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WHEN PURCHASING CONTAMINATED PROPERTY, CAVEAT EMPTOR SAYS THE APPELLATE DIVISION

At the end of July the Appellate Division handed down a decision recognizing significant leeway and discretion to the New Jersey Department of Environmental Protection (“NJDEP” or “the Department”) under the Industrial Site Recovery Act, N.J.S.A. 13:1K-6 through -18 (“ISRA”).

In CD&L Realty, LLC v. New Jersey Department of Environmental Protection, Docket No. A-4066-13T3 (App. Div. July 30, 2015), the Plaintiff CD&L Realty, LLC (“CD&L”) purchased an industrial property in the year 2000 from Owens-Brockway Glass Container, Inc. (“Owens-Brockway”). The site was used for glass manufacturing for an extended period of time and became contaminated with hazardous chemicals used in that activity. The contamination is also in the groundwater and may have discharged until to Cohansey River.

During Owens-Brockway’s ownership of the subject property, Owens-Brockway entered into an Administrative Consent Order (“ACO”) with the NJDEP regarding remediation of the site. Owens-Brockway disclosed and acknowledged the ACO and that the property was subject to ISRA in the purchase and sale agreement with CD&L. Despite this disclosure, Owens-Brockway was not in full compliance with the ACO and ISRA, and CD&L did not discover this fact until about 2010.

In about September 2013, CD&L filed a Complaint against NJDEP alleging that the Department failed to vigorously enforce environmental laws and to assure appropriate remediation in a timely fashion. The trial court dismissed the complaint. On appeal, CD&L argued that NJDEP had failed to exercise non-discretionary duties to: 1) assume oversight over the remediation; 2) review the purchase and sale agreement; and 3) execute its ministerial duties under the Federal Clean Water Act, 33 U.S.C. §§1251-1387. The Appellate Division Court disagreed.

The Court first noted the well-established administrative law notion that judicial “authority to compel agency action is exercised sparingly, as courts are ill-equipped to micromanage an agency’s activities.” Caporusso v. N.J. Dep’t of Health & Senior Servs., 434 N.J. Super. 88, 101 (App. Div. 2014). Instead, the Courts generally adhere “wide discretion to administrative agencies which are to decide how best to approach legislatively assigned administrative tasks.” Id. In following, a Court should only grant mandamus relief to compel an agency to perform “a duty that is ministerial and wholly free from doubt or to compel the exercise of discretion, but not in a specific manner.” Twp. Of Neptune v. N.J. Dep’t of Envtl. Prot., 425 N.J. Super. 422, 434 (App. Div. 2012).

Applying this principal, the Court then found that CD&L did not establish that the Department failed to undertake a non-discretionary, ministerial duty and therefore mandamus relief would not be proper. First, the Court found that none of the three prerequisites that could require NJDEP to undertake oversight under the Site Remediation Reform Act, N.J.S.A., 58:10C-1 through -29 (“SRRA”) were satisfied. Specifically, CD&L did not allege two enforcement actions issued since SRRA’s enactment as required by subsection 1, and CD&L brought their claim prior to the five year post-enactment period provided under subsection 3.

Second, the Court found that even though ISRA does require owners and operators to notify NJDEP upon the transfer of ownership of an industrial property, the failure of an owner or operator to comply does not impose upon NJDEP a duty to act. Additionally, such failure to comply does not make the transfer void, but voidable at the discretion of the transferee. Still, this imposes no non-discretionary duty on the Department.

Lastly, the Court looked to the State’s Water Pollution Control Act, N.J.S.A. 58:10A-2 through which the Department administers the aspects of the Federal Clean Water Act. The Court held that the Department is required to take certain actions if it finds there has been a violation of the Water Pollution Control Act, but these actions are predicated on the NJDEP’s findings of a violation and not the allegations as presented by CD&L. Additionally, included in these required actions is an option for the Department to resort to “any other remedy specified.” So, even if the Department were to make a finding that triggered these requirements, their duty is discretionary in its nature.

What does this mean for buyers and sellers of industrial and contaminated property in New Jersey? Caveat Emptor – “let the buyer beware.” For the buyer, it is vital that the contract between the parties serve to protect the buyer’s interests. The NJDEP will not, and is not required to step in to protect the buyer’s investment. Purchasing a contaminated property is a high risk endeavor and buyers and sellers alike should be aware of all of the obstacles that could potentially arise at the time of sale and in the future.

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