Last week, the New Jersey Department of Environmental Protection (NJDEP) announced a new Response Action Outcome (RAO) Notice, which allows Licensed Site Remediation Professionals (LSRPs) to issue an RAO for a site with contaminated sediment that migrated from an off-site source.  The new notice, entitled “Sediment Contamination From an Off-Site Source Not Remediated – General,” is the most recent addition to the growing list of RAO notices.

The notice can be used after a Preliminary Assessment and Site Investigation (PA/SI) confirms that the source of the sediment contamination is off-site and not related to the site being evaluated.  The off-site source must be reported to NJDEP and the resultant new incident number included in the Notice.  Furthermore, the LSRP can identify an existing NJDEP case if it is known to be the off-site source and is currently undergoing investigation or remediation.

Given that it is well-established law that you are not responsible for contamination coming from offsite, the primary purpose of this action appears to be to streamline the RAO process.  So, this is another tool in the LSRP toolbox for the often complicated sediment cases, which continue to garner regulator’s attention here in New Jersey and nationwide.

Read more on sediment contamination in these discussions:

JOIN THE CLUB: EPA Sizing Up Hackensack River for Superfund Listing

WE ARE JUST GETTING STARTED: EPA Issues Much Anticipated Cleanup Plan for the Lower 8.3 Miles of the Lower Passaic River

 

The New Jersey Appellate Court recently upheld a spoliation claim against a plaintiff company that sued prior owners for violations of New Jersey’s Spill Compensation and Control Act and common law claims of nuisance and negligence.

In 18-01 Pollit Drive v. Engel, Docket No. A-4833-13T3, the new owner of a former printing facility site discovered contamination during redevelopment activities and filed a contribution suit against several former owners for investigation and remediation costs.  The owner’s expert concluded that contamination under the building came from an acid dilution sump pit and sewer piping under the concrete slab floor.  To demonstrate the timing and source of the discharges of contamination, the owner’s expert relied on photos of the pipe, the sump pit and concrete floor, samples of piping from another location on the site, and data derived from sludge in the sump pit and soil from under the sump, all of which had been excavated and discarded before defendants’ experts could examine them.  Defendants argued that their experts needed to examine the original pipe, sump pit and concrete floor and filed motions to dismiss the action on spoliation grounds.

A “spoliation claim arises when a party in a civil action has hidden, destroyed, or lost relevant evidence and thereby impaired another party’s ability to prosecute or defend the action.”  Plaintiff argued that it was not required to save the pipe because it did not intend to bring suit at the time it was discarded.  The Court disagreed, stating that “the obligation to preserve evidence is not triggered by the spoliator’s intent to bring suit but rather it arises when litigation is probable.”  Noting that plaintiff was a sophisticated investor that knew the site was contaminated, had access to remediation experts and knew about an ongoing cleanup at a nearby Superfund site, the Court held that plaintiff should have anticipated that it could become involved in litigation in some capacity regarding the contamination and therefore had a legal duty to preserve the original pipe.  The Court also affirmed that plaintiff had a duty to preserve the sump and concrete floor materials.

The Appellate Court reversed the trial court’s dismissal of plaintiff’s complaint and remanded the case for consideration of whether a lesser sanction could have cured the prejudice created by the spoliation.

As this decision illustrates, failing to preserve evidence in an environmental case can have serious consequences, including dismissal.

After the NJ Supreme Court Finally Closed the Door on The Statute of Limitations Defense To NJ Spill Act Contribution Claims, Laches Emerges as a Possible Backdoor Defense. 

The Bergen County Superior Court issued a surprise decision this month in 22 Temple Avenue v. Audino, Inc., et al., Docket No. BER-L-9337-14, ruling that NJ’s Spill Compensation and Control Act permits the defense of laches as an affirmative defense to contribution liability.  The decision is inconsistent with the NJ Supreme Court’s 2015 Morristown Associates v. Grant Oil Co., 220 N.J. 360 (2015) ruling, which not only confirmed that there is no statute of limitations time bar to contribution claims, but also confirmed that the universe of defenses available to contribution defendants is limited to only those specifically identified in the Spill Act or permitted by court rule.  The Spill Act does not identify laches – or any equitable defenses – to contribution claims.

Unlike a statute of limitations, which bars claims brought after the expiration of a time period specified by statute, the defense of laches relied upon by the 22 Temple Avenue court is an equitable defense that bars claims when the passage of time renders it unfair to a defendant for the claim to move forward.  This unpublished decision is not only inconsistent with the Morristown Associates decision, but it is also inconsistent with another unpublished decision, Ann Bradley v. Joseph Kovelesky, Docket No. A-0423-14T4, in which the Appellate Division refused to apply the defense of laches to a Spill Act contribution claim.

The Morristown Associates decision had been viewed as bringing finality to the longstanding question of whether a Spill Act contribution claim can be affirmatively time barred.  Yet, the 22 Temple Avenue decision raises the question of whether a backdoor time bar exists to Spill Act contribution claims.

22 Temple Avenue

22 Temple Avenue asserted Spill Act contribution claims against Peter Audino, the former operator of a dry cleaner, for contamination related to those operations.  The court rejected 22 Temple Avenue’s claim for cleanup costs for discharges that occurred from 1989 to 1992 against the then 89-year old Audino, individually, based on the defense of laches.  Notwithstanding the Morristown Associates ruling against a time bar for Spill Act private party contribution actions, the court sought to apply “basic principles of fairness and substantial justice” in the context of 22 Temple Avenue’s claims.

The court’s reliance on Morristown Associates and the 2012 Supreme Court decision in N.J. Dept. Env. Protection v. Dimant, 212 N.J. 153 (2012) in applying the defense of laches to 22 Temple Avenue’s claim is surprising.  The Morristown Associates Court made no mention of the defense of laches or other equitable defenses as an exception to its very clear ruling that the language of the Spill Act contribution provision provides that there are no defenses to a Spill Act private party contribution claim except those that the New Jersey Legislature wrote into the Spill Act or those that are established by court rules under the jurisdiction of the Supreme Court.  The defense of laches is neither written into the Spill Act nor established under the New Jersey court rules.  Indeed, some federal district courts, including NJ, have applied similar reasoning in holding that there are no equitable defenses to a Superfund §107(a) cost recovery claim.

Likewise, the Supreme Court made no mention of the defense of laches in Dimant.  In that matter, the Court refused to find a dry cleaner liable for a discharge because NJDEP could not prove any nexus between drips of PERC to pavement and contamination found in groundwater.  However, the Court projected that where there is liability, equitable factors such as the passage of time disabling the dry cleaner’s ability to defend itself can be considered in allocating damages.  A similar use of equitable considerations has been used by courts in the context of apportionment of Superfund liability.

The 22 Temple Avenue decision does not undo the Morristown Associates holding that there is no statute of limitations time bar to private party Spill Act contribution claims.  This decision does however raise the question as to whether lower courts are looking to create an equitable backdoor of laches to bar such claims.

The United States Environmental Protection Agency (“EPA”) recently issued the Record of Decision (“ROD”) for the lower 8.3 miles of the Lower Passaic River, which sets forth EPA’s $1.38 billion remedy. Potentially Responsible Parties (“PRPs”) will be interested to know that the $1.38 billion price tag only addresses one of the operable units that comprise the Diamond Alkali Superfund Site, which includes the 17-mile tidal stretch of the Lower Passaic River.

Sediment Mega Sites

In recent years, EPA has increasingly shifted more of its focus towards contaminated waterways, as opposed to the traditional single site Superfund site.  Of all the Superfund sites throughout the United States, “sediment mega sites” like the Gowanus Canal, Fox River, Portland Harbor and the Hudson River (just to name a few) are among the most complex to investigate, the largest in areal extent, and the most challenging and expensive to remediate.

Remediating sediment mega sites is a massive undertaking because of the persistent nature of the contaminants, the hundreds of potential sources and the migration and mixing of the contamination from tidal influences. It comes as no surprise that the remediation costs for these sediment mega sites can exceed $1 billion.

As is common for these waterways, the sediments in the Passaic River consist of a chemical soup of hazardous substances, including dioxin, PCBs, mercury, pesticides (including DDT) and heavy metals, created from generations of industrial operations along the waterways.  According to EPA, the remedy released in this ROD is the final action for the sediments in the lower 8.3 miles and an interim action for the water column in this section of the river.  Meanwhile, EPA and some of the PRPs are still studying the sediments in the upper 9 miles, the water column of the entire 17 miles of the river and the entire Newark Bay Study Area. The scope and cost of those remedies are unknown. We have a long road ahead of us.

The Proposed Remedy

The scope of the proposed remedy is extensive.  It includes:

  • Bank to bank dredging of approximately 3.5 million cubic yards of sediments;
  • Installing an engineered cap over the river bottom for the entire 8.3 miles;
  • Transporting the dredged materials to be dewatered, treated and disposed;
  • Long-term monitoring and maintenance of the engineered cap; and
  • Long-term monitoring of fish, crabs and sediment.

What’s Next?

If EPA is following its Superfund playbook for traditional sites, its next move is to issue “Special Notice Letters” to some or all of the PRPs inviting them to perform or fund the proposed remedy. Given the complexity of sediment mega sites, however, EPA has reserved the right to depart from the playbook.  EPA may therefore take a different approach enforcing this ROD, which is certainly possible in light of the overwhelming number of PRPs involved.  The next step is to see if EPA issues any Special Notice Letters, or takes an alternative approach.

Also, keep in mind the $1.38 billion remedy does not address natural resource damages (“NRDs”). The Natural Resource Trustees (which have jurisdiction over NRDs) have yet to publish an NRD Assessment.

Stay tuned to the Cole Schotz blog as we continue to monitor this landmark cleanup.

The New Jersey Supreme Court recently held that an insurance company was not required to show it was prejudiced by an insured’s late notice in order to deny coverage under a claims made policy.  In Templo Fuente de Vida Corp. v. National Union Fire Insurance Company, Templo Fuente de Vida Corp. (“Templo”) engaged Morris Mortgage Inc. (“MMI”) to find a funding source for Templo’s purchase of real estate.  MMI identified Merl Financial Group, Inc. (“Merl”) as a possible funding source.  However, Merl was unable to fund the loan to allow Templo to purchase the property.  Templo’s seller terminated the purchase agreement and, as a result, Templo sustained losses.

Templo sued Merl.  Merl, which was restructured and renamed to First Independent Financial Group (“First Independent”), had a $1 million Directors and Officers liability insurance policy from National Union Fire Insurance Company of Pittsburgh (“National Union”) that was a claims made policy.  The policy required the insured to provide notice of a claim to National Union during the policy period and as soon as practicable.

First Independent provided notice to National Union during the policy period but more than six months after the first complaint was filed against it by Templo.  First Independent subsequently settled with Templo and, as part of that settlement, First Independent assigned its rights in the National Union policy to Templo.

Templo subsequently sued National Union seeking coverage.  National Union moved for summary judgment and the trial court dismissed Templo’s complaint, finding that Templo failed to provide notice of the claim “as soon as practicable” as required by the policy.  The trial court, relying on Zuckerman v. National Union Fire Ins. Co., 100 N.J. 304 (1985), held that National Union was not required to show prejudice to avoid coverage.  The Appellate Division affirmed the trial court’s holding and the Supreme Court granted Templo’s petition for certification.

Templo argued that the issue of whether a claim was reported as soon as practicable is a fact-sensitive determination.  Templo urged the court to consider the circumstances and the length of delay in providing notice to National Union.  The court, however, noted that Templo failed to provide any facts as to “why the delay occurred.”  Accordingly, the court held that the “six month delay did not satisfy the policy’s notice requirement.”  The court further noted that its decision was not a bright line test for determining compliance with the “as soon as practicable” notice provision under a claims made policy.

The court next addressed whether National Union had to show prejudice in order to deny coverage.  Templo argued that the court should distinguish Zuckerman and extend the holding of Cooper v. Government Employees Ins. Co., 51 N.J. 86 (1968) to claims made policies.  The New Jersey Supreme Court in Cooper requires an insurer under an occurrence policy to show appreciable prejudice to deny coverage for late notice.  The New Jersey Supreme Court in Zuckerman ruled that an insurer does not have to show prejudice where an insured reports a claim outside the policy period.  In this case, Templo argued that because notice was given during the policy period, the insurer must show prejudice to deny coverage.

In addressing this issue, the court noted the difference between occurrence based policies and claims made policies, and explained why it required appreciable prejudice under an occurrence based policy for an insurer to deny coverage for late notice.  Next, the court observed that unlike occurrence based policies, claims made policies are typically negotiated and involve sophisticated policy holders that use a broker in securing coverage.  As such, the concerns articulated by the court in imposing an appreciable prejudice standard on occurrence based policies do not exist with claims made policies.  Thus, the court concluded that it could enforce the provisions and terms of the claims made policy in the same fashion as it would for any other type of contract.  The court held that First Independent failed to provide timely notice, and that National Union did not have to show it was prejudiced to deny coverage.

The take away from this recent case is that if an insured knows of a claim against it, the insured should not delay in providing notice to its insurer.  To do otherwise risks having the insurance company deny coverage for failing to provide timely notice.