Environmental Year in Review: Public Entities Prevail Over Builders

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Environmental Year in Review: Public Entities Prevail Over Builders
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The environmental law decisions of the New Jersey state and federal courts handed down during the past year reveal varied themes.  In this first of a two-part review the opinions demonstrate once again that public entities, including NJDEP and municipalities, generally received favorable results, while builders and developers did not.  As well, courts narrowly construed contract language in private party disputes.

With few exceptions, the decisions could be characterized as unremarkable.  Continuing the trend identified last year, while environmental law disputes are appearing in an ever-widening context, the law is achieving a status quo, with little significant precedent being established.

REGULATORY AUTHORITY

Continuing the long-standing principle of deference to administrative determinations, the authority of regulatory agencies was upheld in a number of actions. The challenge of the New Jersey Builders Association to the promulgation of three rules in In the Matter of Freshwater Wetlands Protection Act (FWPA) Rules, (App. Div. Jan. 29, 2003), was struck down by the Appellate Division.  The regulations at issue defined "residential development project" to include the area within twenty feet on all sides of a residential structure, prohibited activities conducted under a general wetlands permit in vernal (i.e. saturated, flooded or ponded) habitats and created a rebuttable presumption that areas of hydric soils which have been drained for farming purposes through the use of drainage structures contain wetlands hydrology for the purposes of wetlands delineation.  The Court concluded that all three regulations were consistent with express legislative purposes of the FWPA and that NJDEP properly relied on its own experiences in administering the requirements and policies of the statute.

In Coastal Eagle Point Oil Co., et al. v. NJDEP (App. Div., Mar. 24, 2003), the court ruled that, in assessing its annual Pollution Discharge Elimination System ("NJPDES") permit fees, NJDEP could increase by a factor of 10 the risk factor for ammonia nitrogen discharges, notwithstanding that for fifteen years the agency used a lower risk factor.  The Court easily affirmed the increased fee, reasoning that the development of a risk factor was within the wide discretion of the agency and that there was ample evidence before the agency to correct a fifteen-year mistake.

In a case that tested the jurisdiction of the United States Army Corps of Engineers under section 404 of the Clean Water Act, the United States District Court for the District of New Jersey altered the traditional test for determining the Corps' jurisdiction over wetlands adjacent to non-navigable tributaries of navigable waters.  FD&P Enterprises, Inc. v. United States Army Corps of Engineers, (D.N.J., Jan. 15, 2003).  The Court ruled that in light of Solid Waste Agency of Northern Cook County (SWANCC) v. United States Corps of Engineers, 531 U.S. 159 (2001), the test no longer is whether there is a hydrological connection between the wetland and navigable water, but whether there is a "significant nexus."  While the Court was "tempted" to grant summary judgment in favor of plaintiff, which sought to fill wetlands adjacent to a non-navigable tributary of the Hackensack River, the Court found that the Corps had submitted evidence that could establish that plaintiff's proposed filling could cause substantial adverse impact on the river.

BUILDERS AND DEVELOPERS 

Builders and developers did not fare well this past year in cases where public entities were involved.  In Ferraro Builders, L.L.C., et al. v. Borough of Atlantic Highlands Planning Board, et al., (App. Div., Monmouth Co., Sept. 24, 2002), the court affirmed dismissal of plaintiffs' suit asserting that a municipality and its Planning Board improperly used a local "Steep Slope" ordinance, which regulates soil disturbance caused by construction along various slopes, to prevent them from developing property.  The court held that the Erosion and Sediment Control Act did not preempt the ordinance, and that plaintiff's allegation of an unlawful taking was not yet ripe because plaintiffs had not yet applied for a variance.

Ripeness also was an issue in two inverse condemnation claims brought against NJDEP.  In Turi v. NJDEP, (App. Div., Middlesex Co., Oct. 24, 2002), plaintiff sought to develop its property, a portion of which contained wetlands, for housing.  The Appellate Division held that, despite the fact that plaintiff had been advised at a pre-application meeting that he could expect to build only one single-family residence on the tract, plaintiff's claim was not ripe because he had not applied for any permits, and because doing so would not be futile in light of the possibilities of obtaining a variance or undertaking a wetlands mitigation project.  In United States Savings Bank v. State, NJDEP, (App. Div., Camden Co., June 4, 2003), the Appellate Division similarly rejected plaintiff's assertion of futility and ruled that because it had never applied for an individual freshwater wetlands permit to construct a residential development, its claim of inverse condemnation based solely on preliminary statements from administrative officials was properly dismissed.  These cases teach that, no matter an agency's preliminary assessment of a project, such assessment does not constitute final agency action for purposes of a legal challenge.  

In Township of North Brunswick v. U.S. Home Corp., (App. Div. Middlesex Co., Mar. 11, 2003), the court affirmed the judgment of the trial court in favor of a municipality on its condemnation action brought against a contract purchaser.  Despite the fact that the developer's concept plan for a senior citizens development had been approved and included in the township's amended Master Plan, resulting in a formal rezoning of the property to Planned Retirement Community, the Court held that the township nonetheless could properly exercise its power of eminent domain because its proposed use of the land as a recreational complex would substantially benefit the public interest.

Developers were successful in two suits involving public entities.  In Island Venture Associates. v. New Jersey Department of Environmental Protection, (App. Div., Apr. 11, 2003), the court held, on somewhat unique facts, that a bona fide purchaser of real estate could not be subject to a land use restriction that had been imposed on a predecessor-in-title by NJDEP but by mistake had not been recorded.  Plaintiff had acquired unimproved lots, intending to build residential dwellings.  While a diligent title search revealed no relevant restrictions, in fact the lots contained a restriction to "water-dependent" uses imposed under the Coastal Area Facilities Review Act (CAFRA).  The restriction was not revealed in the title search, however, because the prior owner's recorded master deed contained an incorrect metes and bounds description.  NJDEP's attempt to impose the restriction notwithstanding the error in recording was rejected by the Court, which held that the public interest in maintaining the integrity of the recording system outweighed its interest in the policies underlying CAFRA.  Accordingly, the importance of properly recording documents such as deed notices, which are commonly used in the environmental context, is highlighted.

In Mount Laurel Township v. Mipro Homes, L.L.C., et al., (Law Div., Burlington Co., June 16, 2003), a developer received major subdivision approval from a township Planning Board for the development of single family homes.  Thereafter, the township approved an ordinance authorizing acquisition of the developer's property under the Green Acres Incentive Grant Program.  The court reviewed the administrative record, including statements made by public officials and newspaper articles reflecting negative public sentiment over proposed development, and concluded that the proposed Green Acres acquisition was an impermissible attempt to block development.  The township's asserted purpose for acquisition "to use the property for open space" was found not to be based on a genuine public need.

CONTRACTUAL ISSUES

Courts strictly construed contractual language in determining the rights of parties in remediation and real estate transactions, which could have wide-spread application in residential property transactions.  The United States District Court for the District of New Jersey, in interpreting New York law, dismissed plaintiff's suit for breach of contract arising from defendant's remediation efforts at a site currently owned by plaintiff. Nitto Americas, Inc. v. Avery Dennison Corp., (D.N.J. Aug. 30, 2002).  The court held that defendant's acquiescence to a request from NJDEP to impose a deed notice and classification exception area for groundwater was within its obligation to comply with the Environmental Cleanup Responsibility Act (ECRA) because nothing in the stock purchase agreement required remediation to be below NJDEP criteria.

In holding that the buyer of residential property was entitled to a refund of its deposit because seller remediated radon contamination only to a level it believed was safe, despite there being no mention of acceptable radon levels in the contract of sale, the Supreme Court of New Jersey admonished parties to include more precise language in their contracts specifying the level of radon necessary to allow buyers to terminate.  Kotkin v. Aronson, (Sup. Ct. Feb. 26, 2003).  Sellers who agree to make repairs or remediate prior to closing should not rely on "safe" or "acceptable" levels if they are not specified in the contract of sale.  In Maccioli v. Lyon, et al. (App. Div., Morris Co., Mar. 6, 2003), the Appellate Division similarly ruled that because defendant seller did not guarantee in the sale contract that plaintiff buyer would be able to build an 8,000 square foot home, plaintiff, who purchased the property knowing of the existence of wetlands through two Letters of Interpretation, could not prove common law fraud.  As in Kotkin, the Court relied upon the precise language of the documents entered into by the parties.

In Allstate Insurance Co., et al. v. F. Montecalvo Contracting Co., (App. Div., Monmouth Co., Sep. 24, 2002), the Appellate Division held that an insurance company, as subrogee to its insured, could not maintain an unlimited claim for potential environmental cleanup responsibility against defendant, which was responsible for property damage to the insured's property, because the insurance company's right of subrogation was limited to the monies already paid to the insured.  The Court strictly interpreted the subrogation clause between the carrier and its insured, reasoning that because the clause specifically did not assign subrogation rights to the carrier over and above the money already paid for property damage, the insurer could not maintain a claim against defendant for additional monies.

These cases demonstrate the importance of defining with precision parameters of remediation levels and the like in transaction and similar private party agreements.  Such language is likely to be strictly construed, and courts are reluctant to redraft or interpret broadly language upon which the parties have agreed.

CONDEMNATION

A significant number of condemnation cases were decided this year, including companion cases decided by the Supreme Court of New Jersey.  In Housing Authority of the City of New Brunswick v. Suydam Investors, L.L.C., (July 10, 2003), the Court announced a new rule concerning the valuation of contaminated condemned properties, holding that contaminated property that is the subject of condemnation is to be valued as if it had been remediated.  In the companion case, New Jersey Transit Corp. v. Cat in the Hat, LLC, (July 10, 2003), the Court held that the trial court can enter an order in an eminent domain proceeding that preserves the condemnor's ability to bring a separate cost-recovery action against the condemnee for contamination of remediation.  The reservation of condemnor's rights also may preclude the condemnee's defenses of res judicata, collateral estoppel and entire controversy.

Thus, the two cases offer protections to both condemnees and municipal condemnors.  Condemnees are protected from diminution in value due to contamination and the obligation to pay for remediation; the condemnor is protected through the ability to bring a separate cost-recovery action.  In a case decided prior to the Supreme Court rendering its decisions, the Appellate Division in State of New Jersey v. Goldmeier (N.J.) Ltd., (App. Div., Morris Co., June 13, 2003) affirmed the trial court's exercise of discretion by upholding a municipality's reservation of rights clause “which expressly precluded defenses of res judicata, collateral estoppel and entire controversy “to pursue remediation cost-recovery relating to condemned property that already had been valued as if not contaminated.

<B><U>INSURANCE</b></u>

A number of insurance cases in the environmental context were decided this year with generally unfavorable outcomes to insurers.  In an interesting case involving principles previously adopted in Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437 (1994), the New Jersey Supreme Court decided Spaulding Composites Co. v. Aetna Casualty and Surety Co., (Sup. Ct., April 10, 2003).  At issue was the validity of identical non-cumulation clauses in comprehensive general liability policies.  The Court held that the non-cumulation clause, which provided that damages arising out of continuous exposure to substantially the same general conditions are construed as arising out of one occurrence, were unenforceable under the "continuous trigger" theory of Owens-Illinois, which provides that progressive individual damage in an environmental exposure case is treated as an occurrence within each of the years of the CGL policy.  While the Court made clear that its holding simply reaffirmed Owens-Illinois and its application of "continuous trigger" and "pro rata allocation" principles, and further stated that its sole determination was that Liberty's non-cumulation clause is unenforceable under Owens-Illinois, this holding could have widespread application to the validity of other non-cumulation and similar clauses in the environmental context.   

 The pro rata allocation methodology of Owens-Illinois also was at issue in Champion Dyeing & Finishing v. Centennial Insurance co., et al., (App. Div., Passaic Co., Nov. 19, 2002).  There, the Appellate Division held that this scheme could be applied retroactively to impose a portion of risk upon insureds who lacked coverage during a relevant period of injury if objective evidence demonstrates that insurance was available that would have covered the risk.  The Court admonished, however, that a mere showing that environmental impairment liability insurance was generally available will not suffice; insurance covering the precise risk must have been available for insurers to successfully argue that the Owens-Illinois continuing trigger is not applicable. 

In an interesting policy interpretation case, the Appellate Division held  that plaintiffs' policy for their gasoline station covered a gas spill which took place during the filling of tanks because the tank truck used to dispense the gasoline was a "covered auto" for which coverage was afforded for a sudden and accidental spill without the bar of the absolute pollution exclusion.  Denson v. Pennsylvania National Insurance Co., et al., (App. Div., Somerset Co., Mar. 28, 2003).  Noting the well-settled New Jersey principle that insurance policies are construed liberally in favor of the insured, the Court determined that the tank truck was not an uncovered "hired" auto because the tank truck was hired by the vendor from whom plaintiffs purchased the gasoline.

In Hobart Brothers Co. v. National Union Fire Insurance Co., (App. Div., Essex Co, Sep. 9, 2002), plaintiff had instituted prior actions against its previous attorney for failing to advise of ECRA requirements related to plaintiff's acquisition of a company, as well as against the company's insurance carrier, seeking coverage for clean up costs.  Notwithstanding that both actions settled, the Court held that the trial court improperly relied upon the entire controversy doctrine to dismiss the current suit against plaintiff's own insurer because the trial court did not conduct a complete analysis of whether plaintiff's previous deliberate non-joinder of its own carrier was excusable (i.e. possibly for strategic reasons).

In contrast to Hobart Brothers, the Appellate Division, relying in part on the entire controversy doctrine, dismissed a declaratory judgment action seeking coverage against an insurer in Township of Dover v. National Union Fire Insurance Co., (App. Div., Ocean Co., Jan. 28, 2003).  The court held that the plaintiff township, which in 1985 had settled tort claims arising from landfill contamination of private wells and subsequently had released defendant insurer from those claims, could not seek coverage in 1996 to undertake an environmental investigation and remediation of the wells in response to NJDEP's labeling the landfill a source of a potential "cancer cluster."  The Court concluded that the township should have known ten years earlier that remediation of the wells might be required by NJDEP, but also held that the entire controversy doctrine applied to bar subsequent litigation concerning the same facts that were the subject of the prior declaratory judgment action.

Finally, in a choice of law case, the court in Lonza, Inc. v. The Hartford Accident and Indemnity Co., et al., (App. Div., Bergen Co., Apr. 7, 2003), held that the law of the state in which the insured's risk is located establishes the trigger and allocation of coverage under primary and excess policies.  In this case, because the Superfund site at issue was located in Rhode Island, the Court held that Rhode Island law should apply.  This decision is especially significant because Rhode Island's "manifestation trigger" theory, in which an "occurrence" under a CGL policy takes place when damage manifests itself or is discovered, is in conflict with New Jersey's "continuous trigger" theory. 

CITIZEN INVOLVEMENT AND ENVIRONMENTAL RIGHTS ACT CLAIMS

Citizen groups were victorious in two important federal cases this past year.  In Interfaith Community Org. v. Honeywell International, Inc., (D.N.J. May 15, 2003), the District Court held that plaintiff environmental group had proven that chrome ore processing waste at a site along the Hackensack River, which formally had been owned and operated by defendant's predecessors, caused an imminent and substantial endangerment to health or the environment under the federal Resource Conservation and Recovery Act.  As a result, the defendant was ordered to remediate the site at an estimated cost of $400 million, and was found to be strictly liable to the current owner for all past and future damages as a result of its predecessor's operations.  On a significant procedural issue, the Court permitted plaintiff's suit to proceed despite the existence of an administrative consent order issued by NJDEP, reasoning that the delay caused by negotiating the details of the cleanup resulted in a lack of progress to remediate the site.  This decision is noteworthy due to the magnitude of the removal costs involved but equally to the fact that the court did not hesitate to fashion its own remedy in a situation where NJDEP already was actively engaged with the site.

The citizens in South Camden Citizens in Action, et al. v. NJDEP, (D.N.J. Apr. 16, 2003) achieved progress in their suit to prevent construction and operation of a proposed cement-grinding facility in South Camden.  The Court denied NJDEP's motion to dismiss, holding that plaintiffs have stated a claim of intentional discrimination upon which relief can be granted under section 601 of the Civil Rights Act or under the Equal Protection Clause of the Fourteenth Amendment and section 1983 of the Civil Rights Act. 

In In the Matter of the New Jersey Pinelands Commission Resolution PC4-00-89, (App. Div., Burlington Co., Jan. 3, 2003), the Appellate Division reversed the trial court's dismissal of plaintiff environmental groups' Environmental Rights Act ("ERA") claim, noting that a plaintiff always has standing to sue under the ERA to challenge inadequate enforcement of environmental laws by an agency.  Similarly, in Village of Ridgewood v. Wyckoff Cleaners, Inc., et al., (Law Div., Bergen Co., Oct. 15, 2002), the court ruled that plaintiff's ERA claim with respect to drinking well contamination allegedly caused by perchlorethylene on defendant's property could proceed because NJDEP had initiated no formal action despite its knowledge for ten years that the site was contaminated.

The Appellate Division drew a limit to the reach of the ERA in East Coast Sanitation Co., Inc. v. Morris County Municipal Utilities Auth., et al. (App. Div., Morris Co., Jan. 27, 2003).  The Court held that plaintiff's suit against competitors and out-of-county entities receiving its competitors' waste alleging violations of the Morris County Solid Waste Disposal Plan was properly dismissed because no "particularized threat" to the environment was alleged as required by the ERA.  In so holding, the Court noted that plaintiff's actual motivations were not environmental protection, but rather its own economic interests.

MISCELLANEOUS

The New Jersey Supreme Court decided an important case during this past year that will resonate in the environmental context, notwithstanding that the case itself did not involve environmental issues.  In Kemp, et al. v. State, et al., (Sup. Ct. Aug. 2002), the Court reversed the Appellate Division's affirmance of the trial court's dismissal of plaintiff's claim on the ground that plaintiff's expert's opinion did not meet the test set forth in Rubanick v. Witco Chemical Corp., 125 N.J. 421 (1991):  a theory of causation that has not yet reached general acceptance in the scientific community may be found to be sufficiently reliable if it is based on a sound, adequately-founded scientific methodology involving data and information of the type reasonably relied upon by experts in the field.  The Court held that dismissal was improper because the trial court should have conducted an evidentiary hearing to ascertain whether the scientific community accepted the process by which plaintiff's expert arrived at his conclusion.  The effect of the ruling is likely to be felt in the environmental context with respect to the many scientific and technical issues about which experts are called upon to testify, such as those associated with proving divisibility of contamination and dating the onset of contamination.

In an interesting case involving the applicability of the statute of repose defense, N.J.S.A. 2A:14-1.1, the Law Division ruled that defendants, who sold and installed underground storage tanks which leaked, could not avail itself of the defense against plaintiffs' allegations that the leakage caused MTBE contamination in their private wells.  Biniek, et al. v. Exxon Mobil Corp., et al., (Law Div., Somerset Co., Feb. 5, 2003).  In so holding, the Court found that defendants were not involved in the design, planning, supervision or construction of the tanks but simply installed pre-fabricated tanks and that such tanks were not an "improvement" to real property under the statute because they were replacements of prior tanks.

  The Appellate Division decided two cases involving the authority of parties to conduct activities involving solid waste disposal.  In NJDEP v. Pignataro, (App. Div., Union Co., Apr. 7, 2003), the court held that defendant and his company, which had accumulated hundreds of thousands of whole tires and processed tire material in connection with the company's tire recycling operations, could not avail itself of the recycling center exemption to the solid waste regulations.  Accordingly, the company and defendant personally were liable for operating a solid waste facility without a permit.  Similarly, in NJDEP v. Johnson, et al., (App. Div., Ocean Co., Apr. 29, 2003), the Court held that defendants' Recycling Operation Approval was properly revoked when defendants continually and impermissibly accepted tree stumps to be "land filled," as well as used tires and waste concrete because their Approval extended to recycling processes only.

Finally, a familiar case made its way back to the Appellate Division in White Oak Funding, Inc. v. Scarborough, (App. Div., Monmouth Co., Jun 9, 2003).  There, the Court held that it will not give retroactive effect to the innocent owner defense for those who acquired property prior to September 14, 1993.  Despite the fact that defendants purchased the contaminated property knowing that it had been used as a fuel oil distribution business, the applicability of the innocent owner defense did not apply to them because they had sold the property to mortgagors of plaintiff before the defense was enacted.  Thus, plaintiff could not argue that defendants were liable under the Spill Act because the innocent owner defense applies to a person "who owns" property, not one who has sold the property prior to the passage of the amendment.

As the decisions of the New Jersey state and federal courts this past year demonstrate, environmental law disputes are arising in a wide variety of contexts.  Nonetheless, minimal new law is being developed and the past year's decisions have continued the status quo achieved in recent years past.