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Environmental & Energy Law Monitor

News & Updates on Environmental & Energy Law in the Mid-Atlantic Region and Throughout the United States

Environmental Contamination Can Significantly Impact the Merits of a Property Tax Appeal

Posted in Transactions Involving Contaminated Property

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.

Environmental News Flash: New Jersey Supreme Court Rules That Six-Year Statute Of Limitations Does Not Apply To Spill Act Claims

Posted in Environmental Litigation, Transactions Involving Contaminated Property

In a much anticipated decision, the New Jersey Supreme Court ruled today in Morristown Associates v. Grant Oil Co. that the general six-year statute of limitations for injury to real property is not applicable to claims made pursuant to the New Jersey Spill Compensation and Control Act (“Spill Act”). In reaching this decision, the Court noted that the Spill Act sets forth the only defenses available to contribution defendants and a statute of limitations defense is not included. Further, the Court explained that the New Jersey Legislature could not have intended for an unreferenced statute of limitations to impede the Spill Act’s imposition of contribution liability on responsible parties.

This case has significant implications. Parties performing remedial activities can proceed with the understanding that there is no time limit to file a contribution action.  In doing so, plaintiffs will encounter less difficulty when attempting to recoup some, or all, of the costs associated with a New Jersey Department of Environmental Protection approved cleanup. A more in-depth analysis will follow.

Please feel free to contact Richard Ericsson, the Chair of the Environmental Department, with any questions.

In New York, Failing to Timely Notify Insurance Carriers of a Pollution Incident May Cost You

Posted in Environmental Insurance, Environmental Litigation

On January 8, 2015, in Travelers Indem. Co. v. Orange & Rockland Utilities, Inc., the New York Appellate Division upheld a decision finding that Orange & Rockland Utilities Inc.’s notice to Travelers Indemnity Co. of potential environmental liabilities was late as a matter of law. As a result, Travelers was not required to provide coverage under ORU’s insurance policies.

ORU first notified Travelers of potential environmental liabilities at its former manufactured gas plants on April 14, 1995. Travelers argued that ORU was sufficiently aware of its potential liability from at least 1981 when ORU notified the Environmental Protection Agency that three of its plants contained possible contamination from its operations. Travelers also presented numerous reports and evidence of regulatory interactions from 1981 until 1995 demonstrating that ORU should have been aware of a reasonable possibility that the Travelers’ policies would be implicated.

The appellate panel agreed that ORU did not give timely notice under the policies. The Court highlighted ORU’s “willful failure to investigate, i.e. its apparent strategy of waiting to be directed by the appropriate regulatory agencies to investigate the sites and remediate pollution, despite the overwhelming evidence of potential contamination.”

Under New York law, compliance with the notice provisions of a liability insurance policy is required for coverage and is triggered by the insured’s “awareness of a reasonable possibility that the policy will be implicated.” Absent a valid excuse, an insurer may deny coverage based on untimely notice. Unlike most jurisdictions, New York does not also require showing that the insurance carrier was somehow prejudiced by the late notice. By contrast, in New Jersey, an insurer must establish “appreciable prejudice from late notice to avail itself from this defense.” See Chemical Leaman Tank Lines, Inc. v. Aetna Cas. and Sur. Co., 89 F.3d 976 (3d Cir. 1996).

As the decision in Travelers Indem. Co. demonstrates, timely notice of a claim may be a critical issue in coverage determinations. Policyholders should take care to provide notice in accordance with their insurance policy terms and as soon as possible after learning of a possible claim.

Arms’ Length Sale of Contaminated Property is Best Indicator of Value for Tax Appeal Purposes:

Posted in Transactions Involving Contaminated Property

In the recent Orient Way Corp. v. Tp. of Lyndhurst (35-2-4760) decision, the Appellate Division upheld the Tax Court’s determination that an arms’ length sale of the subject contaminated property provided credible evidence of true market value. The import of this decision is that where an arms’ length transaction exists, the reliance on the highly subjective process of determining the appropriate deduction to be applied to the value of the property as if “clean” (free from contamination) can now be avoided. As confirmed by a long line of cases, discussed in a previous piece I authored on our Real Estate and Construction Blog, the valuation methodology in this area requires satisfaction of three critical components:

  • First, the taxpayer needs to establish the appropriate amount of the cleanup costs required to return the property to a “clean” state
  • Second, the taxpayer must establish the reasonable period required to complete the cleanup
  • Third proof must be offered establishing that there has been a cessation of the cause of the property contamination

Once these three elements are satisfied, the cleanup costs can then be capitalized over the expected cleanup period to determine the amount of the appropriate deduction to apply when fixing a final true value for the property in its current contaminated state. While these proofs will undoubtedly continue to be required, the holding in Orient Way makes plain that our courts will now have the ability to afford great weight to an arms’ length sale of the property where the parties were acting with full knowledge of the existing contamination. As the Tax Court recognized in the case below, the impact of the cleanup obligations will have been appropriately built into the sales price and therefore this price will represent the best indicator of the value of the property in its contaminated state.

 

OSHA Issues Final Rules On Reporting Injuries In The Workplace

Posted in Regulatory Counseling

OSHA recently passed new rules requiring employers to notify OSHA of a fatality within eight (8) hours of the death.  The new rules also require employers to file a report with OSHA for each in-patient hospitalization of an employee or situations where an amputation or eye-loss has occurred.  The report must be made within 24 hours of the incident.  OSHA defines in-patient hospitalization as a “formal admission to the in-patient service of a hospital or clinic for care or treatment.”  Employers can make the report in person to the OSHA area office, by a toll-free number, 1-800-321-OSHA, or by electronic submission on OSHA’s website, www.osha.gov.  The reporting obligations apply to all employers, even those that are exempt from OSHA’s recordkeeping requirements.  The new rules will go into effect on January 1, 2015.

As a result of this change, OSHA will likely perform more inspections of establishments where serious injuries or fatalities occur.  As always, it is imperative for employers to be proactive in an effort to minimize unsafe conditions in the workplace.  At the same time, employers need to develop procedures to address serious injuries or fatalities that may occur in their establishment.  To this end, employers should educate their managers and supervisors of OSHA’s new reporting requirements.  By taking these steps, employers can protect their employees and minimize their liability resulting from workplace accidents.

New Jersey Appellate Court Limits Measure of Damages for Contaminated Properties

Posted in Environmental Litigation, Remediation Oversight, Transactions Involving Contaminated Property

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.

No Need To Wait For NJDEP’s Approval When Seeking Contribution For Site Cleanups

Posted in Environmental Litigation, Remediation Oversight

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.

The Absolute Pollution Exclusion May Not Be That “Absolute”

Posted in Environmental Litigation

The Absolute Pollution Exclusion (“APE”) contained in current general liability insurance policies excludes coverage for costs related to the cleanup of environmental pollution.  Insurance companies have taken the position that any damages arising from “pollution,” regardless of the circumstances under which they occur, are excluded by the APE.  However, in certain situations Courts have ruled that the APE is inapplicable.  The recent New Jersey Law Division decision in Westwood Products, Inc. v. Great American E&S Insurance Company, L-2320-13 (May 12, 2014) is an example of the Court’s erosion of the absoluteness of the APE.

Westwood Products, Inc. manufactures and sells heating and plumbing supplies.  Westwood was sued by a third party, Roy and Joanna Wilson (the “Wilsons”), in a Canadian court alleging that a Westwood-built oil filter, which had been installed in their fuel oil tank, failed, causing contamination at their property.  After Westwood notified its insurer, Great American E&S Insurance Company (“Great American”), of the claim, Great American denied coverage based on the APE.  Westwood subsequently initiated a declaratory judgment action against Great American seeking coverage.

When the Wilsons sued, Westwood had a “Products-Completed Operations Hazard” liability policy.  The policy had an APE, which excluded coverage for bodily injury and property damage arising from environmental contamination.  Westwood contended that under New Jersey law, the APE only applies to intentional environmental pollution and not to product liability-related contamination cases.

Great American countered by arguing that the underlying environmental action falls squarely within the APE clause and, therefore, coverage should be denied.  The Court reviewed the history of the approval of the APE.  The Court cited to a New Jersey Supreme Court case, Nav-Its Inc. v. Selective Ins. Co., in which the insured was provided coverage for bodily injury claims arising from fumes inside a building.  In that case, the Court noted that the pollution exclusion was designed to eliminate coverage for gradual environmental contamination and government required cleanup such as Superfund response costs.  The Court stated that Nav-Its restricted the APE to “traditional environmental pollution” situations, concluding that Nav-Its was much broader than Great American’s interpretation.  Specifically, the APE would not apply to claims that were not “traditional environmental pollution” claims.

The Court ultimately held the allegations in the complaint against Westwood were made based on negligence as opposed to intentional acts, and were not a “traditional environmental pollution” situation that would exclude coverage based on the APE.  The Court held that the APE was inapplicable.

The lesson from this case is that a claim, either for bodily injury or property damage, which arises out of contamination, is not automatically excluded by a policy’s APE clause.  As an insured, you must evaluate the situation carefully to determine the cause of the contamination.  In certain situations, claims that arise from environmental contamination indeed may be covered under your policy.

CERCLA Contribution and Trust Funds: A Matter for State Law

Posted in Environmental Litigation, Managing Environmental Risk in Transactions

The Second Circuit Court of Appeals in New York recently held that the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as Superfund, does not require contribution from beneficiaries of a responsible party’s estate.

In Asarco LLC v. Goodwin, the appeals court noted that as part of Asarco’s Chapter 11 bankruptcy, Asarco paid the United States, the State of Washington, and the Port of Everett, Washington, $50.2 million to resolve certain environmental claims arising from the release of hazardous substances at two sites in Washington State.

Having emerged from bankruptcy, Asarco sought contribution from the Trustees of the residual trusts created by the will of John D. Rockefeller, whose current beneficiaries are his great-grandchildren.  Asarco alleged that the remediation costs were fairly attributable to the activities of corporations controlled by Rockefeller as owner and operator of the contaminated sites.

Under CERCLA, the following parties are responsible for clean-up costs: (1) current owners or operators of facilities or sites from which a release of hazardous substances has occurred; (2)  past owners or operators of a facility or site at the time of  a release of a hazardous substance; (3) parties who arranged for the disposal or transport of hazardous substances; and (4) parties who accepted hazardous substances for transport and selected the site.

Asarco contended that the court should craft a rule under CERCLA mandating that a decedent’s personal liability is transferred to those who benefit from the decedent’s estate, a rule known as the “trust fund doctrine.” The court noted that CERCLA was silent as to contribution claims brought against trusts.  The court went on to state that since CERCLA is a comprehensive and detailed law, state law governs matters left unaddressed under the federal program.  As a result, the court noted that state probate law governs whether liability may be imposed against the beneficiaries of Rockefeller’s estate and turned to New York law in order to address Asarco’s arguments.

Although the court assumed, for the purpose of addressing other issues, that New York law permits the imposition of liability against Rockefeller’s trust, it stopped short of certifying the issue to the New York Court of Appeals for its definitive resolution.  When faced with the possibility of future CERCLA liability, it is important to be aware of the state probate laws pertaining to trust beneficiaries where the trust includes assets coming from environmentally sensitive businesses.

EPA Gives New ASTM Standard the Nod in Proposed Rule

Posted in Transactions Involving Contaminated Property

As indicated in our latest blog post, here, on US EPA’s adoption of the new ASTM E1527-13 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, US EPA has taken the step necessary to make it clear that the  2013 Phase I standard should dictate future landowner efforts to meet the all appropriate inquiry (“AAI”) requirements to achieve liability protection under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”).

In December 2013, US EPA issued a final rule solidifying the agency’s adoption of the 2013 standard by inserting a reference to ASTM E1527-13 into the AAI Rule (40 CFR part 312) to accompany the 2005 standard, effectively permitting the use of either standard for AAI compliance.  On Monday, US EPA proposed to clean up the AAI Rule to remove the reference to the old ASTM E1527-05 standard in order to alleviate any confusion as to which standard governs Phase I Environmental Site Assessments going forward.

Importantly, ASTM E1527-05 is still AAI-compliant for properties acquired between November 1, 2005 and the effective date of the proposed rule.  To smooth the transition to the new standard and give parties time to complete investigations under the old standard, US EPA expects to delay the effective date of the rule until one year from when the final rule is published.

As we wrote here, a key change to Phase I investigations under ASTM E1527-13 includes an assessment of the potential for vapor encroachment into buildings at the subject property, and the inclusion of a new definition to characterize contamination where a chemical has been released and the cleanup allows some residual contamination to remain in-place at the property – this is now a “Controlled Recognized Environmental Condition.”

US EPA proposes no other changes to the AAI Rule and the proposed rule is currently undergoing the 30-day comment period.