Environmental Management Seminar Legal Issues in Redevelopment

1. Environmental Management Seminar Legal Issues in Redevelopment • Montclair State University • Prepared by Patrick T. Mottola, Esq. • April 2005 • This presentation and materials do not constitute and are not legal advice Norris, McLaughlin & Marcus, P.A.

2. Presentation Topics • Liability Statutes • Brownfields Redevelopment • Natural Resource Damages Norris, McLaughlin & Marcus, P.A.

3. Main NJ Remediation Programs • New Jersey Spill Compensation and Control Act (“Spill Act”), N.J.S.A. 58:10-23.11 • Industrial Site Recovery Act (“ISRA”), N.J.S.A. 13:1K-6 • Brownfield and Contaminated Sites Act (“Brownfields”), N.J.S.A. 58:10B-1 Norris, McLaughlin & Marcus, P.A.

4. Industrial Site Recovery Act • Predecessor statute: Environmental Cleanup Responsibility Act (“ECRA”) effective December 31, 1983. • ISRA amended and renamed ECRA, June 16, 1993 Norris, McLaughlin & Marcus, P.A.

5. ISRA Overview • Imposes “cleanup” pre-conditions upon the sale, transfer, or closure of Industrial Establishments having certain North American Industrial Classification System (“NAICS”) numbers that are involved with hazardous substances or wastes. Norris, McLaughlin & Marcus, P.A.

6. ISRA Compliance • Requires Notice; and • Prohibition on consummating transactions until receipt of NJDEP Approval, which ultimately takes the form of a No Further Action letter (“NFA”) Norris, McLaughlin & Marcus, P.A.

7. Obligation to Comply • In a sale, it is the obligation of the Seller. • Joint and several obligation of the owner and operator. • Often landlord and tenant. • Could involve operators that do not have tenancy agreements, such as licensee, easement holder, or even trespasser. Norris, McLaughlin & Marcus, P.A.

8. New Jersey’s Spill Act • The foundation of NJ Environmental Law • Enacted in 1976 and substantially amended in 1993 • Addresses Liability for releases of hazardous substances, broadly defined • Creates a Spill Fund for innocent parties that have been victimized by a discharge Norris, McLaughlin & Marcus, P.A.

9. Spill Act Liability • Liability is imposed on a person “in any way responsible” for a “discharge” of “hazardous substances” to water or land • The list of Hazardous Substances is found at N.J.A.C. 7:1E Appendix A • A discharge means a release to the lands or waters of the state • Any quantity is required for reporting obligation Norris, McLaughlin & Marcus, P.A.

10. Who is “in any way responsible”? • The current property owner • The current operator • Former owners and operators at the time of the past discharge • Intermediary owners/operators NOT responsible if contaminated deemed to be in “passive migration” stage Norris, McLaughlin & Marcus, P.A.

11. What kind of liability? • Strict liability (attaches with no fault or causation element required) • Joint and several (attaches to all found “in any way responsible”) • Retroactive (attaches to past actors) Norris, McLaughlin & Marcus, P.A.

12. Contribution and Cost Recovery • The State may seek cost recovery for cleanup expenditures • Private parties may seek contribution from other parties for contribution to cleanup costs Norris, McLaughlin & Marcus, P.A.

13. Spill Act Defenses • Discharge was the result of: • Act of God • Act of war or sabotage • Compliance with permit • Innocent Purchaser • Reliance on previously issued No Further Action Letter Norris, McLaughlin & Marcus, P.A.

14. CERCLA • Federal Law • Comprehensive Environmental Responsibility Cleanup Liability Act, 42 U.S.C.A. § 9601 to 9675 • Enacted primarily in response to the Love Canal disaster • A tax on the transfer of chemicals is put into a special governmentally-managed account called the “Superfund” Norris, McLaughlin & Marcus, P.A.

15. CERCLA • Discharges of hazardous substances to water, land or air • Quantity depends on the nature of the substance but may be 1 to 10 pounds or 100 to 1000 pounds Norris, McLaughlin & Marcus, P.A.

16. CERCLA – Liable Parties • Current owner or operator • Former owner or operator • Arrangers/Transporters Norris, McLaughlin & Marcus, P.A.

17. CERCLA - Defenses • Discharge was the result of: • Act of God • Act of war or sabotage • Compliance with permit • Act or omission of a third party not in privity with the party • Bona Fide Purchaser Norris, McLaughlin & Marcus, P.A.

18. Liability Statutes – Common Threads • Impose liability for cleanup on the parties that are best-suited to clean up • Put the liability on the property itself (“in rem”) • Result – many lingering cleanups, abandoned sites, and development of green space • Creation of “upside down” properties – cleanup costs higher than property values Norris, McLaughlin & Marcus, P.A.

19. 1993 Amendments: ECRA and the Spill Act • After 10 years of ECRA, the statute was revised and re-named ISRA • Spear-headed by State Senator Hank McNamara and Assemblyman Jim McGreevey • Introduced expedited compliance procedures to ISRA • Introduced some liability relief by amending the Spill Act to include an Innocent Purchaser defense Norris, McLaughlin & Marcus, P.A.

20. Spill Act Innocent Purchaser Defense • Purchase the property after September 14, 1993 (the amendment effective date) • Perform due diligence (defined as a Preliminary Assessment and Site Investigation) • Do not find any evidence of discharges • Later found to be WRONG • Give notice to NJDEP when the discharge is discovered Norris, McLaughlin & Marcus, P.A.

21. CERCLA Bona Fide Purchaser • Applies to parties that knowingly acquire contaminated property after 1/11/2002 • Buyer must undertake “all appropriate inquiry” and “appropriate care” • Perform an ASTM Phase I Environmental Site Assessment Norris, McLaughlin & Marcus, P.A.

22. 1998 Amendments to the Spill Act and Creation of the Brownfields Act • Introduced incentives for the redevelopment of abandoned or underutilized properties • Liability protection • Reimbursement of remedial costs • Introduced the “Covenant Not to Sue” for No Further Action Letters (“NFA”) Norris, McLaughlin & Marcus, P.A.

23. Brownfields Program • A “brownfield” is an unused or under-utilized former industrial property • Encourages revitalization of these contaminated sites • Provides liability protection and financial incentives to developers who agree to remediate and redevelop • NJ and Federal Programs Norris, McLaughlin & Marcus, P.A.

24. New Jersey Brownfields Program • Brownfields are any former or current commercial or industrial site that is currently vacant or underutilized and on which there has been, or there is suspected to have been, a discharge of a contaminant Norris, McLaughlin & Marcus, P.A.

25. Reasons to favor Brownfields Redevelopment • Smart Growth – reduce sprawl to greenfields, which are limited • Preserved space • Pinelands Preservation Area • Highlands Preservation Area • Revitalize urban centers and unused/abandoned areas Norris, McLaughlin & Marcus, P.A.

26. Voluntary Cleanup Program • Cleanup due to market, rather than government, forces • Memorandum of Agreement (“MOA”) • Contract between a party and the NJDEP • A brownfields developer must enter into an MOA Norris, McLaughlin & Marcus, P.A.

27. Brownfields – Liability Protection • If the developer enters into an MOA before taking title to the property, it is shielded from liability from third-party tortfeasors • Is it constitutional? Not tested. Norris, McLaughlin & Marcus, P.A.

28. Brownfields Reimbursement Fund • Allows reimbursement up to 75% of remedial costs once an NFA is issued, so long as the projected tax revenue can support the claim • Most common forms of taxes: • Sales tax on building materials • Sales tax on retail sales • Corporation business tax • This changes the polluter-pays game Norris, McLaughlin & Marcus, P.A.

29. Brownfield Development Area (“BDA”) • NJDEP works with selected communities affected by multiple brownfield sites to develop comprehensive plans to allow for a coordinated effort for remediation and reuse • Streamlines the state oversight procedures Norris, McLaughlin & Marcus, P.A.

30. Natural Resource Damages (“NRD”) • Compensation for lost use, over and above the cost of remediation • Public Trust Doctrine and Parens Patriae • Spill Act, CERCLA and other environmental statutes create statutory rights for trustees to recover NRD Norris, McLaughlin & Marcus, P.A.

31. Public Trust Doctrine • Found in Roman Civil Law • Submerged lands are preserved for public use in navigation, fishing and recreation, and the state, as the trustee for the people, bears responsibility of preserving and protecting these public rights Norris, McLaughlin & Marcus, P.A.

32. Parens Patriae • Refers to the role of the state as sovereign and guardian other those who cannot care for themselves • A concept of standing to protect interests such as health, comfort and welfare of the people, interstate water rights, and more recently, groundwater Norris, McLaughlin & Marcus, P.A.

33. NRD - Trustees • State Government – Commissioner of the NJDEP (delegated to NJDEP’s Office of Natural Resource Restoration) • Federal Government • Secretary of the US Department of the Interior (US Fish and Wildlife Service, US National Park Service) • Secretary of the US Department of Commerce (National Oceanic and Atmospheric Administration) • Secretaries of the US Departments of Defense, Energy and Agriculture • Native American Tribes Norris, McLaughlin & Marcus, P.A.

34. NRD – Typical Media • Both the state and feds are trustees for • Surface water • Sediments • Wetlands • NJ is the sole trustee for groundwater Norris, McLaughlin & Marcus, P.A.

35. NRD – Five Key Terms • Natural resources • Natural resource services • Natural resource injuries • NRD • Restoration Norris, McLaughlin & Marcus, P.A.

36. NRD – Natural Resources • Includes all land, biota, fish, shellfish, and other wildlife, air, water (including groundwater) and other such resources Norris, McLaughlin & Marcus, P.A.

37. NRD – Natural Resource Injuries • Any adverse change or impact of a discharge into or on a natural resource or impairment of natural resource services, whether direct or indirect, long-term or short-term, and include a partial or complete destruction or loss of the natural resource Norris, McLaughlin & Marcus, P.A.

38. NRD – Natural Resource Services • The physical, chemical, and biological functions that natural resources perform • Examples • Purification of air and water • Drought/flood mitigation • Generation and preservation of soils • Erosion protection • Cycling and movement of nutrients Norris, McLaughlin & Marcus, P.A.

39. NRD Defined • The dollar value of the restoration that is necessary to restore the injured resource and to compensate the citizens for the injury to the natural resources as a result of a discharge Norris, McLaughlin & Marcus, P.A.

40. NRD - Restoration • The remedial action that returns the natural resources to pre-discharge conditions. It includes the rehabilitation of injured resources, replacement, or acquisition of natural resources and their services which were lost or impaired. Norris, McLaughlin & Marcus, P.A.

41. Signature Chemicals • Help to identify a responsible party • Lead from a local foundry that discharged to Jackson’s Run/East Lake in Bridgeton, NJ • PCBs from General Electric in the Hudson River Norris, McLaughlin & Marcus, P.A.

42. Passaic River NRD Initiative • The lower Passaic River from Dundee Dam in Paterson to Newark Bay • Receptor of industrial wastewater, domestic sewage, and storm water for over 200 years Norris, McLaughlin & Marcus, P.A.

43. Spill Act Statute of Limitations • 4,000 Cases in New Jersey • In property damage cases, the default statute of limitations to bring a claim is 6 years • In the 1993 amendments to the Spill Act, the legislature added a 10-year statute of limitations for it to recover costs under the Spill Act • In 2001, as the ten-year deadline approached, the legislature extended the deadline another 5 years • The drop dead date is now Jan 1, 2006 Norris, McLaughlin & Marcus, P.A.

44. Passaic River NRD Initiative • In September 2003, EPA and NJDEP initiated legal action against 66 companies at 18 sites seeking funding for a federal investigation and feasibility study • Also seeks to impose liability for NRD • Study is estimated to take 5 to 7 years • Estimated river cleanup and potential NRD liability is on the order of multi-millions to billions of dollars Norris, McLaughlin & Marcus, P.A.

45. Passaic River Initiative - Background • During the Vietnam War, Diamond Shamrock produces agent orange at its facility on Lister Avenue, Newark, on the Passaic River • As a result of these operations, dioxin is deposited in sediments of the Passaic River Norris, McLaughlin & Marcus, P.A.

46. Passaic River Initiative - Background • Diamond Shamrock spends $30 million and years studying the river • Other contaminants, including volatile and base/neutral organic compounds, PCBs, and metals all found in river sediments Norris, McLaughlin & Marcus, P.A.

47. Passaic River Initiative - Background • In the mid-1990s, EPA, through Diamond Shamrock, sends information request letters, “104(e) letters”, to other potentially responsible parties (“PRPs”) • The PRPs are selected based on review of Passaic Valley Sewerage Commission (“PVSC”) files • PRPs selected from those where any incident reported to PVSC in the 1950s and 1960s Norris, McLaughlin & Marcus, P.A.

48. Passaic River – EPA Initiative in 2003 • EPA wants to continue study of the river, at an estimated cost of $35 million • EPA, DOT, and Army Corps of Engineers put up $25 million • $10 million shortfall Norris, McLaughlin & Marcus, P.A.

49. Passaic River – EPA Initiative in 2003 • EPA goes back to the PRPs identified in the 1990s from the Diamond Shamrock investigation • A new round of letters go out to about 100 PRPs Norris, McLaughlin & Marcus, P.A.

50. Passaic River – DEP Directive in 2003 • NJDEP, separately, issues a Directive to 66 companies • Based on 16 ISRA sites in Newark/Kearney and 2 ISRA sites in Lodi (Napp Chemical and Hexcel) • Demands $980 million to cleanup river Norris, McLaughlin & Marcus, P.A.