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

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.