Environmental Management Seminar Legal Issues in Redevelopment

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Environmental Management Seminar Legal Issues
in Redevelopment

• Montclair State University
• Prepared by Patrick T. Mottola, Esq.
• April 2005
• This presentation and materials do not constitute
  and are not legal advice

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Presentation Topics

• Liability Statutes
• Brownfields Redevelopment
• Natural Resource Damages

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Main NJ Remediation Programs

• New Jersey Spill Compensation and Control Act
  (Spill Act), N.J.S.A. 5810-23.11
• Industrial Site Recovery Act (ISRA), N.J.S.A.
  131K-6
• Brownfield and Contaminated Sites Act
  (Brownfields), N.J.S.A. 5810B-1

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Industrial Site Recovery Act

• Predecessor statute Environmental Cleanup
  Responsibility Act (ECRA) effective December
  31, 1983.
• ISRA amended and renamed ECRA, June 16, 1993

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ISRA Overview

• Imposes cleanup pre-conditions upon the sale,
  transfer, or closure of Industrial Establishments
  having certain North American Industrial
  Classification System (NAICS) numbers that are
  involved with hazardous substances or wastes.

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ISRA Compliance

• Requires Notice and
• Prohibition on consummating transactions until
  receipt of NJDEP Approval, which ultimately takes
  the form of a No Further Action letter (NFA)

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Obligation to Comply

• In a sale, it is the obligation of the Seller.
• Joint and several obligation of the owner and
  operator.
• Often landlord and tenant.
• Could involve operators that do not have tenancy
  agreements, such as licensee, easement holder, or
  even trespasser.

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New Jerseys Spill Act

• The foundation of NJ Environmental Law
• Enacted in 1976 and substantially amended in 1993
• Addresses Liability for releases of hazardous
  substances, broadly defined
• Creates a Spill Fund for innocent parties that
  have been victimized by a discharge

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Spill Act Liability

• Liability is imposed on a person in any way
  responsible for a discharge of hazardous
  substances to water or land
• The list of Hazardous Substances is found at
  N.J.A.C. 71E Appendix A
• A discharge means a release to the lands or
  waters of the state
• Any quantity is required for reporting obligation

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Who is in any way responsible?

• The current property owner
• The current operator
• Former owners and operators at the time of the
  past discharge
• Intermediary owners/operators NOT responsible if
  contaminated deemed to be in passive migration
  stage

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What kind of liability?

• Strict liability (attaches with no fault or
  causation element required)
• Joint and several (attaches to all found in any
  way responsible)
• Retroactive (attaches to past actors)

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Contribution and Cost Recovery

• The State may seek cost recovery for cleanup
  expenditures
• Private parties may seek contribution from other
  parties for contribution to cleanup costs

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Spill Act Defenses

• Discharge was the result of
• Act of God
• Act of war or sabotage
• Compliance with permit
• Innocent Purchaser
• Reliance on previously issued No Further Action
  Letter

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CERCLA

• Federal Law
• Comprehensive Environmental Responsibility
  Cleanup Liability Act, 42 U.S.C.A. 9601 to 9675
• Enacted primarily in response to the Love Canal
  disaster
• A tax on the transfer of chemicals is put into a
  special governmentally-managed account called the
  Superfund

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CERCLA

• Discharges of hazardous substances to water, land
  or air
• Quantity depends on the nature of the substance
  but may be 1 to 10 pounds or 100 to 1000 pounds

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CERCLA Liable Parties

• Current owner or operator
• Former owner or operator
• Arrangers/Transporters

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CERCLA - Defenses

• Discharge was the result of
• Act of God
• Act of war or sabotage
• Compliance with permit
• Act or omission of a third party not in privity
  with the party
• Bona Fide Purchaser

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Liability Statutes Common Threads

• Impose liability for cleanup on the parties that
  are best-suited to clean up
• Put the liability on the property itself (in
  rem)
• Result many lingering cleanups, abandoned
  sites, and development of green space
• Creation of upside down properties cleanup
  costs higher than property values

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1993 Amendments ECRA and the Spill Act

• After 10 years of ECRA, the statute was revised
  and re-named ISRA
• Spear-headed by State Senator Hank McNamara and
  Assemblyman Jim McGreevey
• Introduced expedited compliance procedures to
  ISRA
• Introduced some liability relief by amending the
  Spill Act to include an Innocent Purchaser defense

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Spill Act Innocent Purchaser Defense

• Purchase the property after September 14, 1993
  (the amendment effective date)
• Perform due diligence (defined as a Preliminary
  Assessment and Site Investigation)
• Do not find any evidence of discharges
• Later found to be WRONG
• Give notice to NJDEP when the discharge is
  discovered

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CERCLA Bona Fide Purchaser

• Applies to parties that knowingly acquire
  contaminated property after 1/11/2002
• Buyer must undertake all appropriate inquiry
  and appropriate care
• Perform an ASTM Phase I Environmental Site
  Assessment

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1998 Amendments to the Spill Act and Creation of
the Brownfields Act

• Introduced incentives for the redevelopment of
  abandoned or underutilized properties
• Liability protection
• Reimbursement of remedial costs
• Introduced the Covenant Not to Sue for No
  Further Action Letters (NFA)

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Brownfields Program

• A brownfield is an unused or under-utilized
  former industrial property
• Encourages revitalization of these contaminated
  sites
• Provides liability protection and financial
  incentives to developers who agree to remediate
  and redevelop
• NJ and Federal Programs

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New Jersey Brownfields Program

• Brownfields are any former or current commercial
  or industrial site that is currently vacant or
  underutilized and on which there has been, or
  there is suspected to have been, a discharge of a
  contaminant

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Reasons to favor Brownfields Redevelopment

• Smart Growth reduce sprawl to greenfields,
  which are limited
• Preserved space
• Pinelands Preservation Area
• Highlands Preservation Area
• Revitalize urban centers and unused/abandoned
  areas

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Voluntary Cleanup Program

• Cleanup due to market, rather than government,
  forces
• Memorandum of Agreement (MOA)
• Contract between a party and the NJDEP
• A brownfields developer must enter into an MOA

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Brownfields Liability Protection

• If the developer enters into an MOA before taking
  title to the property, it is shielded from
  liability from third-party tortfeasors
• Is it constitutional? Not tested.

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Brownfields Reimbursement Fund

• Allows reimbursement up to 75 of remedial costs
  once an NFA is issued, so long as the projected
  tax revenue can support the claim
• Most common forms of taxes
• Sales tax on building materials
• Sales tax on retail sales
• Corporation business tax
• This changes the polluter-pays game

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Brownfield Development Area (BDA)

• NJDEP works with selected communities affected by
  multiple brownfield sites to develop
  comprehensive plans to allow for a coordinated
  effort for remediation and reuse
• Streamlines the state oversight procedures

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Natural Resource Damages (NRD)

• Compensation for lost use, over and above the
  cost of remediation
• Public Trust Doctrine and Parens Patriae
• Spill Act, CERCLA and other environmental
  statutes create statutory rights for trustees to
  recover NRD

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Public Trust Doctrine

• Found in Roman Civil Law
• Submerged lands are preserved for public use in
  navigation, fishing and recreation, and the
  state, as the trustee for the people, bears
  responsibility of preserving and protecting these
  public rights

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Parens Patriae

• Refers to the role of the state as sovereign and
  guardian other those who cannot care for
  themselves
• A concept of standing to protect interests such
  as health, comfort and welfare of the people,
  interstate water rights, and more recently,
  groundwater

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NRD - Trustees

• State Government Commissioner of the NJDEP
  (delegated to NJDEPs Office of Natural Resource
  Restoration)
• Federal Government
• Secretary of the US Department of the Interior
  (US Fish and Wildlife Service, US National Park
  Service)
• Secretary of the US Department of Commerce
  (National Oceanic and Atmospheric Administration)
• Secretaries of the US Departments of Defense,
  Energy and Agriculture
• Native American Tribes

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NRD Typical Media

• Both the state and feds are trustees for
• Surface water
• Sediments
• Wetlands
• NJ is the sole trustee for groundwater

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NRD Five Key Terms

• Natural resources
• Natural resource services
• Natural resource injuries
• NRD
• Restoration

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NRD Natural Resources

• Includes all land, biota, fish, shellfish, and
  other wildlife, air, water (including
  groundwater) and other such resources

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NRD Natural Resource Injuries

• Any adverse change or impact of a discharge into
  or on a natural resource or impairment of natural
  resource services, whether direct or indirect,
  long-term or short-term, and include a partial or
  complete destruction or loss of the natural
  resource

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NRD Natural Resource Services

• The physical, chemical, and biological functions
  that natural resources perform
• Examples
• Purification of air and water
• Drought/flood mitigation
• Generation and preservation of soils
• Erosion protection
• Cycling and movement of nutrients

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NRD Defined

• The dollar value of the restoration that is
  necessary to restore the injured resource and to
  compensate the citizens for the injury to the
  natural resources as a result of a discharge

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NRD - Restoration

• The remedial action that returns the natural
  resources to pre-discharge conditions. It
  includes the rehabilitation of injured resources,
  replacement, or acquisition of natural resources
  and their services which were lost or impaired.

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Signature Chemicals

• Help to identify a responsible party
• Lead from a local foundry that discharged to
  Jacksons Run/East Lake in Bridgeton, NJ
• PCBs from General Electric in the Hudson River

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Passaic River NRD Initiative

• The lower Passaic River from Dundee Dam in
  Paterson to Newark Bay
• Receptor of industrial wastewater, domestic
  sewage, and storm water for over 200 years

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Spill Act Statute of Limitations

• 4,000 Cases in New Jersey
• In property damage cases, the default statute of
  limitations to bring a claim is 6 years
• In the 1993 amendments to the Spill Act, the
  legislature added a 10-year statute of
  limitations for it to recover costs under the
  Spill Act
• In 2001, as the ten-year deadline approached, the
  legislature extended the deadline another 5 years
• The drop dead date is now Jan 1, 2006

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Passaic River NRD Initiative

• In September 2003, EPA and NJDEP initiated legal
  action against 66 companies at 18 sites seeking
  funding for a federal investigation and
  feasibility study
• Also seeks to impose liability for NRD
• Study is estimated to take 5 to 7 years
• Estimated river cleanup and potential NRD
  liability is on the order of multi-millions to
  billions of dollars

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Passaic River Initiative - Background

• During the Vietnam War, Diamond Shamrock produces
  agent orange at its facility on Lister Avenue,
  Newark, on the Passaic River
• As a result of these operations, dioxin is
  deposited in sediments of the Passaic River

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Passaic River Initiative - Background

• Diamond Shamrock spends 30 million and years
  studying the river
• Other contaminants, including volatile and
  base/neutral organic compounds, PCBs, and metals
  all found in river sediments

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Passaic River Initiative - Background

• In the mid-1990s, EPA, through Diamond Shamrock,
  sends information request letters, 104(e)
  letters, to other potentially responsible
  parties (PRPs)
• The PRPs are selected based on review of Passaic
  Valley Sewerage Commission (PVSC) files
• PRPs selected from those where any incident
  reported to PVSC in the 1950s and 1960s

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Passaic River EPA Initiative in 2003

• EPA wants to continue study of the river, at an
  estimated cost of 35 million
• EPA, DOT, and Army Corps of Engineers put up 25
  million
• 10 million shortfall

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Passaic River EPA Initiative in 2003

• EPA goes back to the PRPs identified in the 1990s
  from the Diamond Shamrock investigation
• A new round of letters go out to about 100 PRPs

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Passaic River DEP Directive in 2003

• NJDEP, separately, issues a Directive to 66
  companies
• Based on 16 ISRA sites in Newark/Kearney and 2
  ISRA sites in Lodi (Napp Chemical and Hexcel)
• Demands 980 million to cleanup river

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PRPs

• NJDEP Directive to 66 companies
• EPA notices to 100 companies
• Only about 30 get both
• Memorandum of Understanding between DEP and EPA

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NRD Trade Association Suit

• A coalition of trade groups filed suit against
  the NJDEP for its NRD program
• Suit is pending

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Passaic River NRD Is it Justified?

• River declared dead in 1850
• Not a navigable river
• No economic mandate to remediate
• A societal problem why pin this on selected
  companies, most of which never polluted?

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CERCLA Analogy?

• Landfill/multiple PRP cases
• Steering committee formed and multiple PRPs meet
  and agree to divide the costs on a
  mutually-acceptable formula based on contribution
• Consultant retained to evaluate records and model
  data to arrive at a contribution formula

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Can this work for the Passaic River?

• PRP Group has retained common counsel (Bill Hyatt
  of Kirkpatrick Lockhart)
• The group has identified 4,000 to 5,000 other
  PRPs that will be brought in

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New River Initiatives

• Raritan River in 2004
• 5 sites along the river, including 3 landfills
• Additional sites being considered
• Delaware River expected in 2005

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NRD Settlements

• 45 million recovered since 1945
• 25 million under Commissioner Campbell
• 30 million spent or allocated to specific
  restoration projects
• Over 2,000 acres protected/restored
• As of June 2004, of the 4,000 sites
• 60 RPs/250 cases settled
• 80 RPs/800 sites in settlement negotiations

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Brownfields NRD Problem in 2004

• Because of NJDEPs NRD initiative, it refuses to
  issue any No Further Action letters (NFAs)
  until NRD resolved
• This was inconsistent with NJDEPs Policy
  Directives providing that brownfields developers
  would not be held liable for NRD
• As a practical matter, NFAs were not being
  issued, which is required in order to receive the
  brownfields reimbursement funding

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Brownfields NRD Solution in 2005

• On January 19, 2005, A-2444/S-1374 is enacted
• It provides an NRD exemption, by law, for
  brownfields developers (in theory)
• Must have acquired property after 1/16/98
• Must have acquired property after the discharge
• Must not have assumed NRD liability by contract
• Person is not in any way responsible for the
  discharge
• NJDEP is working on a certification for
  developers to prepare and submit when requesting
  NFAs

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