Environmental & Energy Law Monitor : Environmental & Energy Lawyer & Attorney : Cole Schotz Meisel Forman & Leonard Law Firm : NJ, Mid-Atlantic Brownfield & Climate Change Law

New York’s highest court recently upheld New York Department of Environmental Conservation’s (“NYDEC”) regulations regarding cleanups at contaminated sites.  In New York State Superfund Coalition Inc. v. New York State DEC, No. 189 (12/15/11), the New York State Superfund Coalition, a group of companies that own contaminated sites in New York, challenged NYDEC’s regulations requiring responsible parties to cleanup contaminated sites to “predisposal conditions.”

The Coalition argued that the regulations were not authorized by the applicable state statute, Article 27, Title 13 of New York’s Environmental Conservation Law, contending that the statute only required environmental cleanups to eliminate significant threats to human health and the environment.  The court rejected the Coalition’s arguments and held that the regulations were a valid and reasonable exercise of NYDEC’s powers.  The Court determined that NYDEC’s regulations, when read in conjunction with the entire statute, were consistent with the legislative intent and goals to require a complete cleanup of inactive hazardous waste sites.

The Court also addressed the Coalition’s concern that NYDEC’s regulations would require that every site be remedied to a pristine condition.  The Court recognized that while NYDEC has the authority to order the cleanup of a site, such power is not unfettered.  In determining the scope and nature of a cleanup, the Court noted that NYDEC must consider a number of factors including the technical feasibility and cost of the remedy, the danger to human health and the environment and the extent to which the remedy would reduce such danger.  The Court concluded that NYDEC is not empowered to unilaterally impose a remedy without considering the practicalities of such remedies.
 

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In the Matter of Crompton Colors, Inc., No. A 0778 09T1 (App. Div. 10/27/11), the NJ Appellate Division ruled that a property owner is entitled to have an administrative hearing regarding the rescission of a no further action letter (“NFA Letter”) by the DEP.  In this case, a subsidiary of Hartz Mountain Industries, a former landlord of an industrial tenant named Crompton Colors, Inc., appealed DEP’s rescission of an NFA Letter issued in 2002 and the denial of its request for a hearing to contest the decision. 

Hartz purchased the property located in Bloomfield, NJ in 1965 and leased to Peerless Bindery.  The property consisted of a warehouse and an office building.  In 1990, the buildings were demolished and a 10,000 gallon heating oil underground storage tank was removed.  According to the Report submitted by Hartz to DEP, petroleum product was encountered in the soil and floating on the groundwater.  The impacted soil was subsequently excavated and the floating oil was removed.  Although groundwater monitoring wells initially did not detect any contamination, a second round of sampling revealed slight exceedences for petroleum constituents.  At that point, additional soil was removed from this area and residual petroleum in fill material was left in place and covered with the newly constructed warehouse concrete slab.

The property was subdivided into two lots in 1991.  One lot was occupied by the new warehouse that was leased by a predecessor of Crompton Colors and the second lot was leased to a daycare center.  A Remedial Action Work Plan was submitted to DEP in January of 1996, which was found by DEP to be unacceptable.  Hartz then submitted a Remedial Investigation Report that discussed the results of the supplemental soil and groundwater sampling, which showed elevated levels of semi volatile organic compounds that are typical of urban fill material.  As the contamination was detected in an area that is located up-gradient from the former tank, the report concluded that the contaminants were unrelated to the tank.  The DEP issued an NFA Letter with respect to the former tank but required further investigation to confirm that the source of the contamination was from an off site source.  Hartz did not implement the requested additional investigation.  The environmental documents referenced the street address as 60 West Street, which represented the original address of the undivided property.  However, after the property had been subdivided, the warehouse facility was known as 50 West Street.

In 2001, the Industrial Site Recovery Act (“ISRA”) was triggered when Crompton Colors ceased operations at the warehouse.  Crompton Colors filed the appropriate paperwork using the 50 West Street address relying on the prior tank NFA letter.  However, DEP responded that the site known as 50 West Street was not eligible for an expedited review because it had not been previously issued an NFA Letter.  Crompton Colors then prepared and submitted a Preliminary Assessment, along with revised paperwork with the correct lot number requesting DEP issue an NFA.  Crompton Colors did not disclose, however, the presence of soil and groundwater contamination that had been identified in the 1996 NFA Letter.  In 2002, DEP issued the NFA Letter for the Crompton Colors’ ISRA case.

In 2004, DEP was under pressure to re-evaluate closed cases in response to a situation where a daycare facility began operating at a former thermometer manufacturing facility where significant mercury contamination was discovered.  As a result of this incident, DEP mapped all known childcare centers and schools within a 500 foot radius of contaminated sites and re-examined all open and closed DEP cases within the radius to determine whether any of these properties could adversely impact the childcare facilities.  As a result of the childcare center being located at the Bloomfield property, DEP reviewed the 2002 NFA determination and concluded that the contamination not addressed by Hartz in 1996 was located at 50 West Street.  Therefore, DEP rescinded the NFA Letter issued in 2002 and directed Hartz and Crompton’s successor, Chemtura, to investigate potential vapor intrusion concerns at the childcare center.

Hartz argued that DEP did not have the basis to reopen the case or the authority to require a vapor intrusion study and requested an administrative hearing.  DEP rejected the claims that the contamination was from an off site source as they concluded that the nearest potential off site source was more than a ½ mile away in a down-gradient location.  The DEP also denied the request for a hearing, stating that DEP was merely requesting Hartz to submit documentation and perform studies Hartz should have done as part of its original application in 2002. 

The Appellate Division stated that the revocation of the NFA was a rescission of the permission DEP provided Hartz in 2002 to convey the property free and clear of any remedial obligations under ISRA.  The Court found that the directives to perform environmental studies fell in the purview of N.J.S.A. 13:1K 13.1b, which expressly provides that DEP is required to give a recipient of an order requiring abatement of a violation notice of its rights to a hearing.  Although Hartz will now be afforded the opportunity to participate in an administrative hearing, it must present evidence that challenges DEP’s conclusion that the contamination that triggered the “reopener” is not from an off site source.  As the DEP is typically given significant discretion over technical determinations, Hartz will be hard pressed to show DEP acted in an arbitrary and capricious manner and have DEP’s decision over turned.

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In the case of Litgo v. Martin, 2011 WL 65933 (D.N.J. Jan. 7, 2011) the federal District Court of New Jersey held that a shareholder of a single-purpose entity that owns a contaminated facility is liable as a current operator under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. Sec. 9601 et al. (“CERCLA”).  In 1983, the New Jersey Department of Environmental Protection (“NJDEP”) was ordered to clean up a property located in Newark, New Jersey.  NJDEP removed drums of hazardous waste from the Newark site and stored them at a warehouse located at 40 Haynes Road, Somerville, New Jersey (the “Site”).  The warehouse at the Site was determined to be contaminated with hazardous substances.

While the remediation at this Site was being conducted by NJDEP, plaintiff Sheldon Goldstein entered into negotiations with the current owner of the Site.  On August 6, 1985, the current owner of this Site entered into an agreement to sell the Site to plaintiff Goldstein.  Subsequently a dispute broke out over the sale of the Site and the Court ultimately ordered the plaintiff Goldstein to take title to the Site.  On February 14, 1990, plaintiff Goldstein took title to the Site and pursuant to the contract of sale assumed the obligations to clean up the Site.  On April 14, 1990, plaintiff Goldstein transferred the Site to plaintiff Litgo New Jersey, Inc.

In 2006, plaintiffs filed suit against NJDEP alleging that the State failed to properly remediate the Site.  Plaintiffs’ suit was under various claims including CERCLA.  The NJDEP filed a counterclaim.  At trial, the District Court found that plaintiff Goldstein, as a shareholder in Litgo, the current owner of the Site, was liable under CERCLA as a current operator.  On a motion for reconsideration, the Court upheld the trial Court’s determination regarding plaintiff Goldstein’s liability as an operator.

The plaintiffs argued that Goldstein’s involvement with the cleanup of this Site was insufficient to impose liability on Goldstein as a current operator under CERCLA.  The Court addressing this issue explained that under CERCLA, past owners and operators are liable only to the extent that a discharge of hazardous substances occurred at the Site during their ownership or operations.  However, current owners and operators are liable under CERCLA regardless of whether hazardous substances were discharged at the Site during their ownership or at the time they operated at a site.  The Court observed that the parties do not dispute that Litgo, as a current owner of the Site, is liable under CERCLA.  The Court, however, dismissed the plaintiffs’ argument that Goldstein could not be held liable as a current operator.  The Court, distinguishing the cases relied upon by the Plaintiffs, concluded that because of his involvement with this Site, the plaintiff Goldstein could be liable as a current operator.  The Court specifically noted the following:

Plaintiffs have been involved with the property for two decades and were responsible for environmental compliance decisions and decisions not to proceed with the remediation. … We believed the decision to delay remediation may have increased the threat to the environment and public health. ... Given these considerations, the Court is not persuaded that it should reconsider its decision as to Goldstein’s liability.

The instructive value of this case is that sole shareholders of single entity companies can be held liable under CERCLA to cleanup contamination for which its company is responsible.  Factors that will be used in determining whether a shareholder should be held liable is the actual control the shareholder has over the day to day operations of the company causing the contamination.  By being proactive and ensuring compliance with environmental laws can a sole shareholder minimize exposure to liability for environmental contamination.

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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.

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On September 27, 2010, New Jersey Department of Environmental Protection Commissioner Bob Martin announced the opening of the DEP Office of Dispute Resolution. Commissioner Martin stated that “The Office of Dispute Resolution will play a key role in achieving our goal of breaking down the barriers that have often existed between the DEP and businesses, individuals and local governments.” But the Commissioner warned that “In finding common ground, however, we will not compromise protection of the environment.”

The types of issues which will be appropriate for the dispute resolution process would include, for instance, (a) disputes with the site remediation staff regarding the requirements associated with site cleanups, (b) disputes with the land use permitting staff regarding the issuance of environmental land use permits such as wetland permits and (c) disputes with DEP’s enforcement staff regarding the reasonable amount of penalties, if any, for alleged violations of environmental law.

The alternative dispute resolution process, to be facilitated by the Office of Dispute Resolution, is designed to reduce litigation costs, save time and allow the parties to participate directly in reaching a mutually agreeable resolution of disputes with the DEP. The Office of Dispute Resolution has identified its goals as follows: “define and clarify issues disputed; facilitate communication between regulated parties and DEP staff; encourage collaborative problem-solving; explore options for resolution to the issues; and promote and document a mutually satisfactory agreement.” By participating in the alternative dispute resolution process, parties should be in a position to negotiate with the DEP and reach a resolution of open issues through an expedited process.
 

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In the past couple of years, the New Jersey Department of Environmental Protection (“NJDEP”) filed more than 100 lawsuits against companies seeking compensation for restoration of damages to natural resources caused by the companies’ discharge of chemicals to the environment. NJDEP also sought compensation for the public’s loss of use of those natural resources.

These actions were based on state statute, common law claims such as claims for nuisance and trespass, as well as the public trust doctrine. Under the public trust doctrine, the State, as trustee of the state’s natural resources, is required to manage the State’s natural resources to the benefit of its citizens and to ensure that they are not injured or impaired. Natural resources include all land, air, water, flora and fauna and the activities and services provided by these resources. When companies discharge hazardous substances to the environment causing damage to these natural resources, NJDEP attempts to recover Natural Resource Damages, commonly known as “NRDs,” in addition to requiring the company to clean up the contamination.

While the lawsuits initiated by NJDEP work their way through the courts, recent decisions have clarified several issues that have been the cornerstone of NJDEP’s NRD policy. Specifically, the courts ruled that:

1. NJDEP can seek compensation for the restoration of NRDs under New Jersey’s Spill Compensation and Control Act, known as the Spill Act, and that parties causing NRDs are strictly liable. The significance of this decision is that a company can be required to compensate NJDEP for NRDs even though the discharge of chemicals that caused the damage to the natural resources was not intentionally caused or in violation of any law at the time the discharge occurred.
2. The Spill Act allows NJDEP to seek compensation for the loss of use of a natural resource such as the public’s inability to use a stream for recreational purposes because it is contaminated. Under this ruling, NJDEP can seek damages for the time period during which the public was deprived of the ability to use such natural resources. The impact of this decision increases significantly NJDEP’s demand to liable parties for damages and requires that the NRDs be restored as quickly as possible to minimize the damages arising from loss of use of the natural resource.
3. NJDEP’s formula to calculate a monetary value for the damage done to natural resources was unreliable. The Court held that NJDEP did not follow the required rule making process to establish the reliability of the formula and failed to produce sufficient scientific support to sustain the damages it was seeking. The ruling will make it more difficult for NJDEP to prove its case in future lawsuits involving NRDs.
4. Liability under the Spill Act for NRDs extends to discharge of hazardous substances that occurred prior to the enactment of the Spill Act. The impact is that discharges that occurred years ago can now be subject to a cost recovery action by NJDEP.
5. The Public Trust Doctrine, the basis upon which NJDEP seeks to recover NRDs, has been expansively interpreted to include private land such as land upland from the tidal zone on coastal property.

It is expected that a number of other issues impacting NJDEP’s NRD program will be resolved in the upcoming years. If a company is sued for NRDs, it should review its insurance coverage and acquisition documents. These documents may allow the company to seek reimbursement from other responsible parties or its insurer for any damages paid to the NJDEP for NRDs. Similarly, if a company is considering purchasing a business or real property, it must also take into consideration during contract negotiations NRD issues. Only by being proactive will a company be best prepared to address potential NRD claims.

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The District Court of New Jersey in a case of first impression recently held that a New Jersey resident’s lawsuit under the New Jersey Environmental Rights Act (“ERA”) must be dismissed due to her failure to give the appropriate parties notice. (Scott v. Dupont, 2009 WL 901135 (D.N.J. April 1, 2009). Although the plaintiff later provided the requisite notice, the court held that the notice provision under the ERA is a mandatory condition precedent and plaintiff’s failure to properly file notice is fatal to her claim.

The ERA provides that any person can commence an action in court against any other person alleged to be in violation of any “statute, regulation or ordinance which is designed to minimize pollution, impairment or destruction of the environment.” N.J.S.A. § 2A:35A-4(b). The ERA effectively allows a citizen to step into the shoes of the Department of Environmental Protection (“DEP”) and enforce environmental laws against an alleged violator. However, the ERA requires that prior to commencing such an action the plaintiff must first provide the DEP, other public officials, and the defendant at least 30 days advance written notice of their intention to file the suit. N.J.S.A. § 2A:35-A-11.

In Scott v. Dupont, the plaintiff was one of several in a class action filed against Dupont alleging that the company allowed significant amounts of a Teflon-related material to contaminate the public water supply. Prior to filing her ERA claim, the plaintiff failed to comply with the act’s advance notice provision. The court dismissed her claim despite the plaintiff’s argument that her ERA lawsuit should continue because she notified the DEP and requisite others before Dupont moved for dismissal for failure to provide notice. The court held that the “ERA notice is a mandatory condition precedent to bringing a private cause of action under the ERA,” and therefore, is a defect that cannot later be cured.

This decision may possibly be used by New Jersey courts to dismiss claims under other statutory notice provisions. Therefore, plaintiffs should be aware at the commencement of their lawsuit that if statutory notice is required they risk dismissal of their claim prior to the merits ever being heard if notice is not correctly filed. Although a harsh result, if there is a defect in following an environmental statute’s notice provision, that defect cannot be cured.

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Every day, the New Jersey Department of Environmental Protection (“NJDEP”) makes many decisions which disappoint the agency’s varied stakeholders. Individuals are upset with NJDEP land use permitting decisions, either because they prevent planned development or allow development on adjacent properties. Permit applicants are upset with limitations placed upon various wastewater or air emissions discharge permits. The ways by which parties may be unhappy with NJDEP decisions are seemingly endless. If a party is aggrieved by an NJDEP decision, what options are there? Go to Court? Seek a hearing before an administrative law judge? This article will explore some of those possibilities.

Hearings Before an Administrative Law Judge

Under the New Jersey Administrative Procedure Act, N.J.S.A. 52:14B-1 et seq. (the “APA”), whether a hearing before an administrative law judge is available depends upon the status of the aggrieved party. Was the petitioning party directly impacted by the NJDEP’s “permit decision” or is the petitioner a third party only indirectly impacted by the agency action? Procedurally, an aggrieved party submits a hearing request to the NJDEP Commissioner’s office. If the Commissioner determines that the petitioner has standing and the request has merit, then the Commissioner will transfer the matter to the Office of Administrative Law to be handled as a contested case before an administrative law judge. A “permit decision” is defined to mean “a decision by a State agency to grant, deny, modify, suspend or revoke any agency license, permit, certificate, approval, chapter, registration or other form of permission required by law ….” N.J.S.A. 52:14B-3.2. This definition is quite broad and would include most, if not all, public agency decisions, including, for instance, those related to land use permits, air or water emissions permits, site remediation decisions, etc.

Where the party wishing to challenge the NJDEP “permit decision” is the party directly involved in, or impacted by, the permit decision, that party has a right to contest the NJDEP “permit decision” through a contested case hearing before an administrative law judge. N.J.S.A. 52:14B-10(c).   The analysis is more complex with respect to the rights of parties other than an applicant to obtain a trial-like administrative hearing. 

The APA declares that state agencies may not promulgate rules which allow third parties to appeal from permitting decisions unless such hearings are authorized by federal or state statute. N.J.S.A. 52:14B-3.1d. Third Parties are defined to include “any person other than: [a.] An applicant for any agency license, permit, certificate, approval, chapter, registration or other form of permission required by law; [b.] A State agency; or [c.] A person who has particularized property interest sufficient to require a hearing on constitutional or statutory grounds.”  N.J.S.A. 52:14B-3.2. 

There are therefore two means by which a third party has a right to an adjudicatory hearing before an agency – either there is specific statutory entitlement to a hearing or Due Process considerations require a hearing. To establish a Due Process right, the party must “demonstrate a particularized property interest of constitutional significance that is directly affected by an agency’s permitting decision.” In re NJPDES Permit No. NJ0025241, 185 N.J. 474, 482 (2006). In NJPDES Permit, the Court noted that “third parties are generally not able to meet the stringent requirements for constitutional standing in respect of an adjudicatory hearing” and that in New Jersey, “there has been legislative recognition of the benefits derived from a rigorous review standard when inquiring into the particularized property interest that generates a third-party hearing right.” Id.

In I/M/O Freshwater Wetlands Statewide General Permits, 185 N.J. 452 (2006), the New Jersey Supreme Court looked at whether adjacent property owners had a right to a hearing to challenge permitting decisions under the Freshwater Wetlands Protection Act. The neighbors asserted that they had standing because the issuance of a wetlands permit could lead to increased flooding on their properties. In ruling that the third parties had no standing, the Court affirmed the lower court’s finding that “the objector’s claim of a particularized constitutional interest in potential worse flooding to their properties was based on pure speculation and added that the local planning board presumably would scrutinize [the developer’s] drainage system to assure that such flooding did not occur. Fear of injury to a property interest … is not a sufficient constitutional basis for an adjudicatory hearing.” I/M/O Freshwater Wetlands 185 N.J. at 461.

In addition to the standing requirements (i.e., a statutory right or a constitutionally recognized property interest), to obtain an administrative hearing a third party must also demonstrate that there are disputed material facts warranting a trial-like administrative hearing. “[A]n evidentiary hearing is mandated only when the proposed administrative action is based upon disputed adjudicatory facts.” Spalt v. New Jersey Dep’t of Envtl. Prot., 237 N.J. Super 206, 212 (App. Div. 1989). As explained in High Horizons Development Company v. Dep’t of Transportation, 120 N.J. 40 (1990), “adjudicative facts have been defined … as facts pertaining to parties and their business and activities. Adjudicative facts usually answer the questions of who did what, where, when, how, why, with what motive or intent; adjudicative facts are roughly the kind of facts that go to a jury in a jury case. In contrast, legislative facts, the determination of which will not normally require a trial-type hearing, do not usually concern the immediate parties, but are the general facts which help the tribunal decide questions of law and policy and discretion.” High Horizons, 120 N.J. at 49-50 (internal quotations omitted).

Disputes Relating to Site Remediation

When disputes arise between the NJDEP and a party conducting a site remediation, there are several options, including a “chain of command” dispute resolution process, an expedited dispute resolution or a proceeding before the Technical Review Panel. 

As set forth in the rules governing “Department Oversight of the Remediation of Contaminated Sites,” N.J.A.C. 7:26C-1.1, et seq., and guidance relating to the Technical Review Panel, the process always involves first trying to reach a resolution with the Case Manager. See e.g., N.J.A.C. 7:26C-1.4(b)-(h). In the “chain of command” approach, if discussions with the Case Manager prove unsuccessful, a written request for dispute resolution can be sent to the Case Manager’s Section Chief. If the requester is not satisfied with the Section Chief’s response, then another written request can be submitted to the applicable Bureau Chief. If that fails, the next written request goes to the applicable Assistant Director, and the next letter then goes to the applicable Director. Finally, the last letter goes to the Director, Assistant Commissioner and Commissioner for resolution. The Commissioner-level decision is required within 21 days of the written request. A response to each of the “preliminary” letters is required within 7 days of the written request. That is the long approach. The NJDEP regulations also establish an expedited review option which circumvents the initial steps and allows for the request for dispute resolution to be submitted directly to the Commissioner. See N.J.A.C. 7:26C-1.4(i). 

If the “chain of command” or expedited review options prove unsuccessful to the party conducting the remediation, that party must go through the NJDEP’s alternative dispute resolution process before the matter will be deemed a contested case and sent by the Commissioner to the Office of Administrative Law for a hearing. See N.J.A.C. 7:26C-1.4(j)-(k). Finally, both the “chain of command” and expedited review options are significantly limited because they do not apply to, among other things, “[t]echnical issues which arise during Department oversight of remediation” or legal issues. See N.J.A.C. 7:26C-1.4(l)2 and 3.

To address technical disputes, the NJDEP has a established a process whereby the NJDEP will assemble an internal “Technical Review Panel” to review the remediation dispute. To obtain a technical panel review of a technical dispute related to a site remediation, the remediating party must first follow a process set forth in the NJDEP’s guidance. See http://www.nj.gov/dep/srp/guidance/techreview/rev_tech_disputes.htm. The first steps towards resolving the dispute are the same as those set forth above. The aggrieved party must first attempt to reach an agreement with the Case Manager, and then the Case Manager’s immediate supervisor. The process continues up the chain of command until the Case Manager’s Bureau Chief determines the issue. If the Bureau Chief’s response/resolution is still unsatisfactory, then the aggrieved party can seek review by the Technical Review Panel. The request for such review must be in writing and directed to the Assistant Commissioner of the Site Remediation and Waste Management program. The request must include a summary of the issue, the history of the attempted dispute resolution and the identification of any applicable deadlines. The party may also request a meeting before the Technical Review Panel. Finally, no new information may be presented in the request.

The Technical Review Panel will not be convened if the dispute (i) involves an enforcement action, (ii) addresses natural resource damage assessments, (iii) relates to a party’s liability for the cleanup or (iv) involves a matter of policy. If a Technical Review Panel is convened, it will consist of three Assistant Director level employees or their designated manager. A designated manager cannot be the Bureau Chief who previously reviewed the dispute. There is no required deadline for the Technical Review Panel to issue its determination.

A review of published Technical Review Panel decisions on the NJDEP’s website indicates that aggrieved parties either prevailed in their claim or, more often, received some change of the NJDEP’s initial requirements (i.e., the disputed requirements) in 35 % of the published cases (5 of 14 cases). It is an open question whether a denial of the requested relief from the Technical Review Panel would be a final agency action from which an appeal to the Appellate Division could be made. Nevertheless, were such an appeal taken, the likelihood of success would be low due to the courts’ general deference to an agency when the subject matter of the dispute falls within an agency’s particular expertise. 

Finally, it is worth noting that the newly passed Licensed Site Professional Bill (see http://www.environmentalandenergylawmonitor.com/tags/licensed-site-professional/), which is expected to be signed into law by Governor Corzine, may change the need for addressing technical disputes regarding site remediation projects. 

Going to Court

Access to the courts to challenge agency decisions generally requires that the petitioner first exhaust all of its administrative remedies. New Jersey Court Rule 2:2-3(a)(2) provides that a litigant may not generally seek appellate review of an administrative decision when “there is available a right of review before any administrative agency or officer, unless the interest of justice requires otherwise.” R. 2:2-3(a)(2). Furthermore, in Abbott v. Burke, 100 N.J. 269 (1985), the New Jersey Supreme Court noted that “[in] general, available and appropriate administrative remedies should be fully explored before judicial action is sanctioned.” Id. at 296.

The Court cited three significant policy reasons for requiring exhaustion of administrative remedies: “(1) the rule ensures that claims will be heard, as a preliminary matter, by a body possessing expertise in the area; (2) administrative exhaustion allows the parties to create a factual record necessary for meaningful appellate review; and (3) the agency decision may satisfy the parties and thus obviate resort to the courts.” Id. at 297-98 (citations omitted).

Yet, the Court also indicated that “the preference for exhaustion of administrative remedies is one of convenience, not an indispensable pre-condition.” Id. 100 at 297 (citations omitted). Nevertheless, it is only in limited circumstances that a court will permit a litigant to circumvent the exhaustion requirement. Those situations include “when the administrative remedies would be futile; when irreparable harm would result; when jurisdiction of the agency is doubtful; or when an overriding public interest calls for a prompt judicial decision.” Id. at 298 (citations omitted). Additionally, the exhaustion doctrine is often inapplicable “when only a question of law need be resolved.” Id. “However, even in cases involving only legal questions, jurisdiction should remain with the agency where the agency is in a special position to interpret its enabling legislation, can conclusively resolve the issue . . . and can provide relief for the plaintiff.” Triano v. Div. of State Lottery, 306 N.J. Super. 114, 122 (App. Div. 1997).

Conclusion

As can be seen, there are many considerations which must be made in determining how to respond to an unfavorable NJDEP determination. Given the court’s and administrative law judges’ general deference to agency expertise, there can be significant hurdles to reversing NJDEP determinations. 

A version of this article appeared in the November 24, 2008 issue of the New Jersey Law Journal.

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In deciding to continue or cease business operations at a particular location, a business owner needs to be fully informed as to how his actions will impact the company’s rights and obligations under the laws governing his business, such as environmental and real property tax laws.  In this way, the business owner can ensure that his decisions are made with the best interests of the company in mind.  The recent New Jersey Appellate Division decision, Pan Chemical Corp. v. Hawthorne Borough, provides valuable insight as to some of the critical considerations that must be evaluated.

In Pan Chemical, the plaintiff operated a manufacturing facility in Hawthorne, New Jersey. The property consisted of 7 buildings used in the manufacture of industrial coatings, color dispersions, inks and nail polish.  Several underground storage tanks leaked contamination onto the property and the New Jersey Department of Environmental Protection (“NJDEP”) required Pan Chemical Corporation (“Pan Chemical”) to install groundwater monitoring wells to address the contamination.  

Subsequently, Pan Chemical acquired a new facility in Carlstadt, New Jersey. Rather than move its entire operations to the Carlstadt facility, Pan Chemical partially closed down operations at the Hawthorne facility. This was done in order to avoid having to comply with New Jersey’s Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq. (“ISRA”), which requires businesses that are “industrial establishments” to comply with its requirements whenever there is a cessation of the business operations. ISRA compliance typically requires the performance of an environmental assessment of the property to determine if contamination exists and, if so, the cleanup of the contamination.

By leaving behind more than 10% of its staff and keeping open only certain buildings at the property, Pan Chemical was able to avoid ISRA compliance when it relocated and deferred the cleanup to a later time. Ultimately, Pan Chemical sold the property in 2005 in an “as is” condition and thereby shifted the cost of the cleanup to the purchaser. 

Pan Chemical also filed tax appeals against the Borough of Hawthorne for the years 2000 through 2005 with the expectation of realizing significant property tax reductions based upon the "non-operational" status of its facility. The Tax Court found that significant reductions in assessments were in order due to the disrepair of the buildings, the need for substantial environmental remediation and the property’s "closed" condition.

The Borough appealed the Tax Court decision arguing that because the property was still "in use" for ISRA purposes, this fact should be determinative for property tax purposes as well. The Borough contended that its original higher assessment on the Pan Chemical property was appropriate and supported by the marketplace.

On appeal, the Appellate Division disagreed with the Tax Court’s granting of tax relief to Pan Chemical. The Appellate Division recognized that a windfall could result if the taxpayer was able to maintain that operations were continuing for the purposes of ISRA, but argue that the property was no longer "in use,” warranting cleanup cost deductions and negative value adjustments, for real property tax valuation purposes.

In deciding this matter, the Appellate Division relied on the seminal case of Inmar Associates, Inc. v. Carlstadt, 112 N.J. 593 (1988), which involved tax assessment challenges by owners of environmentally contaminated properties. One property, which was still in use during the tax year in question, was operated by GAF Corporation. The other property, where operations had ceased prior to the relevant tax assessment date, was owned by Inmar Associates, Inc.

The Court there granted tax relief for the Inmar property but not for the GAF property. The New Jersey Supreme Court reasoned that the GAF property was still occupied and in use at the time of the assessment date; whereas the Inmar property was not then in use. As a result, the Court concluded that “when the property is in use, normal assessment techniques will remain an appropriate tool in the appraisal process.”

The Appellate Division, recognizing that Pan Chemical could not have it both ways, stated:

[Pan Chemical] wanted their property to be deemed ‘in use’ during the years on appeal for the sole purpose of avoiding the costly cleanup mandated by ISRA. Now, [Pan Chemical] wants the property to be deemed ‘not in use’ over the same period of time in order to claim a reduced tax liability.

The Pan Chemical court concluded that the Borough’s use of the statutory definition of “closed” as used in ISRA was appropriate. Thus, the Appellate Division held that the Borough conducted a “reasonable approximation of fair value” in completing its valuation of the Pan Chemical property. Accordingly, the matter was remanded back to the Tax Court with direction to utilize the recognized standards of valuation for operational facilities.

While there may be a distinct and significant dollar cost advantage to delaying the cessations of operations on the environmental front, such a decision must be weighed in light of its impact upon what would otherwise have been a strong case for tax relief. There is no right or wrong way to approach these issues. Obviously, the individual circumstances and financial considerations controlling at the time will dictate the appropriate action. There are, however, approaches that a business owner can employ to cease operations, manage its environmental cleanup obligations and thereby leave open the prospect that it can also, at the same time, advance a meritorious tax appeal.

For example, the owner/operator could obtain a fixed price contract from an environmental consultant capping the cost of cleanup.  By so doing, the owner could limit its cleanup exposure and then better assess the situation. The possibility of closing down operations without delay, thus maximizing the prospect for real tax relief, might then become a viable alternative. Only when the full measure and impact of such decisions are considered may the true merits of a company's comprehensive strategy be properly evaluated.

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In June 2008, the United States Environmental Protection Agency announced a $4.3 million dollar settlement against four national residential real estate development companies. The government alleged that those companies violated the federal Clean Water Act (“CWA”) requirements addressing the discharge of stormwater (i.e., rainwater/snow melt runoff) from construction sites. Under the CWA, a permit and a stormwater management plan are required for the discharge of stormwater from a construction site. The EPA alleged that the companies had either not obtained a permit before commencing their construction activities or failed to abide by the terms of permits they had obtained. This enforcement action follows several other recent high profile stormwater permit enforcement actions undertaken over the past several years that resulted in $4.4 million dollars in penalties against two national box retail stores.

The CWA generally requires that a developer obtain a stormwater discharge permit before starting construction activities at a property. It allows states to assume the role of the permitting authority for stormwater permits. Delaware, New Jersey, New York and Maryland have been delegated such permitting authority from the EPA. As such, the state environmental agency within a delegated state issues permits for stormwater discharges under the CWA. EPA retains oversight authority over the state stormwater permitting programs – that is why the recent enforcement actions were brought by the EPA.

In New Jersey, a construction project which will disturb more than one acre of land requires a stormwater discharge permit. The state Department of Environmental Protection (“DEP”) has established a general stormwater discharge permit for construction activities, through which the DEP pre-determined that any construction projects meeting the criteria for the general permit will be covered by the general permit. (There are also general stormwater permits for industrial facilities, concrete manufacturers and other business categories, which permits address stormwater runoff from the operation of covered facilities.) To obtain coverage under the construction general permit, the developer must submit a Request for Authorization to the local Soil Conservation District for their approval. This is unlike an individual discharge permit, which requires a detailed state engineering review.

Obtaining the general stormwater permit for construction activities is, however, only the first step towards compliance with the CWA’s stormwater requirements. Once the permit is in place, the permit holder must comply with the terms of that permit. Failing to abide by the terms of the permit is also a violation of law which exposes the developer significant penalties. The most important component of the general stormwater construction permit is the development and certification of a Stormwater Pollution Prevention Plan 

The SWPPP consists of a soil erosion and sediment control element and a construction site waste control component. The soil erosion and sediment control element is governed by a soil erosion and sediment control plan and includes controls such as silt fences to minimize soil runoff. The construction site waste control element contains requirements which address materials management to prevent or reduce waste and waste handling, which in turn reduces the potential for such waste materials to flow off-site with stormwater. Examples of construction site waste include waste building material and rubble, chemical waste, litter, sanitary sewage, contaminated soils and concrete truck washout.

By obtaining a permit for stormwater discharges at construction sites, and complying with the terms of the SWPPP, a developer will avoid a potentially costly enforcement action by the state or the EPA. The EPA has sent a very strong signal to the regulated community that it takes stormwater discharges and compliance with the CWA very seriously. A developer must ensure that its professional team, including engineers, construction managers and attorneys, are paying close attention to stormwater permitting requirements to avoid such costly mistakes.

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On January 4, 2008, the New Jersey legislature passed the Environmental Enforcement Enhancement Act. This Act enhances the enforcement authority of the New Jersey Department of Environmental Protection (“DEP”) under ten environmental statutes: Waterfront Development Act, Pesticide Control Act of 1971, Wetlands Act of 1970, Freshwater Protection Act, Coastal Area Facility Review Act, Endangered and Nongame Species Conservation Act, Water Supply Management Act, Safe Dam Act, Safe Drinking Water Act, and the Flood Hazard Area Control Act. The Act also amends the DEP enabling statute by clarifying DEP’s authority to inspect facilities, collect samples and copy documents to determine compliance with environmental laws, regulations, permits, and orders.

The Act strengthens the enforcement provisions of the ten statutes listed above and substantially increases the penalties DEP may seek against violators. The Act greatly broadens the enforcement authority of the DEP by authorizing it to issue an order requiring any person to comply, to bring a civil action, to levy a civil administrative penalty, or to petition the attorney general to bring a criminal action if a violation occurs. The amendments are substantial because many statutes prior to the passage of the Act only contained minimal penalties for violators or did not contain any provisions for assessing administrative penalties. For example, the Waterfront Development Act’s previous maximum penalty was $1,000 with an additional fine of $100 for each day the violation continued. As amended the penalty is increased to $25,000 per violation, per day. 

To help ensure compliance with environmental statutes, the Act significantly increases civil and criminal penalties including the following changes: (1) uniformly increases the maximum civil penalty amount to $25,000 per day; (2) authorizes daily penalty assessments for continuing violations; (3) authorizes the recovery of compensatory damages for loss or destruction of natural resources (e.g.-creates authority for DEP to recover natural resource damages, which are money damages from anyone responsible for spills or discharges of hazardous substances); (4) authorizes the DEP to recover reasonable costs incurred by the State in removing or correcting a violation, and to recover all reasonable costs incurred in bringing a civil action, which could be interpreted to mean recovery of attorneys’ fees; and (4) clarifies and in some statutes creates criminal provisions for purposeful, knowing, and reckless violations or falsifications. In addition, the Act broadens the DEP’s authority to compel a property owner to record a deed notice on its property where an alleged violation has occurred, under acts such as the Dam Safety Act or the Flood Hazard Protection Act. Prior to the Act’s passage the DEP only had this authority for a violation of the Freshwater Wetlands Protection Act. In fact, the Act allows DEP to require the recording of such a notice based only upon an allegation prior to adjudication.

With the passage of this Act, DEP has increased its enforcement authority and permits it to seek higher penalties for violations that may have previously been cost effective to commit and new avenues to seek such penalties. Its passage will likely lead to an increase in enforcement actions brought by the DEP.

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