Environmental UPDATE April 2002

Environmental UPDATE April 2002
The April 2002 Riker Danzig Environmental UPDATE

Environmental UPDATE

April 2002

Contents CERCLA Amendments Include Liability Reforms and Brownfields Money Legislative Action In the Courts The Governor's Office Environmental Justice Underground Storage Tanks Wetlands and the Coast CERCLA

CERCLA Amendments Include Liability Reforms and Brownfields Money

On January 11, 2002, President Bush signed into law the Small Business Liability Relief and Brownfield Revitalization Act. The new law is the most important amendment to the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), since the 1986 Superfund Amendments and Reauthorization Act. It is an amalgam of the House and Senate bills, containing numerous liability exemptions and reforms and providing brownfields grants and loans to eligible entities that may be accessed by private parties to clean up brownfields sites. Liability Exemptions and Reforms De Micromis PRPs and Municipal Solid Waste. Generators or transporters who, before April 1, 2001, arranged for the disposal at a National Priorities List ("NPL") site of less than 110 gallons of liquid waste or 200 pounds of solid waste are exempt from CERCLA liability. Certain generators of "municipal solid waste" ("MSW") are also exempt, including owner/operators of residential property, small businesses and certain non-profit organizations. The exemptions do not apply under a number of circumstances, but depend on the conduct and cooperation of the party and the effect of the waste on the cost of the response action. The burden of proof for the MSW exemption rests with the party bringing the action and, if the MSW exemption applies, a non-governmental party bringing the action is liable for all reasonable litigation defense costs, including attorneys and expert witness fees. Bona Fide Prospective Purchasers, Contiguous Property Owners, and Innocent Landowners. A bona fide prospective purchaser or its tenant ("BFP") who, after January 11, 2002, knowingly acquires or leases property upon which disposal of hazardous substances previously occurred is not liable if it (i) made "all appropriate inquiries" with respect to the property, (ii) provides any notices required relating to the release, (iii) takes reasonable steps to stop, and prevent exposure to, the release and to prevent any threatened release, (iv) cooperates with any person remediating the release, (v) complies with institutional controls, (vi) complies with requests for information, and (vii) is not affiliated with a potenially responsible party ("PRP"). If unrecovered response costs of the federal government have increased the fair market value of the property, the government may place a "windfall lien" on the property not to exceed the increase in value. A "contiguous property owner," i.e., one owning property impacted by a site nearby, is also not liable if the conditions set forth above for BFPs are met, if it has not contributed to the release and, at the time of acquisition, it did not know or have reason to know of the contamination. The Environmental Protection Agency ("EPA") may issue assurances that such an owner is not subject to enforcement and provide contribution protection under CERCLA § 113(f). The law also sets forth new requirements for the defense available to an innocent landowner, who must have undertaken "all appropriate inquiry" prior to purchase and then taken reasonable steps to stop, and prevent exposure to, the release and to prevent any threatened release. Federal Due Diligence Standard. EPA is required by January 2004 to establish standards and practices to give meaning to the term "all appropriate inquiry" and the new law prescribes elements to be incorporated into EPA's standard. An interim standard is provided for property purchased on or after May 31, 1997: the American Society for Testing and Materials "Standard Practice for Environmental Site Assessment: Phase I Environmental Site Assessment Process." The courts will decide the appropriate standard for property purchased before May 31, 1997, taking into account such factors as knowledge of the defendant, purchase price and value of the property, reasonably ascertainable information, and ability to detect the contamination by appropriate inspection. Bar to EPA Enforcement and Deferral of NPL Listing. EPA is barred from seeking enforcement under CERCLA § 106 or recovery under CERCLA § 107 of costs incurred after January 11, 2002 from any party remediating a site in compliance with an eligible state program. The bar applies to "eligible response sites," which excludes a number of different types of sites; the bar will also not apply if the state requests EPA's assistance or EPA determines that site conditions warrant intervention. At the request of a state, EPA "generally" will be required to defer listing a site on the NPL if a remediation is being conducted under the state program. Ability to Pay. PRPs that demonstrate to EPA an inability to pay response costs may enter into new, expedited settlements under certain circumstances. Funding for Brownfields The new law requires EPA and the President to establish programs (i) to provide grants to "eligible entities" to inventory, assess and conduct planning with respect to brownfields sites, (ii) to allow EPA to conduct site assessments, and (iii) to fund remediation of brownfields sites. The law authorizes $200 million for these programs for each of five years and an additional $50 million each year to fund state and Indian tribe brownfields programs. Brownfield sites are defined to include any real property the expansion, redevelopment, or reuse of which is complicated by the presence of hazardous substances or petroleum. $50 million of the annual authorized funds are set aside to address petroleum-contaminated facilities. A laundry list of sites are excluded from the brownfields programs, including but not limited to NPL sites and sites subject to orders, permits, or regulation under numerous other environmental statutes. EPA may authorize financial assistance for these sites on a case-by-case basis. Funding for investigation or assessment of any one brownfields site by eligible entities (essentially government entities and, under some circumstances, non-profit organizations) is $200,000; the limit can be waived by EPA, with a cap of $350,000 per site. Eligible entities that receive grants may also establish revolving loan funds (up to $1,000,000 annually), from which loans for remediating brownfields are available to private site owners, developers, or other persons who are not PRPs at the site. Local governments may also use funds to monitor human exposure and institutional controls at brownfields sites. A recipient of funds may purchase insurance for site assessment or remediation. The new law includes a grant application process and ranking criteria, which include, among others, whether a grant or loan will stimulate economic development, protect public health or sensitive populations (e.g., children, minority or low-income communities), encourage the use of existing infrastructure, provide parkland, meet community needs and further "fair distribution" of funding between urban and nonurban areas. Conclusion The liability reforms, especially the federal due diligence standard, the EPA enforcement bar, and the BFP exemption, address one of the significant concerns of prospective purchasers of brownfields sites, particularly in New Jersey, over the uncertainty of protection available from CERCLA liability for parties who are not liable under the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq. The MSW and De Micromis exemptions are a real benefit to small businesses, which can be overwhelmed by CERCLA response costs and by the multi-party PRP transaction costs that are so common for co-disposal sites. Although the reforms fill significant gaps in the CERCLA statute, they may also give rise to additional litigation and agency over-reaching. For example, the new law provides no guidance to BFPs or other innocent landowners on the "reasonable steps" that must be taken to address releases, to cooperate with the parties remediating the contamination, or to submit to land use restrictions and institutional controls. Finally, assuming that Congress appropriates the brownfields monies promised by the new law -- no small assumption given the fiscal constraints facing the federal government, the new funding provides a significant incentive to redevelop brownfields sites and promotes "smart growth."

Legislative Action

Law Requires Public Access to Government Records Legislation that expands public access to government records was enacted on January 8, 2002. (P.L. 2001, c. 404). Previously, under the Right to Know Act, only those public records that were required by law to be made, kept or maintained by public entities were subject to disclosure. The new law broadens the scope of government records subject to disclosure to include all government records unless specifically exempt under the law. "Government record" is defined to include any information made, maintained or kept on file in the course of official business by any officer, commission, agency or authority of the State or of any political subdivision thereof, or any document received in the course of official business by such entity.

Certain government records are protected from public disclosure. These include inter- or intra-agency advisory, consultative or deliberative material, internal documents used by members of the legislature in the course of official duties, information from or concerning constituents, criminal investigatory records, victims' records, photos or videos of autopsies or crime scenes, trade secrets, proprietary commercial or financial information, records within the attorney-client privilege, security information, student records and others. Record custodians must adopt a form for purposes of requesting access to public records. Unless a shorter time is otherwise provided by statute or regulation, once the form has been submitted, custodians shall respond within seven business days, either granting or denying access, provided the records are currently available. When access is denied, the custodian must provide the basis for the denial in writing. If records are in storage or archived, the custodian shall respond within seven days, advising when the records can be made available. Provisions in the act establish procedures for the review and copying of the records and for payment of fees. The act also sets forth penalties for the violation of the public access law by government officials or employees. Most provisions of the act take effect six months following enactment. Senate Orders DEP to Clean Up Contaminated Site List The State Senate unanimously passed S-701, a bill sponsored by Environment Committee Chairman Henry McNamara, that requires the DEP to remove properties from its known contaminated site list within ninety days of the issuance of a No Further Action letter. The Assembly Solid and Hazardous Waste Committee favorably reported a similar bill during last session. Incentive Proposed for Residential Development of Contaminated Sites Companion bills A-1801 and S-1181, introduced in February, would provide added incentives for the remediation of contaminated property for residential use. The bills seek to expand the redevelopment agreement program in which the State agrees to reimburse the developer for up to 75 percent of the remediation costs from revenues derived from new State taxes generated from the site's redevelopment. The State would be authorized to enter into a redevelopment agreement with the developer upon the issuance of a construction permit for one or more new residences. Further, the legislation would expand the list of taxes that may be considered in estimating the amount of new revenue to be derived from the redevelopment project. Sales tax for the purchase of construction materials and portions of the realty transfer fees not otherwise credited could be considered under the legislation. Water Resource Preservation Bill Approved in the Senate The Senate has approved legislation that would authorize interested counties to seek voter approval to impose an annual levy to fund water resource preservation and restoration projects. Under provisions of bill S-501, the size of the fund and the amount of the levy would be stated in the public question to be put before the voters at a general election. Such dedicated funds could be used for a variety of projects such as those that maintain storm water control facilities, restore wetlands, stabilize stream banks, restore stream channels, and preserve and reforest stream corridors. The measure advanced to the Assembly where it was referred to the Environment and Solid Waste Committee. A companion bill, A-208, was introduced in the Assembly in March and referred to the Agriculture and Natural Resources Committee. Bill to Ban MTBE in Gasoline Introduced A bill introduced in the Assembly in January attempts to revive unsuccessful efforts in the last legislative session to prohibit the sale of gasoline containing methyl tertiary butyl ether ("MTBE") in the State. The ban would take effect in January 2004. A-941 directs DEP to request a waiver from oxygen content requirements for gasoline from the EPA in order to discontinue the use of MTBE as a gasoline additive. The proposed legislation also establishes the Transportation Energy Security Council to study the effort of the oil industry to replace MTBE in gasoline and includes provisions for the extension of the deadline for imposition of the ban under certain circumstances based upon recommendations of the council.

In the Courts

Spill Act

"Innocent Purchasers" Required to Conduct Due Diligence to Recover from Spill Fund The Appellate Division of the Superior Court recently held that an "innocent purchaser" who had failed to conduct appropriate due diligence before purchasing contaminated property in 1991 could not seek reimbursement from the Spill Fund despite the fact that the statutory codification of the due diligence requirement was not enacted until 1993. Atlantic City Airport Travelodge v. DEP, A-1442-00T1 (Mar. 11, 2002). The court upheld the Administrative Law Judge's decision denying reimbursement based on Marsh v. DEP, 152 N.J. 137 (1997), which held that the New Jersey Department of Environmental Protection ("DEP") validly exercised its regulatory powers when it conditioned Spill Fund payments upon proof of due diligence on the part of "innocent purchasers." The Appellate Court distinguished White Oak Funding, Inc. v. Winning, 341 N.J. Super. 294 (App. Div. 2001), which held that failure to conduct appropriate due diligence did not make a person "in any way responsible" pursuant to the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11g(c)(1) but said nothing about whether such a person could recover from the Spill Fund.

Water Quality

Revision to Water Quality Management Rules Invalidated On March 18, the Appellate Division determined that DEP's 2001 amendment to Subchapter 8 of the Water Quality Management Rules was not in compliance with the Administrative Procedure Act and, thus, was invalid. In July of 2000, DEP proposed a wholesale repeal of the Water Quality Management Rules and replacement with new "comprehensive," "holistic" rules in a 78-page proposal in the New Jersey Register. After receiving negative feedback on the proposal, DEP decided to "amend" the proposal and adopt only a fragment (approximately half a page in the New Jersey Register) of the proposed new rules as an amendment to the existing rules. The amendment, incorporated into N.J.A.C. 7:15-8, required developments associated with wastewater discharges of greater than 2,000 gallons per day located outside of designated sewer service areas to be incorporated into the applicable Wastewater Quality Management Plan before proceeding with development. The adoption, however, did not include the procedural rules of the proposal governing how to comply with the new requirement. The Appellate Division found that the scaled-back rule adoption constituted a substantial change from the initial proposal, and invalidated the rule as improperly adopted without opportunity for public review and comment.


Insurance Policies In a recent decision, the Appellate Division upheld a ruling that the insured had proven the existence and terms of missing insurance policies "by a preponderance of the evidence" and rejected the carrier's argument that the insured should be held to the more rigorous "clear and convincing" standard of proof. U.S. Fire Insurance Company v. Durametallic Corporation, Docket No. A-3368-00T2 (March 12, 2002). To satisfy its burden, the insured used the testimony of the insurance broker that placed the disputed coverage. The carrier argued that, without secondary documentary evidence of the insurance policies, the insured could not meet its burden of establishing the existence of the policies, citing cases where the insured provided documentary evidence to establish coverage. The Appellate Division, however, distinguished those cases in which the person who placed the coverage for the insured was not available, thus leaving the insured to resort to documentary evidence. Moreover, the court found that evidence presented through live broker testimony was more persuasive than documentary evidence since it afforded the opportunity for cross-examination. Court Enforces Insurance Policy Non-Cumulation Clause to Limit Recovery In a recent decision, the Appellate Division upheld a non-cumulation clause to limit an insurance recovery to a single policy limit. Spaulding Composites Co., Inc. v. Liberty Mutual Insurance Co., Docket No. A-3254-00T3 (Dec. 26, 2001). In Spaulding, the policyholder sought coverage for claims related to environmental contamination that occurred over a period of years. During that time, the carrier had issued nine consecutive policies of primary insurance to the policyholder, the first with a limit of $500,000 and the rest with limits of $1 million. The policies, however, contained a clause providing that all property damage "arising out of continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence." Moreover, the clause reduced the payment owed by the carrier for the same occurrence to the "each occurrence" limit of the policy, thus prohibiting cumulation of policy limits under consecutive policies. The Court found the non-cumulation clause to be clear and unambiguous and accordingly limited the total amount of the carrier's liability to $1 million, not $8.5 million.

The Governor's Office

Governor Declares State of Water Emergency Governor McGreevey declared a state of water emergency throughout New Jersey on March 4, signing Executive Order #11. The governor invoked his emergency powers and directed the Commissioner of the DEP, the Water Emergency Task Force, and the Drought Coordinator to take whatever steps are necessary and proper to alleviate the water emergency. Administrative Order No. 2002-05, issued by Commissioner Campbell on March 13, 2002, places an affirmative duty upon commercial enterprises, defined as any "person, proprietorship, partnership, corporation or other form of business enterprise, regularly engaged in an activity for profit," using more than 100,000 gallons of water per day to prepare a drought emergency contingency plan. Any commercial enterprise using more than 100,000 gallons of water per day must identify the water sources used and provide a description of all processes at each facility which use water. In addition, each commercial enterprise using more than 100,000 gallons of water per day must also prepare a plan of action for the reduction of water usage 10 percent, 20 percent, 30 percent, 40 percent, and 50 percent below water restrictions already in place in the event that such reductions are necessary to conserve the State's water supply. McGreevey Creates Smart Growth Policy Council On January 31, Governor McGreevey signed Executive Order #4, which creates a Smart Growth Policy Council in the Office of the Governor, consisting of the Secretary of Agriculture, the President of the Board of Public Utilities, the Treasurer, the Chief Executive Officer of the Commerce and Economic Growth Commission, the Commissioners of the Departments of Community Affairs, Education, Environmental Protection, and Transportation, the Executive Directors of New Jersey Transit and the Economic Development Authority, and the Chief of the Authorities Unit, chaired by a senior policy advisor from the Governor's staff. The Council is charged with advancing the principles of smart growth and the State Plan. In addition, Executive Order #4 directs the Attorney General, in consultation with the Smart Growth Policy Council, to defend and/or intervene in cases of statewide significance on behalf of government entities that have adopted plans involving the integrity of the State Plan and the goals of smart growth. Administrative agency rulemaking will now also have to include a Smart Growth Impact Statement.

Environmental Justice

No Private Cause of Action to Enforce Disparate Impact Regulations The roller coaster of legal rulings may have come to an end with the refusal by the Third Circuit Court of Appeals on January 15 to rehear its decision in South Camden Citizens in Action (SCCIA) et al. v. New Jersey Department of Environmental Protection et al., holding that SCCIA could not bring suit under 42 U.S.C. § 1983 to enforce EPA's disparate impact regulations promulgated pursuant to § 602 of Title VI of the Civil Rights Act of 1964. SCCIA had filed suit in the New Jersey District Court to enjoin construction of a cement plant in Camden alleging that DEP violated EPA's § 602 disparate impact regulations by issuing permits for construction of the facility without taking into account the impact of pollutants on the surrounding predominantly minority community. The District Court's decision enjoining construction of the facility was then reversed by the Third Circuit which held that, in light of the U. S. Supreme Court's holding in Alexander v. Sandoval, SCCIA could not file a private suit to enforce the § 602 regulations. SCCIA then asserted a claim pursuant to § 1983 which allows individuals to sue states to protect rights secured by the Constitution and laws. The District Court again enjoined construction of the facility and again the Third Circuit reversed, holding that EPA's disparate impact regulations did not rise to the level of a "right" under the Constitution or laws. The court ruled that Congress had no intent to allow private disparate impact suits when it passed the Civil Rights Act and that EPA could not create such a right through the passage of implementing regulations. SCCIA may appeal this matter to the U.S. Supreme Court; especially since three judges of the Third Circuit said they would rehear the case and the Third Circuit in its prior written decision stated that the U.S. Supreme Court "never has stated expressly" that a valid regulation cannot create a right enforceable through § 1983. DEP Proposes New Environmental Equity Rules On February 4, 2002, the DEP proposed new rules to expand public participation in the permitting process in order to achieve environmental equity. The new rules would require permittees to hold a series of public meetings before building industrial facilities in minority neighborhoods. Under the proposed rules, applications for new, renewed or modified permits would be subject to a DEP computer analysis to determine whether the facility is in a minority community with an above-average pollution burden. Where an above-average pollution burden is found, permit applicants would be required to conduct community outreach efforts. These efforts would include distribution of fact sheets on the project, public meetings and publication of the timing of permit filings and comment deadlines. The proposed rules also allow communities to petition DEP to request that an applicant participate in this process. If disputes cannot be resolved, DEP may require the applicant to conduct an analysis of health impacts of the proposed facility and all other pollution sources within one mile. Permits would be issued only if the community participation process is followed. EPA to Finalize Environmental Justice Guidance Appearing before the United States Commission on Civil Rights on February 8, 2002, U.S. Environmental Protection Agency Deputy Administrator Linda J. Fisher testified that the EPA is planning to finalize draft guidance this spring on the issue of challenging environmental decisions under Title VI of the Civil Rights Act on the basis that such decisions will cause disproportionate impact on low-income and minority groups. Title VI prohibits discrimination on the basis of race, religion or national origin by recipients of federal funding. Under EPA regulations, state and local governments cannot issue permits for facilities that emit pollutants that have a disparate impact on minority and low-income communities. In a 2001 decision by the United States Supreme Court in Alexander v. Sandoval, 532 U.S. 275 (2001), the court held that private individuals do not have the right to file suit in federal court to enforce these disparate impact regulations. Citizens and communities must, therefore, rely on EPA to enforce the disparate impact regulations. In the past, EPA has never taken action to redress a Title VI complaint and has provided little guidance on the issue. In June 2000, EPA released draft guidance setting forth its policies on Title VI and the procedures it would use to investigate complaints of violation of its Title VI regulations. EPA has never released a final version of its guidance documents and had previously promised to release the final guidance by early 2001. Acting Director of EPA's Office of Civil Rights, Karen Higginbotham, testified that the final guidance due to be released this spring would strike a balance between guaranteeing civil rights and being feasible for states and permittees.

Underground Storage Tanks

DEP Issues Guide to Operation and Maintenance of USTs Published by DEP in December 2001, a booklet entitled Tank Care: A Guide to the Operation and Maintenance of Your Underground Storage Tank System provides guidance to owners and operators of installed and upgraded underground storage tanks ("USTs") on proper operation and maintenance of UST systems. DEP's stated goal over the next few years is to inspect all UST sites in the state to ensure total compliance with UST laws. The recent guidance provides information on tank requirements, including leak detection, release response plans and financial responsibility. In addition, the guidance contains a checklist for operation and maintenance to assist the tank owner and operator in remembering activities that must be performed on a periodic basis.

Wetlands and the Coast

DEP Proposes Amendments to Coastal Permit Program and Freshwater Wetlands Protection Act
On January 22, 2002, DEP proposed amendments to the Coastal Permit Program rules, N.J.A.C. 7:7, and the Freshwater Wetlands Protection Act, N.J.A.C. 7:7A. These proposed amendments address the takings issue as well as a new method for identifying threatened or endangered species habitat. These proposed amendments are in part a response to the Superior Court Appellate Division's ruling in East Cape May Associates v. DEP, which required DEP to create specific regulations identifying the Department's procedure to relax regulations when enforcement would constitute a taking and to specify when the Department would employ such a procedure. These proposed amendments in both the Coastal Permit Program rules and the Freshwater Wetlands Protection Act set forth the standards for relaxing the regulations and allow for the Department, as well as the applicant, to initiate the relaxation of the regulations where enforcement of the regulations will cause a taking. In order to qualify for a relaxation of the standards under these proposed amendments, it must be proven that an "extraordinary hardship" exists, using specific criteria centering upon the property owner's investments, the economically viable uses for the property, and the likely environmental impacts of the property. In addition to addressing the issue of takings, DEP proposed the implementation of a new method, the Landscape Project, for determining habitat areas of threatened or endangered species. This method has been recently developed by DEP and provides a detailed mapping of threatened or endangered wildlife species in New Jersey.


Superfund Industry Tax Reproposed A bill introduced in the United States House of Representatives, H.R. 4060, would reinstate the Superfund Trust Fund industry tax for five years. The tax, which finances public cleanups of hazardous contaminated waste sites, expired in 1995. The new bill would require a 9.7 cent per barrel tax on petroleum, impose a tax on 42 chemicals, and create a corporate environmental income tax of 0.12 percent of taxable income in excess of $2 million. Without the tax, the Trust Fund is expected to be depleted by the end of fiscal 2004, after which time cleanups would be funded solely from general revenue. Hudson River PCB Cleanup Plan Signed On February 1, EPA Administrator Christie Whitman and Region II Administrator Jane Kenny signed the Record of Decision (ROD) for the cleanup of a 200-mile section of the Hudson River declared a federal Superfund site in 1984 due to widespread PCB contamination. According to the approved plan, 2.65 million cubic yards of contaminated Hudson River sediment will be dredged to remove an estimated 150,000 pounds of PCBs. The design phase for the project could take at least 3 years.