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NJ Appeals Court Invalidates ISRA Regulation Requiring “Contamination Free” Certifications For Certain Industrial Sites

On Friday, July 6, 2012, the New Jersey Appellate Division invalidated a New Jersey Department of Environmental Protection (“NJDEP”) regulation requiring owners or operators of industrial establishments seeking an ISRA de minimis quantity exemption to certify that the land at issue is “clean,” i.e., free from contamination above specified action levels.  This decision, which may still be reviewed by the State Supreme Court, will have implications for owners and operators of industrial property throughout New Jersey, in that it may reduce their regulatory burden if the decision stands. ISRA, or the Industrial Site Recovery Act of 1993, is a New Jersey environmental law that requires owners and operators of industrial establishments to obtain clearance from the NJDEP before ceasing, selling or transferring the business operations or real property at issue.

ISRA and its regulations set out a specific process that owners and operators of industrial establishments must follow when they want to wind up or transfer property or business activities subject to the law.  At issue in the Appellate Division’s recent decision in Des Champs Laboratories, Inc. v. Martin was the statute and regulations that govern the de minimis quantity exemption (“DQE”) process under ISRA.  The DQE process is meant to streamline and truncate the environmental review that owners/operators must undertake when they have only stored, handled or disposed of small quantities of potentially hazardous substances.  The exemption is meant to unburden business and property owners who deal with only trivial amounts of chemicals, by not subjecting them to the time consuming and costly environmental investigation processes that accompany larger, more chemical-intensive operations.

The DQE process is spelled out in both the ISRA statute, N.J.S.A. 13:1K-9.7, and its attendant regulations, N.J.A.C. 7:26B-5.9.  The decision in Des Champs centered on a conflict between the statutory and regulatory requirements.  The statute sets forth specific numeric criteria for determining whether an owner/operator is entitled to the exemption.   The regulation reiterates the quantitative standard expressed in the statute, but also requires the owner/operator to certify, to the best of its knowledge, that the subject property is not contaminated above levels established by the NJDEP.  This additional provision could arguably require an owner/operator seeking an exemption to undertake the very environmental review that the exemption was meant to avoid.

With reference to the legislative and regulatory history, the Appellate Division determined that the Legislature, by expressly articulating the quantitative exemption criteria and replacing a prior version of the law that contained a similar “contamination free” certification, did not give NJDEP the power to enact the regulation at issue.  Thus, the court concluded that the NJDEP acted ultra vires, or beyond its legislatively delegated authority, by requiring an owner/operator to certify that a property is “contamination free” in order to obtain a de minimis quantity exemption.  The Appellate Division took pains to express the narrow confines of its decision, noting that other environmental laws and regulations remained available by which NJDEP could pursue discharges of hazardous substances.  The decision only addressed the validity of the exemption – “no more and no less.”

Importantly, the decision will not take immediate effect.  Given the likelihood that the decision will impact business transactions involving regulated industrial facilities, a thirty-day stay is in place during which the parties may seek review by the State Supreme Court.  If and when the stay is lifted, the decision will impact all transactions in New Jersey that involve industrial establishments where the owner or operator seeks a de minimis quantity exemption.  In those transactions, the owner/operator may have to meet a less onerous standard, possibly hastening the underlying deal.  As attorneys who regularly assist owners and operators of industrial facilities manage their environmental obligations, we know that time is often of essence in these business transactions.

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