Environmental Year in Review 2005

Environmental Year in Review 2005
New Jersey Lawyer Magazine

Many important environmental decisions were rendered this year, including United States Supreme Court opinions defining contribution rights under CERCLA and condemnation rights under the Constitution. The Supreme Court of New Jersey also granted certification to review DEP's practice of denying third party adjudicatory hearing requests on permitting decisions and the agency's recently enacted cleanup criteria for contaminated ground water. As in prior years, deference to agency determinations remained considerable, and land use issues continued to form a significant portion of the environmental docket.

Land Use
Courts continued to grant deference to regulatory agencies in land use and condemnation cases. This year, however, the court placed DEP on notice that it would not turn a blind eye to the agency's decision to grant permits in the face of considerable third-party opposition, varying evidence and insufficient fact finding.

In In re Authorization for Freshwater Wetlands General Permits, Water Quality Certification and Waiver of Transition Area for Access, 372 N.J. Super. 578 (App. Div. 2004), the Appellate Division held that DEP had failed to conduct proper fact-finding in issuing freshwater wetlands permits for a proposed residential development in Livingston. Neighboring property owners and the township opposed the permits and inundated the agency with expert reports, letters, and videotapes alleging that the property's wetlands were part of an inland tributary system which served as storm water retention. Notwithstanding, DEP concluded that what neighbors perceived as "concentrated flow," which indicates that wetlands are connected was, in fact, "sheet flow," establishing that they were not. In remanding the case for additional fact finding, the Appellate Division held that the agency failed to make findings of fact to address the neighbors' credible evidence that the wetlands were connected. The court also found that "sheet flow" and "concentrated flow" are not defined in the regulations, and that the agency's use of dictionary definitions was insufficient. This decision, like the permit cases discussed below, sends a cautionary note to builders where neighboring land owners oppose development.

In Maier v. N.J.D.E.P., Docket Nos. A-4759-03T2 and A-4625-03T2, the Appellate Division upheld DEP's decision to upgrade a wetlands classification from intermediate to exceptional because of the recent sighting of a wood turtle, a state endangered species. Interestingly, a private environmental consultant visiting plaintiff's amusement park had sighted the turtle and notified the agency, prompting the reclassification. Earlier, an ALJ had determined, and the Commissioner had affirmed, that the intermediate resource classification was appropriate based on the absence of evidence that a wood turtle would cross the road from one wetland system to the system adjacent to the amusement park. Since the consultant's sighting established the contrary, the Court found the reclassification to be justified.

In one of the most significant cases of the year, Kelo, et al. v. City of New London, Connecticut, et al., 125 S. Ct. 2655 (2005), the Supreme Court of the United States held constitutional the city's exercise of eminent domain over private property which would be taken on behalf of a private developer as part of a redevelopment plan. In a 5-4 opinion, the majority held that the taking of private property for private economic development qualified as a constitutional "public use" under the Fifth Amendment. The dissenters argued that the decision abandoned the long-established limit on governmental power, and that these so-called economic development takings fall disproportionately upon the poor, elderly and minorities. This controversial decision, if left unaddressed by the Legislature, is likely to bolster New Jersey's redevelopment efforts in brownfield areas.

In NL Industries, Inc. v. Sayreville Economic & Redevelopment Agency, etc., Docket No. A-3727-02T2, the Appellate Division upheld defendant's taking of plaintiff's property for a proper public purpose and remanded the matter to the trial court. This holding is consistent with the state Supreme Court's decision in Housing Authority of New Brunswick v. Suydam Investors, LLC, 177 N.J. 2 (2003), which held that, in a condemnation action, contaminated property should be appraised as if the property were remediated, and the estimated amount of remedial costs should be placed into escrow. The Appellate Division in NL Industries held that Suydam was intended to apply to all eminent domain actions, regardless of the public purpose for which private property is being taken.

In Mount Laurel Township v. Mipro Homes, L.L.C., et al., 379 N.J. Super. 358 (App. Div. 2005), the Appellate Division upheld Mount Laurel Township's condemnation of property for use as open space, holding that a municipality may exercise eminent domain even when there are no current plans to use the property for active recreation, and that it is not improper to select properties for open space presentation where residential development is planned. This decision echoes the Kelo decision, above, in its expansive view of municipal eminent domain power.

Third- Party Hearing Requests
The Appellate Division continued to affirm DEP's customary denial of third party hearing requests. However, the Supreme Court granted certification in two cases to review a third party's right to an adjudicatory hearing on proposed NJPDES and freshwater wetlands permits.

In the companion case to In re Authorization for Freshwater Wetlands General Permits, etc., above, I/M/O Freshwater Wetlands Statewide General Permits, Docket No. A-776-03T3, neighboring property owners requested a third party hearing on proposed wetlands permits. The Appellate Division affirmed the Commissioner's denial of the request, holding that appellants lacked statutory and constitutional rights to a hearing. The Supreme Court granted certification, Docket No. A-116-04, on the question of whether "third parties have a right to an adjudicatory hearing to review applications under the Freshwater Wetlands Protection Act (FWPA), or is the right limited to applicants only?"

On the same day in a separate matter, the Court also granted certification, Docket No. A-117-04, on the question of whether "third parties have a right to an adjudicatory hearing to review applications under the Water Pollution Control Act (WPCA), or is the right to such a hearing limited to applicants only?" This matter, In re NJPDES Permit No. NJ0025241, Docket No. A-2240-03T1, involved the Appellate Division's affirmation of the Commissioner's denial of Clean Ocean Actions' third party hearing request on Asbury Park's proposed NJPDES permit.

As in the freshwater wetlands permit case, above, reversal of this agency practice would bolster the efforts of concerned citizens groups which often oppose development, and would prove detrimental to developers and property owners who would confront an additional hurdle to the full use of their properties.

The courts continued to uphold the validity of regulations enacted by DEP. In In Re Adoption of N.J.A.C. 7:26E-1.13, 377 N.J. Super. 78 (App. Div. 2005) the Appellate Division upheld the agency's 2003 adoption of regulations establishing minimum ground and surface water remediation standards for cleanup of contaminated property. In holding that N.J.A.C. 7:26E-1.13 does not violate the Brownfield and Contaminated Site Remediation Act, N.J.S.A. 58:10B-1 et seq., the court upheld the validity of the regulations based upon its interpretation of what the Brownfields Act meant by "strict standards coupled with a risk based and flexible regulatory system." Appellants had argued that the Ground Water Quality Standards, which are drinking water standards, are not appropriate for use as the minimum ground water remediation standards in accordance with the Brownfields Act, which requires a more flexible site-specific approach. The Supreme Court has granted certification in this matter, Docket No. A-20/21-05; reversal would provide greater flexibility to responsible parties in the remediation of contaminated ground water.

In S. Rotondi & Sons, Inc., et al. v. N.J.D.E.P., Docket No. A-1819-02T1, the Appellate Division upheld the agency's adoption of N.J.A.C. 7:26A-4.5(a)(6), which requires recycling centers that receive grass clippings to maintain a buffer of 1,000 feet between the staging areas and any areas used or occupied by humans. Appellant owned and operated a leaf and grass transfer station which was located fewer than 1,000 feet from residences and commercial properties. The court held that DEP's enactment of the regulation was based upon adequate scientific evidence that grass clippings are high in nitrogen and moisture and are highly odorous when delivered to a recycling facility.

In SJC Builders, LLC v. State of New Jersey Department of Environmental Protection, 378 N.J. Super. 50 (App. Div. 2005), the Appellate Division upheld DEP's use of a "working definition of property" to require a NJPDES permit for a proposed housing development. The developer had proposed a creative plan for the development, which it admitted during oral argument was designed to avoid NJPDES regulation, but DEP had concluded that, based on the "working definition of property," the development required a discharge permit. The court held that DEP's definition was a reasonable construction of its existing regulations and did not implicate Metromedia principles. The court's decision is somewhat disturbing in that it upholds an agency's decision based upon use of an important definition not established by regulation.

Two opinions overruled several trial court decisions denying coverage for damages under insurance policies, illustrating yet again that New Jersey appellate courts construe insurance contracts largely in favor of the insured in an effort to provide coverage.

The New Jersey Supreme Court in Nav-Its, Inc. v. Selective Ins. Co. of America, 183 N.J. 110 (2005) held that the pollution exclusion clause contained in a commercial general liability policy does not bar coverage for personal injuries incurred from exposure to toxic fumes from a floor-coating sealant. The insured sought coverage under a CGL policy for damages sustained by a third party who shared office space next to where the insured's subcontractor was using the sealant. The court held that the broad pollution exclusion for traditional environmental damages does not bar coverage for injuries in this context, and it limited application of the pollution exclusion clause to traditional environmental pollution.

In Simonetti, et ux., et al. v. Selective Ins. Co., etc., et al., 372 N.J. Super. 421 (App. Div. 2005), the court held that coverage is not necessarily barred because two or more identifiable causes of damage are present, one of which is covered under the policy and one which is excluded. This case involved mold damage to a home. The policy excluded loss caused by mold and by faulty design workmanship and maintenance, but the insured claimed that the mold and other damages were a result of water from a torrential rainstorm. The Appellate Division reversed summary judgment for the insurer and remanded for a factual determination as to the actual cause of damage.

A significant number of cases were decided this past year in the area of site remediation, many of which by the federal district court of New Jersey. While most results were consistent with prior decisions and longstanding practice, several opinions are noteworthy for charting a new course.

In a significant decision, the United State Supreme Court held that a private party who has not been sued under §106 or §107(a) of the federal Comprehensive Environmental Response Compensation Liability Act (CERCLA) may not obtain contribution under §113(f)(1) of CERCLA from other liable parties. In Cooper Industries, Inc. v. Aviall Services, Inc., 125 S. Ct. 577 (2004), the Court reversed reasoning that Congress recognized only specific types of claims where contribution rights were available as provided in the terms "during or following," §113(f)(3)(B), which provides for a contribution right after an administrative or judicially approved settlement that resolves liability to the United States or a state. Also, §113(g)(3)(B) provides two three year statute of limitations periods for contribution actions beginning on the date of judgment, §113(g)(3)(A) or the date of settlement §113(g)(3)(B). There is no provision under the contribution language which provides for starting the statute of limitations period if a judgment or settlement never occurs. The court reasoned that this supports the conclusion that to assert a contribution claim under §113(f) the party must have fulfilled the conditions of §113(f)(1) or §113(f)(3)(B). The Court holds that since Aviall cannot assert a claim for contribution "during or following" a civil action under §106 or §107(a) that it has no claim for contribution under §113(f)(1).

The District Court of New Jersey held in Montville Twp. v. Woodmont Builders, 2005 WL2000204 D.N.J. 2005, that, since Montville was itself a PRP because it owned contaminated property, it lacked standing to bring a cost recovery claim against the defendant under §107 of CERCLA. This decision is consistent with established law in this area prohibiting responsible parties from using the cost recovery provision of CERCLA to assert damage claims. In Reichhold, Inc., etc. v. US Metals Refining Co., et al. v. Port-Reading Carteret LLC, et al., 2004 WL3312831 D.N.J. 2004, the New Jersey District Court reconfirmed that liability in a contribution action filed under §113 of CERCLA is several, not joint, and that each party is responsible only for its proportionate share, or respective contribution, to the harm caused. Similarly, the Spill Act private right of action also limits a PRP to a suit for contribution, not recovery of costs incurred, thereby exposing other PRPs only to several, not joint, liability.

In NJDEP v. Gloucester Environmental Management Services, Inc.; USA v. Air Products and Chemicals, Inc., et al., 2005 WL1129763 D.N.J. 2005, the District Court of New Jersey held that EPA has exclusive authority under CERCLA to select a remedy for a contaminated site, and that New Jersey has only an advisory role. In this case, DEP had refused to comply with a Record of Decision ("ROD") issued by EPA for a site on the federal National Priorities List ("NPL"). Interestingly, the New Jersey legislature enacted legislation which appeared to relate only to this site and which would have allowed DEP's non-compliance. The court held that the supremacy clause of the United States Constitution prevents enforcement of the new state law because it runs contrary to the stated purpose of CERCLA, which provides EPA with the exclusive authority to select a remedy under 42 U.S.C. §9604(c)(4). The court held that Congress did not provide a state with veto powers concerning "Superfund" sites, and it granted the motion to force the state to comply with the provisions of the consent decree.

In a recent Third Circuit opinion under Caldwell Trucking PRP v. Rexon Technology Corp, et al., 2005 WL2092861 3rd Cir. N.J., the court held that the retention of liabilities provision under a stock purchase agreement requires seller to assume CERCLA responsibilities, rather than simply to indemnify the buyer. The court also held that prejudgment interest and the cost of an experimental treatment process are reasonable damages in a contribution suit brought under section 113 of CERCLA.

The United States District Court for the District of New Jersey reached two interesting conclusions in Champion Laboratories, Inc. v. Metex Corp, et al., 2005 WL1606921 D.N.J. 2005. The Court first recited that the statute of limitations for common law claims under N.J.S.A. 2A:14-1 is not applicable to "continuous torts" in environmental cases, citing to Interfaith Cmty. Org. v. Honeywell Int'l, Inc., 263 F. Supp. 2d 796 (D.N.J. 2003). It then held that unremediated ground water contamination is a continuing tort, therefore, each day constitutes a new tort for purposes of the traditional six year statute of limitations for property damage. If followed, this decision could open the door to common law claims which otherwise would have been deemed to be out of time. The court also predicted that the Supreme Court of New Jersey would rule that the same statute of limitations is applicable to Spill Act contributions claims. On this point the court disregarded the holding of Pitney Bowes, Inc. v. Baker Industries, Inc., 277 N.J. Super. 484 (App. Div. 1994), in which the Appellate Division determined that no statute of limitation applies to a Spill Act private contribution claim. If followed, this holding would require assertion of private Spill Act claims within six years of discovery. Counsel should consider this opinion carefully in advising clients as it does not follow the Appellate Division approach.

In I/M/O Exxon Mobil The Bayonne Terminal Bayonne, New Jersey, Docket No. A-6167-03T2, the Appellate Division held that a party to an Administrative Consent Order (ACO) with DEP has no right to an administrative hearing merely upon the agency's threat to assess penalties for non-compliance with site remediation obligations. Exxon's ACO provided stipulated penalties for non-compliance, and the agency alleged that Exxon was not in compliance and offered to settle the penalties. Exxon requested an administrative hearing which DEP denied. The court affirmed the absence of a right to an adjudicatory hearing where the agency simply seeks to settle its penalty demand, citing established law that disallows pre-enforcement review of agency action. Of course, there remains a right to a hearing if, as and when DEP institutes an action to collect the penalties.

In Casino Reinvestment Dev. Authority v. Atlantic City Linen Supply, Inc., et al., Docket No. A-1304-03T, the Authority had eminent domain over property and sought cleanup costs under the Spill Act in a previous 2000 action. That action resulted in a settlement wherein the purchase price was reduced by the cost to remediate. Casino did nothing else with respect to the contamination claim until it learned the amount of cleanup was more than projected. Then it filed a suit for cleanup costs. Defendants filed a motion to dismiss under res judicata which was granted. The appellate division reversed and remanded holding the second action should be viewed as an independent action seeking relief from the judgment in the first action reasoning that under R. 4:50-1(a) a party can seek relief from a judgment for mistake, inadvertence or excusable neglect.

It has been another interesting year in environmental jurisprudence. New Jersey courts generally remain hesitant to overrule DEP's decisions; in trying to strike a balance between development and environmental preservation, courts more often than not continue to affirm agency determinations, citing to its expertise. However, several cases demonstrate that the courts will not hesitate to overrule the agency when it has not properly fulfilled its responsibilities, and the New Jersey Supreme Court is poised this year to decide several cases where agency procedural and substantive practices have been challenged. The federal courts have addressed site remediation issues frequently this year, and the decisions usually have followed existing precedent and practices but, in a few cases, have modified the law in significant ways.