summit Bank. However, the bank walked away from the sale after its environmental consultant found significant levels of gasoline contamination. The plaintiffs had filed a lawsuit against their seller and ten fictitious defendants (“John Does”). The plaintiff later amended their complaint to substitute Mobil Oil for one of the John Doe defendants. Mobil sought to dismiss the amended complaint because it was filed more than six years after the filing of the original complaint. While the court felt that the plaintiffs had not been diligence since Mobil Oil’s involvement could readily have been determined by a title search during ensuing six years, the court ruled that the six-year SOL did not apply to a Spill Act claim.

The appeals court in the Morristown Associates case declined to follow Mason, finding more persuasive the reasoning followed by a New Jersey federal district court in Reichhold, Inc. v. United States Metals Refining Co., 655 F. Supp. 2d 400, 446-47 (D.N.J. 2009).  In Reichhold, the district court ruled that the Spill Act did not contain an SOL for private contribution claims and said courts should use the SOL applicable to actions seeking similar relief under common law.  The appellate court in Morristown Associates then ruled that the applicable statute of limitations for Spill Act contribution actions was the six-year limitations period for trespass or injury to real property.

Turning to the discovery rule, the court affirmed the lower court’s ruling that the plaintiff should have reasonably discovered the contamination by 1999. In so doing, the Appellate Court seemed to set a rather high bar for property owners seeking to invoke the discovery rule. The court held that that the discovery rule “does not depend on whether actual sampling results have been taken, but on whether enough indications of environmental contamination were present to put the plaintiff on reasonable notice to investigate further.”

The court went on to note that plaintiff was put on notice when the UST was removed from the supermarket that the 1993 environmental report was inaccurate. Therefore, the court said, the plaintiff should have exercised due diligence and supervision over its property to investigate if any other UST’s existed on its property. Having been put on notice of potential contamination at the property, plaintiff should have investigated whether the Plaza Cleaners’ system was functioning properly. Indeed, the court found that because the fill and vent pipes were clearly visible and there was evidence of staining on the external wall of Plaza Cleaners, the property manager should have made inquiry about the use of the fill pipes and their condition.

This ruling appears to impose an affirmative obligation on property managers and owners to periodically inspect each tenant space for evidence of spills or mismanagement of hazardous substances. Property management agreements often require the property managers to perform their duties using “due diligence” or “reasonable care”. The agreements also tend to contain “hold harmless” provisions where the owner agrees property manager will not liable for damages even those by third parties except where the property manager has engaged in willful misconduct or gross negligence. Some agreements require property managers to be responsible for compliance with laws but often these agreements contain a hold harmless clause for environmental conditions. As a result of the Morristown Associates decision, property owners and asset managers may want to review their property management agreements to determine if responsibilities for environmental compliance or environmental issues need to be revised.

Ct Says NJ Brownfield Agreement Not Enough to Establish Innocent Party Status

Tuesday, June 4th, 2013

The brownfield reforms that swept the country in the 1990s created new tools for developers of contaminated sites to help minimize their liability. Some of the reforms like the CERCLA Bona Fide Prospective Purchaser (BFPP) liability protection are self-implementing while others such as prospective purchaser agreements, covenants not to sue or letters stating that the developer is not a responsible party must be requested by the property owner. The outcome might have been different in Route 21 Associates of Belleville v. MHC, Inc., 486 B.R. 75 (S.D.N.Y. 2012) if the property owner had entered into a prospective purchaser agreement (PPA) with the New Jersey Department of Environmental Protection (NJDEP).

In this case, RT21 Associates of Belleville (RT21) purchased property in Belleville, New Jersey (the “Site”) from the Walter Kidde Division of Kidde, Inc (Kidde) in March 1983.  Kidde represented in the purchase agreement that RT21 “would not be responsible by reason of the violation of any law, rule or regulation regarding toxic volatile organic or environmental hazardous substances.”

In 1991, RT21 discovered a previously unknown leaking underground storage tank. After further investigation uncovered other areas of contamination, RT21 entered into a memorandum of agreement (MOA) with the NJDEP n 1993 to remediate the site. RT21  then filed a lawsuit against Kidde under the New Jersey Spill Compensation and Control Act (Spill Act) which the parties eventually settlement in 1996. Under the 1996 settlement agreement Kidde agreed to remediate all areas of concern and obtain a “no further action” letter from NJDEP. Kidde also agreed to indemnify RT21 for any clean-up liability for the pre-existing contamination.

Kidde’s cleanup progressed slowly over the next decade and proposed sales to K-K-Mart and Home Depot fell through because of concerns over the contamination. To facilitate a sale to Lowe’s, RT21 entered into a Brownfield Redevelopment Agreement (Brownfield Agreement) with NJDEP in 2006. The Brownfield Agreement provided that RT21 would be the primary party responsible for remediating the site and would be eligible for reimbursement of 75% of its eligible remediation costs.

In December 2007, RT21 entered into an addendum to the 1996 Agreement (2007 Addendum) with MHC, Inc which had acquired Kidde. MHC was a subsidiary of Millennium Chemicals Inc. (“Millennium Chemicals”) which, in turn, was an affiliate of Lyondell Chemical Company (Lyondell).

The 2007 Addendum provided that RT21 would complete the remedial investigation for the groundwater and soil, obtain an NFA letter for the soils, obtain approval of a RAW for the onsite groundwater. MHC, on the other hand, agreed to reimburse RT21 for the 25% of costs that were not covered by the Brownfield Agreement, maintain the groundwater and vapor recover systems and obtain a NFA letter for both onsite and offsite groundwater.

RT21 obtained an NFA letter for soils in early 2009 at a cost of approximately $2.4MM. RT21 also submitted to NJDEP a remedial action workplan (RAWP) for the onsite groundwater at a cost of approximately $1.049MM. NJDEP approved the RAWP in 2010, which completed RT21’s obligations under the 1996 Agreement. However, Lyondell and its affiliates filed a voluntary chapter 11 bankruptcy petition in January 2009.

RT21 filed a proof of claim seeking $1,049MM as an administrative expense. In the rider to its claim, RT21 estimated the groundwater remedy could cost $6.6 million based on a fixed price remediation contract. MHC filed an objection seeking to disallow RT21’s claim under 502(e) of the Bankruptcy Code as contingent, unliquidated claims asserting that .

The bankruptcy court approved a reorganization plan in April 2010. The plan provided for creation of the Millennium Custodial Trust (MCT) which became the parent of certain former debtor affiliates of Lyondell, including MHC. MCT was tasked with liquidating the assets of these debtors. Pursuant to the plan, MHC rejected many of its executory contracts including the agreements with RT21.

RT21 filed a motion seeking an order requiring MCT to comply with the Addendum, arguing that the contract was not executory because it had completed all of its obligations under the Addendum. RT21 also to have its cleanup costs afforded administrative expense priority. The bankruptcy court denied RT21’s specific performance claim, found that the 1996 Agreement and Addendum were executory contracts that had been properly rejected and that RT21’s claim was not entitled to administrative priority because the agreements were pre-petition transactions that did not provide a direct benefit to the post-petition estate. The court ruled that RT21 would have general unsecured claim for costs already incurred in cleaning up the Site in the amount of $1,019,358.40. However, the court disallowed RT21 claims for future, holding these were contingent claims for reimbursement that RT21 was co-liable with the debtor.

On appeal, the district court upheld the rejection of the specific performance claim breach of contract claims are usually converted into monetary damages and RT21 had not established that damages were not a “viable alternative” to performance of the agreements. In addition, the costs could be monetized in the form of invoices like those that RT21 had submitted in connection with its proof of claim. Moreover, unlike other cases relied upon by RT21, the court said RT21 was not trying to seek enforcement of an injunctive order issued under RCRA 7002.

The district court also agreed that RT21’s cleanup costs were not entitled to administrative priority treatment since section 503 of the Bankruptcy Code only authorized such treatment for costs incurred to cleanup property in which an estate has an interest in or owns and the debtor did not own or operate the property during the bankruptcy proceeding.

On the disallowance of the future costs under section 502(e), RT21 argued that its claim was in the nature of restitution or indemnity and not a claim for reimbursement or contribution. Moreover, RT21 argued it could not be co-liable with the debtor because it was an innocent purchaser. RT21 asserted that NJDEP had declared RT21 as an innocent party in the Brownfield Agreement. However, the court found Brownfield Agreement simply provided that RT21 had certified that it was not a person deemed liable for the contamination at the Site and had performed an environmental due diligence investigation. In other words, the court said, NJDEP had not made a determination that RT21 was an innocent party but simply that RT21 had assured NJDEP that it qualified for the state innocent purchaser defense.

The court also pointed out that RT21 had taken contradictory positions in the proceedings. The court noted that RT21 had argued to the bankruptcy court that it could face “untold liability” if specific performance was not awarded while its counsel told the district court that RT21 could walk away from the brownfield agreement, and keep any cash distribution without having to complete the cleanup in support of its contention that its claim for future costs should be allowed.

Finally, the court conceded that its ruling would produce a harsh result for RT21 that had incurred significant costs to remediate contamination it had not caused and as a general unsecured creditor might only receive a distribution from the bankruptcy estate of 1% of its costs. However, the court that the reality of chapter 11 bankruptcy proceedings are that they are not really controversies between creditors and a debtor but instead a battle group of creditors to allocate limited resources of the debtor to satisfy losses that many creditors will suffer. The court said that stripped to their essence, RT21’s arguments were an attempts to skip the line of creditors and get paid in whole dollars—whether by obtaining specific performance or by receiving administrative priority. While granting such relief to RT21 would make little difference to the liquidating debtor, the practical effect of such a ruling would be to further injure the debtor’s other creditors such as tort victims, vendors, and employees who have their own sympathetic circumstances.

Developers in New Jersey frequently enter into PPAs with NJDEP when developing residential properties or mixed use projects since the PPAs contain a covenant not so sue from the NJDEP that runs with the land. Though less common used for purely commercial properties, a PPA could have served as evidence that the NJDEP determined RT21 was an innocent party. This would have allowed RT21 to establish that it was not “co-liable with the debtor” and that it was not seeking a contribution claim for reimbursement but actually indemnity. These facts could have allowed the court to rule that the future costs were allowable claims. Granted, RT21’s claim would still be a general unsecured claim but this still would have resulted in a greater cash distribution.

If a PPA is not available, a property owner can try to add language to a voluntary cleanup agreement that it is not a responsible party. State cleanup agreements can also help with CERCLA contribution or cost recovery actions. For example, parties filing CERCLA contribution actions must show that their costs were incurred consistent with the National Contingency Plan (NCP). Some state regulatory programs provide that parties remediating a site under a state oversight document are presumed to be in compliance with the NCP. In addition, some state programs provide that a party remediating a site is presumed to have exercised “appropriate care”, thereby allowing the property owner to satisfy the post-acquisition continuing obligations of the BFPP liability protection.

NJ Ct. Vacates NJDEP Denial of Innocent Party Grant

Friday, May 31st, 2013

During the early years of New Jersey’s remediation program, challenging decisions of the New Jersey Department of Environmental Protection (NJDEP) bordered on Quixotic mission. Times have changed, though, and courts are no longer intimated by NJDEP and we have discussed a number of cases where courts have overruled the agency’s decisions. See dry cleaner case and recission of NFA letter and revocation of nfa letter

The latest example is In re Hazardous Discharge Site Remediation Fund Innocent Party Grant Application Cliflake Associates, LLC, 2013 N.J. Super. Unpub. LEXIS 1232 (App. Div. 5/22/13) where a two-judge panel vacated an administrative decision of the NJDEP denying an application for a Hazardous Discharge Site Remediation Fund Innocent Party Grant  that had been filed pursuant to the Brownfield and Contaminated Site Remediation Act (Brownfield Act).

In this case, Cliflake Associates, LP (LP) acquired an industrial property in June 1972.  The facts in the court opinion are sparse but it appears that a portion of the property may have been subsequently developed for retail use and that former heating oil tanks were removed with oversight of the NJDEP. In 1999, the partners of the LP formed Cliflake LLC (Cliflake) which acquired the assets of the LP. The LP partners became members of the Cliflake.

Shortly thereafter, Cliflake entered into a memorandum of agreement (MOA) with NJDEP to investigate the property. Again, it is unclear what prompted the MOA but it appears that previously unknown contamination may have been encountered during another phase of development. In any event, the remedial investigation discovered volatile organic compounds in the vicinity of a former warehouse and the property was identified as posing an Immediate Environmental Concern (“IEC”) in 2010 because of the potential for vapor intrusion.

With the remediation costs projected to exceed $2MM, Cliflake applied to the Hazardous Discharge Site Remediation Fund (the “Fund”) in January 2011 for an innocent party grant.  To qualify for an innocent party grant, an applicant has to show that it acquired the property prior to December 31, 1983, owned the property at the time of the application and that no discharge of hazardous substances has occurred during its ownership.

In March 2011, NJDEP issued a preliminary decision to deny the application because Cliflake did not own the property prior to December 31, 1983. Cliflake requested reconsideration on grounds that it was essentially the same entity as the LP that had acquired title in 1972. In support of its position, Cliflake relied on the definition of “change in ownership” contained in the Industrial Site Recovery Act (ISRA) regulations.

NJDEP responded that the ISRA definition was not relevant for purposes of determining eligibility for innocent party grants since the Fund was established under the Brownfield Act. Even if ISRA was applicable, NJDEP pointed out that the ISRA regulatory definition of “change in ownership” included “reorganization of a . . . limited partnership into a . . . limited liability company.” Thus, the NJDEP concluded that Cliflake and the LP were separate legal entities formed under different statutes and could not claim it was same entity that acquired the property in 1972 for the purposes of the innocent party grant.

Cliflake again requested reconsideration on grounds there had been a statutory merger with the LP that resulted in “continuous ownership of the property and continuous possession of a vested right to make an Innocent Party Grant application.” In response, NJDEP requested copies of the Certificate of Merger/Consolidation, the Agreement of Merger/Consolidation, and evidence that the agreement was approved by the members of Cliflake, LLC. When Cliflake was unable to produce the requested documents, it argued there had been a de facto merger with the LP and that as a successor to the LP, Cliflake was eligible for an innocent part grant.

In April 2012, NJDEP issued its final decision denying the application. The agency said the two entities were not the same and had failed to prove there had been a statutory merger because it failed to provide the required documentary evidence. NJDEP also rejected the de facto merger argument. In reaching this conclusion, the NJDEP said there was no evidence in the record suggesting that the parties intended a merger or that they intended Cliflake to assume all of the benefits and burdens of its predecessor. Instead, the NJDEP reasoned, it is more likely that the reason for the change to obtain the liability protections and the favorable pass-through tax benefits afforded by the limited liability company business form. NJDEP also found the certification submitted by Cliflake stating that the 1999 transaction was intended to be a merger was unpersuasive because it not a contemporaneous document. Finally, NJDEP concluded that the de facto merger doctrine was relevant only for determining corporate successor liability and not for purposes of determining if the successor could obtain a benefit due the predecessor.

On appeal, the court began its analysis by recognizing that ISRA and the Brownfield Act were distinct statutes and that ISRA definitional sections were not contained in the law creating the Brownfield Act and amending ISRA. However, court found that the two laws were part of a unified legislative strategy to address the remediation of contaminated sites. Accordingly, the court said that the ISRA definitions could be used to inform the purpose and scope of the innocent party grants.

Turning to the legislative history, the court said the grants were clearly intended to help the owners of contaminated property defray the costs of remediation if they were not responsible for the contamination. The court said the change of ownership definition of N.J.S.A. 13:1K-8 reflected the Legislature’s concern that there be a basic continuity of beneficial ownership between the two entities, retention of the prior entity’s liability by the resulting entity, and preservation of the prior entity’s available assets by the resulting entity to meet its remediation responsibilities. However, the court observed that ISRA allowed for corporate mergers, inter-corporate transfers, gifts or inheritance among family members, and other types of transfers. To the court, this suggested that the Legislature appeared to have been more concerned with the substance of ownership and continuity than the technicalities of the legal form. Indeed, the court said in a footnote that the ISRA regulatory language of N.J.A.C. 7:26B-1.4 arbitrarily excluded LLCs resulting from the reorganization of LPs.

On the statutory merger issue, the court said it was unclear from the record if Cliflake failed to produce documents showing that there was a statutory merger because there was no such statutory merger or because the records have been lost. For purposes of its decision, though, the court said it would assume that there was no statutory merger and turned to the de facto merger argument.

The court also rejected NJDEP’s argument that the de facto merger doctrine was limited to imposing impose liability and could not be used to confer benefits on a surviving entity. The court also said that while NJDEP incorrectly determined that the lack of contemporaneous documentation was conclusive by itself on the issue of a de facto merger, the absence of contemporary documents could serve as evidence in evaluating if the parties intended a merger.

Because the record was not sufficiently developed to determine if there was a de facto merger, the court vacated the NJDEP’s denial of Cliflake’s innocent party grant application and remanded the matter for an evidentiary hearing. On remand, the court said that Cliflake would have the burden of establishing that there was a de facto merger and that the change in structure did not diminish the assets available for remediation.

Historic Dry Cleaners At Heart of Two Key NJ Spill Cases-Part 2

Wednesday, November 21st, 2012

In our second post on recent NJ Spill Act decisions involving historic dry cleaners, we examine New Jersey Schools Development Authority v. Marcantuone, 2012 N.J. Super. LEXIS 173 (App. Div. 10/29/12) where the appellate division ruled that a property owner who acquired a site in 1985 without performing environmental due diligence could not qualify for the Spill Act innocent purchaser defense.

In this case, the defendants purchased a property in 1985 that was partly occupied and leased to Carriage Trade Cleaners. A number of dry cleaners had continuously operated on this site since 1930.  After acquiring title, the defendants operated a grocery store on another section of the property while continuing to lease a portion of the property to the dry cleaner.

In June 2003, a phase 1 was performed that concluded that the property did not appear to have been impacted by its past or current uses. However, the report recommended a phase 2. It is unclear if the defendants commissioned the report and if the recommendation was followed.

In 2004, the New Jersey School Construction Corporation retained an environmental consultant to conduct a Preliminary Assessment/Site Investigation Report (PA/SIR). The report noted that PCE had been used in connection with dry cleaning operations on the property but concluded that no further investigation was warranted.

In 2005, the City ofEast Orange(the City) filed a condemnation action against defendants seeking to acquire the property for the purpose of constructing a school.  Despite the findings of the PA/SIR, the City asked the consultant who prepared the PA/SIR to prepare a Property Acquisition Environmental Cost Estimate. Based on this cost estimate, the City offered defendants $365K in compensation, minus an estimated cleanup and remediation cost of $17,489. On December 15, 2005, the City filed a declaration of taking and deposited the estimated compensation amount with the court

In March 2006, the City’s consultant prepared a second PA/SIR but this time the report recommended investigation of the subsurface materials below the slab where hazardous materials had been stored or used. Soil samplings subsequently revealed elevated concentrations of PCE contamination. Remedial activities were implemented from October to December 2006.

In November 2007, the trial court entered final judgment in the condemnation action, ordering the City to pay defendants $629,407 as just compensation. The court ordered that $182,035.20 which represented the estimated remediation costs be held in trust by the Clerk of the Superior Court until the final cost of remediation was ascertained and determination on liability established.

In 2008, plaintiff filed a complaint to recover the $182,345.206 in cleanup and remediation costs under the Spill Act. Plaintiff later moved for partial summary judgment, seeking a ruling that the defendants were liable under the Spill Act. The defendants filed their own cross-motion that they were not liable under the Spill Act because they did not discharge the hazardous materials. Following oral argument, the trial court denied plaintiff’s motion and granted defendants’ cross-motion for summary judgment.  Relying on White Oak Funding, Inc. v. Winning, 341 N.J. Super. 294 (App. Div. 2001), the trial court granted defendants’ motion for summary judgment and dismissed plaintiff’s complaint. The trial court held that defendants were not liable because they purchased the property before September 14, 1993 and were not “in any way responsible” for the contamination.

The plaintiff appealed, arguing that the trial court erred when it relied on White Oak and ignored the 2001 amendments to the Spill Act providing that property owners who acquired title to contaminated property prior to September 1993 had satisfy the requirements of the Spill Act’s Innocent Purchaser defense.  The defendants maintained that 2001 amendments did not expressly state that owners of contaminated sites who acquired title before 1993 were now considered within the class of those “in any way responsible” for pre-acquisition discharges. Thus, the defendants asserted that they could not be “in any way responsible” under the Spill Act even if they failed to perform pre-acquisition due diligence.

The appellate division began its analysis by stating that defendants were not “dischargers” of any hazardous substance because all the contamination had occurred prior to their 1985 acquisition of the property. Thus, the court explained, the defendants could be liable under the Spill Act if they be found to be “in any way responsible” for the hazardous substances found on the property.

Reviewing the legislative history of the Spill Act, the court noted that the statute had been amended in 1993 to add an innocent purchaser defense providing that a person who acquired real property on or after September 14, 1993 would not be liable for cleanup and removal costs or for any other damages for a pre-existing discharge if the person the person did not know and had no reason to know of the discharge after conducting an all appropriate inquiry into the previous ownership and uses of the property. [N.J.S.A. 58:10-23.11g(d)(2)]. The court further explained that an all appropriate inquiry meant a preliminary assessment (PA) (and a site investigation if the PA indicated that a site investigation was necessary) that was performed in accordance with rules and regulations promulgated by the NJDEP.

This court then said the Spill Act was further amended in 1997 to provide that any person who acquired real property on or after September 14, 1993 who knew or should have known of a pre-acquisition discharge at the real property would be strictly liable, jointly and severally, without regard to fault, for all cleanup and removal costs no matter by whom incurred. The Court noted that the amendment further added that it did not alter liability of any person who acquired real property prior to September 14, 1993. [N.J.S.A. 58:10-23.11g(c) (3).]

The 2001 amendment provided that owners who acquired title to real property prior to September 14, 1993 would not be liable if they could show that they did not know or have reason to know of a pre-acquisition discharge by conducting an all appropriate inquiry into the previous ownership and uses of the property based upon generally accepted good and customary standard. [N.J.S.A. 58:10-23.11g(d)(5)].The court noted that the White Oak decision had been released several weeks after the 2001 amendment was passed but before the provision become effective.

The appellate division said White Oak confronted two issues; First, White Oak held that a property owner could not be liable as a “discharger” solely on the basis of passive migration or seepage of a contamination that pre-dated the date of acquisition, reasoning that the definition of discharge required some act or omission of human conduct that caused a hazardous substance to enter the waters or land of the state.

Second, the appellate division said White Oak held that a property owner who was aware of the property’s prior use as a fuel oil distribution business but did not perform any due diligence could not be liable as a  person “in any way responsible” under the Spill Act since the facts of that case pre-dated the 1993 innocent purchaser defense.

The appellate division agreed with the plaintiff that the second part of the White Oak opinion had been superseded by the 2001 Amendments and that that to avoid liability under the Spill Act as a person “in any way responsible” by claiming the innocent purchaser defense, the defendant must prove by a preponderance of the evidence that due diligence had been undertaken when purchasing the property to ascertain prior ownership and use of the property. Accordingly, the appellate court reversed the grant of summary judgment and remanded the matter for the purpose of permitting defendant to develop and present evidence addressing the elements of the “innocent  purchaser” defense established under N.J.S.A. 58:10-23.11g(d)(5).

It will be interesting to see what the trial court decides was the generally accepted good and customary standard for due diligence in 1985. In the mid-1980s, I worked for a NJ  asset-based lender and helped prepare the bank’s environmental due diligence program. As part of this effort, I collected a library of due diligence requirements and suggested scopes of work for phase 1 investigations. The practice in New Jersey was more advanced than other states because of the 1983 passage of what was then known as the Environmental Cleanup Responsibility Act (ECRA). However, the due diligence requirements varied considerably.

Historic Dry Cleaners At Heart of Two Key NJ Spill Act Cases-Part 1

Tuesday, 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.

Consultant Unable To Escape NJ Contaminated Fill Case

Wednesday, October 31st, 2012

We have previously reported on how disposal of fill material tends not to be well-regulated. During the real estate bubble demand for aggregate was at a premium. Due to the scarcity and cost of aggregate or fill material, contractors often use pulverized construction debris from other construction sites as fill material.

Despite the fact that construction and demolition (C&D) debris can contain asbestos, lead‑based paint, oil and PCBs, most states do not strictly regulate C&D waste streams. Those states have established management practices for C&D have usually adopted qualitative protocols (descriptions of the waste stream) instead of quantitative protocols (sampling) to determine how to manage various types of C&D debris.

One of the more infamous examples of contaminated fill involved the demolition of the Ford Motor automotive assembly plant in Edison,New Jersey. When Ford closed the plant in 2004, it entered into a remediation agreement with the NJDEP to comply with the requirements of the New Jersey Industrial Site Recovery Act (ISRA). Ford entered into a “zero-dollar sales agreement” with Edgewood Properties (Edgewood) where Ford agreed to provide 50,000 cubic yards of Recycled Concrete Aggregate (“RCA”) to Edgewood for use as fill material at seven residential  projects that Edgewood was developing in exchange for Edgewood agreeing to remove the material from the Ford site.

In June 2005, Edgewood discovered that the concrete fill from the Edison plant exceeded the residential limits for PCBs and also the commercial limits in some areas. Beginning in September 2005, Ford began the process of excavating and removing the PCB-contaminated material at the seven Edgewood sites and another half-dozen properties that received PCB-contaminated concrete. In March 2006, NJDEP issued an administrative order to Ford and other parties to remediate the PCB contamination at the impacted sites. In addition, the NJDEP ordered Edgewood to stop development at the impacted sites until the cleanup was satisfactorily completed. Ford filed a complaint asserting claims under the CERCLA and the New Jersey Spill Act for contribution and indemnification. Edgewood, in turn, asserted cross-claims, counterclaims and a third-party complaint against other contractors and consultants involved in the demolition project alleging claims for breach of contract, contribution, negligent misrepresentation, and civil conspiracy.

The parties in this sprawling lawsuit dispute virtually all of the material facts, particularly the allegations involving the specific responsibilities of the parties.  Indeed, in its most recent opinion, the federal district court for the district court of New Jersey declined to grant a motion for summary judgment in favor of Arcadis, Inc. because of material questions of fact over the extent Arcadis was involved in the off-site distribution of contaminated concrete. Ford Motor Co. v. Edgewood Properties, 2012U.S. Dist. LEXIS 125197 (D.N.J. 8/31/12).

The following facts are gleaned from this opinion and the numerous briefs: Ford Motor Land Development Corporation (“Ford Land”) entered into a contract with MIG/Alberici (MA) to demolish the concrete floor slabs and reuse the crushed concrete for on-site fill, road bed, and other similar uses. The contract required MA to dispose crushed concrete containing PCBs pursuant to NJDEP requirements.

Ford Land retained Golder Associates (Golder) to assist in pre-decommissioning support services at the Edison Site, including formal preparation of a decommissioning project manual (the “Manual). Under the Manual, MA was primarily responsible for managing demolition debris through recycling, disposal, or reuse pursuant to the Manual. MA and Ford Land intended to use crushed concrete generated from the demolition of the buildings as backfill if allowed by the Manual and the applicable NJDEP applicable regulations. At the time, the NJDEP PCB regulations provided that concrete containing less than 0.50 ppm could be used at residential sites while concrete material with PCBs between 0. 50 ppm and 2 ppm could be use at commercial sites.

Ford Land also retained Arcadis USA (Arcadis) to identify the ISRA regulatory requirements applicable to the reuse of crushed concrete on-site as backfill. Arcadis advised that a variance from the technical requirements was necessary to use the crushed concrete on-site because, from a regulatory standpoint, the use of crushed concrete as backfill was a gray area. A variance plan containing a sampling plan was developed and submitted to NJDEP for approval. The court found a genuine dispute of fact existed as to whether Arcadis developed the sampling plan since while there was evidence that Arcadis developed the first draft of the sampling plan, other parties were involved in finalizing the plan.

In November 2004, NJDEP approved a variance to reuse crushed concrete at the Edison Plant provided that the crushed material did not contain unlawful detections of PCBs. Accordingly, once the concrete was crushed, MA segregated the concrete material depending upon PCB concentrations. Edgewood contended that Golder issued a memorandum to Edgewood’s environmental consultant that stated that concrete stockpiles that were suitable for residential use were being staged for off-site locations while concrete with PCB concentrations above residential use criteria were being segregated and properly disposed off-site.

Arcadis sought summary judgment on the Edgewood claim that Arcadis was liable as a CERCLA arranger. The court found Edgewood has raised genuine disputes of material fact on Arcadis’ knowledge that Ford was pursuing zero dollar sale agreements for its crushed concrete and on the role Arcadis played arranging those contracts with visitors who viewed sample piles at the Edison Site. The court also said there were genuine disputed facts if Arcadis exercised sufficient dominion and control over the contaminated concrete either directly or through others. These disputed material facts precluded summary judgment in favor of Arcadis, the court ruled. For similar reasons, the court also denied summary judgment on Edgewood’s NJ Spill Act claim against Arcadis.

On its negligence claim, Edgewood had argued Arcadis knew Ford and its agents would be transferring recycled concrete to third parties and therefore owed a duty of care to Edgewood to ensure that the crushing, handling, testing, stockpiling, transfer, and disposal of the concrete be done in  a reasonable and safe manner as well as in accordance with applicable laws. Arcadis denied it owed any duty to Edgewood on the grounds that its role was limited to ISRA compliance and that it was not responsible or involved with the handling, testing and off-site distribution of the concrete generated from demolition. However, the Court said the extensive summary judgment record showed that Arcadis owed a duty of care to Edgewood.

First, the court said a reasonable jury could find that Arcadis knew that other contractors were relying on Arcadis’ determination that the sampling methodology separating concrete to be used on- and off-site was reasonable and conservative, that Arcadis knew about Ford’s plan to distribute contaminated concrete to third parties, and Arcadis knew that Ford was considering Edgewood as a potential recipient of contaminated concrete through a zero dollar sales agreement

Turning to the relationship of the parties, the court also found that Arcadis’ role went beyond mere ISRA compliance, finding that the summary judgment record contained evidence that Arcadis actually participated in those non-ISRA issues crushing, stockpiling, sampling, marking, reviewing, distributing, and compiling concrete for purposes of enabling off-site disposition through zero dollar sales agreement. In so doing, the court said Arcadis increased the risk of harm to potential recipients of contaminated concrete. Therefore, the court said, Arcadis had a specific duty to ensure that the off-site distribution of concrete conformed with the applicable standards. In reaching these conclusions, the court made the following findings:

  • Arcadis played a role in establishing and modifying the sampling methodology included in the variance request that was to be used for determining what concrete would be used on-site or off-site;
  • Arcadis had a role in sampling concrete and advising the assessment of alternatives available in the absence of specific NJDEP regulations or guidance on concrete reuse;
  • Arcadis was involved in inspecting stockpiled concrete scheduled for crushing, analyzing samples and reporting the results, was involved in changing Golder’s sampling method;
  • Arcadis, along with Golder, had a supervisory role in deciding what levels of contaminated concrete would be used as backfill, the corresponding sampling methodology, and how the samples and piles would be labeled

The court cautioned that Edgewood still had to demonstrate that Arcadis breached its duty of care in overseeing concrete processing operations and unlawfully distributed contaminated concrete from the Edison site.

Back in April, we covered a Minnesota lawsuit involving contaminated fill material from a road project.  The recent decision in Woodcliff, Inc. v Jersey Construction, Inc, 2012 U.S. Dist. LEXIS 125214 (D.N.J. 9/4/12) is another case involving contaminated fill from a road project.  In April 2009, the defendant JCI removed approximately 8,000 cubic yards of soil as part of road construction project associated with construction of a new shopping center in Hamilton Township by Stanbery Hamilton LLC (Stanbery). The work was done pursuant to a development agreement between Stanbery and NJDOT that required Stanbery to perform road improvements. The shopping center site had been previously used as an apple orchard.

JCI offered to make the excavated soil available to plaintiff Woodcliff for use as fill material for its residential development known as Woodcliff Estates at Hamilton (“Woodcliff Estates”). One year later, Woodcliff learned the soil was contaminated with arsenic from the former apple orchard.  Woodcliff incurred approximately $ 59K to investigate the extent of the contamination and anticipated incurring significantly more costs to complete remediation. As a result, Woodcliff filed a lawsuit against JCI and NJDOT asserting common law and the Spill Act.

NJDOT said it was not liable under the government redevelopment exemption of the Spill Act. However, the court denied the agency’s summary judgment motion because there were a number of unresolved issues of material fact involving NJDOT’s ownership of the property from which the fill material was excavated.

More interesting was the court decision to grant summary judgment in favor NJDOT on the trespass claim. The court cited prior NJ decisions holding that the use of trespass was an “inappropriate theory of liability” for contamination cases and that courts should not  “endeavor to torture old remedies to fit factual patterns not contemplated when those remedies were fashioned.”

We covered other incidents involving contaminated fill material in the Schnapf Environmental Journal that was published from 1998 to 2008. For example, we reported on a residential project in Kalmath Falls where asbestos-containing building materials had been buried, a proposed residential development site in Providence where auto fluff had been used as fill, and at a construction site in Leominster where pulverized pieces of transite piping was discovered. Past SEJ issues discussing these and other cases are available from the newsletter page of this website.

There have been instances where developers have spent millions of dollars to remediate sites only to have them re-contaminated with fill material. State environmental agencies simply do not have the resources to track the volume of C&D generated by construction sites and contractors looking to increase profit margins have little financial incentive or time to find clean fill. Thus, it is important that developers establish a system to screen the fill materials that are to be imported to their development sites.

Trio of NJ Cases Are Cautionary Tales For Home Heating Oil Tanks

Monday, October 29th, 2012

We have previously discussed the risks posed by residential heating oil tanks in a number of posts covering cases in New York New Jersey OregonWashingtonMass and Canada.

Three recent cases in New Jerseyall involve claims of inadequate disclosure of heating oil illustrate. In Dalton v Shanna Lynn Corp., 2012 N.J. Super. Unpub. LEXIS 874 (App. Div. 4/19/12) the plaintiffs agreed to purchase the Rainbow Inn in august 1988. Plaintiffs had the right but declined to perform any pre-closing environmental due diligence.

On the day of the closing, the seller arranged to have her fuel delivery company “top off” the inn’s 550-gallon heating oil UST even which had been filled two weeks earlier. The fuel company pumped another 530 gallons of fuel oil into the tank.

When the seller returned from the closing, she Theresa found the receipt but believed it must be in error. However, when she spoke to the president oil company the next day, he told he the tank must be leaking because the tank had taken too much oil for short a short period of time. The next day, the oil company pumped 238 gallons of fuel oil from the tank. The UST was then abandoned in place and the defendants installed at their expense two 275-gallon aboveground tanks in the basement.

The purchase agreement provided that plaintiffs and defendants would work side-by-side   during the week following the sale. As a result, the plaintiffs were aware that of the new tank installation. However, they did not inquire about the reasons for the work because they were so busy with the transition.

The Rainbow Inn was destroyed by a fire in 1995.  During excavation for the footings for a new building, the backhoe operator discovered a quantity of black sludge that smelled like oil. The plaintiffs instructed the operator to proceed with his work when the operator informed him that the material would not interfere with the construction.

In 2000, the plaintiff subsequently retained an environmental consultant to perform a site investigation. The consultant concluded that the abandoned fuel oil tank was the source of the black sludge uncovered during excavation for the new building and recommended a full site characterization and remediation. However, instead of implementing the recommendations, the plaintiffs file a lawsuit against the defendants under a variety of state and federal causes of action.

In December 2002, the trial judge dismissed the counts of the complaint alleging violations of the NJ Environmental Rights Act, the NJ Solid Waste Act, the Clean Water Act, the NJ Spill Compensation and Control Act (Spill Act, and the Consumer Fraud Act and the negligence claim. The case proceeded to trial in March 2006. Following the conclusion of plaintiffs’ case, the trial judge dismissed the breach of contract claim because of the absence of any proof of damages.

In 2010, the plaintiffs filed an amended complaint. In separate orders, the court dismissed the equitable fraud claim, holding that traditional equitable remedies of rescission and reformation of the agreement were not available due to the passage of time. The judge also cited plaintiffs’ decision to proceed with reconstruction of the damaged building in 1997 without remediation of the condition resulting from the 1988 spill.

The appeal court affirmed the partial summary judgment dismissing the Spill Act, ruling that while the Spill Act had been amended in 1991 to add a right of contribution for private plaintiffs, the remedy was not available to the plaintiffs because they had not expended any funds to remediate the property.

On the equitable claim, the appeals court agreed that rescission was not a realistic remedy because of the passage of time. However, the appeals court went on to note that injunctive relief was one of the remedies available under both the Spill Act and common law but that it appeared the trial had not consider the possibility of issuing an order requiring the defendants to investigate or remediate the contamination. Accordingly, the appeals court remanded the case back to the trial court to determine if there was a basis to grant equitable relief other than the rescission or reformation of the contract. In doing so, the appeal court emphasized that the plaintiffs had not yet established a basis to recover under the Spill Act or that they had satisfied all of the tests necessary for obtaining injunctive relief. Instead, the court said it was simply seeking to avoid “the anomalous result of finding plaintiffs have been the victims of equitable fraud but denied relief of any nature.”

Aspdin v. Foggia, 2012U.S. Dist. LEXIS 121677 (D.N.J. 8/28/12) involved a home sale that has resulted in claims filed against environmental consultants, brokers and even one seller’s lawyer filing a claim against the buyer’s lawyer.

In 2007, the plaintiffs agreed to purchase the home for $425,000.00 after some adjustments were made for certain repairs including replacement of a bottom liner of the in-ground swimming pool. After the closing, plaintiffs began to observe an oily sheen on the surface pool. When they replaced the liner of the swimming pool, they noticed that the bottom of the liner had been painted black and “petroleum-type odors” emanated from the pool area.

The plaintiffs filed a complaint seeking to rescind the contract and recover financial damages. The plaintiffs allege that the defendant had removed a 550-gallon UST from the property in October 2000, that post-excavation soil samples showed significant petroleum contamination and that soil and groundwater remediation had occurred between 2002-03. The plaintiffs further alleged that the defendants not only failed to disclose the information about the UST contamination but actively concealed and coated portions of the property to prevent them from discovering the contamination.

The defendants responded that they had obtained an NFA letter from NJDEP and had prepared a “Sellers’ Property Disclosure Condition Statement” for delivery to the plaintiffs disclosed the existence of, removal of, and soil contamination issues related to the UST formerly housed on the Property. The defendants then filed a third party complaint against their lawyer and broker for failing to deliver the Property Condition Disclosure Statement and their environmental consultant for improperly investigating and remediating the petroleum contamination.

The defendants filed a motion to dismiss that the court denied in 2011, the court denied the defendant. Most recently, the defendants’ law firm filed its own complaint against the plaintiffs’ lawyer for failing to ensure that plaintiffs received the Sellers’ Property Disclosure Condition Statement or were otherwise made aware of the prior existence of the UST on the subject property. The federal district court for the district of New Jersey dismissed the complaint without prejudice. The parties will soon engage in discovery.

State Farm Fire and Casualty Company v Timothy Shea, 2012 N.J. Super. Unpub. LEXIS 2208 (App. Div. 9/28/12) involves a lawsuit between adjacent homeowners and their insurers. The case has received a lot of attention because the holding suggested a home owner may have to conduct environmental due diligence to assert the Spill Act innocent landowner defense.

Here, defendant Timothy Shea purchased a home in Mays Landing in September 1999 that was located next to a residence owned by Kimberly Rossi (the “Rossi Residence). Shea did not conduct any environmental diligence prior to purchasing his home. During a site inspection, he noticed a vent pipe in the backyard but did not ask the seller about the purpose of the pipe.

Sometime between June 1998 to January 2004, a heating oil UST located beneath the driveway of the Rossi Residence. Rossi alerted State Farm upon discovery of the UST leak.  When she sold her home in 204, she agreed to remove the UST prior to the closing and remain responsible to remediate any contamination associated with the former UST.

The plaintiff retained an environmental consultant, Bill Schmidt (Schmidt) to further investigate the contamination at the Rossi Residence. Based on soil and groundwater sampling that revealed higher levels of contamination in the backyard of the property, Schmidt concluded the former driveway UST was not the source of groundwater contamination. After reviewing permit records, Schmidt found that a second oil tank had been installed at Shea’s property and had not been removed. A more detailed groundwater investigation determined the groundwater flowed contaminants from Shea’s UST towards the backyard of the Rossi Residence. Ground penetrating radar also discovered a second UST at Shea’s property that had been abandoned. When the abandoned tank at Shea’s home was removed, Schmidt observed over 25 holes. Due to the shape of the tank and the fact that it had four legs on it, Schmitt concluded the tank had been an aboveground tank that had been buried. Subsequent soil samples detected petroleum contamination from 6,000 ppm to 35,000 ppm.

The plaintiff, as subrogee of Rossi, filed a complaint against defendant Shea to recover its investigation and remediation costs. Shea’s homeowner’s insurer, Cumberland Mutual Fire Insurance Co. (Cumberland), filed its own complaint as subrogee of Shea against Rossi seeking an equitable allocation of Rossi’s responsibility for the contamination on the neighboring properties and reimbursement of sums paid by Cumberland to address the contamination.

The trial court that there were two separate plumes and that Shea was responsible under the Spill Act for the plumes known the parties identified as the red or pink plume. Shea argued he should be considered an innocent purchaser under the Spill Act. However, the court held Shea did not qualify for the defense because Shea made no assessment of the property before he acquired the property in spite of observing two pipes (the vent and fill pipe) sticking out of the ground in the of the property. As a result of the ruling, the parties entered a stipulation of settlement whereCumberlandagreed to reimburse State Farm $19,500 for all costs of investigation, sampling and monitoring during the course of delineation.

In affirming that Shea did not qualify for the innocent landowner defense, thee appellate division emphasized that it was not holding that every home buyer home must conduct an environmental assessment prior to purchase. Instead, the court said that under the circumstances where Shea observed a pipe protruding from the ground, he had a duty to inquire at a minimum. The court said Shea’s ignorance was solely because he failed to ask a basic question about something most people do not expect to encounter in the backyard of their home. Under these circumstances, the court said it was not unreasonable to require him to ask questions to identify the pipe and then take whatever measures are warranted by the response to those questions.

Shea also argued that he could not be liable as a discharger under the Spill Act in the absence of a specific ruling by the trial court that the UST leaked while he owned the home. The appellate division said that there was substantial credible evidence in the record to find that fuel oil escaped from the UST and migrated to Rossi’s backyard while Shea owned the property.

The court also rejected Shea’s contention that the trial court failed to apportioned liability for the remediation costs. The court said that the Spill Act merely requires the trial court to consider equitable factors the court determines are appropriate and that Shea did not present any evidence that the trial court failed to consider any particular equitable factor.

The federal program UST does not regulate heating oil tanks used for on-site consumptive use. However, many states regulate these tanks under their UST programs. Heating oil tanks are frequently used in the northeast and upperMidweststates. The particular requirements of these state programs can vary significantly. Some states regulate all heating oil USTs. Other state programs regulate tanks exceeding certain capacities.  The size threshold can vary from 1100-gallon regulatory cutoff to 5,000-gallons.

Even if home heating oil USTs are not regulated, homeowners will still be responsible for complying with applicable spill reporting and cleanup requirements. States with property condition disclosure laws usually also require sellers to disclose the existence of heating oil tanks.

NJ Lawyers Raise Concerns About Transparency of LSRP Program

Friday, July 20th, 2012

On May 7, 2012, the New Jersey Site Remediation Reform Act, N.J.S.A. 58:10C-1 et seq. (SRRA) became fully effective. With limited exceptions, all site remediation projects in the state of New Jersey regardless of when work began must proceed under the supervision of a Licensed Site Remediation Professional (LSRP) and without New Jersey Department of Environmental Protection (NJDEP) approval. Previously, parties remediating sites under NJDEP supervision could opt-into the LSRP program while new remediation projects were required to proceed with LSRPs. The voluntary cleanup program or Memoranda of Agreement (MOA) program has been terminated.

Amendments to several other Site Remediation Programs became effective on May 7, 2012 to reflect the LSRP program including the Underground Storage Tank rules, the Industrial Site Recovery Act Rules, and the Remediation Standards. In addition, repeal of the NJDEP Technical Requirements for Site Remediation (Tech Regs) for cleanups became effective on this date. A copy of the complete adoption document is available here.

The LSRP program does not apply to certain types of site remediation, including the unregulated heating oil tank cleanups that are specifically exempted by SRRA, certain Federal-lead cases (RCRA, CERCLA, Department of Defense, Department of Energy), publicly funded remediation projects, and landfill cases that remain under the oversight of the NJDEP’s Solid Waste program.

Some of the key provisions of SRRA included:

  • Established the Site Remediation Professional Licensing Board(Board) and the LSRP program. The Board issues licenses to qualified individuals (LSRPs), who conduct the remediation of sites in New Jersey. Every LSRP is bound by a strict code of ethics. Violation of the code could result in the assessment of penalties and the suspension or revocation of the LSRP’s license.
  •  Imposes an affirmative obligation of responsible parties to remediate discharges for which they would be liable pursuant to the Spill Compensation and Control Act (Spill Act).
  •  Requires NJDEP to establish mandatory remediation timeframes for the completion of key phases of site remediation. These mandatory timeframes are codified in the Administrative Requirements for the Remediation of Contaminated Sites (ARRCS) at N.J.A.C. 7:26C-3.3.
  •  Established the circumstances where NJDEP shall undertake direct oversight (see N.J.S.A. 58:10C-27a), and may undertake direct oversight (see N.J.S.A. 58:10C-27b) of a remediation. Requirements regarding direct NJDEP oversight are codified in the ARRCS at N.J.A.C. 7:26C-14. Additional information about NJDEP direct oversight is available here.
  •  Required NJDEP to establish presumptive remedies for residential development, schools and childcare facilities to ensure that the remedy implemented at the site is protective of human health and safety and of the environment. Additional information regarding presumptive remedies is available here.

The full implementation of SRRA prompted me to think about how due diligence may have changed in other states with licensed professional programs. In particular, I was wondering what impact there might be on information that might be available to the public about site investigations or remediation being performed by LSRPs since documentation that would have ordinarily been in the agency files under a traditional oversight scenario are now only in the files of the licensed professional.

Normally, a consultant or lawyer performing due diligence will file a request to review files under a state freedom of information law. In New Jersey, this is the Open Public Records Act (OPRA). However, the NJ State Attorney General has provided an informal opinion to the Board that an LSRP’s records are not subject to an OPRA request. Therefore, an LSRP would not be considered to be in violation of the LSRP rules if it declines to respond to an OPRA request. Since property owners are usually reluctant to share information about environmental conditions at their properties with potential purchasers much less parties representing current or potential owners of nearby properties, this could informal opinion could have a dramatic impact on due diligence in New Jersey.

I have discussed this issue with a couple of seasoned environmental lawyers in New Jersey whom I have known for several decades and who I greatly respect. They have indicated that there is a growing concern among NJ lawyers that the LSRP program is making it more difficult to obtain copies of sampling and other documentation now that these documents are being held by LSRPs, and not DEP.:

For example, a colleague shared with me that his client noticed cleanup activities at an adjacent site in NJ and wanted to learn what it was about and if his property was contaminated. However, when he filed an OPRA request, he was told there were no relevant records since they were not in possession of LSRP. Obviously, when LSRP submits its remedial action outcome (RAO), the adjacent landowner will be able to review records but seems might be difficult to obtain records prior to that time. However, that will not be much consolation for a prospective purchaser whose due diligence period expires before the RAO is issued.

It appears that the LSRP professional rules do not REQUIRE LSRP to respond to requests of adjoining property owners. Now, I can understand why LRSPs do not want to be in the OPRA business and have to respond to due diligence requests every time a property within the applicable search radius of their site is involved in a transaction. This does raise the question though how one obtains information about adjacent sites if the info is being held by LSRPs.

In most cases, I suspect the LSRP will have to obtain permission from its client to release information that has yet to be provided to the NJDEP. If the client denies permission, how can the prospective purchaser of the adjacent site obtain this information?

Will this impact the ability of the purchaser to satisfy the CERCLA All Appropriate Inquiries (AAI) rule that is required to assert one of the CERCLA landowner liability protections? Will this failure to obtain information about the site have to be identified as a “data gap” under the ASTM E1527? It is true that an owner is required as part of its CERCLA “Continuing Obligations” to cooperate with persons responsible for remediation and this requirement might serve to incentivize an owner to comply with the request. However, a close reading of the BFPP Continuing Obligations suggests that failing to provide information to a prospective purchaser for an adjacent site who might be able to assert the BFPP defense will probably not be a violation that could cause the owner refusing to disclose the information to lose its liability protection.

NJ has its own innocent landowner defense under the Spill Act. Perhaps the AG might consider issuing an opinion that suggests that failing to comply with a request might jeopardize eligibility for the defense.

Another question that comes to mind is how the LSRP program will impact the accuracy of state database record. How current will state databases be updated when documents are retained by LSRP?

There has been at least one instance of LSRP being denied access to collect off-site sampling. In past, DEP might issue a cooperation order to the adjacent property owner. Now, it looks like DEP is no longer in the business of doing so and LSRPs do not have ability to compel access.

I have asked some environmental attorneys who practice in Massachusetts if they have encountered transparency problems with the state LSP program. No one I have spoken to has come across this issue. We discussed why this might be an issue with the NJ LSRP since it was modeled after the Mass LSP program. One suggestion was that perhaps the Mass LSP program requires more deliverables at earlier times than the NJ LSRP program so there may be more records in MADEP files. However, this is just speculation.

Time will tell if this perceived lack of transparency is just a transition issue or if it will indeed prove to be a significant problem. Since other states are considering moving to LSP programs because of budgetary issues, it would seem that this issue requires close monitoring. If you have any experience with this issue in CT or MA, I’d love to hear from you.