Buyers Be Aware: New Jersey Court Limits Liability For Prior Contamination Of Property

A potential purchaser of industrial or commercial property in New Jersey will be hard pressed to find a property that does not have a long history of ownership and use that involves the use, storage, or generation of hazardous waste.  For such entities, the risk and concern of potential environmental liability for past contamination is ever present.  A recent decision from the New Jersey Appellate Division should give potential purchasers some comfort, however, as it held that they can only be responsible for a share of the clean-up costs associated with a contaminated property upon a showing that the discharge of hazardous substances occurred while they owned or operated the property.  

The business of storing and generating hazardous waste carries many potential environmental risks and liabilities.  Long after companies close operations or sell properties that were the site of hazardous waste generation, those companies may remain liable to third parties for environmental clean up costs and damages.  And future purchasers of such properties run the risk of becoming liable for past contamination.  On August 18, 2010, in the unpublished case, Northern International Remail Express Co., v. Robbins, No. A-4652-08T1, 2010 N.J. Super. Unpub. LEXIS 2023 (App. Div. August 18, 2010) (copy here), the New Jersey Superior Court of New Jersey, Appellate Division provided guidance to companies that owned or are interested in purchasing property that has a history of use, storage, and generation of hazardous waste regarding the evidence that must be presented and proven for such past or current owners to be held liable for environmental clean up claims arising under the New Jersey Spill Compensation and Control Act, N.J.S.A. 58-10:23.24 (“Spill Act”).

Northern International Remail Express Co. (“Northern”) owned commercial property located in Union, New Jersey, that is the subject of this decision from 1991 to 2003.  Northern filed a claim for environmental clean up costs against a prior owner, Lester Robbins (“Robbins”), the owner of the property from 1976 to 1991.  Northern brought suit against Robbins, and other defendants, on April 15, 2008 based upon environmental contamination of the property that occurred in 1998.  Northern asserted common law claims and a claim under the Spill Act for environmental contamination of the property.   On cross-motions for summary judgment, the lower court dismissed the common law claims based on the six-year statute of limitations for property damages and entered judgment for Robbins on the Spill Act claim due to a lack of evidence that a “discharge” occurred during Robbins’ ownership of the property.  Northern then appealed the lower court’s decision to the Appellate Division.

Conflicting evidence suggests that the subject property may have been used to store and distribute hazardous substances, such as solvents, as early as 1967.  During Robbins’ ownership of the property, 1976 to 1991, the property allegedly had two tenants operating at the property.  The first tenant of the subject property was J&J Construction Co. (“J&J”).  J&J leased the subject property from October 1977 to 1987.  According to EPA records, J&J was registered as a “large quantity generator” of hazardous waste.  However, there was no evidence of what waste J&J generated or that there had been any governmental action against J&J.  The second tenant, T&T Corporation, was a “small quantity generator” of hazardous waste according to EPA records.  Yet, there was no evidence whether T&T was a tenant of Robbins or a sub-tenant of J&J at the property. 

Upon Northern taking ownership of the property from Robbins in 1991, Northern’s tenants included an office furniture distributor and a concrete cutting firm.  In 1998, due to obligations for refinancing, Northern conducted an environmental investigation of the property.  This investigation disclosed the presence of chlorinated solvents in excess of the New Jersey Ground Water Quality Criteria.  The environmental investigation report suggested that the presence of chlorinated solvents might be attributable to an incident that occurred prior to Northern and Robbins’ ownership of the property. 

In August 1999, Northern entered into a Memorandum of Agreement of NJDEP to remediate the property.  Northern contacted Robbins to request contribution from Robbins for environmental clean up costs.  Additional testing conducted at the property confirmed the presence of chlorinated solvents at levels in excess of New Jersey standards in the soil and ground water.  Environmental consultants suggested that the chlorinated solvent contamination present at the property was attributable to former occupant’s handling, storage and use of chlorinated solvents.   In the lower court and before the Appellate Division, Northern argued that there was evidence that Robbins’ tenants were potential dischargers of hazardous waste that resulted in the contamination of the property and, in turn, Robbins’s should be liable for such contamination.  To support this claim, Northern pointed to the EPA registrations that indicated that Robbins’ tenants, J&J and T&T, were hazardous waste generators.  Northern argued that this evidence was enough to raise a genuine dispute of facts to defeat Robbins’ cross-motion for summary judgment.

The Appellate Division upheld the lower court’s decision.  The Court stated: "Generation of hazardous waste, without more, does not give rise to liability. The Spill Act was enacted to “prohibit [] the discharge of petroleum and other hazardous substances into the New Jersey waters and provide [] for the cleanup of any such discharge….”  To that end, “[t]he Spill Act imposes strict liability, ‘jointly and severally, without regard to fault,’ on ‘any person who has discharged,…or is in any way responsible’ for the discharge of any hazardous substance.”  2010 N.J. Super. Unpub. LEXIS 2023, *12 (emphasis added) (internal citations omitted). 

In entering judgment in favor of Robbins regarding the Spill Act claim, the Court’s decision relies upon the Spill Act’s definition of “discharge” and the interpretation of “in any way responsible.”  While discharge is broadly defined as “any intentional or unintentional action or omission resulting in the releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of hazardous substances into the waters or onto the lands of the State…”  Id. at *13, citing N.J.S.A. 58:10-23.11b.  Case law interpretation of “in way responsible” limits responsibility to “[o]wnership or control over the property at the time of the discharge.”  Id., citing State, Dep’t of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 502 (1997).  As such, an owner’s liability for a discharge at its property “does not attach unless there is evidence of a discharge during ownership.”  Id. at *13.  Due to a lack of evidence that the waste generated by Robbins’ tenants included the contaminants detected at the property, the Court could not find Robbins liable for the contamination present at the property.  Id.  The Court further held that Robbins could not be held liable for passive migration of pre-existing contamination that resulted from a discharge that occurred prior to Robbins’ ownership of the property.  Id. at *14, citing White Oak Funding, Inc. v. Winning, 341 N.J. Super. 294, 300 (App. Div. 2001). 

Here, the Appellate Division’s affirmation of the lower court’s decision provides guidance and, to some extent, comfort to past, current, or potential owners or operators of properties that have historically generated hazardous waste.  In order to recover contribution for environmental clean up costs from such owners or operators pursuant to the Spill Act, the party seeking contribution must demonstrate that the discharge of the hazardous substance resulting in contamination of the property occurred during that companies’ ownership or operation at the property, mere generation of hazardous waste is not enough to establish Spill Act liability.  However, this case sheds light on only one of the many regulatory schemes by which past, current, or future owners or operators may be held liable for environmental clean-up costs.

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