Contamination

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Property owners who suffer damages as a result of contamination must be aware of time limitations to recover damages.   A New Jersey appellate court recently upheld the rule that, unlike recovery of cleanup costs in contribution actions under the New Jersey Spill Compensation and Control Act, recovery of other damages under tort theories, such as lost sales, lost rental values and the like, remain subject to the six-year statute of limitations.  In 320 Assocs., LLC v. New Jersey Natural Gas Co., (A-1831-16T2) (June 29, 2018), the Appellate Division, upheld a lower court’s decision dismissing Plaintiff’s claims for money damages as untimely.

The owner of commercial property located near a New Jersey Natural Gas property sued the gas company for damages resulting from coal tar that had migrated onto the owner’s property.  The owner asserted common law claims against the gas company for negligence, per se negligence, strict liability, nuisance and trespass.  It sought damages for a lost sale and lost rental value as well as an order mandating the gas company to cleanup up both properties.

The Appellate Division determined that, since Plaintiff discovered the contamination in 2008, the six year statute of limitations barred all but one claim.  Only the nuisance survived for further fact finding because nuisance is considered ongoing so long as the nuisance can be abated.

The case is a reminder that property owners with common law claims need to be aware that, while environmental statutes permit claims for cleanup and cleanup costs without time limitations, other damages are not recoverable if they are asserted after the statutory limitations periods.

The New Jersey Tax Court recently ruled in Methode Electronics, Inc. v. Twp. Of Willingboro, Docket Nos. 019012-2010 and 014098-2011 (Tax January 22, 2015) that the assessment on contaminated property located in Willingboro, New Jersey must be reduced to a mere nominal amount due to its undevelopable condition.  In Methode, the property owner manufactured printed circuit boards on a 3-acre parcel.  As a result of the owner’s manufacturing activities, the property became contaminated with volatile organic compounds and metals.  Methode ceased operations in 1999 and no other businesses operated at the property since that time.  Except for the floor slab, all improvements were demolished.  As part of its environmental cleanup obligations Methode installed a groundwater treatment system consisting of a number of wells.  These monitoring wells were required to remain in place indefinitely.  In addition, pursuant to a deed notice, the floor slab was also to permanently remain in place as a cap to prevent off-gassing of toxic vapors from soil and groundwater.  The remaining portion of the property was paved and previously served as a parking lot and loading area for the facility.

In 2010, the Township of Willingboro (the “Township”) assessed the property at $404,600.  That assessment was appealed by the owner and the Burlington County Board of Taxation reduced the assessment to $244,600.  Methode thereafter further appealed its case to the Tax Court.  Subsequently, in 2011, while the case relating to the 2010 taxes was still pending, the Township again assessed Methode’s property at $404,600.  The 2011 tax assessment was then also appealed to the Tax Court and consolidated for trial with the 2010 matter.

In considering this consolidated matter, the Tax Court found that Methode’s proofs provided sufficient evidence to call into doubt the Township’s assessment and thereby overcame the presumption of correctness attaching to all municipal tax assessments.  The Court was then required by law to determine the appropriate value of the property.  In evaluating the property, the Tax Court concluded that the subject property did not have any utility due to the extensive costs associated with a cleanup of an indeterminate duration; the limited amount of land that remains free from encumbrance due to the required presence of remediation equipment and the maintenance of the 6,800 square foot concrete cap in order to prevent vapors from migrating into the atmosphere, and due to the continuing prospect that any owner or future owner would be exposed to continuing liabilities associated with the contamination.

Consequently, the Tax Court concluded that the property was indeed overassessed and reduced its assessment to the nominal sum of $2,000.  In so holding, the Tax Court determined that prior precedence relating to contaminated properties was of little value because here a convincing showing was made that the property lacked utility in its current state and also lacked the prospect for utility into the immediately foreseeable future.

The impact on property value resulting from contamination therefore continues to be a critical component that must be addressed whenever evaluating the merits of a property tax appeal.

In a recent unpublished opinion, a New Jersey Appellate Division court upheld the lower court’s dismissal of an insurance coverage action for environmental contamination. In Spartan Oil Company v. New Jersey Property-Liability Insurance Guaranty Association, decided June 8, 2012, Spartan Oil had purchased and subsequently renewed a commercial vehicle insurance policy from Planet Insurance Company for coverage for its fleet of vehicles used to deliver heating oil.  In the early 1990s, during the coverage period, Spartan delivered heating oil to a tenant leasing property owned by Morristown Associates. Spartan’s drivers pumped heating oil from its vehicles into an external intake pipe located on the property, and the fuel traveled through an internal feed line to an underground tank under the basement. Unbeknownst to Spartan, the fuel line was corroded and the oil spilled through holes that had developed in it, causing environmental contamination on the property.  The contamination was not discovered until 2003.

 In 2006, Morristown Associates filed suit against several oil delivery companies, including Spartan, alleging violations of the New Jersey Spill Compensation and Control Act and Water Pollution Control Act, as well as common law negligence.  Spartan was successful in its summary judgment motion because the statute of limitations had expired. 

Planet Insurance Company’s successor, Reliance Insurance Company, was insolvent. Spartan had thus filed a notice of a claim with the New Jersey Property-Liability Insurance Guaranty Association (“PLIGA”), seeking defense and indemnity costs. PLIGA denied Spartan’s claim for coverage based on the pollution exclusion provision of the policy, which stated that the insurance coverage did not apply to property damage “arising out of the actual . . . discharge of . . . pollutants” “[a]fter the pollutants . . . are moved from the covered ‘auto’ to [the] place where they are finally delivered.’”

Spartan then filed a declaratory judgment action seeking reimbursement for its defense costs, which exceeded $200,000.  The lower court ruled in favor of PLIGA after determining that the pollution occurred after the oil was delivered, and therefore, the pollution exclusion applied.

 Spartan appealed arguing that the trial court erred in looking beyond the face of the complaint filed by Morristown Associates and considering additional facts.  Relying on a recent NJ Supreme Court case, the Appellate Division reviewed both the complaint in the underlying action and the insurance policies.  Based on this review, it rejected Spartan’s argument that the complaint alleged that Spartan was negligent during the delivery of the heating oil to the property and held that the pollution exclusion did not apply.  Although the allegations in the compliant did not  specify whether Spartan’s negligence occurred during delivery or after the oil was “finally delivered,” the Appellate Division considered the common definition of “deliver” to conclude that “the delivery of the oil occurred upon the fuel entering the property and heating system of Spartan’s customer . . . . At that point, Spartan no longer had possession or control of the oil. It had been transferred into the possession of [the tenant].”  Therefore, because “Spartan had already and ‘finally’ delivered the oil before the contamination occurred, the pollution exclusion applied and the insurance policies did not cover liability for the contamination.”

In the recent case of Northern International Remail and Express Co. v. Lester Robbins, et al., the Appellate Division held that a plaintiff’s claim against a former owner of property cannot survive without evidence that the former owner’s tenants did more than just generate hazardous waste. In Northern International, Northern International Remail and Express Co. (“Northern”) purchased a site in Union, New Jersey from defendant, Lester Robbins (“Robbins”) in 1991. The site was purchased by Robbins in 1976, and at the time was being leased by Baron Blakeslee, Inc. (“Baron”). Baron was engaged in the storage and distribution of chlorinated solvents, and used “a minimum of two 1,000 gallon outdoor tanks” for storage of such solvents. Although Baron continued to be a tenant at the Union site after it was purchased by Robbins, Baron, however, moved the work it performed at the Union site to another location in 1970.

After moving its operations in 1970, Baron subleased the Union property to J&J Construction Co. (“J&J”), a corporation engaged in the installation of car radios. Another entity known as T&T Corporation (“T&T”) may also have operated at the property. The evidence indicates that both J&J and T&T generated hazardous waste. However, there was no evidence of the type of hazardous waste generated or if any governmental actions were taken against any of these entities for the storage of hazardous waste at the Union site.

In 1998, Northern sought to refinance the Union property. In connection with the refinancing, contamination was uncovered at the Union property, which was attributed to past operations by Baron. Northern’s counsel in 1998 asked Robbins to contribute to the cost of the clean up at the Union property.

Northern eventually sued Robbins in 2008 based on New Jersey’s Spill Compensation and Control Act (the “Spill Act”) and common law claims of strict liability, nuisance, negligence, indemnification and restitution. On motion for summary judgment, the lower court dismissed Northern’s common law claims on the basis that the six year statute of limitations expired. The lower court also entered a judgment in favor of Robbins under the Spill Act on the basis that the evidence produced did not show that there had been a discharge of hazardous substances during the period of Robbins’ ownership of the Union property. Northern appealed the lower court’s ruling.

In order for Robbins to be held liable under Spill Act, Northern had to prove that hazardous substances were discharged at the Union site while Robbins was the owner of the property. Because Baron transferred its operations from the Union site prior to Robbins taking title to the Union property, Northern did not allege that Baron discharged any contamination at the Union property after Robbins took title to the property. Rather, Northern argued on appeal that Robbins was not entitled to summary judgment under the Spill Act because J&J and T&T were “registered generators of hazardous waste at the Union property during the period that Robbins was owner” asserting that this fact was sufficient to establish that there was a discharge at the Union property during Robbins’ ownership.

The Appellate Division rejected Northern’s contention noting that there was no evidence that the hazardous waste generated by J&J and T&T included the contaminants that were being detected at the Union property. The Court reasoned that given the absence of such evidence, it could not find that J&J or T&T discharged hazardous substances at the property. Therefore, the Court concluded that the “generation of hazardous waste, without more, does not give rise to [Spill Act] liability.”

The Court also dismissed Northern’s argument that Robbins was responsible for the continuing discharge of hazardous waste from Baron’s operation even though Baron’s activity at the property ended prior to Robbins’ ownership of the property. The Court held that liability under the Spill Act cannot be imposed “if a party’s only link to the discharge is through the passive migration of pre-existing contamination.” Thus, continuing contamination from a pre-existing contamination is insufficient to impose liability under the Spill Act.

The Appellate Division also upheld the lower court’s determination that Northern’s common law claims should be dismissed on the basis of the statute of limitations. The Court noted that the information obtained by Northern in 1998 at the time it was refinancing its property “was more than sufficient” for Northern to realize that it should have pursued its claim against Robbins. Thus, Northern’s cause of action accrued in 1998 and clearly by statute would have had to bring suit within six years of 1998.

This case is instructive for several reasons. In order to establish liability of a prior owner or operator for contamination at a site, there must be evidence connecting the prior owner’s or operator’s operations at the site to the contamination being detected at the property. The mere fact that a former owner or operator handled hazardous substances is insufficient. Typically, such a connection is established through direct evidence such as former employee testimony or expert testimony based on the expert’s review of records linking the former owner’s or operator’s operations to the contamination at the site. Thus, it is essential when contemplating an environmental cost recovery action to put in place a team of experts and attorneys that will be able to gather the necessary evidence to maintain a case against former owners or operators that were responsible for the contamination.

One of the most common mistakes by a property owner is delaying to act upon information suggesting that a prior owner or tenant may have contaminated the property. Therefore, it is imperative to bring a cost recovery action immediately when you know or suspect your property was contaminated by a prior owner or current or former tenant at the property. This information can be based on, as in Northern International, recent soil or groundwater sample results indicating that the property is contaminated. Generally, once such information is available, the “clock” starts running for filing a cost recovery action. For common law claims such as strict liability, nuisance, and negligence the statute of limitations is six years. Thus, to avoid running afoul of the statute of limitations for these types of claims, an action must be brought within six years of when you knew or should have known that the that the property was contaminated.