People who bought polluted New Jersey properties before 1993 can be held liable to subsequent buyers under the state Spill Compensation and Control Act if they failed to look into possible pollution problems before purchasing, a state appeals court says.
Until now, property owners have faced different exposure to Spill Act liability depending on whether they bought before or after Sept. 14, 1993, the date the New Jersey Industrial Site Recovery Act took effect.
Under a 2001 Appellate Division ruling, a pre-1993 purchaser could not be held liable without some act or omission that led to the presence of hazardous substances that were not there before.
But in New Jersey Schools Development Authority v. Marcantuone, A-1868-10, made public Thursday and approved for publication, a three-judge panel held that the 2001 precedent was superseded by legislative changes to the Spill Act that took effect the same year.
As a result, Spill Act defendants who purchased polluted property before 1993 must show that when they bought it “they did not know or have reason to know” that hazardous substances had been discharged on it, the panel held.
To prove that defense, they must show that when they acquired the property they undertook “all appropriate inquiry on the previous ownership and uses of the property based upon generally accepted good and customary standards,” the panel added. They must present evidence of what those standards were, 20 or more years ago, and “what prepurchase efforts and investigation” they performed.
The court reinstated a buyer’s Spill Act suit that had been thrown out on summary judgment.
The New Jersey Schools Development Authority (SDA), which funds projects for Abbott school districts, provided East Orange with money to acquire eight acres of land, including the plot at issue, on which to build Cicely Tyson School of Performing Arts and Fine Arts.
Following a condemnation action, the purchase price was set at $629,407, with $182,035 held back to pay for cleanup of perchloroethylene (PCE) contamination that was discovered while the condemnation process was under way.
PCE is used in dry cleaning and such businesses had operated on the site since 1930 but there was no evidence that any of the contamination occurred during the time that Joseph Marcantuone and Robert Gieson owned the property, which they bought in 1985.
In 2008, the SDA sued Marcantuone and Gieson, for an added $212,000 in remediation costs.
Essex County Superior Court Judge Sebastian Lombardi granted summary judgment dismissing the suit, citing White Oak Funding, Inc. v. Winning, 341 N.J. Super. 294 (App. Div. 2001). In that case, the defendants were shielded from liability even though they knew about the property’s prior use as a fuel oil distribution business with an above-ground tank, conducted no due diligence before buying it and allowed the pre-existing pollution to migrate and spread before selling the property to the plaintiffs.
Appellate Division Judges Jose Fuentes, Jonathan Harris and Ellen Koblitz reversed based on the 2001 Spill Act changes, which created an innocent purchaser defense for pre-1993 owners. They said the Legislature’s establishment of the defense implicitly acknowledged “the underlying liability these affirmative defenses were intended to counteract.”
“Although it may seem counterintuitive to infer liability from legislation establishing an affirmative defense, logic dictates that that is the case,” Fuentes wrote for the panel.
He also rejected Marcantuone and Gieson’s argument that they were not owners at the relevant time for liability, because the declaration of taking was filed on Dec. 15, 2005, and the contamination was not discovered until 2006.
Marcantuone and Gieson were the property owners for purposes of Spill Act liability, Fuentes said.
The court remanded so that the defendants could “develop and present evidence addressing the elements of the ‘innocent purchaser’ defense.”
Their lawyer, Mara Epstein of Lieberman & Blecher in Princeton, calls the ruling a significant expansion of Spill Act liability to anyone who bought contaminated property before 1993. “They now bear the burden of proving they were innocent purchasers,” she says. “This case says if you own contaminated property, you’re liable.”
SDA spokeswoman Edythe Maier provided a statement saying the SDA is “dedicated to the aggressive pursuit of cost recovery whenever appropriate,” “pleased that the courts have recognized the potential ability of the state, on behalf of New Jersey’s taxpayers, to recover funds expended for the clean-up of environmental contamination” and looks forward to “utilizing the funds recovered for additional school facilities projects throughout the state.”