In a recent Appellate Division decision (Orient Way Corp. v. Tp. of Lyndhurst), the Tax Court’s prior determination that an arms’ length sale of the subject contaminated property provided credible evidence of true market value was upheld. The import of this decision is that where an arms’ length transaction exists with respect to the subject property, the reliance on the highly subjective process of determining the appropriate deduction to be made for contamination can now be avoided. As confirmed by a long line of cases, discussed in a piece I recently authored, the valuation methodology previously applicable required three critical elements: First, a determination of the level of cleanup costs required to return the property to a “clean” state; second, establishment of the expected duration of the cleanup; and third, proof that there has been a cessation of the cause of the property contamination. Once these three elements are satisfied, the cleanup costs are then 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 a taxpayer’s necessary proofs will undoubtedly continue to include each of these elements, the holding in Orient Way makes plain that our courts will now have to afford great weight to an arms’ length sale of the property made with full knowledge of the existing contamination. As the Tax Court recognized, the impact and effect of the cleanup obligations will have been appropriately built into the sales price and therefore represents the best indicator of the value of the property in its contaminated state.
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.
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.
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.
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.
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.
The Appellate Division recent held that the storage of home heating oil in an underground storage tank is not an abnormally dangerous activity. In Ross v. Lowitz, the plaintiffs, John and Pamela Ross, owned property that was contaminated by heating oil that migrated on to their property from an adjacent property that was owned by defendant, Lowitz, and previously owned by defendant, Ellman. Both individual defendants had insurance.
Prior to purchasing her property from Ellman, Lowitz had the underground heating oil tank (“UST”) tested, which did not detect any leaks. Lowitz also maintained heating oil supply contracts with heating oil vendors who never reported any problems with the UST.
In 2003, Lowitz entered an agreement to sell her property. Prior to closing the sale, the UST was tested again, which revealed a leak. The sale did not go forward.
In 2004, plaintiffs purchased their property, which was adjacent to Lowitz’s property. In 2007, plaintiffs signed a contract to sell their property and at about the same time were informed that contamination from Lowitz’s property had migrated on to their property. Consequently, the plaintiffs’ buyers canceled the contract.
Plaintiffs filed a lawsuit against the individual defendants (Ellman and Lowitz) and their insurance companies seeking damages. The plaintiffs alleged negligence, strict liability, Spill Act liability, trespass, nuisance and breach of the covenant of good faith and fair dealing against the insurance companies.
The trial court entered an Order providing relief to the plaintiffs during the cleanup, which included payment of plaintiffs’ carrying cost on their mortgage and repairing certain damage to plaintiffs’ property. The cleanup of the contamination was eventually completed and the New Jersey Department of Environmental Protection issued a no further action letter. The cleanup was paid entirely by the defendants’ insurance companies. Because the cleanup was completed, plaintiffs dismissed their claims under the Spill Act and the common law theory of strict liability.
As to the remaining claims, the defendants filed motions for summary judgment, which were granted by the trial court. Plaintiffs appealed, and the Appellate Division held that liability for private nuisance and trespass is not imposed without proof of some fault, i.e., negligence, or an intentional or hazardous activity requiring a higher standard of care. The Court further observed that strict liability is only applicable where the injury was caused by abnormally dangerous or intentional conduct.
Although the strict liability claim had been dismissed, the Court analyzed whether strict liability could be imposed under common law theories of nuisance or trespass. The Court concluded that a homeowner’s use of an underground storage tank for storing home heating oil is not an abnormally dangerous activity for which strict liability may be imposed. The Court further held that the individual defendants acted diligently and reasonably to maintain the USTs and that the discharge of heating oil was not the result of defendants’ negligent or intentional acts. As such, the Court affirmed the dismissal of plaintiffs’ negligence, nuisance and trespass claims.
As to the insurance company defendants, the Appellate Division also affirmed the trial court’s decision that there was no basis as a matter of law for plaintiffs to assert direct claims against the defendant insurance companies. Moreover, the Court determined that plaintiffs were not third party beneficiaries of the insurance policies, which would have entitled them to make a direct claim against the policies.
To supplement our prior blog posts [here and here] with respect to this issue, on December 30, 2013, the USEPA published a final rule (“Final Rule”) adopting the ASTM E1527-13 Standard Practice for Environmental Site Assessments, Phase I Environmental Site Assessment Process, as a standard that satisfies the “All Appropriate Inquiry” (“AAI”) requirement for a landowner liability defense under Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”).
In August of 2013, USEPA published a direct Final Rule, which USEPA subsequently withdrew in response to criticism for including a dual standard regime that would have allowed purchasers to satisfy AAI by completing the Phase I complying with either the ASTM E1527-13 or the prior standard, the ASTM E1527-05. In the current rule, USEPA now affirmatively recommends that Phase I Environmental Site Assessments follow the standards set forth in the ASTM E1527-13 and has announced its intention to publish a proposed rule to replace the regulatory reference to ASTM E1527-05 with ASTM E1527-13, in lieu of simply referencing both acceptable standards.
Interestingly, USEPA adopted the ASTM E1527-13 Standard to satisfy the procedures provided in AAI, but specifically states that this is not mandatory. However, USEPA believes that the new ASTM standard will result in a clearer presentation of information of interest to prospective landowners, particularly regarding prior contamination or potential obligations or restrictions on future use. As such, prospective landowners whose goal is to qualify for the CERCLA landowner liability defenses should arguably use the updated ASTM E1527-13 standard to avoid future questions regarding compliance with the AAI component of the defense.
It should be noted that simply because one has performed an AAI compliant Phase I ESA, does not automatically qualify the owner to use the defense. In certain circumstances, parties must comply with continuing obligations, such as land use restrictions (deed notices and activity and use limitations). Thus, the inquiry as to whether a party is eligible to assert the landowner defenses is fact specific and depends on the environmental condition of the property and the steps taken by the party attempting to assert the defense. Regardless, environmental assessments based on the ASTM Standards are frequently used in the commercial acquisition and financing markets, which should anticipate that the new standard will become the appropriate standard with this final rule.
One of the most draconian aspects of NJ’s 2009 Site Remediation Reform Act is the authority of NJDEP to take direct oversight of older cleanups, stripping responsible parties of cleanup decision-making and requiring a trust fund in the amount of the cleanup to be established. That trust fund makes NJDEP the named beneficiary in the event of default. One path to direct oversight under the law: the failure of a party remediating a site since May 1999 or before to complete the remedial investigation phase of the cleanup by May 7, 2014.
Assembly bill 4543, which was passed by the Assembly and the Senate on January 13, 2014, offers a two-year extension, allowing subject parties to apply for an extension of time to complete the remedial investigation until May 7, 2016. The legislation is the result of industry groups in the state pressing the legislature for relief, and by most accounts, NJDEP itself will be relieved when the bill is signed since taking direct oversight would mean dedicating state resources that are already spread thin.
The downside to the extension: the applicant must establish a trust fund in the amount projected to complete the remedial investigation. While the amount of this fund is far less than the requirement under direct oversight (the amount of the entire cleanup), it still may be more than a company or individual has available at any one time. Careful review of NJDEP’s recent guidance on what aspects of the remedial investigation must be completed, and certain flexibility offered to do so, is imperative and can impact the amount of the trust fund.
The extension is not automatic. The applicant must establish compliance with certain key aspects of the act, including having retained a Licensed Site Remediation Professional for the project, having satisfied technical requirements on certain key filings and met mandatory timeframes, and being current on the payment of NJDEP fees. Application for the extension must be made by March 7, 2014 or 30 days from passage of the bill, whichever later.
The new law is expected to be signed soon by Governor Christie.