In New Jersey Schools Development Auth. v. Marcantuone, Docket No. A-1868-10T3 (N.J. Super. Oct. 29, 2012), the Appellate Division recently ruled that a person who purchased contaminated property before 1993 and did not contribute to the contamination in any way will nevertheless be held liable under the New Jersey Spill Compensation and Control Act, N.J.S.A. N.J.S.A. 58:10-23.11 to -23.24, for environmental clean up costs if they did not conduct a reasonable investigation of possible pollution before purchasing the property.  This decision overruled a 2001 decision by the Appellate Division, in White Oak Funding, Inc. v. Winning, 341 N.J. Super. 294 (App.Div.), cert. denied. 170 N.J. 209 (2001), that held that a pre-1993 purchaser could not be held liable unless there had been a discharge while that purchaser owned the property. 

The Spill Act, as originally adopted by the Legislature in 1976 imposed strict liability on “any person who has discharged a hazardous substance, or is in any way responsible for any hazardous substance.”   N.J.S.A. 58:10-23.11g(c)(1)  The term “in any way responsible” is vague and, in the years after the Spill Act was passed, there was uncertainty about the extent to which it applied to persons or companies who owned the property at some point in time after the contamination, but who did not contribute to the contamination. 

In 1993, the Legislature adopted an amendment to the Spill Act that addressed this issue for owners who acquired contaminated real property on or after September 14, 1993.  That amendment created the “innocent purchaser defense” pursuant to which such owners are not liable, if they can establish that:  (a) they acquired the property after the discharge; (b) at that time, they did not know, and had no reason to know, that any hazardous substance had been discharged at the property; (c) they did not discharge the hazardous substance, were not in any way responsible for the hazardous substance, and are not a corporate successor to the discharger or to any person in any way responsible for the hazardous substance or to anyone liable for cleanup and removal costs; and (d) they gave notice of the discharge to the DEP when they discovered it.  [N.J.S.A. 58:10-23.11g(d)(2).] To establish that a person had no reason to know that any hazardous substance had been discharged, “the person must have undertaken, at the time of acquisition, all appropriate inquiry into the previous ownership and uses of the property” and “all appropriate inquiry” means “the performance of a preliminary assessment, and site investigation, if the [PA] indicates that a site investigation is necessary . . ., and performed in accordance with rules and regulations promulgated by the department defining these terms.”  [Id.]

The Spill Act was again amended in 1997 (effective January 6, 1998) to add a provision affirmatively making owners of property acquired after September 14, 1993 strictly liable, if, at the time of acquisition, that person “knew or should have known” that a hazardous substance had previously been discharged at the real property.  [N.J.S.A. 58:10-23.11g(c)(3).]

These provisions left open the question of whether a property owner who acquired a contaminated property before September 14, 1993 could be liable under the Spill Act, if he did not conduct an inquiry into whether the property was contaminated before he bought it and did not contribute to the contamination.

In White Oak, the Appellate Division held that an owner could not be liable as a “person otherwise responsible” unless the owner was in some way responsible for the discharge that caused the contamination.  The court rejected the argument that an owner who purchase property before September 14, 1993 could be liable simply because it had not engaged in an adequate inquiry before acquiring the property.

Only a week later, certain new amendments to the Spill Act came into effect addressing the liability of owners who acquired property before September 14, 1993.  Those provisions largely paralleled those governing owners who purchased property after that date except post September 14, 1993, owners could establish that they “had no reason to know that any hazardous substance had been discharged” by showing that they had “undertaken, at the time of acquisition, all appropriate inquiry on the previous ownership and uses of the property based upon generally accepted good and customary standards.”  N.J.S.A. 58:10-23.11g(d)(5) (emphasis added).

In. Marcantuone, a condemner sought to recover environmental clean-up costs from the prior owners defendants Joseph Marcantuone and Robert Gieson.  The source of the contamination was a dry cleaner that had been open for many years.  All contamination occurred before defendants’ acquired the property. The defendants moved for summary judgment, relying on White Oak. The trial court granted defendants’ motion and dismissed plaintiff's complaint.

The Appellate Division reversed, concluding that the 2001 amendment which added an innocent purchaser defense for owners who purchased property before September 13, 1994, implied that such owners were also strictly liable for contamination on their properties, subject to the defense, even if they did not contribute to the contamination.  Thus, “defendants [who purchased property prior to September 13, 1994 and who were owners at the time the contamination was discovered] must prove that, at the time they acquired the property . . . they did not know or have reason to know that hazardous substances had been discharged on the property.” 

The court reversed the trial court's dismissal of the complaint and remanded the case to the trial court to permit the defendant to attempt to establish the elements of the “innocent purchaser” defense established under N.J.S.A. 58:10-23.11g(d)(5).  The court stated that “the trial court must first determine what the generally accepted good and customary standards were at the time defendants acquired title to the property. Defendants can then present evidence as to what pre-purchase efforts and investigation they undertook. Liability will depend upon whether defendants satisfied the prevailing standard as found by the court.”

[NOTE: The phrase "in any way responsible" was also recently interpreted by the NJ Supreme Court to require "some connection between the discharge complained of and the alleged discharger." N.J. Dep't of Envtl. Prot. v. Dimant, 212 N.J. 153, 177 (2012). (See New Jersey Supreme Court Rules Proof That ompany Discharged Hazardous Substancea and Same Substance was Found in Soil or Grounwater is Not Sufficienat Basis to Hold it Liable Under NJ Spill Act for Reimbursment Costs) ]