On Wednesday, September 26, 2012, the New Jersey Supreme Court issued its much-anticipated decision in NJDEP, et al. v. Ofra Dimant, et al. interpreting New Jersey's environmental cleanup statute, the Spill Compensation and Control Act (the "Spill Act").  In a holding that will impact businesses involved in cleanup and removal actions in New Jersey, the Supreme Court held that "there must be shown a reasonable link between the discharge, the putative discharger, and the contamination at the specifically damaged site" and "[a] reasonable nexus or connection must be demonstrated by a preponderance of the evidence."  This holding significantly affects Spill Act jurisprudence, as it requires a plaintiff to prove an actual causal connection between a party's discharge and the contamination for which the plaintiff seeks cleanup and removal costs or natural resource damages.  McCarter & English briefed and argued the matter before the Supreme Court on behalf of two amici curiae.

By way of background, the Spill Act requires the cleanup and removal of pollution by anyone in any way responsible for a discharge of a hazardous substance into the environment.  It also imposes liability for the payment of related cleanup and removal costs.  The Spill Act is silent on the standard of proof necessary to connect a discharge to the contamination being cleaned up.  In Dimant, the New Jersey Department of Environmental Protection ("NJDEP") sought environmental cleanup and removal costs and natural resource damages.  At issue was the degree to which the plaintiff is required to prove a causal nexus between the discharge of a hazardous substance and the environmental contamination.

At trial, the NJDEP sought to hold a dry cleaner -- Sue's Clothes Hanger ("Sue's") -- jointly and severally liable for the cleanup and removal costs of groundwater in Bound Brook, N.J.  NJDEP's claims were based on observations in 1988 by government inspectors of a slow drip of PCE from a pipe protruding from Sue's.  (PCE is a cleaning solvent commonly used by dry cleaners.)  The trial court found that the NJDEP did not establish, by a preponderance of the evidence, that Sue's contributed to the groundwater problem.  The trial court made certain findings, including: (i) there was no evidence that the drip made its way through the asphalt beneath the pipe; (ii) there were other dry cleaners in the vicinity; (iii) there was no way to tell that the PCE in the groundwater came from Sue's rather than the other dry cleaners; and (iv) the NJDEP took only one sample early in its investigation of the site and apparently did not consider the drip to be of any significance.  The Appellate Division affirmed.

Before the New Jersey Supreme Court, the NJDEP argued that the courts below improperly narrowed what it considered to be a liberal nexus requirement under the Spill Act, and that it should be sufficient to show a nexus between the substance discharged and "its appearance in the environment."  In short, the NJDEP argued that it should be able to establish Spill Act liability by merely showing that a party who operated in proximity to the contamination used the same chemical found in the environment and experienced some loss of that chemical.

The Supreme Court disagreed with the NJDEP's proposed causation standard.  According to the Supreme Court, a party against whom damages are sought "must be shown to have committed a discharge that was connected to the specifically charged environmental damage of natural resources -- the groundwater damage -- in some real, not hypothetical, way" (emphasis added), and this connection must be demonstrated by a preponderance of the evidence.

The Supreme Court distinguished the case from situations where the NJDEP may be seeking injunctive relief under the Spill Act to order a party to stop discharging hazardous substances (as opposed to damages, as was the case here).  To obtain injunctive relief under the Spill Act, proof of the existence of a discharge is enough.

In applying the standard to the facts of the case, the Supreme Court found that the NJDEP's proofs fell short of establishing the causal chain required to recover damages.  The Supreme Court first found that Sue's committed a "discharge" when PCE dripped out of the pipe onto the ground.  However, the NJDEP "never presented sufficient proof of a reasonable, tenable basis for how the drip of fluid containing PCE observed at Sue's one day in 1988 resulted in the contamination of the groundwater in Bound Brook."

The NJDEP also argued that further investigation into whether a nexus exists should be borne by Sue's and that Sue's must bear the expense of studying the various ways in which the drip may have contributed to the groundwater pollution.  The Supreme Court disagreed and held that it would be "fundamentally unfair to saddle Sue's with such an investigatory obligation, on a joint and several basis, at this time, considerably more than a decade after the DEP discovered the dripping pipe."

In its analysis, the Supreme Court made some other statements that may affect Spill Act cases.  For one, it reaffirmed that there was no de minimis exception to Spill Act liability.  The Court did not examine the express language of a Spill Act provision that contains a de minimis exception for certain sites as that provision was not at issue in the case. 

In addition, the Supreme Court examined case law on causation developed under the federal environmental statute known as CERCLA.  In doing so, the Court noted some differences between the Spill Act and CERCLA, notably that the United States Supreme Court, in Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 613-615 (2009), interpreted CERCLA as permitting "divisibility" among responsible parties.  The New Jersey Supreme Court noted that, in contrast to CERCLA, the Spill Act provides "some mechanism for divisibility" in its contribution provision, pursuant to which liability among responsible parties is allocated using "equitable factors."  It is important to note, however, that the issue of divisibility under the Spill Act was not fully briefed or centrally before the Court in Dimant.  Thus, these issues will need to be addressed in future cases.