Environmental Litigation

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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.

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 New Jersey Supreme Court recently clarified the elements needed to sustain a claim for nuisance and trespass in the environmental context.  Generally, plaintiffs assert claims under common law such as nuisance and trespass to recover non-cleanup costs associated with environmental contamination.  In Ross v. Lowitz, the defendant homeowners tested an underground storage tank (“UST”) on their property and discovered that the UST leaked.  They subsequently notified their insurance companies.  The contamination on the defendant homeowners’ property migrated to the plaintiffs’ adjacent property.  The insurance companies funded the cleanup and the New Jersey Department of Environmental Protection eventually issued a No Further Action Letter for the cleanup.  However, as a result of the contamination, a prospective purchaser of the plaintiffs’ house cancelled the contract of sale.

The plaintiffs filed suit against defendant homeowners and asserted among other claims, nuisance and trespass.  The plaintiffs also sued the defendant homeowners’ insurance companies asserting that they were a third party beneficiary under the insurance policies.  The plaintiffs sought damages for alleged loss of use of their home and diminution in the value of their property.  The defendants moved for summary judgment and the trial court dismissed the claims against the insurance company and plaintiffs’ claims under the theories of nuisance and trespass.  The appellate division affirmed the trial court’s determination.

The New Jersey Supreme Court in affirming the lower court’s decision, clarified the necessary elements to maintain a cause of action under common law nuisance and trespass.  The Court reviewed the Restatement (Second) of Torts to determine the validity of plaintiffs’ nuisance and trespass claims.  In addressing the nuisance claim, the Court noted that under Section 822 of the Restatement, the plaintiffs must show that the discharge of contaminants from the homeowners’ UST was either negligent or the result of an abnormally dangerous activity.  The Court noted that the storage of home heating oil in a UST is not an abnormally dangerous activity.  The Court further found no fault on behalf of the defendant homeowners that would support a claim for nuisance.

The Court made a similar determination regarding plaintiffs’ trespass cause of action.  Again relying on the Restatements, the Court concluded that to maintain a cause of action under trespass, the plaintiffs must show that defendant homeowners were at fault.  Because the homeowners acted in a reasonable manner in having the UST tested and then contacting their insurance companies upon finding that the UST leaked, the Court affirmed the dismissal of the plaintiffs’ trespass and nuisance claims.

In addressing plaintiffs’ claim against the homeowners’ insurance company, the Court noted that in order for a third party to be found a beneficiary to a contract, the contracting parties must have expressed an intent to have the third party a beneficiary of the contract when they entered into their agreement.  The Court found that there was no evidence that the parties intended the plaintiffs to be third-party beneficiaries to the insurance policy.  The Court ruled that the trial court properly dismissed plaintiffs’ claims against the insurance companies.

The take away from this case is that the mere discharge of contamination that impacts the property of another is insufficient to support claims under common law nuisance and trespass.  There must also be a showing that the persons responsible for the discharge of contaminants were at fault in allowing the discharge to occur.

After months of controversy, public comments, response to public comments, motions to intervene, amicus briefs, oral arguments, editorials and a sustained flurry of activity in social media, the decision we have been waiting for is here – Judge Michael J. Hogan granted NJDEP’s motion to approve the consent judgement with ExxonMobil that settles out for $225 million the State’s original $8.9 billion claimed for natural resource damages.

Based on initial reports on the ruling, the court found that the settlement amount was a reasonable compromise in light of the risks still attached to the complex and costly litigation that has lasted more than a decade, including the risk of a number of appeals preserved by ExxonMobil through the years. Initial reports also indicate that the court found that NJDEP’s damages estimate was rational and the settlement was consistent with the Spill Act and with the public interest.

It can be fully expected that the coalition of environmental groups and State Senator Raymond Lesniak, who have been leading the charge in challenging the settlement as a dirty deal and woefully inadequate, will strongly disagree with the ruling and take steps to overturn it.