In a recent decision, U.S. Masters Residential Property (USA) Fund v. New Jersey Department of Environmental Protection – Financial Services Element, the New Jersey Superior Court’s Appellate Division held that a claimant could not recover from the Spill Fund where contamination on the claimant’s properties was the result of historic fill and defuse anthropogenic pollution (“DAP”), not oil. The claimant owned several contiguous residential properties in Bayonne not far from Upper New York Bay and the Hudson River. During Hurricane Sandy, the properties and the surrounding area were flooded and inaccessible for days. When the floodwaters receded, claimant found staining from what it believed to be petroleum and/or hazardous substances on the interiors and exteriors of its buildings, and detected a petroleum odor emanating from the properties’ yards. Claimant claimed the floodwaters had carried petroleum or other hazardous substances from an offsite source onto its properties.

The New Jersey Department of Environmental Protection (“NJDEP”) disagreed. Soil samples from the properties revealed contamination from historic fill, not oil. Historic fill is contaminant-bearing material used to fill in low lying areas, usually consisting of coal, wood ash, dirt, and the like. Strictly speaking, contaminants found in historic fill are “hazardous substances” under the Spill Act. Further, the regulatory definition of historic fill describes what the “fill” is, but does not state when the fill must be deposited to qualify as “historic.” NJDEP construed the term “historic fill” to mean fill deposited before the Spill Act, or pre-1977. In accordance with its interpretation, NJDEP denied the claim while reserving its right to deny the claim on any other appropriate basis. The claimant sought arbitration.

At the arbitration hearing, NJDEP’s expert in analytical chemistry testified that the soil samples taken from the properties lacked tell-tale signs of oil contamination, chemicals called “aliphatics.” The soil samples also contained arsenic and lead, chemicals not commonly found in oil. NJDEP’s expert ultimately concluded that the soil sample results were indicative of historic fill and DAP, not oil. DAP consists of air pollution particles that fall onto the ground or water and accumulate over time. NJDEP, whose definition of DAP contains no time component, treated the finding of DAP as a per se sign of a pre-Spill Act discharge.

The claimant’s expert described a “petroleum odor” and “bathtub ring” he found at the properties, but offered no opinion regarding the missing aliphatics. The claimant’s expert also relied on news reports indicating that oil had been discharged in the general area of the properties in the course of the storm. Based on the analytical results, the arbitration judge found that Hurricane Sandy had stirred up DAP in local waterways and deposited the same on the properties. Accordingly, the arbitration judge denied the claim.

The Appellate Division affirmed the arbitration judge’s decision. The burden of proof was on the claimant to prove a post-Spill Act discharge, and the claimant had simply failed to make its case. The missing aliphatics, the inability of claimant’s expert to opine on the soil results, and the claimant’s failure to show that Hurricane Sandy had placed oil, not just in the area of, but specifically on the properties, all persuaded the Appellate Division that the arbitration judge’s denial was proper.

A lesson here is, when bringing a Spill Fund claim, claimants should have a good handle on their analytical results, and be sure that their contamination is from a spill, not fill. This is because, apparently, NJDEP has concluded that historic fill and DAP are per se pre-Spill Act discharges for which the Spill Fund is not liable. This is an intriguing position on several grounds. First, neither the definition of historic fill nor DAP have time components. Thus, the Department is taking an implicit leap that, if historic fill and DAP are found, they must be pre-Spill Act historic fill and DAP. Factually, this could be disputed, as, for example, coal, wood ash, dirt, and the like, could very well have been deposited after 1977. Second, NJDEP’s interpretation appears to be a rule of general applicability and continuing effect, meaning that the interpretation should have been promulgated through New Jersey’s rulemaking process. Finally, estoppel theories may apply as well. On the one hand, persons responsible for conducting the remediation are required to address historic fill, and according to NJDEP, should address DAP at their sites. On the other hand, NJDEP is indicating that the Spill Fund is not liable to pay claims for the very same kind of contamination. This asymmetry of treatment may open NJDEP’s interpretation to challenge. So another lesson is, if claimants must bring a Spill Act claim for historic fill and DAP, their claims may not be barred as a matter of law.

The EPA’s 2014 cooling water rule for existing power plants (40 C.F.R. pts. 122, 125) has survived challenges from both environmental and industry groups. The Second Circuit Court of Appeals upheld the contentious rule which allows for, among other things, case-by-case determinations of best technology available (BTA) required for minimizing adverse environmental impacts from cooling water intake structures (CWISs), finding that the rule was based on reasonable interpretations of applicable statutes and sufficiently supported by the factual record.

By way of background, once-through CWISs use tremendous volumes of surface water to dissipate heat from power plants. Fish trapped against the intake screens (impingement) or passing through the cooling water system (entrainment) can be injured or killed. Closed-cycle cooling systems use much less surface water and therefore impact fewer fish. Most existing power plants were built with once-through CWISs.

The rule allows for the Director of a state’s Clean Water Act permitting program to determine the BTA to limit entrainment on a site-specific basis. Environmental challengers argued that the rule should have identified closed-cycle cooling as the BTA. The Second Circuit disagreed, stating that the rule explains that closed-cycle cooling is infeasible at some existing facilities because of space constraints, emissions impacts arising from the additional energy requirements of closed cycle cooling, and the absence of net benefits associated with power plants nearing the end of their useful lives. Environmental challengers also argued that the cost of closed-cycle cooling should not have been considered in evaluating the best technology available. Again the Second Circuit disagreed, stating that EPA did not improperly consider costs, and that agencies are generally required to consider the costs and benefits of a regulation.

Regarding impingement, the rule identifies “modified traveling screens with a fish-friendly return” as the best technology available, rather than the closed-cycle cooling preferred by environmental challengers. Modified traveling screens are projected to achieve a 76% survival rate for impinged “non-fragile species.” Environmental challengers argued that the exclusion of fragile species was an arbitrary distinction. However, the Second Circuit accepted EPA’s “adequately supported” explanation that inclusion of fragile species masks the effectiveness of impingement technology, and that EPA’s data shows that mortality of fragile species depends on natural conditions rather than technology performance.

The Court also rejected a flurry of arguments relating to EPA’s site-specific process for evaluating impacts on endangered species, as well as the administrative law arguments advanced by industry challengers. Barring Supreme Court review, this decision marks the end of over 30 years of litigation regarding CWIS rules. Given the site-specific nature of the final rule, arguments previously used to challenge the sufficiency of the CWIS rules will likely now be used to challenge permits granted to existing power plants.

The Appellate Division of the Superior Court of New Jersey recently (in an unpublished opinion) applied the six year statute of limitations (“SOL”) for tortious injury to real property in barring plaintiff’s claim for permanent diminution in the value of its property. 320 Associates, LLC v. NJ Natural Gas Co., Docket No. A-1831-16T2 (N.J. App. Div. June 29, 2018). As a result, the neighboring property owner was unable to bring a claim for tortious injury to real property caused by the migration of coal tar contaminants from defendant neighboring property owner. Importantly, the court did allow plaintiff’s nuisance claim to proceed noting that if a nuisance can be abated, the failure to do so constitutes a continuing tort entitling plaintiff to relief and is not barred by the SOL.

In 320 Associates, the property owner, 320 Associates, LLC, owned a piece of commercial property located just north of defendant New Jersey Natural Gas Co.’s (“NJNG”) property. Plaintiff asserted that NJNG property was polluted with coal tar. The discharges on defendant’s property decades earlier from industrial operations had resulted in the migration of a coal tar plume onto plaintiff’s land causing damage.

Plaintiff stated in its complaint that it first learned of the migration of coal tar plumes onto its property in 2008. As a result of the newly discovered pollution, it could not sell its property to a current commercial tenant. Plaintiff further asserted that the pollution from NJNG’s land had decreased the value of plaintiff’s land and might negatively affect plaintiff’s future ability to either sell or lease the property. Damages were estimated at $2.5M. Based on these essential facts, plaintiff filed claims for negligence, negligence per se, strict liability, violation of the Spill Act, violation of New Jersey Environmental Rights Act, nuisance and trespass. In each count, the plaintiff sought the same relief, including damages for the lost sale or rental value of its property, and injunctive relief requiring NJNG to cleanup pollution on NJNG’s property and on plaintiff’s property.

The parties agreed that the applicable statute of limitations is the six year SOL for tortious injury to real property. N.J.S.A. 2A:14-1. The court confirmed the law axiom that ordinarily a cause of action would accrue when the right to institute and maintain a suit first arose. However, in environmental cases, under the so called discovery rule, a cause of action is found not to accrue until the injured party discovers, or by an exercise of reasonable due diligence and intelligence should have discovered that he may have a basis for an actionable claim.

The Appellate Division (in a de novo review) agreed with the trial court that the latest plaintiff learned about the condition was in 2008, therefore, the six year statute of limitations for a damages claim based on permanent diminution in the value of the property began to run in 2008 and expired in 2014 and therefore, was time barred. Additionally, the Appellate Court rejected plaintiff’s argument that the migration of contaminants constitutes a new “discharge” of pollutants every time it occurred. The court noted that the discharge of pollutants on defendant NJNG’s property occurred decades ago and therefore, the migration of those pollutants onto plaintiff’s land did not constitute a new discharge and therefore, the claims could not proceed based on the time bar.

Interestingly, the court reached a different conclusion with respect to plaintiff’s nuisance claim. Finding that since there was no dispute that defendant NJNG could have abated the contamination on plaintiff’s property, the failure to abate constitutes a continuing tort that entitles the plaintiff to relief and the applicable SOL did not bar plaintiff’s nuisance claim. The court further observed if the nuisance cannot be abated, there is no continuing tort, and the statute of limitations begins to run when the defendant creates the harmful condition. Finding these issues not ripe for the court’s consideration, the court found the trial court acted prematurely in dismissing plaintiff’s nuisance claim and remanded for the purpose of reinstating those claims and proceeding with discovery.

Property owners that have been impacted by contamination from a neighbor should consider bringing a nuisance claim for damages stating that the failure to abate the contaminants constitutes a continuing tort even though its other common law environmental claims may be time barred.

For more information or for a copy of this decision, please contact Michael J. Naughton at mnaughton@csglaw.com.

On Monday, the United States Environmental Protection Agency (“EPA”) issued a Compliance Advisory Update announcing the implementation of streamlined changes to the Hazardous Waste Manifest submission process.  Pursuant to the Hazardous Waste Electronic Manifest Establishment Act, beginning on June 30, 2018, EPA will launch a new e-Manifest system nationwide, allowing Hazardous Waste Manifests to be created and submitted via the EPA website. Consequently, EPA will no longer be accepting paper manifests and paper manifests submitted to the New Jersey Department of Environmental Protection will not be forwarded to EPA.

Among those most impacted will be treatment, storage, and disposal facilities (“TSDs”) which receive and report hazardous waste to EPA. The e-Manifest system will not be required for very small quantity generators (“VSQGs”), medical waste generators, used oil generators, universal waste generators, and others who are not required to have an EPA ID nor use the uniform hazardous waste manifest (EPA Form 8700-22).

To avoid confusion over compliance as the new e-Manifest system launches, EPA will phase in the rule based 30 day deadline such that all manifests expected to be delivered to EPA between June 30 and September 1, 2018 may be submitted to EPA as late as September 30, 2018.  More information on the e-Manifest system is available via the EPA website.

 

The next time a government inspector comes to a business and inspects its dumpster, do not be surprised if the resulting legal problem involves both environmental and consumer fraud actions. During the last few years, a number of national corporations have found themselves in legal trouble because the inspector found both hazardous waste and customer records containing personal information in a dumpster. If the business is in New Jersey that means it will be dealing with both the Department of Environmental Protection and the Division of Consumer Affairs’ Office of Consumer Protection. Needless to say, it is a situation to avoid.

Many items routinely handled by a business, including retail businesses, become a hazardous waste when disposed. These may include returned or excess inventory consumer products as well as cleaning and building maintenance products used at the business. Determining if they become hazardous waste when disposed often requires analysis not readily available at the disposing facility. Failure to know if disposed material is a hazardous waste can lead to substantial fines and even criminal prosecutions if it is improperly disposed. Any business should have a plan for determining if the materials disposed are hazardous waste subject to regulation and, if so, to ensure that the hazardous waste is handled and disposed of legally.

Many businesses are aware of the hazardous waste issues referenced above. Fewer are aware of this obligation imposed by New Jersey law with regard to disposal of customer information. “A business or public entity shall destroy, or arrange for destruction of, a customer’s records within its custody or control containing personal information, which is no longer to be retained by the business or public entity, by shredding, erasing, or otherwise modifying the personal information in those records to make it unreadable, undecipherable or nonreconstructable through generally means.” New Jersey is not alone in regulating the disposal of customer records. In states with such laws or regulations, any business having such records should also have a plan for their legal disposal. In New Jersey, the amount of actual damage to a consumer is automatically tripled, the consumer is automatically awarded attorney fees and costs and fines may be imposed up to $10,000 for a first violation and up to $20,000 for each subsequent violation. In some states, each disposed customer record is a separate violation.

The recent cases against national companies are likely only a prelude to similar actions against state or local business. When the inspector comes, those business should know that what is in their dumpsters does not include hazardous waste or discarded customer records containing personal information.

ESG investing is back in the news.  ESG investing evaluates a company’s or fund’s environmental, social and corporate governance performance when considering an investment in company stock or fund shares. Unlike years past, it is now conventional wisdom that companies and funds with strong ESG policies are good economic investments.  Those with weak or non-existent policies are not as prudent investments because they present a greater risk of facing events or publicity that will lower their investment value.  One would think the federal government would encourage such investing but this administration, siding with companies and funds that oppose ESG investing, does not.

On April 23, 2018, the United States Department of Labor issued a Field Assistance Bulletin (FAB) that backtracks on ESG investing by employee benefit plan managers by “clarifying” an Obama era Interpretive Bulletin (IB).  The IB stated “… that plan fiduciaries should appropriately consider factors that potentially influence risk and return.  Environmental, social and governance issues may have a direct relationship to the economic value of the plan’s investment.  In these instances, such issues are not merely collateral consideration … but are proper components of the fiduciary’s primary analysis of the economic merits of competing investment choices.”  The IB, in effect, supported plan managers who believed that ESG considerations are part of economically targeted investing.

The current administration has taken a different and potentially chilling approach to ESG investing.  “Fiduciaries must not too readily treat ESG factors as economically relevant to the particular investment choices at issue when making a decision.  It does not ineluctable follow from the fact that an investment promotes ESG factors, or that it arguably promotes positive general market trends or industry growth, that the investment is a prudent choice for retirement or other investors.”

Fund managers who consider ESG factors may feel this FAB creates confusion instead of clarifying the government’s position.  A fund manager must also consider how and when the government will second guess an ESG investment decision.  These uncertainties likely will require additional documentation supporting the fund manager’s decision.  Whether this FAB reduces ESG investing remains to be seen.

Can groundwater discharges violate the Clean Water Act and require NPDES permits?  Two federal court cases coming out of the 4th and 9th Circuits dealing with the applicability of the Clean Water Act (CWA) to groundwater are creating real concern over how expansive the court’s holdings and application of the Act can be.  The decisions were rendered by US Court of Appeals for the 4th Circuit in Upstate Forever v. Kinder Morgan Energy Partners LP and the 9th Circuit in Hawaii Wildlife Fund v. County of Maui.

In each case, the courts held that groundwater can be regulated under the CWA when it acts as a conduit through which pollutants from a spill of hazardous substances, septic waste or injection can be traced to protected surface waters.  While the burden of proof is significant, if a nexus can be established between the contaminant detected in the surface water and groundwater where the release originally occurred, then exposure to CWA fines is real and the need for a National Pollution Discharge Elimination System permit appears to be required.  The 4th Circuit’s holding is even broader than the 9th Circuit in that it applies to residual or historic contamination.  In other words, if released contamination ever reaches surface water protected by the CWA, then it doesn’t matter when the spill contaminants were first released to the environment.

In the 9th Circuit case, the County of Maui has already informed the court that it will seek Supreme Court review and for good reason.  If upheld, these rulings have far reaching implications for not only regulated industries, such as oil and gas, but also private home owners with septic systems and municipalities with leaking sewer pipes.  Here in NJ, where there is a robust state regulatory program requiring remediation of discharges to the environment, CWA regulation will add another regulatory scheme to be considered and may end up regulating septic tanks, which are common in New Jersey, and other systems designed to release materials below ground level.  Releases, both recent, as well as historic, could create a set of liabilities no private citizen even remotely considered.   Moreover, these decisions could cause the New Jersey Department of Environmental Protection to require re-investigation and re-assessment of sites that have been remediated pursuant to state law to determine if a previously unaddressed contaminant pathway between groundwater and surface water exists.

It remains to be seen how EPA will integrate these decisions, if they stand, into practice.  Once it does, the question will become how state delegated clean water programs will be affected.

In a recent unreported opinion, the Appellate Division affirmed a trial court’s decision imposing Spill Act liability on the sole shareholder of a dry cleaning business. (Morris Plains Holding VF, LLC v. Milano French Cleaners, Inc., Dkt. No. A-0604-16T1.) The case serves as a reminder that shareholder status does not protect individuals who are otherwise liable for contamination pursuant to the Spill Act.

The trial judge found that Milano French Cleaners operated for 25 years in a strip mall owned by the plaintiff. PCE was detected in the soil in 1999. After approximately 10 years of remediation the business went bankrupt. The landowner then assumed responsibility for the remediation and filed the subject action against the bankrupt corporation and its sole shareholder. The trial judge held both the sole shareholder and the corporation jointly liable for all remediation costs.

On appeal, the shareholder argued that imposing Spill Act liability on him improperly pierced the corporate veil. The Appellate Division disagreed, relying on NJDEP v. Dimant, 212 N.J. 153 (2002). As set forth in Dimant, to recover damages under the Spill Act, a plaintiff must establish a “reasonable nexus” between the discharge and the environmental damage, and a “reasonable link between the discharge, the putative discharger, and the contamination at the specifically damaged site.” Relying on the trial courts factual determinations, the appellate panel found a “reasonable nexus” because PCE contamination was found directly below dry cleaning machines with no other credible source in the area. In addition, the shareholder operated the dry cleaning equipment, was responsible for overseeing and handling the PCE used, and was responsible for ensuring legal and regulatory compliance of the corporation. Taken together, the record satisfied Dimant’s reasonable nexus standard and established individual liability.

Liability protection is clearly available to shareholders of close corporations in Spill Act actions. As recently as 2016 the appellate division remanded a decision imposing personal liability on shareholders for failure to conduct the fact intensive analysis necessary to pierce the corporate veil. See NJDEP v. Navillus Group, App. Div. Dkt. No. A-4726-13T3 (Jan. 14, 2016). However, in this case, given the nexus between the individual shareholder and the contamination, the appellate division refused to allow shareholder status to be used as a shield to individual liability. Rather, liability arose from a “reasonable link” between the discharger and the contamination, without regard for shareholder status.

A recent Court Decision by the United States Court of Appeals for the Second Circuit held there is no time limitation on OSHA’s ability to look back at prior citations in order to classify a new citation as a repeat citation and thereby seek a larger penalty. The issue in Triumph Construction Corporation v Secretary of Labor, 885 F.3d 95 (2018), was whether the three-year look back period used prior to 2015 or the subsequent five-year look back period applied to a repeat citation issued to Triumph in 2015 for a cave-in at an excavation site in lower Manhattan. To establish the repeat classification, OSHA had relied upon two prior citations issued in 2009 and 2011 to Triumph for violating the same excavation standard. Triumph contended to the Court that the Occupational Safety and Health Review Commission improperly upheld the contested repeat citation.

Triumph argued that prior to 2015, OSHA had used a three-year look back period to determine a repeat citation and that OSHA’s subsequent decision to use a five-year look back period in 2015 was an arbitrary one. These look back periods were included in OSHA’s Field Operations Manual effective at the time of the citations. The Second Circuit found that it did not matter whether a Manual prescribed a three-year or five-year look back period. It noted that neither the Occupational Safety and Health Act nor its implementing regulations impose time limits when determining if a citation is considered a repeat citation. The Court held that a time period set forth in a Manual “is only a guide” and does not bind the Commission to a specific look back period. As neither the Commission’s precedent nor the Manual limited OSHA to any look back period, the Commission did not abuse its discretion by relying on prior violations more than three years old in upholding the classification of the citations.

What this means is that OSHA is not restricted to any look back limitation when determining to classify a citation as a repeat citation. With OSHA substantially increasing its maximum penalties for willful or repeated citations to $130,000 (effective 1/2/18), employers should seriously consider contesting citations to which they have a good faith defense so that those citations do not later form a basis for a repeat citation.

It may be much harder to fill property in New Jersey.  In a recent decision, New Jersey Department of Environmental Protection v. Bleimaier, 2018 WL 1513152, (App. Div. 2018), the New Jersey Appellate Division in effect has held that the placement of more than five-yards of fill material always changes the existing topography and a permit is required.

In the case, a homeowner was issued an Administrative Order and Notice of Civil Administrative Penalty Assessment after the homeowner filled and graded their property, which fell within a delineated-flood-hazard-area, without a permit. The homeowner argued that a permit was not required because they were not altering the pre-existing topography and were merely remediating recent soil erosion.

The Department disagreed because the stated purpose of N.J.A.C. 7:13-2.4(a)(1) was to require a permit for “any topographic alteration, such as excavation, grading, or placement of fill.” Agreeing with the Department, the Appellate Division reasoned that if it were to accept the homeowner’s argument, a landowner could choose an arbitrary point in time and claim that they were restoring the topography to that particular point.

While the Appellate Division explains that the Department’s interpretation of the regulation was consistent with its stated purpose and in the public’s interest, the Department appears to be taking the position that the placement of more than five-yards of fill changes the pre-existing topography and, in effect, a permit is always required. The question becomes, was this the result the Department intended?