Attorney Fees May Be Awarded in Cost Recovery Actions in New Jersey

11.1Environmental cost recovery actions in New Jersey are typically brought pursuant to the New Jersey Spill Compensation Act, N.J.S.A. 58:10-23.llf, but the Spill Act has no provision for awarding attorneys fees to the prevailing party. The New Jersey Environmental Rights Act (“ERA”), N.J.S.A. 2A:35A-10, provides for attorneys’ and experts’ fees, but an ERA action is only permitted where there is either a continuous or intermittent environmental violation and there is a likelihood that the violation will recur in the future. The ERA was the mechanism for interested parties to act as “private attorneys general” in enforcing environmental laws, including inadequate enforcement of environmental laws by the Department of Environmental Protection. Indeed, the purpose of the ERA was to compel compliance by awarding injunctive or equitable relief. Thus, until recently, ERA was not found to provide for monetary compensation for remediation of property due to past conduct.

In Bradley v. Kovelesky, the current property owner sued prior owners after soil and groundwater contamination was discovered. The claims were not originally made pursuant to the ERA and defendants objected to plaintiffs amending the complaint to assert an ERA claim. To decide whether to allow the amended pleading, the court had to decide whether such a claim would be futile. The appellate court concluded that an ERA claim is not futile because the Brownfield and Contaminated Site Remediation Act, N.J.S.A. 58:10B-1.3, requires that a “person in any way responsible for a hazardous substances … shall remediate the discharge.” Thus, plaintiffs argued that because the prior owner has not and currently is not conducting remediation, it is a continuous violation of the Brownfield Act. Further, if the prior owner’s failure to remediate continues into the future, it will remain in violation of the Brownfield Act. Based on this scenario, the court found a continuous or intermittent violation that is likely to “recur in the future” as required by an ERA lawsuit.

Thus, plaintiffs were permitted to amend their complaint to assert an ERA claim.

ERA contains a powerful tool for a cost recovery plaintiff. “In any action under this act the court may in appropriate cases award to the prevailing party reasonable counsel and expert witness fees, but not to exceed a total of $ 50,000 in an action brought against a local agency or the Department of Environmental Protection, where the prevailing party achieved reasonable success on the merits.”  Let’s see whether this decision gives new life to the ERA. Certainly the threat of attorneys’ fees and experts’ costs are often the motivation for an amicable resolution to cost recovery litigation.

We will watch this case to see whether it is ultimately tried and fees awarded.

Property Seller’s Failure to Disclose Environmental Cleanup Actionable, Even For “As Is” Sale

On August 18, 2016, a New Jersey appellate court ruled that a property seller’s failure to disclose environmental contamination and cleanup could expose the seller to liability for fraud. In Catena v. Raytheon Co. the Appellate Division reversed a trial court’s decision which had granted summary judgment based on the statute of limitations. The Appellate Division found that the “discovery rule” applied to claims asserting fraud and that Catena, the purchaser of commercial property, was not time barred in his lawsuit which was brought more than a decade after his purchase. The “discovery rule” delays the commencement of the limitations period, i.e., a plaintiff’s claim does not accrue until the plaintiff discovers, or by an exercise of reasonable diligence and intelligence should have discovered that he may have a basis for an action claim. In a real estate setting, intentional nondisclosure of a material defect which is not observable by a Buyer can give rise to a finding of fraud by the Seller and the statute of limitations will not bar a suit many years after the sale if the Buyer, after appropriate due diligence, had no reason to know of the defect.

9-13In this case, the Seller, individually or through his partnership, owned the property since 1983. When the Seller defaulted on its mortgage in 1987, Seller’s mortgage lender (“Lender”) took possession of the property and began making efforts for its sale. Lender engaged a consultant to take soil samples; it was discovered that the property was contaminated with perchloroethylene (“PCE”). In June 1988, the Lender and Seller arranged for the excavation and removal of the known contaminated soil. The environmental consultant specifically warned that it could not guarantee that all the contaminated soil had been removed. Neither the Lender, the Seller, nor the environmental consultant notified the New Jersey Department of Environmental Protection (“NJDEP”) of the contamination.

Catena entered into a contract to purchase the property “as is” later in June 1988. There were no representations or warranties made by the Seller. On the day before the closing, the Lender provided Catena’s attorney with a 1987 affidavit submitted to the NJDEP which stated that, on information and belief, the only occupants on the site had been a dry wall construction contractor, a bank, and a trucking concern, and that they had not engaged in operations which involved hazardous substances. This form affidavit was commonly used in the 1980s to demonstrate the non-applicability of the Environmental Cleanup Responsibility Act (“ECRA”), a statute that required remediation prior to property transfers in certain circumstances. The Seller also provided Catena with a copy of the 1988 affidavit that Seller submitted to the NJDEP which included the same information as the Lender’s affidavit. This later submission was to confirm that the sale to Catena was not subject to ECRA. Neither affidavit mentioned the discovery of contamination or the soil removal that had been undertaken.

After the closing of title in November 1988, Catena retained a consultant to perform an environmental assessment which found that the past uses of the property were far more extensive than those stated in the affidavits, including production of aircraft parts, assembly of mechanical electrical parts, a textile knitting and dyeing operation, the manufacture of prefabricated exterior building facades, and a distribution center for screen-printing inks and related supplies. These prior uses would likely have caused the sale to Catena to require compliance with the ECRA statute. The Assessment recommended that Catena investigate the possible presence of contamination, but Catena did not investigate. Instead, nearly ten years later when Catena sought to refinance the property, his prospective lender hired a consultant to conduct an investigation. That investigation found PCE contamination, which it reported to the NJDEP. The consultant opined that the likely cause of the contamination was the historical use of the property in airplane-related industries.

Beginning in 1998, Catena proceeded with a robust but intermittent investigation of his property. In the early 2000s, groundwater and stream contamination was discovered.

Catena sued the Seller, and the prior owners and operators of the property, including those who likely caused the PCE contamination, pursuant to the NJ Spill Act. Through discovery in the litigation, Catena obtained reports and communications between the Seller and the Lender concerning the partial cleanup of soil that they had performed but did not tell him about. Catena amended his complaint to assert claims of common law fraud and violations of the Consumer Fraud Act against the Seller and Lender. Catena testified at his deposition that he did not know of the contamination before his purchase and admitted that he did not ask the Seller or Lender whether there were any environmental issues. He also did not investigate the past uses of the property prior to the purchase.

The Seller and Lender moved for summary judgment with regard to the fraud claims, alleging that more than six years (the statute of limitations for fraud claims) had passed since these claims accrued. The trial court agreed with the Seller, finding that Catena should have been aware of the fraud when he entered into an administrative agreement with the NJDEP in June 1998 to conduct the investigation of his property. Catena appealed, arguing that the fraud was not discovered until December 2007 during Seller’s deposition.

The Appellate Division reversed the trial court’s ruling and found that even though Catena learned of the contamination in the late 1980s, he wasn’t aware (and could not have become aware) of the fraud until he learned of it in discovery. The court explained the importance and general acceptance of the discovery rule in cases involving fraud: the victim’s lack of awareness of the fraud is the wrongdoer’s very object. The rule thus prevents the wrongdoer from benefiting from his own deceit.

The court concluded that when Catena first became aware of contamination, he had no reason to believe that the Seller or the Lender knew about these site conditions. They had not made any representations and their affidavits to NJDEP did not show any suspicious prior users (which were only required to be identified back to 1984). Indeed, Catena’s consultant concluded that the contamination was caused by “airplane related industries” and none of the prior users in the Seller’s and Lender’s affidavits were involved in that industry.

Moreover, Catena would not have learned about the partial cleanup by conducting a public records search, as the contamination and remediation was not reported to NJDEP. Thus, there was no evidence that a more diligent pre-suit investigation would have led to the information about the fraud.

Given these facts, the court concluded that the fraud and Consumer Fraud Act claims were not time barred. The court made clear that the application of the discovery rule is fact and case sensitive and requires a careful analysis of when the purchaser became aware of facts that would alert a reasonable person to the possibility of an actionable claim.

The inescapable conclusion for real estate sellers is that they will face viable claims by purchasers years after a sale if sellers fail to disclose known environmental conditions and remediation activities even in “as is” sale transactions with no affirmative representations or warranties.

New Jersey Appellate Court Rules That Insurance Rights May Be Transferred Without Consent of Carrier After The Events That Trigger Coverage

In Givaudan Fragrances Corporation v. Aetna, the Appellate Division of the New Jersey Court held that an assignee was permitted to pursue coverage on policies that were written to a different insured. The Appellate Division’s decision will certainly help companies, or individuals, who are successors in interest to a policy holder to obtain coverage for events that happened during the policy period, years or even decades ago, even if they themselves were not named insureds under the policy.

In this case, the policies were issued in 1964 – 1986 to Givaudan Corporation. Due to contamination at a Clifton, NJ facility in 1987 and 1988, Givaudan Corporation entered into Administrative Consent Orders with the New Jersey Department of Environmental Protection which provided for remediation. Thereafter, there were numerous corporate reorganizations that resulted in the creation of Givaudan Fragrances Corporation (GFC), which inherited various assets and liabilities, including the environmental liabilities associated with the Clifton facility.

In the 2000s, US EPA and the NJDEP commenced administrative proceedings and litigation against GFC relating to the Clifton property and alleged discharges from the property to the Passaic River. The dredge remedy for the Passaic River is expected to cost from $500 million to $1.7 billion, a new record for a Superfund cleanup.

GFC sought insurance coverage under the policies issued to Givaudan Corporation with regard to the USEPA and NJDEP actions. The carriers declined to provide coverage because GFC was not a named insured and the policies required consent of the carriers (which was neither sought nor given) to effectuate an assignment. GFC commenced a suit for coverage, and a year later, Givaudan Corporation (then called Givaudan Flavors) assigned its “insurance rights” to GFC.

GFC and the carriers sought summary judgment on the question of whether there had been an effective assignment, i.e., was GFC an insured. The trial court granted the carriers’ motion and dismissed the complaint, finding that the assignment was not merely a transfer of a limited claim but was, in effect, a transfer of the policy without carrier approval.

The Appellate Division reversed, reinstated the complaint and granted GFC’s motion for partial summary judgment, explaining that for occurrence-based policies, “the peril insured is the occurrence itself.” Therefore, “[o]nce the occurrence takes place, coverage attaches even though the claim may not be made for some time thereafter.” So, although a policy cannot be assigned, once a loss occurs, an insured’s claim under a policy may be assigned without the insurer’s consent. This is because the carrier’s risk has not been enlarged by the assignment. Instead, an assignment merely alters the identity of the claimant. The carriers’ “obligation to provide coverage to the party deemed to be an insured under the policies arose at the time of the loss. Although the precise amount of defendants’ liability may not be known, defendants’ obligation to insure the risk in accordance with their respective policies was not altered by the assignment.”

Clearly, this case will pave the way for the transfer of “insurance rights” after the occurrence of events giving rise to coverage, without the need for insurer approval.

N.B.: The California Supreme Court just last week reached the same conclusion in a case involving asbestos claims. A post will follow on the specifics of that decision.

Important Recent Decisions From New York City Asbestos Litigation

As 2014 draws to a close, the New York City asbestos litigation (“NYCAL”) has seen reaffirmation of the recent decision to allow punitive damages claims to go forward, and two summary judgments that show the court is requiring solid, non-speculative evidence of exposure to a defendant’s products.

Punitive Damages

On December 15, 2014, Justice Sherry Klein Heitler denied the NYCAL defendants’ motion to renew and reargue the court’s April 8, 2014 decision to allow punitive damages to be pursued in NYCAL cases.  Prior to the April 8 ruling, defendants and plaintiffs had an agreed-upon Case Management Order (“CMO”) that stayed claims for punitive damages.  In the motion to renew and reargue, defendants asserted that the April 8  ruling created mass confusion among the asbestos judges and counsel, and undermined the parties’ voluntary CMO which was designed to provide a fair, expeditious and inexpensive means to resolve asbestos claims. Defendants also argued that Judge Heitler exceeded her authority because the CMO was a negotiated, agreed-upon compromise of the parties.   Judge Heitler rejected these arguments, ruling that the court has the authority to correct what in its view was “a fundamental inequality in the CMO.”

In rejecting defendants’ arguments, Judge Heitler and relied on the overarching principle that New York public policy recognizes that an asbestos plaintiff has a right to seek punitive damages in appropriate circumstances.  The court noted that punitive damages are not deferred in any other county in the State, and denied there was any confusion among the asbestos judges.  Judge Heitler ruled that each trial judge has the authority and responsibility to determine whether a jury instruction for punitive damages should be permitted.

Justice Heitler also rejected defendants’ equal protection and due process claims.  She noted that asbestos defendants in NYCAL are not treated any differently than in any other county and reiterated that the April 8 ruling made clear that punitive damages are only recoverable if the proof establishes there was ‘such gross, wanton or willful fraud or other morally culpable conduct to a degree sufficient to justify such an award.’  Moreover, neither the April 8 ruling nor the CMO prohibited a defendant from moving to dismiss a punitive damage claim.

Lack of Nexus and Causation

In Falkenmeyer v. A.O. Smith Water Products Co., defendant Cleaver-Brooks moved for summary judgment based on the absence of evidence of exposure.  The court recognized that a plaintiff must demonstrate that there was actual exposure to asbestos fibers released from the defendant’s product.  Plaintiff’s decedent died of lung cancer attributed to an occupational exposure to asbestos.  To prove liability, plaintiff proffered the testimony of decedent’s co-worker, who testified that both he and the decedent worked on boilers and burners and were thereby exposed to asbestos.  The co-worker generally recognized the name of defendant’s product, but also admitted that he didn’t know which particular boilers and burners that he or the decedent worked on. Falkenmeyer granted summary judgment, ruling that the nexus to defendant’s product was speculative and liability could not be reasonably inferred from co-worker testimony.

Similarly, in Casaregola v. 3M Company, defendant Cleaver Brooks moved for summary judgment after two-co-workers of the plaintiff’s decedent failed to demonstrate that the decedent was exposed to asbestos from defendant’s product.  Casaregola was a carpenter and worked on various Navy ships.  One ship, the Mormac Cargo, did use defendant’s evaporator and acid-cleaning pumps.  However, there was no showing that the decedent worked on the Mormac Cargo or that similar ships that decedent actually worked on had the same equipment.  Moreover, even if these ships had the same equipment, there was no evidence of Mr. Casaregola’s actual exposure.  The court rejected a co-worker’s affidavit because it failed to demonstrate Mr. Casaregola’s actual exposure.  The court ruled that “plaintiff cannot show that Mr. Casaregola was exposed to asbestos from the products for which the defendant bears responsibility without resorting to speculation” and granted summary judgment.

Asbestos Personal Injury, Wrongful Death Plaintiffs May Seek Punitives in NYC Cases

For the first time in 18 years, asbestos personal injury and wrongful death plaintiffs may seek punitive damages in cases filed in New York City.

NYC asbestos cases are managed by a separate docket.  The 1988 Case Management Order (CMO) that governed all NYC asbestos cases was amended in 1996 to require that all punitive damages claims be deferred until such time as the court deems otherwise.  The deferral decision was based on “fairness.”  The court reckoned that it would be unfair to charge companies with punitive damages for wrongs committed 20 to 30 years prior, sometimes by predecessor companies.  Awarding punitive damages would serve no corrective purpose and would deplete resources that could be used to compensate injured parties.  Moreover, it seemed unfair to subject companies to repeated punishment for the same wrong.

On a motion seeking to lift the deferral of punitive damages, the plaintiffs in In re: New York City Asbestos Litigation argued, among other things, that punitive damages are allowed in other counties of New York and in other states, the ban is ethically and constitutionally suspect, and allowing punitive damages would encourage settlements and serves the public policy goal of deterring tortious conduct.

In New York Supreme Court Judge Sherry Klein Heitler’s April 8, 2014, decision, she concluded that the deferral provision of the CMO should be removed and applications for permission to charge the jury on the issue of punitive damages will be made on a case-by-case basis at the conclusion of the evidentiary phase of the trial.  The decision recognized that punitive damages are generally permitted in New York State as a matter of public policy and are a societal remedy rather than a private compensatory remedy.  However, the court noted that punitive damages are only permitted when the defendant’s wrongdoing is not simply intentional but evinces a high degree of moral turpitude and demonstrates such wanton dishonesty as to imply a criminal indifference to civil obligations.  The court noted that it is the “singularly rare case” in which punitive damages are appropriate.

The court also noted that defendants are safeguarded by the due process clause of the Constitution, which has been found to limit the amount of punitive damages that can be awarded.  The judge’s confidence that the Constitution will hold back unwarranted punitive awards is not necessarily borne out in other jurisdictions.

Finally, the court cautioned the plaintiffs’ bar not to overstep requests for punitive damages.  “Punitive damages should only be sought in the most serious cases to correct for the most egregious conduct, and must present a valid reference to correction action.”  It will be interesting to see whether there will be any cases that can meet this standard, i.e., where corrective action is still possible, as asbestos has been largely banned since the 1970s and 1980s.

EPA Announces $1.7 Billion Cleanup Plan for Lower Passaic River

On April 10, the U.S. Environmental Protection Agency announced its most expensive cleanup plan ever.  The remedy selected in EPA’s Focused Feasibility Study (FFS) for the lower 8 miles of the Passaic River (Newark, Harrison and Kearny, New Jersey) will cost approximately $1.7 billion to remediate 9.7 million cubic yards of highly contaminated sediments.

ETT BLOG_Passaic RiverBank-to-bank dredging will remove 4.3 million cubic yards and will capture approximately 18 pounds of dioxin, more than 35,000 pounds of mercury, more than 15,000 pounds of PCBs and nearly 2,000 pounds of DDT. The remaining 5.4 million cubic yards will be left at the river bottom but will be covered by an engineered cap (sand and stone) to prevent the contaminants from becoming part of the food chain.  The dredged sediment will be dewatered locally and then transported by rail for out-of-state disposal.

EPA recognizes that some of the contamination came from companies that are bankrupt or defunct yet expects between 100-200 companies that remain viable to perform the work.  At the estimated cleanup cost of $1.7 billion, the proposed work may force many companies to seek bankruptcy if de minimis, de micromis or “inability to pay” settlements can’t be reached.

Public meetings will be held in May and June to present the cleanup proposal and the other options considered.  EPA also encourages the public to submit comments on the cleanup options by June 20, 2014.  For more information or for a copy of the FFS, click here.

Image courtesy of Flickr by Rich Mitchell

EPA Proposes Increased Pesticide Regulation

On February 20, 2014, the Environmental Protection Agency (EPA) announced proposed changes to its 20+ year old agricultural Worker Protection Standard (WPS). EPA’s goal is to reduce the risk of injury and illness from pesticide exposure to agricultural workers and their families. EPA estimates the affected population at about 2 ETT BLOG_cropsmillion people. In addition to farm workers, the WPS would affect workers at timber tract operations, nurseries, orchards and greenhouses. “Family farms” are exempted from certain requirements of the WPS. In general, owners are exempted from providing themselves or members of their “immediate family” with safety training and information; cleaned and maintained personal protective equipment; decontamination facilities; notification of pesticide applications; and emergency assistance.

The proposed changes to the WPS include:

  • Annual mandatory trainings (now required every five years) to inform workers about the protections they are afforded under the law, including restrictions on entering pesticide-treated fields and surrounding areas, decontamination supplies, and access to information and use of personal protective equipment. The training will be expanded to include instructions on how to reduce take-home exposure on work clothing.
  • Expanded mandatory posting of no-entry signs for the most hazardous pesticides. The signs prohibit entry into pesticide-treated fields until residues decline to a safe level.
  • First time-ever minimum age requirement: Children under 16 will be prohibited from handling pesticides, with an exemption for family farms.
  • No-entry buffer areas surrounding pesticide-treated fields will protect workers and others from exposure from pesticide overspray and fumes.
  • Additional recordkeeping for improving enforcement and compliance, including requiring employers to keep records of application-specific pesticide information as well as farmworker training. Employers will also need to keep early-entry notifications for two years.
  • Personal protection equipment (respirator use) must be consistent with Occupational Safety and Health Administration (OSHA) standards for ensuring respirators provide protection, including fit test, medical evaluation, and training.
  • Available information specific to the pesticide application, including the pesticide label and safety data sheets, to farm workers or their advocates (including medical personnel).

The WPS does not change an owner’s obligation to provide decontamination supplies and emergency assistance to workers and handlers. The EPA’s proposed changes were published in the March 19 Federal Register. The WPS will be subject to a 90-day comment period, which ends June 17.

Image courtesy of Flickr by NRCS Soil Health