Environmental Litigation

In Terranova v. General Electric Pension Trust,  a decision approved for publication, the Appellate Division has confirmed that “[j]udicial estoppel is a defense to Spill Act claims for contribution . . .”  The matter arises out of two cases involving gasoline released from underground storage tanks (USTs) removed and replaced in or about 2000.  In the first case, the current property owner plaintiffs brought suit in 2010 solely against two former tenants seeking, inter alia, contribution under the Spill Act.  In that litigation, the current property owner plaintiffs took the position and obtained an expert opinion that any and all contamination associated with former USTs occurred exclusively during the former tenants’ occupancy.  The case proceeded to arbitration, whereby the arbitrator adopted the findings of plaintiffs’ expert and held the former tenants liable for the contamination and requiring them to take over the remediation.  The arbitrator’s decision was reduced to a final judgment in 2012.

In 2015, plaintiffs’ retained a new expert who opined that the former USTs were leaking prior to the former tenants’ occupancy.  With that information, plaintiffs filed a new suit seeking contribution from the owners and operators who preceded the plaintiff’s ownership and lease to the two former tenants named in the first litigation.* Prior to the end of discovery, defendants in the second litigation filed a motion for summary judgment seeking to have the matter dismissed pursuant to several equitable doctrines, including judicial and collateral estoppel, as well as the entire controversy doctrine.  The trial court granted the motion based on judicial estoppel and plaintiffs appealed.

Citing Morristown Assocs. v. Grant Oil Co., 220 N.J. 360 (2015), plaintiffs argued that the defenses to Spill Act claims are expressly limited to “an act or omission cause solely by war, sabotage, or God, or a combination thereof,” N.J.S.A. 58:10-23.11g(d)(1).  Because the doctrine of judicial estoppel is not a listed defense, plaintiffs maintained it simply is not available.  In affirming the trial court’s decision, the Appellate Division disagreed.

Again citing Morristown Associates, the Appellate Division pointed out that while the Supreme Court concluded that the Legislature intended that individuals are limited to the Spill Act’s subsection (d) defenses, it explicitly rejected an argument that the exclusion of defenses in the Spill Act’s contribution provision “deprives a defendant of other unlisted defenses that should presumably be maintained, such as challenges to venue, service of process, and subject matter jurisdiction.  Such defenses are established by court rules under the jurisdiction of the Supreme Court and are not subject to overriding legislation.”  Id. at 382.  Accordingly, “judicial estoppel is not a defense subject to any overriding legislation and, as such, it may be maintained against a Spill Act claim.”  Applying the equitable principles of judicial estoppel, the Appellate Division affirmed the court below, finding that plaintiffs were precluded from taking a position in the second litigation contrary to the one upon which they prevailed in first litigation.  Because plaintiffs took the position in the first case that any and all contamination associated with former USTs occurred exclusively during the former tenants’ occupancy and prevailed, they were precluded from asserting liability against the defendants in the second case.

The Appellate Division reasoned that the “[a]pplication of the doctrine does not preclude property owners from seeking contribution from dischargers under the Spill Act. It simply compels owners to pursue, in a single action, dischargers which are known or reasonably knowable from the circumstances.”  Acknowledging that judicial estoppel is an extraordinary remedy, the Appellate Division emphasized that the circumstances of the case compelled its application.

While the Appellate Division affirmed on the basis of judicial estoppel, it made clear that the integrity of the judicial process is dependent upon compliance with the equitable principles of not only judicial estoppel, but also collateral estoppel and the entire controversy doctrine.  Therefore, it appears likely that all three equitable doctrines will apply to a claim for contribution pursuant to the Spill Act.

*CSG’s David J. Mairo and Michael K. Plumb represented a defendant in the second litigation.

In an unpublished decision, the Appellate Division of the Superior Court of New Jersey recently ruled that the NJDEP was required, but failed, to undertake formal rulemaking before imposing liability under several NJDEP regulations that govern radon measurement and mitigation activities.  NJDEP v. Radiation Data, Inc., Docket No. A‑1777‑17T3 (N.J. App. Div. Oct. 9, 2018).

In Radiation Data, defendant appealed from NJDEP’s final agency decision (after seven days of hearings) finding defendant liable for violating several requirements relating to the certification of radon testers and mitigators under the Radiation Protection Act, N.J.S.A. 26:2D-1 et seq. and relevant implementing regulations, N.J.A.C. 7:28-27.1 et seq.. On appeal, defendant argued that NJDEP’s Radon Section, which administered the state’s radon program, was wrongfully imposing regulatory standards upon defendant without adopting those standards through formal rulemaking processes. Specifically, the court determined that NJDEP had deviated from the text and stated intent of the radon measurement regulations by making defendant responsible for approximately 450 “affiliate” technicians not employed or controlled by defendant. Defendant further alleged that plaintiff was impermissibly enforcing an internal NJDEP “Guidance Document” as a mandatory rule without the required public notice and comment.

The Appellate Court affirmed in part, reversed in part and remanded in part. The court found that NJDEP was required, but failed, to undertake formal rulemaking for imposition of liability for the conduct of “affiliates” and for enforcing the informal “Guidance Document” concerning quality assurance and control plans as a mandatory rule, without the necessary public notice and comment.  The court held that NJDEP was obligated to undertake public notice and comment to make explicit that it intended to hold certified measurement businesses liable for the conduct of independent contract field tests rather than to require the agencies that employed such testers become certified measurement businesses. The court found that such liability was not apparent from the text of the regulations. With regard to the “Guidance Document,” the court observed that it added requirements not found in the adopted regulations or set forth specific requirements where regulations were more broadly written. Therefore, the court found that the NJDEP intended for the document to operate as an unpromulgated rule and remand was necessary for a determination as to which parts of the Guidance Document required formal rulemaking.

The court declined to vacate certain regulatory violations against the defendant since defendant’s measurement functions did not depend on activities of “affiliate” technicians, and were within defendant’s realistic ability to control.

The New Jersey Appellate Division recently ruled that a landowner’s lawsuit against a former attorney and environmental consultant could proceed to the discovery phase.  In CCM Properties, LLC, et al. v. Pieper, et al, the plaintiff engaged an environmental consultant to perform a ground penetrating radar survey of a property to determine whether any underground storage tanks were present.  The contract specifically stated that no historical analysis or soil sampling would be performed, and further stated that the proposed work did not satisfy New Jersey Department of Environmental Protection requirements.  The consultant performed the scan, found two USTs, and recommended their proper removal.  Despite the fact that an investigation meeting NJDEP requirements had not been performed, plaintiff’s attorney advised that “all issues regarding the purchase of the subject property [were] resolved,” inducing plaintiff to close on the property.  Three  years later, the bank, upon receiving plaintiff’s refinancing application, commissioned a Phase I report.  The Phase I report stated that, in addition to the two discovered USTs, the property once featured another UST and a 250,000 gallon above ground storage tank.  The bank denied the refinance application.  Three years after the Phase I report, plaintiffs filed suit based upon the findings therein.  In particular, plaintiffs leveled a malpractice claim against the attorney for advising them to take title after the ground penetrating radar survey, and malpractice and breach of contract claims against the consultant for failing to advise that further investigation was needed.

Soon thereafter, the defendants moved to dismiss the complaint, claiming that the statute of limitations had expired, and that plaintiff had failed to state a claim.  The trial court agreed.  The Appellate Division reversed.

The Appellate Division first addressed the attorney malpractice statute of limitations issue.  Noting that it is very difficult for lay persons to know that they have been injured until actual damage occurs, the Appellate Division held that plaintiff’s malpractice action did not accrue until it actually received the Phase I report that served as the basis of the bank’s denial.  Thus, the six year statute of limitations did not bar the attorney malpractice action.  The Appellate Division next turned to the consultant malpractice action, and held that that action was properly dismissed.  The Appellate Division observed that the contract precisely circumscribed the consultant’s duties.  The contract expressly stated that the ground penetrating radar survey did not meet NJDEP requirements, and imposed no duty to detect and advise of aboveground storage tanks, soil contamination, or prior use of the property.  Thus, the consultant malpractice action was properly dismissed.

The breach of contract claim against the consultant however, was not.  The Appellate Division noted that, at the initial stages of litigation, the plaintiff’s allegations are treated as true, and that even “obscure statements” that establish a cause of action will overcome a motion for dismissal.  In light of the foregoing, the Appellate Division held that the consultant’s failure to find a third UST supported a breach of contract claim, and that that cause of action could go forward.

For those in the market for potentially contaminated properties, this case highlights the importance of sound legal counsel when interacting with consultants and their work product.  For consultants, the case highlights the value of good drafting.

The Appellate Division has affirmed a $66,200 administrative penalty imposed by DEP against the owner of a shopping center constructed atop a closed municipal landfill. The unpublished and non-precedential decision in NJDEP v. Raritan Shopping Center LP found liability based on current ownership of the contaminated site, despite the landowner never discharging hazardous substances and conducting due diligence prior to purchasing.

Raritan purchased the property in 1993 after conducting environmental tests that discovered low levels of tetrachlorothylene (a common solvent also known as Perc) in the groundwater. The Perc was attributed to the closed landfill. In 2003, a prospective purchaser detected additional groundwater contamination, leading to the discovery and excavation of three buried steel drums. Thereafter, Raritan entered into an agreement to submit remedial reports to DEP. In 2004, Raritan submitted the required reports and requested a no-further action letter. DEP rejected Raritan’s request and instead requested submission of a remedial action workplan. In 2011, DEP advised Raritan of its remedial obligations. In 2014, DEP issued an administrative order requiring Raritan to remediate the groundwater contamination and assessing the $66,200 fine.

Raritan requested a hearing and the administrative law judge found in favor of DEP. On appeal, the Appellate Division affirmed based on a DEP regulation stating that Spill Act liability includes “subsequent owners of real property where the discharge occurred prior to the filing of [a no further action letter or response action outcome] with the Department.” N.J.A.C. 7:26C-1.4(a)(4). Curiously, the Appellate Division does not explain why DEP’s interpretation of Spill Act liability, a purely legal question, is entitled to deference. Rather, the decision cites to N.J. Schs. Dev. Auth. v. Marcantuone, 428 N.J. Super. 546, 559 (App. Div. 2012), which states that liability may exist for an owner who, unlike Raritan, purchased contaminated property without conducting due diligence. In this case, the innocent purchaser defense did not apply because Raritan’s due diligence detected the contamination.

Though unpublished, the decision demonstrates the Court’s deference to DEP’s expansive interpretation of environmental liability. Perhaps more practically, the case also demonstrates the prudence of remediating reported discharges while seeking contribution from those who discharged the hazardous substances.

On September 5, 2018, the United States Third Circuit Court of Appeals (“Third Circuit”) rendered a decision that could potentially implicate the NJDEP permitting process in future Natural Gas Act and other federal permitting actions.

In Township of Bordentown, et al. v. FERC, No. 17-3207 (3rd Cir.  September 5, 2018), the Third Circuit held that the New Jersey Department of Environmental Protection (“NJDEP”) could not deny the Petitioners the ability to request an adjudicatory hearing under the New Jersey Freshwater Wetlands Protection Act (“FWPA”) solely on the basis of preemption of the Federal Natural Gas Act (“NGA”). This opinion means that challengers have at least the right to request an administrative hearing for State-issued environmental permits, even for certain Federally-permitted projects. If a state environmental agency like the NJDEP were to grant such a hearing, this could significantly delay the commencement of a project.

By way of background, Transcontinental Gas Pipe Line Co. (“Transco”) proposed to upgrade its existing interstate natural gas pipeline system – including the construction of a new mater and regulating station, compressor station, and electrical substation along a lateral in Chesterfield, NJ – and conduct certain modifications in Mercer County, NJ (the “Project”). The Project required, and obtained, approvals from the Federal Energy Regulatory Commission (“FERC”) under the NGA. In addition, the Project is to be situated in freshwater wetlands and transition areas requiring the discharge of fill or dredge material into navigable waters, as well as a significant diversion of volumes of water. The discharge of dredge and fill material into navigable waters requires a permit pursuant to Section 404 of the Federal Clean Water Act , 33 U.S.C. 1341(a) (“CWA”). New Jersey has assumed permitting authority for certain navigable waters such as those involving the Project, which is implemented under the FWPA. Transco applied for, and obtained, a Freshwater Wetlands Individual Permit and Water Quality Certification.

Once NJDEP issued the permit, and pursuant to the FWPA, the Petitioners requested an adjudicatory hearing. NJDEP denied the hearing based solely upon the NGA’s requirement that the federal courts have exclusive jurisdiction to review the issuance of permits such that the state administrative hearing process is not applicable.

The Third Circuit concluded otherwise, and ruled that the administrative hearing process provided under state law is not precluded by the court’s exclusive jurisdiction under the NGA. In doing so, the Third Circuit reviewed the NGA and concluded that its jurisdiction is limited to civil actions, and not administrative proceedings. The Third Circuit also reviewed case law from the Supreme Court of the United States and other Federal Circuit Courts of Appeal, and concluded that the hearings at the administrative hearing level were not civil actions as referenced in the NGA, even if administrative proceedings mirror adversarial trials. Thus, the NGA “leaves untouched the state’s internal administrative process, which may continue to operate as it would in the ordinary course under state law.”

Depending on the Federal permitting process involved, applicants must consider the possibility that an administrative hearing may – and can, if granted – be considered as part of the timing of the state permitting process. The Third Circuit’s opinion, of course, is limited to the applicability of an administrative hearing in a state-permitting program delegated under a Federal statute, in this case the delegation of CWA authority to the NJDEP under the FWPA. However, the analysis of whether an administrative hearing is a judicial action can be read beyond its applicability to the FWPA. Each individual permittee applying under State law must always add a permit of time predicted for the hearing, if a hearing is granted, as part of its construction planning process. In addition, permittees may now want to vigorously oppose adjudicatory requests, as they can be used offensively by project challengers to delay a project.

It should be noted that the vast majority of the opinion provides a detailed analysis of FERC’s issuance of certificate of public convenience and necessity, and its subsequent analysis under the Federal National Environmental Protection Act (“NEPA”). The Third Circuit issues important conclusions regarding the applicability of a related intrastate project and its impact on the NEPA analysis. However, the important takeaway from this opinion is the applicability of the state administrative hearing process to state permits issued for Federal projects, and its impact on the timing of a project.