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Environmental & Energy Law Monitor

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

Foes of the NJDEP $225 Million Settlement with Exxon Mobil Must File “Friend of the Court” Briefs Today

Posted in Environmental Litigation

Amicus Curiae Briefs Due Today; Oral Argument on Motion to Approve Settlement Rescheduled

After denying their motions to intervene last week (see our coverage here), Judge Hogan issued a Scheduling Order that sets today as the deadline for the eight environmental organizations and State Senator Lesniak (D-Union) to file their amicus curiae briefs.  NJDEP and Exxon Mobil must file their response briefs by the end of the week at noon on Friday, July 24, 2015.

Oral argument on the motion to approve the proposed settlement, which was previously scheduled for tomorrow, will now be held Thursday, July 30, 2015.  Judge Hogan is allowing the amici to participate in the oral argument if they choose to, which we should all expect at this point.

An amicus curiae, a Latin term that literally means ‘friend of the court,’ is an entity that is not a party to a case, but has an interest in the outcome and files a brief to provide information and arguments to the court and otherwise weigh in on the case.  As a non-party, an amicus curiae does not have a right to appeal the final outcome of a case, which is what the eight environmental groups and Senator Lesniak were ultimately seeking when they filed their motions to intervene.  So, these amicus curiae briefs and next week’s oral argument are their very last opportunity to voice their opposition to the settlement before the judge decides whether to approve it (unless they appeal the denial of the motions to intervene; no word so far on whether they will file an appeal).  Senator Lesniak vowed to file such a brief after his motion to intervene was denied, so we expect to see plenty of activity this week.

Stay tuned for discussions on NJDEP’s response to the more than 16,000 public comments on the settlement, which the judge will likely consider in his evaluation of the proposed settlement, as well as a closer look at natural resource damages and what they actually mean.  And continuing updates on the case’s docket.

UPDATE: After the posting of this blog, the Sierra Club of New Jersey posted a press release announcing that it made the amici filings, along with other environmental groups, earlier today.

Too Little, Too Late: Judge Denies Environmental Groups’ Motion to Intervene in Chris Christie’s Exxon Mobil Settlement

Posted in Environmental Litigation

A New Jersey state judge ruled on Monday that eight environmental groups and a New Jersey state senator cannot intervene to challenge the $225 million settlement with Exxon Mobil proposed by the New Jersey Department of Environmental Protection (NJDEP) to end litigation lasting more than a decade and originally alleging more than $8 billion in natural resource damages.

The environmental groups and New Jersey Senator Ray Lesniak (D-Union) sought to urge the court to reject the “sweetheart deal” between Exxon Mobil and Christie’s administration and, if the court approved the settlement, to appeal the approval as a party to the litigation. However, Burlington County Superior Court Judge Michael J. Hogan denied the motions to intervene, ruling that they did not demonstrate the adversity of interest, collusion or nonfeasance necessary to justify their intervention. Instead, the court found that NJDEP adequately represents their interests and that the public comment period provided an adequate forum to voice their objections to the settlement. Judge Hogan also ruled that the motions failed on the timeliness factor, pointing out that the intervenors were aware of the lawsuit since it was filed in 2004 and “have known of their interests in its outcome for eleven years.”

The proposed settlement has been subject to extensive criticism and outcry since NJDEP released the draft consent judgement on April 6, 2015. New Jersey’s environmental statute commonly known as the Spill Act requires a public comment period for at least thirty days for proposed settlements under the statute. Given the controversy and overwhelming public attention, NJDEP doubled the public comment period and collected comments for sixty days. NJDEP received approximately 16,000 public comments – most in opposition to the settlement – by the time the comment period ended on June 5, 2015. The court may also consider the comments in determining if the settlement is fair, reasonable and in the public interest.

Keep in mind that the court has not yet passed judgement on the fairness or reasonableness of the proposed settlement – the hearing for that decision is currently scheduled for Tuesday, July 21, 2015. That is, unless, the intervenors file an appeal of Judge Hogan’s decision on their motions to intervene in the next few days and the hearing is delayed pending that appeal.

Back to the Drawing Board: Supreme Court Sets Aside EPA Regulations on Mercury Emissions from Power Plants

Posted in Environmental Litigation, Regulatory Counseling

The Supreme Court on Monday dealt a setback to the Environmental Protection Agency’s regulation limiting mercury and other toxic emissions from power plants – the “mercury rule.” In Michigan v. Environmental Protection Agency, the Court held that EPA acted unreasonably by making its initial decision to regulate plant emissions without considering the cost of regulation. Although the ruling interrupted the Court’s much-publicized string of “liberal” rulings, in the end the decision may have more impact on the way EPA makes regulations than on whether EPA ultimately regulates emission of mercury and other pollutants from power plants.

The Clean Air Act directs EPA to study and decide whether it is “appropriate and necessary” to regulate power plant emissions. In 2000, EPA concluded that mercury and other toxic emissions from power plants pose a danger to human health and the environment and that regulation of power plants was therefore “appropriate and necessary.” In 2012, after years of further study, rule-making, and litigation, EPA issued its mercury rule. EPA considered costs of compliance in developing the regulations but not in deciding whether to regulate in the first place.

The Supreme Court disagreed with this process. In a 5-to-4 decision, Justice Scalia’s opinion for the majority interpreted the statutory term “appropriate” to require EPA to consider all pertinent factors, including the cost of regulation, in deciding whether to regulate at all. In the Court’s view, EPA’s consideration of cost in fashioning the regulations came too late in the process. The Court therefore held that the power plant regulations were improperly issued.

Justice Kagan’s opinion for the four dissenters agreed with the majority that EPA had to consider cost of any proposed regulations at some time in its rule-making process. But she disagreed that EPA had to do so in deciding whether to regulate power plant emissions in the first place. She argued that EPA reasonably determined that regulation was appropriate based on the finding that exposure to airborne mercury causes extensive health concerns and that EPA could properly consider costs in determining how to regulate, rather than whether to regulate.

The decision in Michigan v. EPA was a loss for environmental advocacy groups that supported the regulation, but it is a narrow ruling, hinging on the meaning of “appropriate.” EPA will have to re-review its decision to regulate emissions from plants and take costs into account, but the Court’s decision does not suggest that cost considerations will ultimately scuttle the mercury rule itself. In fact, industry had already begun to plan operations and investments based on the mercury rule. It remains to be seen how industry and the courts will treat the mercury rule while EPA’s re-review is pending – and what impact, if any, the ruling may have on the Obama EPA’s climate change agenda and other initiatives.

Even if You Lose You May Win (Attorneys’ Fees That Is)

Posted in Environmental Insurance, Environmental Litigation

In New Jersey, if a policyholder is required to sue its insurance company for coverage, Court Rule R.4:42-9 allows a policyholder to recover attorneys’ fees if it is successful in obtaining coverage.  The purpose of this rule is to discourage insurance companies from attempting to avoid their contractual obligation and force their insured to expend counsel fees to establish coverage for which they already paid premiums.  In Occhifinto v. Olivo Construction Company, the New Jersey Supreme Court recently addressed whether a party who was successful in obtaining a declaratory judgment requiring an insurance company to provide coverage in the underlying lawsuit would be able to recoup legal fees even though it did not prevail in the underlying lawsuit.

In Occhifinto, Robert Occhifinto brought a lawsuit against Robert Klepper Mason Contractors, LLC (“Klepper”) and others for defective construction of an addition to a warehouse. Klepper was defended by its insurance company, Mercer Mutual Insurance Company (“Mercer Mutual”). Mercer Mutual subsequently filed a declaratory judgment action challenging its obligation to provide coverage to Klepper in the underlying lawsuit. Occhifinto, on Klepper’s behalf, opposed the insurance company’s action, arguing that Mercer Mutual was required to provide coverage to Klepper. The trial court ruled that Mercer Mutual was required to indemnify Klepper for any covered damages assessed in the underlying lawsuit.

The underlying lawsuit proceeded to trial and the jury found that Klepper was not liable for any damages incurred by Occhifinto as a result of the defective construction. Occhifinto subsequently sought to collect counsel fees it incurred in opposing, on behalf of Klepper, Mercer Mutual’ s lawsuit to deny coverage to Klepper. Occhifinto sought recovery of counsel fees pursuant to the court rule, R.4:42-9(a)(6), which provides that a court may award counsel fees in “an action upon liability or indemnity policy for insurance in favor of a successful claimant.” The trial court denied Occhifinto’s motion and the Appellate Division affirmed. The New Jersey Supreme Court granted certification to determine the issue of whether Occhifinto was entitled to counsel fees under the Court Rules.

Occhifinto contended that he was a successful claimant because the trial court required Mercer Mutual to defend and, if necessary, indemnify Klepper.  Mercer Mutual contended that to be a successful claimant, Occhifinto was required to prevail in the underlying lawsuit against Klepper.

The Supreme Court noted that the case hinged on the definition of a “successful claimant.”  In previewing prior cases interpreting this definition, the Court noted in the case Schmidt v. Smith, 294 N.J. Super. 569 (App. Div. 1996), aff’d, 155 N.J. 44 (1998), the Appellate Division ruled that an insured who obtained defense coverage was entitled to attorneys’  fees under the rule, even if it was later determined that the insured was not entitled to indemnification.  The Court noted that the trial court determined that the insurance company, Mercer Mutual, was obligated to indemnify Klepper if damages were assessed.  Consequently, the Court concluded that Occhifinto did obtain a favorable ruling on the coverage question.  Therefore, Occhifinto was a “successful claimant” entitled to recover attorneys’ fees in opposing,   on behalf of Klepper, the lawsuit filed by Mercer Mutual to deny coverage to Klepper.

The Court Rules provide an insured with leverage in negotiating with insurance companies to obtain coverage.  With the decision in Occhifinto, insurance companies are now faced with the prospect of facing additional and perhaps more vigorous and costly challenges to their decision to deny coverage.  Third parties who are not covered by a policy, but stand to benefit if an insured is provided coverage under a policy of insurance, may now step in and litigate against the insurance company to obtain coverage and recover legal fees even if the third party does not ultimately prevail in the underlying lawsuit.

Superior Court of New Jersey Pierces the “LLC” Veil, Holding Sole Member Liable for Environmental Liabilities

Posted in Environmental Litigation, Managing Environmental Risk in Transactions, Remediation Oversight

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.

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.