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.

On August 27, 2014, the Superior Court of New Jersey ruled in favor of Puritan Oil against a New Jersey property owner, finding that where the oil company had already taken steps to remedy contamination it caused on Plaintiff’s property, no further measure of damages was appropriate.  Favorito v. Puritan Oil Company, Superior Court of New Jersey, Appellate Division, Docket No. A-3426-12T1.

In 2005, Plaintiff Anthony Favorito purchased real estate as an investment from Defendant Jennifer Schwartz for $224,900.  Favorito was able to rent out the property for its fair market value.  Favorito later discovered that in 1988, underground gasoline storage tanks on a neighboring property had leaked causing hazardous substances to migrate into groundwater beneath Plaintiff’s property.  The neighboring tanks had been owned by Defendant Puritan Oil Company, Inc.  Plaintiff learned of the contamination in 2009 when he was contacted by Puritan’s agents, who advised him that wells needed to be installed on his property to periodically sample the ground water.

For its part, Puritan discovered the contamination in 1988 and began remedying its property.  It removed six underground storage tanks and all of the contaminated soil from its property and shut down the gas station.  Monitoring wells revealed that groundwater below Plaintiff’s property had been contaminated by petroleum and in 1996, two underground wells were installed on Plaintiff’s property which were removed in 1999.  The New Jersey Department of Environmental Protection also placed a portion of Plaintiff’s property within a Classification Exception Area (CEA) suspending the groundwater’s classified use while the area is remediated.

Municipal water is supplied to Favorito’s property and thus, groundwater contamination impacting onsite wells was not at issue.  Plaintiff sued Puritan Oil, Schwartz and the real estate agent and agency involved in the sale.  Plaintiff settled with all of the Defendants except Puritan Oil.  In his complaint, Plaintiff alleged that Puritan Oil violated the New Jersey Spill Compensation Control Act as well as committed a nuisance and trespass.  Plaintiff argued that he was entitled to the difference between what he paid for the property in 2005, and what the property was in fact worth at that time, given its contaminated condition, which an appraiser estimated to be $98,000.  Plaintiff did not state that he was seeking damages for the stigma that may be associated with the property after it is remedied or any other measure of damages.

The trial court granted Puritan Oil’s motion for summary judgment and found that Plaintiff’s damages were limited to either the cost of cleaning up the property or the difference between the fair market value of the property in its contaminated state, and in an uncontaminated one.  As Puritan was cleaning up the Property, Plaintiff was not entitled to the difference in value.

On appeal, Plaintiff reasserted his claims for nuisance and trespass and requested that the court award $126,900 in damages – the difference between what he paid for the property and what it was worth, as damages for having monitoring wells on his property and having a portion of the property in a CEA, which limits the use of groundwater and will require him to disclose this classification to potential buyers.  The appellate court refused to consider the claim for additional damages for the monitoring wells and CEA since they had not been raised at the lower court level, and affirmed the trial court’s finding that a party may receive the difference between the value of the land before and after the harm or at the party’s election, the cost of restoration, not both.  Since Plaintiff chose to have his property restored, he could not also seek another measure of damages.

Furthermore, the Appellate Court stressed that Favorito had never claimed that he had been deprived of any use of his property.  He had been able to rent out the premises for fair market value, was supplied with municipal water, and had not contended that he, or his tenants,  experienced any discomfort or annoyance as a result of the contamination.  Based on these findings, the Court granted Puritan Oil’s motion for summary judgment.

The Appellate Division’s decision in Favorito underscores the need for proper due diligence prior to purchase, as well as for litigants to carefully consider their options early in order to avoid unknowingly waiving potential claims.  In the present case, Favorito failed to engage in a thorough inquiry of the property’s use prior to purchase.  Once Favorito had taken title, in accepting Puritan’s offer to enter onto the property to install groundwater wells, Favorito was deemed by the court to have “elected” to have the property remediated and to have effectively waived his potential claim for damages based on diminution in value.

Parties that find themselves responsible for the remediation of contaminated property in New Jersey do not have to wait for the New Jersey Department of Environmental Protection (“NJDEP”) to approve a final cleanup plan before seeking other responsible parties to contribute to cleanup costs pursuant to New Jersey’s Spill Compensation and Control Act (“Spill Act”).

The New Jersey Supreme Court, in Magic Petroleum Corp. v. ExxonMobil Corporation, recently held responsible parties may file contribution claims seeking to allocate liability even before the cleanup is complete.  The Court did, however, point out that although trial courts may assign liability based on evidence presented at trial, they cannot issue a final damages award until the cleanup is done.

Magic Petroleum, Inc. (“Magic”) had owned and operated a gas station, and the underground storage tanks had leaked petroleum and caused site contamination.  In a separate proceeding, the NJDEP sued Magic for costs incurred by NJDEP during the remediation of the gas station.  As the sole “Responsible Party” targeted by NJDEP, Magic was responsible for the entire cleanup cost.

Seeking to offset its remediation costs, Magic filed a lawsuit for contribution against Exxon Mobil Corporation (“Exxon Mobil”), the owner of a former gas station on neighboring property.  Magic claimed that contamination from that neighboring property migrated onto the Magic property.  Both the trial court and the Appellate Division dismissed Magic’s suit again Exxon, holding that while the court and NJDEP both have the ability to determine whether Exxon Mobil is a discharger, only NJDEP had the ability to identify the contamination, analyze the extent of the discharge, and develop a cleanup plan.  The Appellate Division went on to note that these issues must be addressed by the NJDEP before the court allocates liability.

Magic appealed to the New Jersey Supreme Court for relief.  The Court held that while the extent of the cleanup has yet to be determined, it agreed that the trial court can determine whether ExxonMobil is also a responsible party.  The Court explained that “the trial court may assign liability to responsible parties before obtaining NJDEP’s written approval of a remediation plan, based on evidence presented at trial, but … the court may not be able to issue a final damages award.”

The Court explained this distinction when it noted that while recoverable cleanup and removal costs may include only those approved by the NJDEP, a court may allocate a percentage of responsibility for the remediation costs at a particular site.

A site remediation can easily last many years, causing responsible parties to incur substantial expenses.  This ruling is important for two reasons.  Individual responsible parties are no longer forced to bear the full brunt of the cleanup costs until the remediation is complete and, in doing so, it promotes the prompt remediation of contaminated property.

Additionally, the Site Remediation Reform Act changed remediation projects by placing the bulk of oversight duties in the hands of Licensed Site Remediation Professionals (LSRPs) and retained only limited oversight responsibilities for the NJDEP.  Therefore, this case leaves open the issue of whether cleanup work and costs approved by an LSRP, and not by the NJDEP, can be recovered under the Spill Act as currently drafted.  This is a critical issue for parties engaged in cleanups, and it needs to be reviewed by the legislature, the NJDEP, or the courts.