The Environment in the Courts

The Environment in the Courts

Contractual Indemnity Can Estop CERCLA Contribution Claim

The Third Circuit U.S. Court of Appeals recently affirmed the granting of preclusive effect to the judgment of a state court with respect to environmental cleanup costs. The case involved a Palmerton, Pennsylvania site upon which a zinc ore smelting business had operated for decades. The smelting operations created millions of tons of slag. In the late 1970s, Paramount Communications, Inc. ("Paramount") purchased the business. Shortly thereafter, Congress passed CERCLA. The slag heaps became an environmental concern when heavy metals were found to be leaching into the soil and nearby waterways. The Palmerton site eventually was placed on the National Priorities List. Estimates to remediate the contamination exceeded $50 million.

Paramount later formed Horsehead Industries Inc. ("Horsehead") to purchase certain company assets, including the Palmerton site. The asset purchase agreement also included an indemnity for certain liabilities by Horsehead in favor of Paramount. Sometime thereafter, Horsehead entered into an agreement with the United States to investigate and remediate the Palmerton site. Horsehead eventually brought a CERCLA contribution action against Paramount to recover these costs. Paramount, in turn, filed a declaratory judgment action in New York State Court seeking a decision that Horsehead must indemnify Paramount, pursuant to the asset purchase agreement, for any costs for which it is found liable.

Paramount obtained a favorable judgment against Horsehead. A lower Federal Court subsequently held, and the Third Circuit affirmed, that the State Court judgment can be used by Paramount collaterally to estop a federal CERCLA contribution claim by Horsehead. The Third Circuit found that by applying New York law regarding collateral estoppel, the scope of the indemnity was broad enough to encompass the issues in the federal CERCLA contribution case. Furthermore, the Court found that Horsehead had a fair opportunity to litigate the same issues before the New York courts. The Third Circuit concluded that "[f]or the district court to have concluded otherwise would thwart Paramount's right to indemnification for CERCLA costs established in the first action in the New York state courts." Horsehead Industries, Inc. v. Paramount Communications, Inc., 258 F.3d 132 (3d Cir. 2001).

Passive Migration of Pre-Existing Contamination Does Not Result In Spill Act Liability

The Appellate Division recently held that the passive migration of fuel oil was not a "release," and therefore could not be a "discharge" under the Spill Act. In so doing, the court rejected CERCLA's definition of "release" which includes "leaching," a term commonly used in the environmental context to describe the migration of contaminants. In the case, defendant property owners were unaware of fuel oil contamination, although they knew when they purchased the property that it had been formerly used by a fuel oil distribution business. Plaintiff's expert opined that the contamination probably occurred prior to defendants' ownership, that limited environmental testing at the time of purchase would have revealed the contamination, and that during defendants' ownership the contamination migrated and spread. Plaintiff argued that defendants were liable under the Spill Act either as "dischargers" or as persons "in any way responsible" for the contamination.

The court declined to adopt plaintiff's position, holding that a "discharge" requires an "interaction with the environment" by "some act or omission of human conduct which causes a hazardous material not previously present" to enter the air, water or land. Since the contamination in this case was already pre-existing, no "discharge" could be found. The court further held that defendants were not persons "in any way responsible" for the contamination because they had neither ownership nor control over the property when the discharge of fuel oil onto the land occurred. The facts that defendants were aware of the property's prior use, conducted no due diligence prior to purchase, used the property commercially and sold it for a profit were insufficient to trigger liability. White Oak Funding, Inc. v. Winning, Dkt. No. A-5530-99T5 (July 6, 2001).

Look Only to NJDEP For Host Community Benefit Determinations

In a recent decision, the Appellate Division determined that NJDEP is exclusively responsible to determine the amount of host community benefits owed by a transfer station, including the threshold issue of the transfer station's location for purposes of determining the municipality's entitlement to payment. In the underlying case, Kearny sought payment of quarterly host benefits from a transfer station in North Arlington on the basis that part of the only access road to the facility is located in Kearny. Kearny was unable to reach agreement with the transfer station as to the payment of host benefits and filed suit in the Law Division in Hudson County. The trial court concluded that it had concurrent jurisdiction with NJDEP to determine Kearny's entitlement to the host benefit. On appeal, the Appellate Division reversed, finding that NJDEP has exclusive, primary jurisdiction under the host community benefit statute to determine a municipality's entitlement to, as well as the amount of, a host benefit. Town of Kearny v. Hackensack Meadowlands Development Commission, Docket No. A-3885-00T2F (App. Div., Sept. 28, 2001).

Amendments to State Endangered Species List

The State has proposed to add three species of butterflies and two species of freshwater mussels to its List of Endangered Species, codified at N.J.A.C. 7:25-4.13. The State also has proposed to increase the seriousness of the ranking on another three species of butterflies and five species of freshwater mussels in a list that provides the status of indigenous wildlife species in New Jersey, codified at N.J.A.C. 7:25-4.17.

Appellate Division Strikes EIC; Upholds Refund

Following a New Jersey Supreme Court ruling last year, the Appellate Division held that Atlantic County Utilities Authority ("ACUA") could not impose an Environmental Investment Charge ("EIC") on users of its solid waste system. While recognizing that the Supreme Court's ruling in In re Passaic County Util. Auth., 164 N.J. 200 (2000), focused on the fact that the EIC was charged to non-users, the Appellate Division found persuasive the argument that the EIC scheme was invalidated in its entirety. Thus, while recognizing that ACUA could collect service charges from users of its service, the Appellate Division held the EIC invalid and found the users entitled to a refund. Township of Galloway v. Atlantic County Utilities Authority, Docket No. A-2915-00T5 (App. Div. July 5, 2001).