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Dirty Dirt or Clean Fill – Absent Proof It’s Dirty, New Jersey Court Says No Liability for Disposal of Clean Fill Banner Image

Dirty Dirt or Clean Fill – Absent Proof It’s Dirty, New Jersey Court Says No Liability for Disposal of Clean Fill

Month: November 2016

Dirty Dirt or Clean Fill – Absent Proof It’s Dirty, New Jersey Court Says No Liability for Disposal of Clean Fill

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In recent years, the New Jersey Department of Environmental Protection (“NJDEP”) has focused on addressing the improper disposal of contaminated soil, which can result in soil piles that create environmental and health risks from polluted run-off.  To address one such site, in 2011 the NJDEP filed suit alleging that an approximately 60-foot high contaminated soil stockpile in Woodbridge, New Jersey had been operated as an illegal landfill for over 11 years.  NJDEP filed suit against the property owner and the business operator, seeking to hold them responsible for violating environmental laws and for the cleanup of the site.  NJDEP also sought the same relief against several companies that brought material, usually from utility line or roadway projects, to the site for disposal (the “Contractor Defendants”).   In a recent decision, the Court granted the Contractor Defendants’ motion for summary judgment finding there is no liability resulting from the disposal of “clean fill” at the site.  New Jersey Department of Environmental Protection v. LWS Spector-Woodbridge Company, LLC et al., Docket No. C-107-11 (Ch. Div. Sept. 15, 2016).

The Court disagreed with NJDEP’s assertion that the Contractor Defendants were subject to the New Jersey Solid Waste Management Act (“SWMA”) when bringing “clean fill” to the site.  The Court looked at the solid waste regulations and found that the term “clean fill” is defined as uncontaminated “inert solid such as rock, soil, gravel, concrete, glass and/or clay or ceramic products” N.J.A.C. 7:26-1.4.  The Court went on to note, however, that the term “clean fill” is not used anywhere else in the regulations and concluded that is because “clean fill” is not solid waste and, thus, is not regulated by the SWMA.  Accordingly, the Contractor Defendants had no liability under the SWMA for the disposal of “clean fill.”

Applying the New Jersey Supreme Court holding in New Jersey Department of Environmental Protection v. Dimant, 212 N.J. 153 (2012) to the SWMA, the Court found that to prevail on its claim, the NJDEP was required to establish a nexus or that it was more likely than not that some solid waste found at the site had been brought there by the Contractor Defendants. Through discovery, however, the Contractor Defendants established that any materials that would not qualify as “clean fill,” such as asphalt and concrete with rebar, were separated out at the point of generation and transported to another facility for disposal.  Only the remaining soil, which may have contained pieces of brick or concrete, was brought to the Woodbridge site as “clean fill.”  The operator of the site corroborated the Contractor Defendants’ account, testifying that he inspected every load and the only material accepted from the Contractor Defendants was “clean fill.”  In addition, the evidence established that the Contractor Defendants contributed approximately 71% of the material found at the site, with many other parties contributing the remainder.  

The Court found that, despite having had years to collect evidence, including by conducting inspections while the site was operating, the NJDEP did “not have an ounce of proof” that the Contractor Defendants brought anything other than “clean fill” to the site.  The Court went on to hold that NJDEP cannot use circumstantial evidence (or res ipsa loquitur) to establish a nexus between the Contractor Defendants and the solid waste at the site stating that “[j]ust because the dirt pile at the  . . . site contains solid waste does not as a matter of law lead to liability for the Contractor Defendants.” 

Similarly, the Court found that the cross-claims brought against the Contractor Defendants by the property owners under the New Jersey Spill Compensation and Control Act (the “Spill Act”) were similarly defective because there was no proof that the “clean fill” brought to the site by the Contractor Defendants contained hazardous substances.  Thus, absent a nexus between the Contractor Defendants and any contaminated material at the site, the owners were unable to sustain a Spill Act claim.   

This decision expands Dimant beyond the Spill Act and opens a new avenue of defense because it requires NJDEP to show a reasonable nexus or connection when pursuing violations of the SWMA.  Dimant has had and will continue to have a significant impact on litigation strategy for NJDEP as well as defendants.              

For more information, please contact the author Alexa Richman-La Londe at alalonde@riker.com or any attorney in our Environmental Practice Group.           

New York Extends Statute of Limitations for Superfund Site Tort Claims

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The New York State Legislature recently passed a law allowing plaintiffs to pursue “personal damages” for injuries caused by “exposure to any substance or combination of substances contained within an area designated as a [S]uperfund site” under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) or New York’s Environmental Conservation Law within three years after the site’s designation.  CPLR 214-f.  Although characterized by its Assembly sponsors as a “narrowly tailored legal mechanism” in response to the highly publicized water contamination in the town of Hoosick Falls, the law could have broad and unpredictable effects.  It is certain, however, to encourage litigation.

Prior to the passage of CPLR 214-f, the statute of limitations for personal injury claims arising from exposure to hazardous substances was governed by the interplay between New York’s discovery rule, CPLR 214-c, and CERCLA’s federally required commencement date, 42 U.S.C. § 9658.  Under this scheme, plaintiffs were required to bring these claims either (1) within three years of discovery of the injury on which the claim is based (or within three years of the date the injury should have been discovered), or (2) within one year of discovering the cause of the injury, provided that scientific knowledge identifying the cause of the injury did not exist in the three years after the injury was discovered.  In re Pfohl Bros. Landfill Litig., 26 F. Supp. 2d 512, 531 (W.D.N.Y. 1998), vacated on other grounds by Freier v. Westinghouse Corp., 303 F.3d 176 (2d Cir. 2002).  The new statute discards this complex regime for personal injury claims arising from newly listed Superfund sites.  While CPLR 214-f uses the enigmatic term “personal damages,” the statutory heading demonstrates the Legislature’s intent to extend the statute of limitations only for personal injury claims.  Tort claims for damages to property, such as trespass and nuisance, from a Superfund site remain subject to the three year discovery rule of CPLR 214-c.  Jensen v. Gen. Elec. Co., 82 N.Y.2d 77 (1993).

CPLR 214-f presents thorny retroactivity questions.  Plainly, claims arising from a site listed after the law’s effective date will benefit from the extended statute of limitations.  But will the statute apply retroactively to sites listed in the three years before CPLR 214-f was enacted?  To answer this question, courts may be called upon to decide whether CPLR 214-f is a remedial statute designed to correct imperfections in existing law.  City of New York v. LaserShip, Inc., 33 F. Supp. 3d 303, 315 (S.D.N.Y. 2014).  If so, these prior listings also would be interpreted to extend the limitations period.  Note, however, that if a plaintiff’s claim would have been time-barred before passage of CPLR 214-f, the statute may be deemed unconstitutional as applied to such claims because of New York’s limitations on “revival statutes” that resurrect an already time-barred claim.  Although revival statutes for toxic tort personal injury claims have been upheld, Hymowitz v. Eli Lilly & Co., 73 N.Y.2d 487 (1989), courts are more skeptical of revival statutes benefitting plaintiffs who also could avail themselves of the CPLR 214-c discovery rule.  In re World Trade Ctr. Lower Manhattan Disaster Site Litig., 66 F. Supp. 3d 466 (S.D.N.Y. 2014). 

Putting aside questions of interpretation and validity, CPLR 214-f provides an additional incentive for aggrieved parties to have sites added to the federal National Priorities List (“NPL”) or New York’s state registry of Inactive Hazardous Waste Disposal Sites (“Registry”).  Any person interested in having a site added to the Registry may provide relevant information to the New York Department of Environmental Conservation, which will add the site to the Registry if the site constitutes a significant threat to public health or the environment or if it is reasonably foreseeable that the site will pose such a threat in the future.  6 N.Y.C.R.R. § 375-2.7(b).  While plaintiffs may seek to have a site added to the NPL or the Registry to take advantage of the limitations period under CPLR 214-f, parties facing the threat of litigation because of CPLR 214-f now have an additional incentive to remain off these lists and may even consider entering into New York’s voluntary brownfield cleanup program, which defers a Registry listing.  6 N.Y.C.R.R. § 375-2.7(c). 

In any event, potentially responsible parties should monitor federal and state Superfund listings for sites in New York because of the potential for tort law exposure under the new CPLR 214-f.  New York courts’ interpretation of the new law may have a significant effect on businesses affected by CERCLA and similar state laws, particularly if other states follow New York’s lead and tie accrual of tort claims to regulatory listings as opposed to the plaintiff’s discovery of an injury.

For more information, please contact the author Michael Kettler at mkettler@riker.com or any attorney in our Environmental Practice Group.

Current Owner Is Not Liable Under CERCLA For Cleanup Costs Incurred Prior to Ownership

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In a recent case, Commonwealth of Pennsylvania Department of Environmental Protection v. Trainer Custom Chemical, ---- F. Supp. 3rd --- (2016), 2016 WL 4525451, the District Court for the Eastern District of Pennsylvania found that a current owner of contaminated property is not liable under Section 107(a)(1) of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) for cleanup costs incurred prior to ownership.  Trainer limits current owner liability under CERCLA to only those costs incurred after the owner takes title to the contaminated site.

In 2012, Defendant Trainer Custom Chemical (“TCC”) purchased a contaminated site with knowledge of the existing contamination.  During demolition of the site in 2013 and 2014, TCC uncovered piping and storage tanks that allegedly continued to leak.  In 2015, the Pennsylvania Department of Environmental Protection (“PADEP”) filed suit against TCC and its principals under CERCLA seeking a determination of liability and the recovery of costs it incurred in cleaning up the site, both before and after TCC’s ownership.  The Defendants did not dispute that TCC was a responsible party under CERCLA as the current owner of the site and, thus, TCC was responsible to remediate the contamination at the site.  Rather, the question for the court was whether TCC was also liable for response costs incurred by the government prior to the time TCC took ownership of the site.  As such, the court had to decide whether there is a “temporal” limitation on the liability of a current owner under CERCLA.  That is, is a current owner’s liability under CERCLA limited to only those costs incurred after it takes title to a site?  The government argued that the current owner is liable for all costs incurred in cleaning up the site, including those incurred prior to ownership.    

As there were no cases addressing this issue in the Third Circuit, the Trainer court examined a Ninth Circuit case, California Department of Toxic Substances Control v. Hearthside Residential Corp., 613 F.3d 910 (9th Cir. 2010), where the court faced this exact question.  The Ninth Circuit, stating that the purpose of CERCLA is to have responsible parties pay to remediate contaminated sites, held that ownership status is determined at the time of the cleanup and not when the cost recovery suit is filed.   The Ninth Circuit also found that since the statute of limitations under CERCLA begins to run at the time of the cleanup, CERCLA intended the owner at that time to be responsible for cleanup costs incurred, and not a subsequent owner.

The court in Trainer agreed with the Ninth Circuit, explaining that if current ownership for purposes of CERCLA liability under Section 107(a)(1) was not based on when the owner took title to the contaminated site, a responsible party could sell remediated property to a new owner and, if a cost recovery action is later filed, the new owner would then bear full responsibility for all cleanup costs, including those incurred prior to its ownership.  The court noted that although CERCLA imposes strict liability, it does not impose limitless liability.  The court could not abide the government recovering costs from a party that neither caused a release nor owned the facility when it was remediated. 

Given the ruling in Trainer, a party involved in a CERCLA cost recovery action as a current owner of contaminated property should carefully analyze when the costs at issue were incurred.   It should be noted that the PADEP has filed a motion to certify the decision for an interlocutory appeal to the Third Circuit.  

For more information, please contact the author Laurie Sands at lsands@riker.comor any attorney in our Environmental Practice Group.

NY and NJ Courts Split on Whether Policyholders Should Share in Allocation When Insurance Is Not Available

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In our August 10th blog entry, we reported on the New Jersey Appellate Division’s recent decision that policyholders do not share in the insurance allocation of long-tail environmental losses for periods when insurance was not reasonably available in the marketplace.  Continental ins. Co. v. Honeywell International, Inc., Docket Nos. A-1071-13T1, A-1100-13T1 (NJ App. Div. July 20, 2016).  Last week, the New York Appellate Division took the opposite position on this matter of first impression under New York law by finding that a policyholder, and not its insurers, should bear the cost in an insurance allocation for years in which the policyholder did not obtain coverage, even when such coverage was not available. Keyspan Gas East Corp. v. Munich Reinsurance America, Inc., et al. Case No. 604715/97 (NY App. Div. Sept. 1, 2016).  This is not the first time that courts of these neighboring states have differed on coverage matters.  These determinations highlight the importance that jurisdiction can play in the outcome of insurance coverage cases. 

Please see our earlier blog post for a discussion of the New Jersey court’s ruling that relied on New Jersey Supreme Court precedent for assigning responsibility in a pro rata insurance allocation.  This post will focus on the New York decision.  In Keyspan, the insured sought coverage for costs associated with the investigation and remediation of contamination emanating from two former manufactured gas plants in Queens and Hempstead, New York.  The insured’s claim for indemnification included not only a 16-year period that certain general liability insurance policies were in effect, but also periods of time, both before 1953 and after 1969, when insurance that would cover this risk could not be purchased in the marketplace.  Century Indemnity Company, the only insurer remaining in the case, argued that it should not be responsible to indemnify the insured for property damage that did not occur “during the policy period,” contending that damage that occurred during the period that insurance was not available should be allocated to the insured.  While the trial court disagreed and allocated to the carrier damages that occurred during the periods when insurance was not available, the Appellate Division reversed that decision on appeal.

The Appellate Division noted that while this was a matter of first impression for New York, courts in other jurisdictions have come to a different conclusion on how these periods should be assigned in a pro rata allocation.  The Appellate Division distinguished its finding from those courts that have found in favor of the insured by placing significant emphasis on the particular language of the policies.  Here, the court determined that since the insurance policies only provide coverage for damages occurring “during the policy period,” it would not be fair to allocate damages to the insurer for other periods when insurance was not available in the marketplace.  Doing so would expose Century to risks beyond those contemplated when the policies were purchased and would thus provide free insurance to the insured.  The court reasoned that the insured and not the carrier should bear the burden of its actions affecting the environment.

Given the starkly different positions taken by the appellate courts in New Jersey and New York on this and other coverage issues, parties negotiating choice of law provisions in insurance policies and those seeking to litigate coverage should closely consider which jurisdiction’s law should apply.

For more information, please contact the author Jaan Haus at jhaus@riker.com or any attorney in our Environmental Practice Group.

Appellate Division Revives Environmental Rights Act Claims to Compel Cleanup of Contaminated Sites—For Now

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On August 15th, the Appellate Division permitted the owner of contaminated property to assert a claim under the Environmental Rights Act (“ERA”), N.J.S.A. 2A:35A-1 et seq., to compel prior owners that allegedly discharged hazardous substances to remediate the contamination.  Bradley v. Kovelesky, Docket No. A-0423-14 (App. Div. Aug. 15, 2016).  The ERA allows private parties to seek injunctive relief for violations of New Jersey environmental statutes in the face of government inaction, but the ERA has not been used successfully to compel remediation of wholly past discharges of hazardous substances.  The New Jersey Supreme Court currently is considering a similar issue in another case.  See Dalton v. Shanna Lynn Corp., Docket No. A-4846-12 (App. Div. Nov. 6, 2015), certif. granted, 223 N.J. 406 (2015), and our earlier entry on the Dalton case.  If the Supreme Court adopts or does not disturb Bradley’s approach to the ERA, owners of contaminated property and parties cleaning up contaminated sites may obtain broader relief against dischargers than previously has been available to them through the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq. (“Spill Act”).

In Bradley, the plaintiffs were executors of an estate whose decedent owned property contaminated by asphalt dumping.  After discovering the contamination, the plaintiffs brought Spill Act and common law tort claims against a construction company that formerly owned the site.  The plaintiffs later sought to amend their complaint to add an ERA claim seeking to compel the defendants to remediate plaintiffs’ property.  The trial court granted summary judgment for the defendants on all counts.  The trial court held that the proposed ERA amendment was futile, finding that the defendants’ past discharges could not satisfy the ERA requirement that the violation of environmental law likely will recur in the future.  N.J.S.A. 2A:35A-4(a).

On appeal, however, the Appellate Division reinstated the ERA claim. The appellate court disagreed that the ERA claim was futile, noting plaintiffs alleged that defendants’ failure to remediate the property is a continuing violation of the Brownfield and Contaminated Site Remediation Act (“BCSRA”) that would likely recur in the future.  An amendment to the BCSRA passed with the 2009 Site Remediation Reform Act imposes an affirmative obligation to remediate contamination:  a discharger or person in any way responsible for a hazardous substance under the Spill Act “shall remediate the discharge of a hazardous substance.”  N.J.S.A. 58:10B-1.3(a).  Before Bradley recognized the continuing obligation created by the 2009 amendment, courts uniformly rejected ERA claims against predecessor landowners, as these owners’ past discharges would not recur.  E.g., Bowen Eng’g v. Estate of Reeve, 799 F. Supp. 467, 479 (D.N.J. 1992); In re Flintkote Co., 533 B.R. 887, 892 (D. Del. 2015), aff’d, 2016 WL 3997217 (3d Cir. July 26, 2016).  Parties already have begun to take notice of the Appellate Division’s holding in Bradley.  For instance, the appellant in Flintkote has asked the Third Circuit to reconsider its July 2016 opinion dismissing its ERA claim.

The ERA provides two advantages that the Spill Act does not.  Under the ERA, a plaintiff can seek an injunction compelling other responsible parties to remediate before spending any of its own funds.  The Spill Act, on the other hand, permits contribution claims only after the plaintiff begins remediation.  Magic Petroleum Corp. v. Exxon Mobil Corp., 218 N.J. 390, 410 (2014).  In addition, the ERA allows a prevailing party to recover its attorneys’ fees, N.J.S.A. 2A:35A-10, whereas a prevailing Spill Act contribution plaintiff may not recover such fees.  See In re Thomas, 278 N.J. Super. 580, 586-87 (App. Div. 1995).   

The Supreme Court in Dalton ultimately may resolve this issue in the same way as the Bradley court or it may choose a different approach but, for now, an ERA claim seeking to compel remediation of a past discharge from the responsible party is viable.

For more information, please contact the author Michael Kettler at mkettler@riker.com or any attorney in our Environmental Practice Group.

NJ Court Finds Another Piece of the Insurance Allocation Puzzle

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Under New Jersey insurance law, many of the coverage issues arising under comprehensive general liability (“CGL”) policies related to long-tail environmental claims have been resolved, however, allocation issues, what percentage of the loss each carrier and/or the policyholder is responsible for, are hotly disputed.  In a recent decision, the Appellate Division considered what cost a policyholder should bear if it did not purchase insurance responsive to its claim and determined that a policyholder does not share in the allocation for the period that insurance is not reasonably available.  Continental Ins. Co. v. Honeywell International, Inc., Docket Nos. A-1071-13T1, A-1100-13T1 (App. Div. July 20, 2016).

Before explaining in more detail the relevant holding from the case, it is necessary to understand the basis on which courts will assign or allocate responsibility among multiple policies triggered by environmental or other long-tail claims, such as asbestos.  Under New Jersey Supreme Court precedent, a continuous trigger period is applied, meaning all policies in effect from the date contamination or injurious conditions began until the time they are discovered or manifested are triggered (i.e., called upon to respond to the claim).  See Owens-Illinois Inc. v. United Ins. Co., 138 N.J. 437 (1994).  All triggered policies are then assigned a portion of the risk on a pro-rata basis.  Id.  In many situations involving environmental claims, the continuous trigger period extends beyond 1986, which is the date when many carriers added the absolute pollution exclusion to their CGL policies thus excluding from coverage claims arising from environmental contamination.  The issue for allocation then becomes who bears responsibility for covering the period during the continuous trigger after the exclusion comes into effect?

In Continental Ins. Co. v. Honeywell International, Inc., policyholder Honeywell sought coverage from its primary and excess CGL insurers for asbestos personal injury claims resulting from exposure to asbestos in brake and clutch pads manufactured and sold by its predecessor Bendix Corp.  Honeywell had settled with all but two of its excess carriers (Travelers and St. Paul’s).  One issue appealed by the two excess carriers was the decision by the trial court that Honeywell did not have to share in the allocation as if it was self-insured after 1987.  The trial court had found that insurance for asbestos liabilities was not reasonably available after 1986 (for primary policies) and 1987 (for excess policies) because of asbestos exclusions that were added to the policies.  These asbestos exclusions are similar to the absolute pollution exclusion inserted into CGL policies around the same time and were intended to exclude from coverage all asbestos related claims.  

The Appellate Division noted that the “practical effect of this ruling means that Honeywell need not share in the allocation of insurance coverage as if it were self-insured for the period of time from 1987-2001.”  The Appellate Division analyzed the Supreme Court’s decision in Owens-Illinois and clarified that it distinguishes between situations where an insured consciously decides not to buy available insurance, as compared to a situation where “no insurance was reasonably available to purchase.”  The effect is that in the former situation the policyholder would be allocated responsibility for the uninsured period of time, whereas in the latter “no portion of liability would be allocated to the time period where insurance is not available to the insured.”

Because there may be many years in a trigger period where policies purchased during that time contain exclusions precluding coverage for the specific claims at issue, whether insurance in another form was reasonably available to cover those risks is a critical determination for both the policyholder and carrier.   

For more information, please contact Alexa Richman-La Londe at alalonde@riker.com or any attorney in our Environmental Practice Group.

Spill Act Innocent Purchaser Defense: What Does Due Diligence Really Provide?

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In a New Jersey Law Journal article this week, Riker Danzig counsel Alexa Richman-La Londe explores the protections provided from New Jersey Spill Act liability for an “innocent purchaser.”  In particular, she discusses the challenges involved in securing innocent purchaser status in light of recent case law and the importance of well-considered due diligence.  Attempts to comply with the requirements continue to confound many purchasers of property and even counsel, putting their innocent purchaser status at risk.  Buyer beware.  

Click here for the article.  For more information, please contact Alexa Richman-La Londe at alalonde@riker.com or any attorney in our Environmental Practice Group.

It’s About Time: Reforming the Regulation of Chemical Substances Under TSCA

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The Toxic Substance Control Act (“TSCA”) was enacted in 1976 to regulate the manufacture and use of potentially harmful chemicals.  Although there are thousands of chemical substances manufactured in the United States each year, the United States Environmental Protection Agency (“USEPA”), under TSCA, has limited the manufacture or use of only a handful of these substances.  This may change with the first amendments to TSCA in 30 years.  The amendments provide the USEPA greater ability to control the manufacture and use of new chemicals and require it to conduct risk evaluations on existing chemicals.  These amendments were signed into law by President Obama on June 22, 2016.  The promise of the TSCA amendments is better management of the impacts of chemical substances on human health and the environment.  Only time will tell whether the amendments meet this goal or simply result in an additional regulatory burden for the chemical industry.    

Under the TSCA amendments, companies remain required to notify the USEPA when they are manufacturing a new chemical or they are proposing a significant new use for an existing chemical.  Within 90 days of receiving such notification, which time period may be extended for an additional 90 days, the amendments require the USEPA to review the notice and determine whether the chemical presents an unreasonable risk to health or the environment.  This evaluation cannot consider costs or other non-risk factors and must consider whether there is an unreasonable risk to a “potentially exposed or susceptible population” such as pregnant women or children.  If the USEPA determines that there is a risk, or that there is not enough information to determine whether there is a risk, it shall issue an order prohibiting or limiting the manufacturing or use of such chemical.  With respect to a chemical for which there is insufficient information to determine the risk, the USEPA can limit its manufacturing or use to the extent necessary to protect health and the environment while information is developed regarding its safety.  As before, TSCA requires that if the USEPA determines a chemical poses a risk, the USEPA must promulgate rules to regulate the manufacture, distribution or use of such chemical in order to address the risk.

In addition, the amendments require the USEPA to establish a risk-based screening process for existing chemicals that will prioritize chemicals based on, among other things, the chemical’s toxicity, persistence in the environment, bioaccumulation and potential exposure to susceptible populations. The USEPA has 6 months from the enactment of the amendments to begin risk evaluations on at least 10 chemical substances identified in the 2014 update of the TSCA Work Plan for Chemical Assessments.  The USEPA has 3 ½ years to begin risk evaluations on at least 20 chemical substances identified as “high priority” by the USEPA through its newly developed risk-based screening process.  This evaluation of existing chemicals is designed to ensure that the USEPA is appropriately identifying and addressing potential risks from such chemicals.

Given the void of chemical regulation by the USEPA, states have promulgated their own laws addressing certain chemical substances, which has resulted in an inconsistent regulatory approach across the country.  The TSCA amendments attempt to address this issue by pre-empting certain state regulation of chemical substances.  Any state regulation in place prior to the enactment of the amendments is not pre-empted.  Yet, states are prohibited from establishing or continuing to enforce laws or regulations that subject a chemical to the same notification requirements established in TSCA, require information from the manufacturer already required under TSCA, regulate a chemical that the USEPA determines does not present an unreasonable risk, or regulate a chemical that is addressed by the USEPA through a rule, order or consent agreement issued pursuant to TSCA.

The long wait for TSCA reform is over.  Whether the reform will meet the goal of properly regulating the impact of chemicals on human health and the environment will come to light over the next several years during its implementation. Even in an era fraught with legislative and regulatory gridlock, there is a bi-partisan view and expectation that the amendments are a positive step forward.

For more information, please contact the author Laurie Sands at lsands@riker.com or any attorney in our Environmental Practice Group.

Buyers Beware: Failure to Conduct a Preliminary Assessment Prior to Purchase May Be a Costly Omission

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In the murky waters of determining liability under the New Jersey Spill Act, New Jersey courts are finding one thing clear - buyers who do not perform adequate pre-acquisition due diligence will not qualify as “innocent purchasers” and, thus, will be responsible for remediating contamination that pre-existed their ownership.   The Appellate Division recently held that a party buying property in New Jersey must perform a preliminary assessment in accordance with the New Jersey Department of Environmental Protection (“NJDEP”) rules in order to even be considered for innocent purchaser protection.  DEP v. Navillus Group, Docket. No. A-4726-13T3 (App. Div. Jan. 14, 2016).  The obligation extends to the purchase of property intended for residential use because a recent trial court opinion held that a purchaser’s visual inspection of a property to be converted into three apartments was insufficient to satisfy the due diligence required of an innocent purchaser.  Casino Reinvestment Development Authority (CRDA) v. Ping Lin,  Docket No. ATL-L-338-12 (Law Div. Dec. 9, 2015). 

There are very few defenses to the broad liability for cleanup costs that arises under the Spill Act.  One of those defenses, known as the “innocent purchaser” defense, requires a property owner to demonstrate that it did not know and had no reason to know of discharges of hazardous substances at the property by performing “all appropriate inquiry” prior to purchase.  The standard of what constitutes “all appropriate inquiry” differs depending upon whether the purchase occurred before or after 1993.  Post-1993 purchasers must perform a preliminary assessment and, if necessary, a site investigation under NJDEP regulations, whereas the appropriate due diligence for pre-1993 purchasers is determined by generally accepted good and customary standards at the time of purchase.  The purchasers in both the Navillus and CRDA cases were post-1993 purchasers.  As such, these cases do not provide guidance on what was considered good and customary practice prior to 1993, a subject that has yet to be decided by a court and will likely largely depend upon the facts and circumstances of the property purchase at issue.  

For post-1993 purchasers, the standard, as confirmed recently by the Appellate Division, is clear – sufficient due diligence must, at a minimum, consist of a preliminary assessment.  The Appellate Division’s decision in Navillus is part of the ongoing saga over environmental contamination at the Accutherm mercury thermometer manufacturing property in Salem County that later became a Kiddie Kollege daycare center.  After discovering that groundwater was contaminated, in 1988 the NJDEP conducted a site investigation that revealed Accutherm discharged industrial pollutants into its septic system.  Without having addressed environmental concerns raised by the NJDEP, Accutherm declared bankruptcy in 1994.  In 1996, the United States Environmental Protection Agency (“EPA”) issued a “Mini Pollution Report” for the site documenting that sources of mercury existed but the report did not find an imminent threat of human exposure.  In 2001, Navillus Group acquired title to the property via tax foreclosure and then two months later transferred the property to James Sullivan, Inc.

Defendants Navillus and James Sullivan Inc. asserted that they were innocent purchasers and not responsible for the contamination caused by Accutherm because their principal, James Sullivan, III had obtained a copy of the EPA Mini Pollution Report and interpreted it to mean there was no environmental problem at the property.  Further, the defendants argued that their inquiry of local officials and the NJDEP satisfied the “preliminary assessment” element of the innocent purchaser defense.  The Appellate Division strongly disagreed.  First, finding that requirements for a preliminary assessment are set forth in regulation, which entails significantly more than the inquiry the defendants performed, the Court unequivocally stated that defendants’ failure to undertake a preliminary assessment meant the innocent purchaser defense is unavailable to them.  Further, the Court was not persuaded that the property owner’s subjective and incorrect conclusion after reviewing the EPA Mini Report that there was no environmental issue at the property would qualify a purchaser as innocent so as to avoid Spill Act responsibility.  

The application of the innocent purchaser defense to residential property has also recently been at issue.  The CRDA case involved the 2004 purchase of property in Atlantic City that the defendant planned to renovate into a three-unit apartment building.  It was later discovered when CRDA condemned the property that it had contamination from an old heating oil underground storage tank.  There was no dispute that the defendant did not conduct a preliminary assessment prior to purchase.  Rather, the defendant argued that she met her burden of due diligence because prior to purchase she performed a visual inspection of the property, that at the time was heated with natural gas, and saw nothing apparent that would have led her to believe that further investigation into possible contamination was necessary.  The Court stated that even though it “appreciated” her argument, the Spill Act is clear that to satisfy the innocent purchaser defense a preliminary assessment must be conducted and because defendant did not conduct one, she does not qualify for the innocent purchaser defense.  

The defendant argued that as a purchaser of residential property a lesser due diligence standard should apply to her.  The Court noted that the Spill Act does not differentiate between residential and commercial properties.  The Court went on to state that as a purchaser who plans to occupy one unit and rent the other two, the defendant was not a residential purchaser, but rather was purchasing property for investment with the intent of deriving income.  As such, the Court held that the defendant’s failure to conduct a preliminary assessment was fatal to her assertion of the innocent purchaser defense.

These decisions leave little doubt that meeting the explicit requirements of the statute and rules in performing a preliminary assessment is essential to the successful assertion of the innocent purchaser defense under the Spill Act.  Given the CRDA Court’s efforts to distinguish the defendant, because of her intent to derive income from the property, from a residential purchaser, single-family residential purchasers may be able to argue in the appropriate case that something less than a preliminary assessment constitutes sufficient due diligence to qualify as an innocent purchaser, but to accept that argument a court would have to ignore the express language of the Spill Act.  Both of these decisions make clear that all purchasers of real estate in New Jersey should be aware that performance of a preliminary assessment is critical to establishing the innocent purchaser defense and that failure to do so may be very costly.  These decisions should also be considered by residential purchasers because failure to conduct a thorough environmental investigation or an oil tank sweep prior to purchase may be at their own risk.

For more information, please contact the author Alexa Richman-La Londe at alalonde@riker.com or any attorney in our Environmental Practice Group.

Pursuing Tax Appeals for Contaminated Sites

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In a recent case, ACP Partnership v. Garwood Borough (Tax Court March 22, 2016), a New Jersey Tax court found that although property was “in use” for tax valuation purposes, the town was required to consider contamination at the property when assessing taxes.  In ACP, the property owner purchased a site without being aware that it was contaminated.  In fact, the property owner subsequently received an innocent party grant from the  NJDEP to assist with the cleanup.  The property was assessed for tax purposes at its full value because the owner was able to use the site and had several tenants.  The property owner, however, challenged the tax assessments for the past six years given that the property was contaminated.  The town argued that because the contamination was not interfering with the use of the property, it should be assessed at its full value.  The court disagreed.

The court stated that contamination is a critical factor in the true market value of property.  The court explained that since the taxpayer was not responsible for the contamination, there would be no windfall benefit bestowed on the owner by considering contamination in a tax assessment. The issue for the court, however, was how to address contamination when conducting the proper tax assessment.  

Although the court understood that normal assessment techniques should be used when valuing a contaminated property that was “in use,” the court found that it was appropriate to consider the environmental condition of the property when assessing value.  The court stated that normal assessment techniques must be tempered by the costs incurred by the property owner in addressing the contamination.  Thus, the court explained that competent testimony from environmental and property valuation experts would be needed to determine the true market value of the subject property.  The court also dismissed the town’s argument that the court must consider whether third parties are responsible for the remediation.  The court held that “the party bearing responsibility for those [clean up] costs plays no role in determining a property’s true market value.”  

The ACP court suggests that although normal tax assessment techniques should be used by a town when contaminated property is “in use,” the town cannot disregard the impact of contamination on such valuation.  Given the holding in this case, tax appeals for contaminated properties should be explored and pursued in appropriate circumstances. 

For more information, please contact the author Laurie Sands at lsands@riker.com or any attorney in our Environmental Practice Group.

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