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Manufacturers Who Sold Hazardous Substances to a Discharger Could Face Spill Act Liability Banner Image

Manufacturers Who Sold Hazardous Substances to a Discharger Could Face Spill Act Liability

Month: May 2022

Manufacturers Who Sold Hazardous Substances to a Discharger Could Face Spill Act Liability

Posted on by Christie Bowness

In the decades since its adoption in the 1970s, the New Jersey Spill Compensation and Control Act (the “Spill Act”), N.J.S.A. 58:10-23.11 et seq., has not been understood to impose liability on the sellers of chemicals that a purchaser later discharged into the environment.  However, in a pair of recent decisions, New Jersey federal judges entertained the novel theory that the manufacturer and seller of a chemical could be strictly liable for a discharge to the environment under the Spill Act, even if the manufacturer merely sold the chemical to a third party that actually caused the contamination.  If this interpretation of the Spill Act becomes widely accepted, the scope of environmental liability in New Jersey would expand significantly, and parties that previously had not faced Spill Act liability could find themselves facing a bevy of new lawsuits for the costs of cleaning up contaminated sites.

The New Jersey Department of Environmental Protection (“NJDEP”) seemingly initiated this trend in 2019 when it issued a “statewide directive” under the Spill Act ordering several companies to, among other things, “discuss [with NJDEP] a good faith estimate” of the costs of investigating and remediating per- and polyfluoroalkyl substances (“PFAS”) in the environment throughout New Jersey and also to “discuss” the establishment of a remediation funding source by these companies to fund these costs.  NJDEP included among the recipients of its directive 3M Corp., which had manufactured PFAS and sold them to various manufacturers with operations in New Jersey.  However, NJDEP did not allege that 3M had discharged PFAS.  The Department’s inclusion of 3M raised eyebrows because no party had been held liable under the Spill Act merely for selling a chemical that was later discharged to the environment by a third party.  And federal courts had long held, culminating in the U.S. Supreme Court’s 2009 Burlington Northern decision, that parties like 3M, who sold a “useful product” that its customers used and ultimately discharged as a hazardous waste, are not liable under federal law (i.e., CERCLA) unless the seller intended that its product would be disposed into the environment.

NJDEP’s new theory was put to the test in two cases in 2021, and, in each case, the court found that the plaintiffs had stated a Spill Act claim against 3M merely for manufacturing and selling PFAS.  In Giordano v. Solvay Specialty Polymers USA, LLC, 522 F. Supp. 3d 26 (D.N.J. 2021), the plaintiffs were South Jersey homeowners who claimed that their private wells had been contaminated by PFAS discharged into groundwater at two nearby manufacturing facilities; 3M allegedly had supplied the PFAS that each facility used.  3M moved to dismiss the Spill Act claim against it, arguing that manufacturing a hazardous substance has never given rise to Spill Act liability.  In a cursory footnote, the court denied 3M’s motion and held that the Giordano plaintiffs had stated a claim that 3M was “in any way responsible for” the contamination under the Spill Act, N.J.S.A. 58:10-23.11g(c)(1).

The district court’s unpublished opinion in NJDEP v. E.I. du Pont de Nemours & Co., Civil Action Nos. 19-14766; 19-14767, 2021 U.S. Dist. LEXIS 247973 (D.N.J. Dec. 30, 2021), relied on the Giordano footnote and likewise found that the plaintiff, NJDEP, had stated a Spill Act claim against 3M based on similar allegations.  As relevant here, NJDEP brought Spill Act claims against DuPont and related corporate entities as well as against 3M for remediation costs and natural resource damages stemming from contamination at two DuPont manufacturing facilities.  Referencing the “nexus” requirement for Spill Act liability from NJDEP v. Dimant, in which the New Jersey Supreme Court held that a Spill Act plaintiff must show “a reasonable link between the discharge, the putative discharger, and the contamination at the specifically damaged site,” the DuPont court held that NJDEP’s allegation that DuPont “purchased [from 3M] the [PFAS] it required for its manufacturing activities” at the relevant sites stated a claim under the Spill Act.

Although there is no reason in principle that the logic of these two cases would not apply to manufacturers of chemicals besides PFAS or to defendants in other contexts with similarly indirect responsibility for a discharge, another recent federal court case rejected Giordano’s expansive view of Spill Act liability.  In Borough of Edgewater v. Waterside Construction, LLC, Civil Action No. 14-5060, 2022 U.S. Dist. LEXIS 32404 (D.N.J. Feb. 24, 2022), Edgewater sought recovery under the Spill Act for costs it incurred to remove contaminated fill material from a municipal park.  Edgewater alleged that Waterside, with whom the Borough had contracted to construct park improvements, imported to the park crushed concrete contaminated with PCBs from a nearby site that previously had been a factory operated by Alcoa, now known as Arconic.  Alcoa sold the property in 1997 to an affiliate of Waterside.  Edgewater sought to hold Arconic responsible for contaminated material that originated from the property Alcoa had owned and operated prior to 1997.  The court rejected Edgewater’s Spill Act claim and granted summary judgment to Arconic on that claim in 2021 because “Edgewater [had] not cited any case imposing Spill Act liability in similar circumstances.”  In denying Edgewater’s motion for reconsideration in February 2022, the court noted the Giordano decision in a footnote but treated it as an outlier from the general rule that, to be liable under the Spill Act, a party must either have ownership or control over the property at the time of the discharge or control over the hazardous substance that caused the contamination.  If that test had been applied in Giordano and DuPont, the complaints against 3M likely would have been dismissed.

New Jersey’s state appellate courts ultimately will decide whether the newly expansive conception of Spill Act liability suggested by the surprising survival of the recent claims against 3M will prevail.  Until the issue is settled, parties responsible for cleanup costs at New Jersey sites may begin to bring Spill Act claims against the suppliers of hazardous substances that were discharged at the site, if the identities of those suppliers can be ascertained.  Notably, there is no statute of limitations for Spill Act contribution claims, so manufacturers that had supplied hazardous substances could face new claims for contamination that has long been known.  It remains to be seen whether the initial success of the plaintiffs in Giordano and DuPont simply is the result of courts’ reluctance to grant motions to dismiss, or whether it signals the expansion of Spill Act liability to a new class of defendants.  Future developments in these cases merit close scrutiny.

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

Kentucky Federal Court Holds Law Firm May Be Liable for Searching Title to Incorrect Property

Posted on by Christie Bowness

The United States District Court for the Eastern District of Kentucky recently held that a lender might have a professional negligence claim against a law firm when the law firm conducted a title search for the incorrect property, the resulting mortgage encumbered the incorrect property and, as a result, the lender was forced to repurchase the mortgage.   See Crescent Mortg. Co. v. Freeman, 2022 U.S. Dist. LEXIS 59727 (E.D. Ky. Mar. 31, 2022).  In 2013, a lender issued a $114,000 loan to a couple to refinance their residential property on behalf of its investor, the plaintiff.  The lender retained the defendant law firm to conduct a title examination in connection with the loan.  The law firm, however, updated a title search that it had run five months earlier for the same lender and borrowers, but did not realize that the prior title search was for a separate, unimproved 8.15-acre property.  The loan and mortgage, which named the undeveloped property, were sold to Freddie Mac.  The borrowers later defaulted and, upon discovering that the mortgage encumbered the undeveloped property, Freddie Mac demanded that plaintiff repurchase the mortgage.  Plaintiff did, and brought this action against the law firm and individual attorney for professional negligence.  Defendants then moved for summary judgment, arguing that the claim was outside of the one-year limitations period, that the Court did not have jurisdiction because the amount in controversy did not exceed $75,000, and that plaintiff failed to produce expert testimony sufficient to prove its case.  Plaintiff cross-moved for summary judgment.

The Court granted plaintiff’s motion in part and denied it in part, and denied defendants’ motion in its entirety.  First, the Court held that plaintiff’s claim was timely because its “injury did not become fixed and non-speculative until January 2020, when Freddie Mac demanded . . . repurchase,”  and it brought its claim within one year of the repurchase demand.  Second, the Court found that plaintiff alleged damages of $91,931.30, which was more than the $75,000 threshold for diversity jurisdiction.  In doing so, the Court rejected defendants’ claim that their affirmative defense of mitigation of damages should be taken into account when determining the amount in controversy.  Third, the Court found that plaintiff had met its burden that defendants had breached their duty and that the breach caused plaintiff’s damages.  It further found that plaintiff did not need expert testimony for this claim:  “evidence in the record shows that Whitaker Bank requested a title opinion from Defendants for property at 126 Casey Road, Corbin, Kentucky. The Defendants did not run a title search for 126 Casey Road and provided the bank with a title opinion that included the legal description of a different property. That erroneous property description was then incorporated into the mortgage instrument and title insurance policy. Defendants have failed to identify any evidence that would create a genuine dispute of those material facts.”  Nonetheless, the Court found that there was a genuine dispute as to the amount of damages, finding that “[n]umerous questions of fact regarding damages remain unanswered: does the repurchased mortgage encumber the 8.15-acre parcel? Does [plaintiff] have the ability to foreclose and sell the property? What is the reasonable value of the property?”  Accordingly, it granted plaintiff’s motion as to the duty, breach and causation elements, but denied the motion as to damages.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.

CMS’s Proposed Inpatient Rule and Parts of Oklahoma’s Law on Pharmacy Benefit Managers Gets Struck

Posted on by Christie Bowness

For more information about this blog post, please contact Labinot Alexander Berlajolli.

CMS Releases Proposed Inpatient Prospective Payment System Rule for 2023

On April 18, 2022, Centers for Medicare and Medicaid Services (“CMS”) released its proposed Medicare Hospital Inpatient Prospective Payment System (“IPPS”) and Long‑Term Care Hospital (“LTCH”) Prospective Payment System (“PPS”) rule for fiscal year (“FY”) 2023, RIN 0938-AU84. The proposed rule includes multiple health equity‑focused measures, in accordance with the multipronged strategy to advance health equity recently outlined by CMS. CMS has encouraged health leaders to take health equity seriously and incorporate it into their own system’s strategies.

Below are some of the rule’s proposed changes.

Payment Rates: Under the proposed rule, acute care hospitals that report quality data and are meaningful users of electronic health records (“EHRs”) will see a net 3.2 percent increase, or approximately $1.6 billion, in payments in 2023, as compared to 2022.

ICD-10 Diagnosis and Procedure Codes: CMS proposed 1,495 changes to the ICD‑10‑CM diagnostic code set, largely focusing on dementia‑related brain illness and injuries and endometriosis. CMS also proposed some new ICD‑10‑PCS procedure codes, including codes for reporting knee joint replacements.

Payment Adjustment for Domestically Sourced Supplies: CMS proposed adding a payment adjustment for hospitals that source their N95 respirators from domestic manufacturers.

Uncompensated Care Payments: CMS proposed to distribute approximately $6.5 billion in uncompensated care payments for 2023 to Medicare disproportionate share hospitals (“DSH”), which is a decrease of roughly $654 million from 2022.

Hospital Inpatient Quality‑Reporting (“IQR”) Program: Among other things, CMS has proposed adopting ten new measures for the Hospital IQR Program, which is a pay‑for‑reporting quality program that reduces payment to hospitals that fail to meet the Program’s requirements. The proposed new measures include measures to assess a hospital’s commitment to equity, opioid-related adverse events, and screening of social determinants of health.

Maternal Health: As part of an ongoing effort to reduce maternal mortality and morbidity, CMS has proposed a “birthing‑friendly” designation for hospitals on the quality and safety of maternal care, which would be established in Fall 2023.

Comments are due June 17, 2022.

Oklahoma Federal Judge Invalidates State Law Regulating Pharmacy Benefits Managers

The United States District Court for the Western District of Oklahoma ruled that certain sections of Oklahoma’s Patient’s Right to Pharmacy Choice Act (the “Act”), including those regulating pharmacy benefits managers (“PBMs”) are preempted by the federal prescription drug program under Medicare Part D.

By way of background, the vast majority of health insurance plans use PBMs to act as intermediaries in ensuring that beneficiaries can use their drug benefits to obtain prescriptions. That is, PBMs contract with pharmacies to provide prescriptions to beneficiaries. When the pharmacy dispenses the prescription, it files a claim with the PBM, who then processes the claim and notifies the pharmacy how much the health insurance plan will pay and how much the beneficiary must pay. The PBM reimburses the pharmacy according to a rate determined by the contract between the PBM and the pharmacy, not the health insurance plan. Then, the PBM bills the insurance plan according to its contract with the insurance plan, and the insurance plan pays the prescription benefit to the PBM.

Oklahoma is one of several states that has sought to regulate PBMs. The district court held that the Service Fee Prohibition, Affiliated Pharmacy Price Match, and Post‑Sale Price Reduction Prohibition under the Oklahoma state law were preempted by Medicare Part D’s “non‑interference” law, which prohibits interference with negotiations between Part D sponsors and pharmacies, as well as any requirement of a particular formulary or price structure for the reimbursement of covered Part D drugs. The district court also found the Oklahoma’s Retail‑Only Pharmacy Access Standards and Cost Sharing Discount Provision to be preempted by CMS’s established standards regarding convenient access to network pharmacies.

The district court did not find that the state's any willing provider restrictions, affiliated pharmacy and network provider restrictions, and probation‑based pharmacy limitations were preempted by Medicare Part D, or that the state law was at all preempted by the Employee Retirement Income Security Act of 1974.

The case is Pharmaceutical Care Management Association v. Mulready, et al., Case No. 5:19‑cv‑977.

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