An unpublished Superior Court Appellate Division opinion (89 Water Street Associates, LLC v. Reilly, Docket No. A-3366-17T1, October 1, 2019), despite being non-precedential, will be instructive to lawyers handling commercial real estate transactions, land use issues, or environmental litigation arising from environmentally contaminated sites.  The opinion reversed the trial court’s order interpreting environmental terms in a contract for the sale of a parcel of land.  It required the buyer to obtain a Response Action Outcome (RAO) from a Licensed Site Remediation Professional (LSRP), in part because the cost of obtaining the RAO exceeded the parties’ expectations as, in the court’s view, evidenced by extrinsic documents.  The appellate court found that the trial court erred in shifting that burden from the sellers to the buyer.  The appellate court reviewed the contractual terms and surrounding circumstances to conclude that by its terms, the contract imposed the obligation to secure an RAO on the sellers irrespective of the cost and time burdens of doing so.

On its face, the Appellate Division’s opinion appears a straight-forward application of long-established contract-interpretation principles, adhering to the age-old adage that a court will not make a better deal for a party than the party made for itself.  Nevertheless, there are lessons to be gleaned from the court’s analysis.

Sale Agreement

The matter involved a contract for the sale of industrial land in New Jersey.  Defendants (Sellers) acquired the land in the 1980s.  At the time of acquisition, the New Jersey Department of Environmental Protection (DEP) issued a No Further Action Letter (NFA) to the Sellers pursuant to the Industrial Site Recovery Act (ISRA).  Sellers then leased the property to National Refrigerants, Inc. (Tenant), in which one of the Sellers was the sole shareholder.  In October 2004, plaintiff (Buyer) and Sellers entered into a contract for the sale of the property.  The sale price was $475,000.  The contract provided for a closing on August 15, 2005 if all conditions to closing were met, otherwise the closing could be extended as far as February 15, 2006.

Section 18 of the contract provided several terms that were central to the dispute.

  • Section 18(a) provided that the parties acknowledged that there was a pre-existing environmental condition at the property.
  • Section 18(b) memorialized the parties’ acknowledgment that ISRA applied to the transaction and that Sellers had the obligation to “receive[] from the Industrial Site Evaluation Element [(ISEE)] or its successor . . . a Clearance Document by the Closing Date.” (alterations in original).  A Clearance Document was defined as “‘(i) a non-applicability letter; (ii) a de minimis quantity exemption; (iii) an unconditional approval of [Sellers’] negative declaration from the’ ISEE or its successor; ‘or (iv) some other document from the [NJ]DEP indication that no further action is required with respect to any environmental remediation of conditions on the Property.’”  (alterations in original).
  • Section 18(c) provided a right for Buyer to terminate the contract in the event Sellers failed to obtain a Clearance Document by the closing date, except to the extent that Section 18(d) provided that so long as Sellers exercised good faith efforts to obtain such a document, no party could void the contract.

Trial Court Findings

From 2005 through 2010, the Tenant – not the Sellers – attempted to obtain a Clearance Document from DEP.  Tenant was obligated under its lease to perform and finance the remedial action.  In December 2012, Sellers notified Buyer of their intent to void the contract and return Buyer’s deposit, noting that neither party had defaulted.  Buyer responded that it wished to proceed under the contract.  Buyer thereafter filed suit for declaratory judgment that the contract had not been voided.

Subsequent to a bench trial, the trial court found that the contract had not been voided.  According to the trial court, the parties did not expect that obtaining a Clearance Document would require substantial cost or effort, and they viewed it as an administrative formality in light of the prior NFA.  Nevertheless, Sellers’ 2012 attempt to void the contract was not effective, as once the specified closing dates passed, good faith efforts on part of Sellers to obtain the Clearance Document tolled all parties’ ability to void the contract.  With the enactment of the Site Remediation Reform Act (SRRA), which in most cases replaced the DEP’s issuance of an NFA with a Response Action Outcome (RAO) issued by a Licensed Site Remediation Professional (LSRP), the court found the Sellers would not be able to fulfill the agreement, because an RAO is not a Clearance Document as that term was defined in the contract.

Importantly, the court thereafter effectively shifted the burden to the Buyer to obtain the Clearance Document or to void the contract of sale.  The court relied on Dixon Venture v. Joseph Dixon Crucible Co., 122 N.J. 228 (1991) and Feighner v. Sauter, 259 N.J. Super. 583 (1992), to determine that because the large expense of obtaining the Clearance Document was not contemplated by the parties disproportionate to the sale price, Buyer’s equitable ownership of the property subsequent to the execution of the contract permitted the court to place that cost burden on Buyer.  That said, because, according to the court, the enactment of SRRA made it impossible for Sellers to continue to exercise good faith efforts to obtain a Clearance Document, Buyer could elect instead to cancel the transaction.  The court conditioned the newly imposed cost burden on a commensurate adjustment in sale price if Buyer chose to close the sale instead of voiding the contract.

Appellate Division Holding

The Appellate Division reversed and remanded the matter.  Analyzing the language of the contract, the court found that Section 18(b) plainly contemplates SRRA, as it acknowledges the applicability of ISRA and any amending or successor legislation or regulations.  Moreover, the contract’s definition of Clearance Document, which includes “some other document from the [NJ]DEP indicating that no further action is required,” is broad enough to encompass an RAO.  The appellate court noted that an RAO serves a similar purpose to the NFA, even though an RAO is prepared by an LSRP and not DEP.  Thus, the court’s conclusion that Sellers could no longer work in good faith to secure a Clearance Document was in error.

Moreover, the contract did not contain any limitation on the costs of obtaining such a document.  The court noted that had the parties wished to impose any such limitation, they would have done so by express terms, as they had elsewhere in the contract.  Taking it a step further, the appellate panel noted that it would be “an abuse of the corporate form” to permit Sellers to elude its obligations under the contract because of cleanup costs incurred by its Tenant which costs were imposed by a separate contract, the lease.

Finally, the court distinguished Dixon and Feighner.  According to the panel, both of those cases involved contracts that did not contemplate the applicability of remediation statutes and regulations and, accordingly, did not contemplate the allocation of liabilities for remediation.  By contrast, the parties here clearly contemplated those liabilities.  The contract specifically acknowledged the environmental conditions present at the property and delineated responsibility for acquiring a Clearance Document to Sellers.  Under those circumstances, the contract reflected an understanding between the parties that Sellers assumed all of the economic risks of bringing the property within applicable remediation standards, and the contract, according to the Appellate Division, should be enforced as such.

Because the court found that the 2012 revocation was ineffective and that the Buyer was entitled to declaratory judgment stating as such, the court remanded the matter and ordered that Buyer be awarded attorney’s fees.

Takeaways

This case affirms the proposition that an RAO issued by an LSRP is contractually the equivalent to an NFA formerly issued by DEP. For attorneys whose practice involves the transfer of contaminated land or litigation involving contaminated land, this case illustrates that well-drafted contracts can protect both parties by including language expressly providing for subsequent changes in law, just as the contract in this case did.  Furthermore, parties can protect their intentions by allocating risks in their contracts by, for example, capping remediation obligations in terms of time (duration in years) and money (future remediation costs), which the parties in this case failed to do, which proved fatal to Sellers’ attempt to cancel the contract here. Indeed, the Appellate Division’s holding on that issue reaffirms the traditional notion that courts will not read terms into contracts in order to craft a better deal for parties than the parties crafted for themselves.  Finally, the case demonstrates the Court’s deference to the corporate form in not allowing the Sellers to elude their contract obligations where the cleanup was being performed by Tenant rather than the Sellers.

In fiscal year 2019, the U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) conducted 33,401 more inspections than in the previous three years, which includes a notable increase in chemical exposure cases.

While inspections are increasing significantly, in 2019 OSHA reduced certain electronic reporting requirements which had been implemented by the Obama administration in 2016. With OSHA’s March 2, 2020 deadline for employers to electronically file their annual summary of all work related injuries and illnesses, the electronic reporting requirements for certain employers have been reduced.

For example, employers with 250 or more employees at a particular establishment are no longer required to electronically submit their OSHA 300 and OSHA 301 Forms directly to OSHA. These employers, however, still need to electronically file their annual OSHA 300A Form before March 2, 2020. Employers with between 20 and 249 employees also must electronically file their OSHA 300A Form (by March 2, 2020), if they fall into one of the industries designated by OSHA’s regulations. Additionally, all employers must continue to report to OSHA any work place incident, such as a chemical exposure resulting in worker injury.

On January 10, 2020, OSHA (Region 5) proposed a $171,628 penalty to an industrial valve manufacturing company for exposing employees to lead and copper dust at rates higher than the permissible exposure levels.

On February 4, 2020, OSHA (Region 3) proposed a $280,874 penalty against a hydraulic service and repair company for exposing workers to hexavalent chromium fumes and other hazards at the company’s facility in Pennsylvania.  The penalties included one willful violation and 18 serious and two other-than-serious citations. OSHA noted in their report that “employers must continually evaluate their facilities for hazards, and use proper safety controls and equipment to protect workers’ safety.”

An important takeaway from this post is that with the increase in OSHA inspections and imposition of significant fines, employers should, almost daily or weekly, evaluate their facilities for chemical exposure hazards. Also, this will ensure the use of proper safety controls and other equipment to protect workers’ safety.

Note, February 27, 2020: The NJDEP has made available licensing registration forms referenced in our original blog post that must be submitted by any entity engaged in “soil and fill recycling services” by April 20, 2020.  NJDEP also issued  a guidance document and FAQs.  These documents can be found here.  

On January 21, 2020, New Jersey Governor Phil Murphy signed the “dirty dirt” bill that requires businesses engaged in soil and fill recycling to comply with the background checks and licensing requirements currently imposed on the solid waste industry. The underlying history of improper soil disposal practices which motivated enactment of the new law is addressed in an earlier CSG Environmental Blog post.

Licensing requirements are no longer limited to solid and hazardous waste haulers and certain facilities. Now, any entity engaged in “soil and fill recycling services” must register with the DEP by April 20, 2020, and then apply for a license (or a 90 day extension) by October 17, 2020.

Use of virgin quarry products, including rock, stone, gravel, sand and clay, is exempt from the licensing requirements. Utilization of beneficial use material – which is material that would otherwise be solid waste but is instead used as landfill cover, aggregate substitute, fuel substitute or fill material – is also exempt from the licensing requirements if the generator has obtained prior approval from DEP to transport to a designated destination. Such approvals will likely result in construction delays.

Regarding site development and site remediation, the statute raises serious questions that DEP should quickly address with guidance and subsequent regulations. For example, consultants engaging in assisting clients with the disposition of soil materials could now be considered “brokers” who must be licensed. Likewise, while the term “consultant” excludes LSRPs, that exclusion does not appear to exclude environmental consultants, or even those working under the supervision of an LSRP. Likewise, the statute appears to require that developers retain only licensed consultants before clean fill can be transported between sites (as is routinely done to balance fill needs).

In addition, the law empowers the DEP, a local board of health, and a county health department to enter and take samples from any premises “used in connection with the provision of soil and fill recycling services in order to determine compliance with” a registration or license issued under this statute and “any other applicable law, and rules and regulations adopted pursuant thereto.” That provision has the potential to significantly disrupt construction projects, particularly if interpreted to include sites receiving recycled fill.

Finally, in concert with the new licensing requirements, the DEP has released a proposed model ordinance that it encourages municipalities to adopt which imposes permit requirements on the placement of fill at sites not undergoing remediation. Specifically, the model ordinance would require that all soil placed at a site meet the DEP’s residential and non-residential soil remediation standards. The proposed ordinance does not set forth sampling protocol – creating the potential for a statewide mosaic of standards, and delays of construction projects.

In a rule proposal published in the Federal Register on January 10, 2020, the Trump administration is proposing the first significant regulatory changes to the 50-year old National Environmental Policy Act (“NEPA”) since the implementing regulations were promulgated by the Council on Environmental Quality (“CEQ”)  in 1978.  Several provisions appear to be in direct contravention to the statute. The proposed rules will allow approval of major infrastructure and other energy and pipeline projects without the same level of detailed environmental review required under the current rules.  Fewer projects would require review of their potential impact to land, water, air or wildlife under the proposed rules, as the proposed rules would create a new category of projects  as “non-major” federal actions.

Additionally, in what has already been deemed to be an effort to avoid consideration of a project’s potential impact to climate change, the proposal includes provisions that would only require analysis of environmental impacts that are “reasonably foreseeable” and have a “reasonably close causal relationship” to the project. Nor would a project’s cumulative environmental effects have to be considered.

The proposal would set a presumptive two-year time limit for environmental impact statements, and a one-year limit for the less rigorous environmental assessments under NEPA, which would be considerably shorter than the average duration of review under the current system.

Public comments on the proposal must be received by the CEQ by March 10, 2020.  The CEQ will almost certainly receive thousands of comments, both strongly in support and stringently objecting, so, stay tuned….

The proposal can be found here.

Last month, the NJDEP announced $13.5 million in funding available for local projects to improve water quality and to prevent harmful algal blooms (“HABs”).  HABs affected numerous fresh water bodies in New Jersey last summer, most notably, Lake Hopatcong and Greenwood Lake.  The funding includes $3.5 million in grants for which NJDEP has issued requests for proposals (“RFPs”) to local governmental authorities, interstate agencies, academic institutions and non-profit organizations.  The program also includes $10 million in Clean Water Revolving Fund money as principal forgiveness funding for local and county government projects.  The details of the announcement are here, and the RFPs are here.  Responses to an RFP for Grants to Prevent, Mitigate and/or Control of Freshwater HABs are due by Monday, January 13, 2020, while responses to an RFP for Water Quality Restoration Grants for Nonpoint Source Pollution are due by Monday, February 10, 2020.

HAB is the name given to the excessing growth or “bloom” of cyanobacteria due to excessive light, elevated temperatures and/or elevated nutrient loads in the water.  HABs can harm both people and pets that drink or swim in HAB waters by causing rashes, allergy-like reactions, flu-like symptoms, gastroenteritis, and irritations to eyes and respiration.  The NJDEP has also advised that fish or shellfish caught from waters with HAB should not be eaten.  The NJDEP recently issued an HAB fact sheet that provides a summary of HABs and how to report an HAB.

Last summer, 70 suspected HABs were reported, with 39 confirmed.  Closings of beaches and limitations on recreation at lakes negatively impacted summer tourism in 2019, which the State does not want to experience again in 2020.   The HAB mitigation projects will presumably be aimed at reducing surface water runoff and improving drainage systems to mitigate contaminant loading into surface waters that cause HABs.  These funding incentives will certainly encourage the control of non-point pollution sources that cause HABs.

On December 12, 2019, the New Jersey Department of Environmental Protection (“NJDEP”) held the first meeting of the Interagency Council on Climate Change, a panel created by Executive Order 89 issued by Governor Murphy.  At that meeting, NJDEP released a study prepared by Rutgers University and leading climate change experts which found that New Jersey has experienced in the past – and will experience in the future – much greater impacts from sea level rise than on average around the globe.  The report also notes the likelihood of increased frequency of tidal flooding and more significant impacts from coastal storms.  Because of our location and extensive coast line, New Jersey has been by some likened to “ground zero” for climate change.

What does all this mean?

The Interagency Council is directed to develop a Statewide Climate Change Strategy.  The conclusions of the Rutgers report demonstrate further why both the development and implementation of this strategy must proceed as quickly as possible.  The strategy should include changes in regulations to ensure that future development is resilient and takes sea level rise into account; that programs and resources are put in place to increase the resiliency of existing development; and that ongoing steps are taken to reduce greenhouse gas emissions.  Commitments should be made to invest in infrastructure to ameliorate sea level rise impacts, while at the same time preserving coastal marshlands and other natural areas that are protective of climate change impacts.  Businesses, municipalities, citizen groups and all concerned citizens should become active in helping to shape and implement this strategy.

The conclusions of the report are sobering to say the least.   Sea level rise along the New Jersey coast is projected to be an additional 1.3 to 2.7 feet by 2070 even if greenhouse gas emissions are reduced globally.  The time to prepare is now.

In November, the Third Circuit Court of Appeals affirmed a granting of summary judgment by the District Court for the District of New Jersey. The Court of Appeals determined that the current property owner’s claim for contribution pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) was untimely because the statute of limitations for contribution claims begins to accrue when the party seeking contribution administratively settles its liability. That decision, Cranbury Brick Yard, LLC v. United States of America, fills one of the statutory gaps that exists in CERCLA.

The site in the case was a weapons manufacturing facility in Cranbury, New Jersey. During World War II and the Korean War, Unexcelled Manufacturing Co. manufactured bombs, anti-aircraft ammunition, grenade fuses, and other high-powered weapons for the U.S. Military. Following an investigation of the site by the New Jersey Department of Environmental Protection (NJDEP), a directive identified several responsible parties, including the former owner of the site and the U.S. Navy. Continue Reading Third Circuit Fills Gap Left by CERCLA

In December 2019, a bill to amend New Jersey’s A-901 licensing program cleared two hurdles in the Assembly on its way to a full floor vote and possible presentment to the Governor. New Jersey Senate Bill 2306 (Assembly Bill 4267), which unanimously cleared the Senate in June, seeks to amend existing law to require background checks for “a broader range of persons” participating in the State’s solid waste industry.

In response to a heavy infiltration of organized crime into the solid-waste transportation industry, the Legislature put into place in 1984 a legal and regulatory framework under which businesses seeking to enter the solid-waste industry as a transporter, facility, or broker must clear several hurdles in order to operate. Among those hurdles is the time-consuming A-901 approval process, which generally requires would-be market participants to submit to criminal background checks, fingerprinting, and annual disclosure statements in order to obtain and maintain a license to operate in the solid-waste industry in New Jersey. Unsurprisingly, there are exceptions to that general rule, most notable of which is that the A-901 approval process does not currently apply to businesses engaged in recycling operations. There are also other limited exceptions to the A-901 approval process, such as for self-generators of solid waste. Continue Reading New Jersey Legislature Considering Bill to Amend A-901 Applicability

Once again, a recent Appellate Division Panel opinion has environmental lawyers and their clients realizing that the New Jersey Department of Environmental Protection (“DEP”) may collect penalties in the state’s municipal courts.  This time, the case concerned penalties assessed by DEP for failure to follow state site remediation requirements imposed by the Site Remediation and Reform Act.  The court’s holding that municipal courts have jurisdiction to impose such civil penalties is not surprising.  Yet, for some reason, being hauled into municipal court is often an unpleasant surprise to those who are.

Maybe that reason is unfamiliarity with the municipal courts themselves.  Every one of New Jersey’s 565 municipalities either have individual stand-alone courts, share judicial or administrative service with another municipal court or are part of joint municipal courts. Each court has at least one judge selected by the municipality or municipalities, one prosecutor and one public defender.  Municipal courts have limited jurisdiction and cases are tried without a jury.  Cases before these courts generally are limited to motor vehicle and parking tickets, disorderly persons offenses and petty disorderly persons offenses, for which a jail sentence is up to six months, municipal ordinance offenses, and other offenses which include fish and game violations.  As between the Superior Court and a municipal court, municipal court cases usually come to trial more quickly.  Unless terms for payment are available, fines are immediately payable to the court clerk.  Appeal is to the Superior Court and if the judgment is reversed, fines and costs will be returned.

Judges are political appointments by the municipal governments with a three year term.  Most of these courts and judges, except in rural areas, are busy.  Over six million cases come through New Jersey municipal courts each year.  Out of those cases, approximately 50 are DEP penalty assessment actions.  So the statewide odds of a municipal court case being a DEP penalty enforcement action in the municipal court in one year is roughly 120,000 to one.

In seeking to obtain a penalty, DEP has two other alternatives besides municipal court.  One is an action in the Superior Court.  Generally such actions are filed as a summary action to the Penalty Enforcement Law (N.J.S.A. 2A:58-10 et seq.) without the right to a jury.  It may take some time for the matter to move forward in the Superior Court; certainly more slowly than in the municipal court.  When the case reaches a judge, that judge will have been appointed by the governor and approved by the state senate and he or she will hear testimony on any disputed issues and set any penalty.  There’s a greater chance that a Superior Court judge will have some experience with environmental litigation than will a municipal judge.  DEP’s penalties, in many cases, run up to $50,000 per day for each violation and each day the violation continues is a separate violation, a penalty range rarely if ever seen by a municipal court judge as municipal judges deal with fines of $2,000 or less in most of their cases.

The third and most common way DEP may seek a penalty is in an administrative action that starts with the issuance of an Administrative Order and Notice of Civil Administrative Penalty Assessment.  The alleged violator may timely request an administrative hearing before a judge from the Office of Administrative Law and, at a hearing over genuinely disputed fact, present its case.  These are the judges most likely to be familiar on a day-to-day basis with environmental law and penalties.  However, these judges are not the last word on a matter because the law allows the DEP Commissioner to overturn an OAL judge’s opinion.  Appeal is to the Appellate Division.

So, why is being in the municipal court defending a DEP complaint an unpleasant surprise?  Because, in general, the municipal court judge is surprised; surprised if he or she is unfamiliar with the Special Form of Complaint and Summon in Penalty Enforcement Proceedings, and surprised that there’s an environmental issue present in the very municipality that appointed him or her as a judge.  Because the DEP often sends to court only the inspector who signed the complaint, counsel for the alleged violator may be asked by the court to explain the court’s jurisdiction and its application of the Penalty Enforcement Law, none of which should be his or her job.  Finally, no matter how often an alleged violator is told by counsel that the court is impartial and fair, there is always a chance the alleged violator will believe the court interprets the facts and sets the penalty to enable the DEP, an agency the court rarely sees before it, to accomplish its perceived statutory responsibilities.

But, of course, the alleged violator does not pick the courts or the OAL.  The DEP does.  It’s legal forum shopping and the DEP’s decision will be the one that best advantages the DEP, not the alleged violator.

Recent news regarding elevated levels of a commonly used chemical in drinking water may have potentially greater implications for almost all public water supply systems.  PFAS (per- and polyfluoroalkyl substances), which have been identified as carcinogens, have been reported in 570 water systems, according to the Environmental Working Group (EWG) analysis of water utility data from NJDEP.  Only a year ago, just 47 systems reported PFAS in their water.  This information resulted in water systems warning their customers of the chemical’s presence and its potential impacts.  If more systems make similar announcements in the near future, how will water suppliers, NJDEP and the general public react?

PFAS chemicals include PFAN (perfluorononanoic acid), PFOA (perfluorooctanoic acid) and PFOS (perflurooctanoicsulfonic acid), are a family of substances that do not breakdown.   PFAS was used in a variety of commercial items, such as food packaging, water repellants and non-stick items, and fire-fighting foams.   While the evidence of human health risks has been acknowledged, the regulatory response has been inconsistent.   The USEPA has yet to fully regulate PFAS. In contrast, some states, including New Jersey, quickly developed groundwater drinking standards and maximum contamination PFAS limits for drinking water, and required testing.  Elevated testing results have caused water systems to address the issue.

In a recent example, the Borough of Bellmawr, the local water purveyor notified its water supply users that it had shut down a drinking water well supplying half the borough’s water the due to the discovery of PFNA. Although the levels of PFNA were slightly above the 13 parts per trillion (ppt) standard, citizens were warned and advised that, if they had special conditions such as a compromised immune system, they should seek advice from their health care advisors.

If EWG’s statistics are correct, we can expect more of these announcements from drinking water purveyors.  It remains to be seen whether multiple warnings around the state cause further response by NJDEP.