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Appellate Division Reverses DEP Decision Regarding Innocent PurchaserSeptember 22, 2017

The Appellate Division reversed a final agency decision by the New Jersey Department of Environmental Protection (“DEP”) regarding who and what is defined as a “person” under the Brownfield and Contaminated Site Remediation Act (“Brownfield Act”). Cedar Knolls 2006, LLC (“Cedar Knolls”) applied to the DEP to receive an innocent purchaser grant, which request was denied by DEP. DEP determined that Cedar Knolls did not qualify as a person under the Brownfield Act because of the way in which it acquired the property. The DEP denied the application stating that Cedar Knolls was not the same person who acquired the property prior to the 1983 date to become eligible for an innocent purchaser grant. Walter Higginson, who purchased the property in 1977, bequeathed the property upon his death to his wife through two different trusts. When those trusts terminated, the contents were transferred to their son and then to Cedar Knolls. Nine years after the transfer to Cedar Knolls, it applied for an innocent purchaser grant to assist with the clean-up of the contamination of the property.

The Appellate Division referred to the definition in the Industrial Site Recovery Act (“ISRA”) of a “change in ownership” finding that “although these definitional sections are not among the parts . . . that became the Brownfield Act, they nevertheless reflect the Legislature’s concerns with respect to changes of ownership at the time the innocent party grants were established.” ISRA provides that a “change in ownership” is not “a transfer where the transferor is the sibling, spouse, child, parent, grandparent, child of a sibling, or sibling of a parent of the transferee.” The Court found that, although Cedar Knolls is an LLC, because the transfers were made between family members that would not equate to a change in ownership, Cedar Knolls could qualify as a “person” under the Brownfield Act. The Court determined that the Legislature was more concerned with the “substance of ownership” and “continuity” rather than the precise legal form of the entity. Because this property was transferred within Mr. Higginson’s family and he would have otherwise qualified as an innocent purchaser, the Court reversed the DEP’s finding as to whether Cedar Knolls is a person to qualify as an innocent purchaser.

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Appellate Division Remands Application for Innocent Party Grant to NJDEP For Assessment of Corporate ReorganizationJune 3, 2013

Cliflake Associates LLC ("Cliflake" or "LLC") owns an industrial and commercial property in Clifton, which is in need of remediation of soil and groundwater contamination. In 1972, the property was acquired by Cliflake Associates, LP ("LP"). In 1999, the partners in the LP formed Cliflake and acquired the assets of the LP. Title to the property was transferred from the LP to the LLC via executed deed in July 1999.

In 1999, Cliflake began remediating the property pursuant to a memorandum of agreement with the New Jersey Department of Environmental Protection ("NJDEP"). In 2010, the remedial investigation identified volatile organic compounds contaminating the property, which contamination occurred prior to 1972. Soil and groundwater contamination was identified, as well as a vapor intrusion issue that needed to be addresses. The projected cost of remediation exceeds two millions dollars.

Cliflake applied for a Hazardous Discharge Site Remediation Fund Innocent Party Grant ("innocent party grant") pursuant to the Brownfield and Contaminated Site Remediation Act ("Brownfield Act"). The innocent party grant was tentatively denied by NJDEP because Cliflake did not own the property prior to 1972. Cliflake sought reconsideration arguing that the LLC was essentially the same entity as the LP citing definitions from the Industrial Site Recovery Act ("ISRA") regarding a change in ownership. NJDEP tentatively denied the application again finding that a transfer from an LP to an LC does constitute a change in ownership and that the Brownfield Act and ISRA are separate and distinct statutes. Cliflake again sought reconsideration arguing that the LP to LLC transaction was a merger. NJDEP requested documentation regarding the corporate reorganization, which Cliflake did not provide arguing that it was a "de facto merger." On April 12, 2012, NJDEP issued a final agency decision denying the application.

The Appellate Division reviewed the definitions contained in ISRA regarding a change in ownership. The Appellate Division found that the grants were intended to help owners of contaminated property defray the costs of remediation if they are not responsible for the contamination and met the other requirements as an innocent party. The Appellate Division also wrote that the Legislature seemed "more concerned with the substance of ownership and continuity than the technicalities of the legal form." The Appellate Division further rejected NJDEP's argument that a de facto merger can only result in the acquisition of the prior entity's rights.

The Appellate Division remanded the matter back to NJDEP. The Court directed that Cliflake demonstrate that there was a de facto merger and that the change in its structure did not diminish the assets available for remediation or shield the members from liability. Cliflake will also be required to meet the additional eligibility requirements. The Appellate Division also found that Cliflake can raise the issue of the Revised Uniform Limited Liability Company Act.

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New Jersey Appellate Division Invalidates DEP Landowner Chemical ExemptionJuly 18, 2012

On July 6, 2012, the New Jersey Appellate Division published its decision in Des Champs Laboratories, Inc. v. Martin, A-3235-10, and ruled certain Department of Environmental Protection ("DEP") regulations that bar sales of industrial properties containing trace amounts of hazardous substances are invalid. Specifically, the Court was asked whether the Industrial Site Recovery Act of 1993 ('ISRA"), the Site Remediation Reform Act of 2009 ("SRRA"), or any other statue authorities the DEP to impose obligations upon the owners of industrial establishments that stored or handled small quantities of hazardous substances, as a condition of obtaining a "de minimis quantity exemption" ("DQE") from ISRA requirements.

By way of background, the Environmental Cleanup Responsibility Act of 1983 ("ECRA") required properties with environmental issues to be "in an environmentally appropriate condition" prior to being sold. In order to ensure same, owners planning to close industrial businesses were required to complete an arduous process regulated by the DEP, or risk having a subsequent sale or business transfer invalidated. As the ECRA evolved, it became clear that its obligations upon owners and operators that handled only "de minimis" quantities of hazardous substances were too onerous, leading the DEP to promulgate regulations for a DQE. The DQE allowed for an owner or operator to simply sign an affidavit stating the site was not subject to the discharge of hazardous substances, or that any such discharge had been remediated.

In Des Champs, the Court was asked to determine the validity of regulatory provision N.J.A.C 7:26B-5.9 requiring the affidavit from a DQE applicant to certify the property where the de minimis quantities have been present is now "clean," and the validity of related provisions within regulatory provision N.J.A.C. 7:26B-5.9 requiring such applicants to remediate the property if the DEP disapproves the DQE application, and the application is not withdrawn.

From 1982 through 1996, Des Champs Laboratories operated an industrial establishment in Livingston, New Jersey assembling heat recovery ventilators. In 1996 Des Champs' environmental consultant submitted a General Information Notice and a Preliminary Assessment Report to the DEP, which were required by ISRA in anticipation of Des Champs terminating its operations at the Livingston site. Des Champs also submitted a Negative Declaration Affidavit to the DEP in January of 1997, certifying "there have been no discharges of hazardous substances or hazardous wastes from the industrial establishment." In response, the DEP issued Des Champs a "no further action" letter authorizing it to cease operations. Later in 1997, the property was sold to R&K Associates.

Eight years later, the DEP was investigating the potential source of ground water contamination in Livingston, and determined the source of the contamination originated in Des Champs' former property.  The DEP therefore issued Des Champs a letter rescinding its 1997 "no further action" letter, and notifying Des Champs it "no longer had the required authorization that allowed the sale of property to occur in 1997." The DEP further instructed Des Champs that in order to regain compliance with ISRA, an application for remediation was to be submitted within fifteen (15) days of receiving the notification.  Lastly, the DEP directed Des Champs to conduct an investigation of its former site to further define the source of ground water contamination, and to submit a preliminary assessment and site investigation report with the appropriate review fees for further review by the DEP, within one hundred eighty (180) days.

Rather than complying with the DEP's direction, Des Champs submitted to the DEP a DQE affidavit on March 23, 2009 pursuant to N.J.S.A. 13:1K -9.7 and N.J.A.C. 7:26B -2.3 (now N.J.A.C. 7:26B-5.9). In the accompanying correspondence, Des Champs's counsel noted that because Des Champs handled a de minimis quantity of hazardous substances, its operations were exempt from ISRA. On April 21, 2009, the DEP denied Des Champs' application for DQE stating "the overlying presumption that an industrial establishment, without regard to fault, should not qualify for a DQE when contamination is known to exist at the site." After additional correspondence, neither Des Champs nor the DEP changed its position. As a result, on September 30, 2010, the DEP issued a directive pursuant to the New Jersey Spill Act (N.J.S.A. 58:10-23.11) directing Des Champs to hire a licensed site remediation professional to perform the remediation; to complete delineation of the immediate environmental concern contaminant source; to conduct remediation; and the establish a remediation funding source.

After analyzing the overview of the statutory framework and the history of the corresponding regulatory provisions, the Court ruled the DEP had exceeded its statutory authority "by injecting into the DQE process a requirement that the governing statutes do not authorize, i.e., forcing an applicant that has only handled or stored de minimis quantities of hazardous materials to provide a certification that the property is free of contamination before its operations can be closed or title to its property transferred." The Court found the DEP actions to be inconsistent with the intent of the SRRA and the ISRA, which both sought to streamline the regulatory process, and minimize government involvement. The Court's decision, however, was made without prejudice to the DEP's ability to seek a cleanup of such an industrial site under other environmental statutes and regulations that are not tied to the DQE approval process.

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