Earlier this week, the New Jersey Supreme Court clarified in NL Industries, Inc. v. State of New Jersey, (A-44-15) (March 27, 2017), that the State of New Jersey retains its sovereign immunity under the New Jersey Spill Compensation and Control Act (Spill Act), N.J.S.A. 58:10-23.11 to 23.24, for discharges of hazardous substances that occurred prior to the 1977 enactment of that law.

In a Spill Act contribution claim against the State and several private parties for the costs to remediate parts of the Raritan Bay impacted by contaminated slag used in the early-1970s to construct a seawall, NL Industries alleged that the State was a liable “person” under the Spill Act and subject to a private party contribution claim.  The State had approved the construction of the seawall and the disposal of the contaminated slag in the Raritan Bay.

When the Spill Act was adopted in 1977, it created a Spill Fund to pay for the clean-up of hazardous substances discharged by “any person” after the law was enacted.  The Spill Act defined “person” to include the State.  In 1979, the Legislature amended the Spill Act to allow the State, but not private parties, to use the Spill Fund to remediate discharges that occurred prior to the enactment of the Spill Act.  In 1991, the Spill Act was amended again, imposing strict liability on any responsible “person” for cleanup costs “no matter by whom incurred,” and allowing private party contribution claims to recover costs from any such “person,” including for pre-Spill Act discharges.  NL Industries argued that these amendments worked together to allow private party contribution claims against the State for pre-Spill Act discharges.  NL Industries also agreed with the trial court’s conclusion that the State’s sovereign immunity for pre-Spill Act discharges was waived based on the Supreme Court’s decision in Department of Environmental Protection v. Ventron Corp., 94 N.J. 473 (1983), which applied Spill Act liability retroactively for pre-Spill Act discharges.

The Court rejected NL Industries’ argument and the trial court’s reliance on Ventron.  The Court began its analysis by affirming that the State’s sovereign immunity can be waived only by a clear and unambiguous expression of legislative intent.  While the Court acknowledged that it may be possible to construe the language of the 1991 amendments to the Spill Act to allow for contribution claims against the State for pre-Spill Act discharges, the Court explained that this was not enough.  Neither the 1991 amendments, nor any other provision of the Spill Act, contained the deliberate, clear and unambiguous expression by the Legislature required to strip the State of its sovereign immunity for pre-Spill Act discharges.  The Court also clarified that the retroactive application of the Spill Act in Ventron applied narrowly to only pre-Spill Act discharges that the State remediated with Spill Fund monies and sought reimbursement for from private parties, leaving the State’s sovereign immunity protection from liability for its own pre-Spill Act discharges in place.

Justice Albin, in his dissent from the Court’s majority opinion, wrote that the Court’s interpretation of the Spill Act “leads to the absurd result” of a private party being held on the hook for the entire cost to clean-up a pre-Spill Act discharge even when the State and the private party are both jointly responsible.  Given that discharges of hazardous substances can occur decades before contamination is discovered and that the State can easily be one of many, if not the primary, “person” responsible for pre-1977 discharges, it is worth watching how the Court’s decision impacts a private party’s remediation at such sites now that the State is immune from contributing to the cleanup of pre-Spill Act discharges.

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 Hackensack River may be joining the likes of the Passaic River, the Hudson River, Gowanus Canal, Newtown Creek, Fox River, the Eighteen Mile Creek, and other waterways that have been placed on the Superfund National Priorities List (NPL) by the United States Environmental Protection Agency (EPA) because of extensive contamination resulting from decades of industrial operations along their banks and tributaries.  EPA recently announced that it will begin sampling the Hackensack River’s sediment in 2016 to determine if it is also polluted enough to be placed on the NPL.

In February of this year, the Hackensack Riverkeeper, a non-profit advocacy and conservation group, petitioned the EPA to study the river for inclusion on the NPL.  In an uncharacteristically quick response, EPA agreed to and then commenced a Preliminary Assessment (PA) of the Lower Hackensack River, which is the 17-mile stretch of the river between the Oradell Dam and the mouth of the river in Newark Bay.  This section runs through Bergen and Hudson counties in New Jersey and has several tributaries.

The PA was released earlier this fall.  It comes as no surprise that contaminants including cadmium, lead, mercury, dioxin, benzo(a)pyrene, dibenzo(a,h)anthracene,  PCBs and dieldrin were identified at unacceptable concentrations.  Furthermore, because the tidal influence on the sediments causes both upstream and downstream migration of contaminants, it also comes as no surprise that EPA identified hundreds of facilities and sites as possible sources of the contamination, many of which could become potentially responsible parties (PRPs) as the investigation of the river unfolds.  Most significantly though, EPA assigned a preliminary Hazard Ranking System score of 50, well above the minimum score of 28.5 needed to get on the NPL.  EPA plans to sample the sediment next year as a next step in the process of determining whether to list the river on the NPL.

Given the long history of industrial activities on and near the Hackensack River, it is fully expected that the sediment sampling results will warrant listing on the NPL.  And, given EPA’s increasing attention on surface water and sediments, it is fully expected that EPA will move forward with the listing.  This would be just the start of years of studying the river to identify the most contaminated sections, develop remediation plans and, of course, identify the likely sources of the contamination and pursue claims against them as PRPs.

The New Jersey Department of Environmental Protection (NJDEP) recently renamed and revised its clean fill guidance, which now makes it clear that fill material obtained from a licensed quarry or mine may be used for site remediation without any sampling requirement.

NJDEP’s Technical Requirements for Site Remediation define “clean fill” as material—soil or non-soil—to be used in a remedial action that meets all soil remediation standards and has no debris, solid waste, or free liquids.  Under NJDEP’s December 2011 Alternative and Clean Fill Guidance, offsite material that was proposed for use as clean fill at a Site Remediation Program (SRP) site was required to undergo an evaluation of the historical and current uses of the material, a review of the conditions at the site from which it originated, and sampling to certify that the fill was clean.  While the 2011 guidance made certain exceptions for fill material obtained from a quarry or mine, a minimum of at least one sample was required to be analyzed.

The new “Fill Material Guidance for SRP Sites” addresses concerns raised by redevelopers and LSRPs regarding the burdensome sampling requirements and unnecessary paperwork associated with the use of fill material on SRP sites from a licensed quarry or mine.  Under the new guidance, fill material obtained from a licensed quarry or mine (defined as a facility permitted or authorized to operate under the New Jersey Mine Safety Act or other similar state statutes) may be used at a SRP site without any sampling as long as the quarry or mine operator certifies that the material is from a licensed quarry or mine facility and that the material has not been subject to a discharged hazardous substance at any time.  In the absence of such certification, proposed fill would need to meet the sampling and analysis requirements for clean fill.  This change is significant as it relieves suppliers and users of quarry or mine material of burdensome sampling and certification requirements and eases the process of closing out cleanups and site redevelopment.

On February 26, 2015, in Coty US LLC v. 680 S. 17th Street LLC, the Superior Court of New Jersey, Chancery Division, pierced the veil of a New Jersey limited liability company and held its sole member liable for environmental cleanup costs it agreed to undertake in the purchase of real estate in Newark, New Jersey.

Del Laboratories, Inc. previously owned the property in question, which was subject to New Jersey’s Industrial Site Recovery Act (ISRA). As a result of former industrial operations, soil and groundwater contamination existed at the site. Airaj Hasan formed 680 S. 17th Street, LLC for the purpose of acquiring the property and engaged in a sale transaction with Del in 2007. Under the purchase agreement, 680 LLC agreed to assume all environmental liabilities, including, but not limited to, its obligations under ISRA. 680 LLC also agreed to indemnify Del for its liabilities respecting the property under all environmental laws. About a year after selling the property to 680 LLC, Del merged with Plaintiff Coty US LLC.

In April 2010, the New Jersey Department of Environmental Protection (NJDEP) sent a directive to 680 LLC and Del (presently Coty) stating that 680 LLC failed to perform required vapor intrusion sampling and to submit required reports to the NJDEP. As a result of 680 LLC failing to respond, Coty contacted the NJDEP and retained a LSRP itself to conduct required remediation at the property and to also avoid civil penalties. Subsequently, Coty sought to hold 680 LLC and Mr. Hasan liable for the costs it incurred in responding to the NJDEP directive.

Coty contended that Mr. Hasan should be held personally liable for Coty’s environmental costs in connection with the property. Coty argued that 680 LLC continuously represented that it had sufficient resources to conduct remediation at the site and to perform all its obligations under ISRA. The Court agreed with Coty and found that 680 LLC was merely a “shell company” established for the purpose of acquiring the property and had no cash flow or assets other than the parcel of real estate. Consequently, the Court found it proper to pierce the LLC veil of the single purpose real estate entity. The Court emphasized that Mr. Hasan represented numerous times that 680 LLC had enough financial resources to complete the necessary environmental work, despite its known inability to do so.

The Court’s decision in Coty is significant, as it may serve to increase the susceptibility of sole members of LLCs to environmental liabilities in the purchase of real property. It further demonstrates that environmental liabilities can reach far beyond the protection of the corporate or LLC forms and reach members, officers, directors, and shareholders.