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New Jersey Appellate Division Applies Equitable Principles in Allocating Investigation Costs Between Neighboring PRPs

Earlier this month, New Jersey’s Appellate Division affirmed a judgment issued by the Chancery Division, the state’s court of equity, which required neighbors to participate and share in the costs of investigating nearby contamination even though there was not yet any evidence as to the precise source of the contamination. Matejek v. Watson et al., Dkt. No. A-4683-14T1 (N.J. Super. Ct. Mar. 3, 2017).  In doing so, the Appellate Division adopted an expansive view of the Chancery Division’s power to fashion an equitable remedy when the letter of the law, in this case New Jersey’s Spill Compensation and Control Act (Spill Act), does not provide for one.

The case related to oil contamination on the surface of a tributary near a condominium development. Nearly a decade ago, in response to the contamination, the New Jersey Department of Environmental Protection (NJDEP) had removed underground storage tanks from each of five nearby condominium units.  Other than confirming that there was no oil in the tributary, NJDEP took no additional action at the site but its file remained open, leaving a cloud over the title of the five condominium units.

The plaintiffs, owners of one of the impacted units, filed a complaint in the Chancery Division against the owners of the other four units. They sought a judgment that would obligate the neighboring owners to participate in and equally share in an investigation and, if necessary, remediation of the property.

After a bench trial, the judge entered a judgment ordering the parties to retain a licensed site remediation professional (LSRP) to investigate the site and ordered all of the unit owners to share in the costs. The judge explained that, even though there was no evidence yet as to the precise source of the contamination, the fact that NJDEP had removed all five tanks was sufficient to impose on the impacted parties the obligation to participate in the investigation process.

One of the owners appealed the decision, arguing that the Spill Act does not permit such relief, but the Appellate Division affirmed the lower court’s decision. Relying more on equitable principles than case law or statutory text, the Appellate Division reasoned that, under the circumstances, there was a need for a remedy that would “fairly burden all the potential dischargers with an investigation into the actual cause” of the contamination, rather than imposing that burden solely on plaintiffs.  The court acknowledged that the “plaintiffs’ suit varies from what the Legislature likely anticipated when authorizing a private cause of action for contribution,” but the court nevertheless concluded that a court’s equitable jurisdiction afforded it the necessary flexibility to avoid such a “narrow” and “inequitable” “interpretation of the Spill Act” that would deprive the plaintiffs’ of a remedy in the face of such a wrong.

Given that there is very little analysis of the Spill Act in this short decision, it will be interesting to monitor whether New Jersey courts read this decision as a shift in Spill Act jurisprudence, or as is more likely, courts treat the Appellate Division’s equitable arguments as a product of the unique facts of the case before the court.