New Jersey Schools Development Authority v. Joseph Marcantuone, et al., decided October 29, 2012, approved for publication.

The Appellate Division determined that a property owner whose property was taken in condemnation must prove an innocent purchaser defense in the subsequent cost recovery action in order to avoid liability under the New Jersey Spill Compensation and Control Act (the Spill Act) for contamination that pre-dates the condemnee’s ownership of the property.

The chlorinated solvent contamination at issue in this case was the result of dry cleaning operations conducted prior to the condemnee’s purchase of the property in 1985.  There was no evidence of a discharge of hazardous substances during the period of the condemnee’s ownership.  The contamination was not discovered until after the condemnor had acquired title to the property in the condemnation action.

In the separate post-condemnation environmental cost recovery action, the plaintiff sought to recover from the former condemnee defendants the costs to environmentally remediate the property taken. 

Relying on White Oak Funding Inc. v. Winning, the trial court granted summary judgment in favor of the defendants, concluding that the former condemnees were not liable under the Spill Act because there was no discharge of a hazardous substance during their period of ownership. The trial court further determined that the defendants’ failure to have conducted due diligence at the time of purchase did not render them “in any way responsible” for the pre-existing contamination.

The Appellate Division disagreed with the trial court’s ruling, concluding that its earlier ruling in White Oak Funding was superseded by the innocent purchaser defense for property purchased prior to September 14, 1993, N.J.S.A. 58:10-23.11g(d)(5), which became effective after the White Oak Funding case had been decided. The Court stated that “Although it may seem counterintuitive to infer liability from legislation establishing an affirmative defense, logic dictates that this is the case.”

The Appellate Division concluded that the defendants would be liable for the contamination prior to their purchase of the property, unless they could prove they had an innocent purchaser defense that, at the time of purchase, they did not know or have reason to know of the contamination by having undertaken the due diligence applicable to a pre-1993 purchase of property.

The defendants had also argued that, because the condemnor owned the property at the time the contamination was discovered, they could not be held liable because they were not the current owners (the innocent purchaser defense provision refers to “a person . . . who owns real property . . .”). The Appellate Division rejected this argument, concluding it was contrary to the intent of Housing Auth. v. Suydam, which determined that in condemnation contaminated property is to be valued as if remediated with an escrow established from such amount for the estimated remediation costs.  The Appellate Division also referred to the qualified immunity that condemnors have from Spill Act liability. 

Marcantuone answers some questions which Suydam did not specifically address.  The innocent purchase defense provisions imply Spill Act liability on a condemnee who purchased contaminated property and did not undertake environmental due diligence at the time of purchase. Also, notwithstanding that title has vested in the condemnor, a condemnee is nonetheless deemed the current owner in the post-condemnation cost recovery action and subject to Spill Act liability, unless having an innocent purchaser defense, or another Spill Act defense, or is otherwise not responsible in fact for the contamination at issue.