A person who previously owned contaminated real property is not liable for investigation and remediation costs solely as a result of its status as a prior owner of the property, according to a New Jersey trial court.  NJDEP v. Progress Petroleum of Phillipsburg, Inc.,  Docket No. WRN-L-370-18 (Law Div. April 23, 2019).  This decision is a blow to the New Jersey Department of Environmental Protection (“NJDEP”), as it has sought to impose liability on prior owners of contaminated property in several recent enforcement actions, but also serves as a beacon of hope for prior owners of contaminated real property that did not cause or contribute to the contamination.  Prior owners should not get too comfortable, however, as NJDEP is likely to continue to litigate this issue, either through appeals in Progress Petroleum or in other matters.

Progress Petroleum involves a property that had been contaminated by the historical operations of a gas station on the land.  A discharge of gasoline-related contaminants was discovered on the property in 1988.  The contaminants remained unaddressed when Inessa Shoimer and her then-husband purchased the land in August 1994 without conducting environmental due diligence of the property, including a Preliminary Assessment or Site Investigation.  A month later, the Shoimers sold the property to the couple’s own company, which retained it for two years, before selling it to an unrelated company.  The property subsequently changed ownership several more times.  In 2002, NJDEP ordered the current and prior owners, including Ms. Shoimer in her individual capacity, to pay for the cleanup of the site.  After the current and prior owners failed to comply with the order, NJDEP sued Ms. Shoimer and some of the other owners and claimed they were responsible for addressing the cost of the environmental cleanup.

The New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq. (the “Spill Act”) imposes liability for hazardous substances on the “discharger” of such hazardous substances as well as on any person “in any way responsible” for the discharge of such hazardous substances.  A prior owner of contaminated real property that did not cause or contribute to the contamination is not a “discharger.” See White Oak Funding v. Winning, 341 N.J. Super. 294, 299-301 (App. Div.), certif. denied 170 N.J. 209 (2001)  However, as noted above, NJDEP has argued in several recent enforcement actions that a prior owner of contaminated property is liable as a person “in any way responsible” for a discharge.  NJDEP’s position is based on New Jersey Schools Development Authority v. Marcantuone, in which the Appellate Division found that the current owner of contaminated property is “in any way responsible” unless the owner qualifies for an “innocent purchaser” defense under the Spill Act. 428 N.J. Super. 546 (App. Div. 2012), certif. denied, 213 N.J. 535 (2013).  To qualify for the “innocent purchaser” defense against Spill Act liability, property owners must show that they conducted an inquiry into potential environmental problems prior to purchasing the land, but did not know or have any reason to know that contamination was present.  While the court in Marcantuone found that this Spill Act liability applies to current owners of contaminated property, NJDEP has argued that such liability extends to prior owners as well.

Ms. Shoimer filed a motion asking the court to dismiss the Spill Act claim brought against her, and argued that because she had sold the property prior to NJDEP’s 2002 cleanup order, she was a prior owner and therefore no longer “in any way responsible” for the contamination.  She asked the court to a use a plain-language interpretation of the Spill Act, and pointed to multiple sections of the law at N.J.S.A. 58:10-23.11g, in which the Spill Act used present-tense language when referring to liability based on ownership of contaminated property.  Ms. Shoimer reasoned that a lack of reference to past owners in the law meant that Spill Act liability did not apply to past owners.  To bolster her argument, Ms. Shoimer cited NJDEP v. Dimant for the principle that Spill Act liability requires some connection between the contamination and the responsible party, which she claimed was lacking in this case.

In contrast, NJDEP asked the court to use a broad interpretation of  the Spill Act language in N.J.S.A. 58:10-23.11g to find that prior owners were “in any way responsible” for contamination, and cited NJDEP v. Ventron for the principle that the Spill Act should be “liberally construed.”  NJDEP argued that under the holding of Marcantuone, Spill Act liability would apply to Ms. Shoimer unless she could demonstrate that she was an innocent purchaser.  However, Ms. Shoimer conducted no environmental due diligence prior to buying the land, and failed to qualify for the innocent purchaser defense.

The court ultimately agreed with Ms. Shoimer’s plain-language interpretation of N.J.S.A. 58:10-23.11g, and dismissed the claims against her.  The court determined that the Spill Act’s multiple present-tense references to imposition of liability on a person “who owns” contaminated property suggested ownership liability must be current, and thus, did not apply to a prior owner.  The court stated that inclusion of prior owners under the Spill Act’s definition of “in any way responsible” is a matter for legislators to address through statutory amendment if they so choose.

This trial court’s decision in Progress Petroleum provides an answer to the lingering question of whether Spill Act liability applies to past owners.  However, before prior owners of contaminated property assume that they are safe from Spill Act claims, they should remember that: (1) the decision may well be limited to its facts; (2) the trial court’s decision can be reversed in appellate court; and (3) NJDEP continues to pursue Spill Act claims against prior owners in other lawsuits.

For more information, please contact any attorney in our Environmental Practice Group.