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New Jersey Appellate Division Rules That Remediation Efforts May Lead to Spoliation of Evidence

On Halloween, the New Jersey Appellate Division issued a potentially “scary” ruling and cautionary tale for owners of contaminated property who first remediate the conditions, and then later decide to pursue other potentially responsible parties (“PRPs”) to recover costs associated with the cleanup efforts under the New Jersey Spill Compensation and Control Act (the “Spill Act”).  In Pollitt Drive, LLC v. Engel et al., Dkt. No. A-4833-13T3 (App. Div., Oct. 31, 2016), the Appellate Division affirmed a trial court finding that the plaintiff, property owner Pollit Drive, LLC (“Pollit”), improperly discarded a corroded pipe, sump pit, and concrete floor that were located beneath a building at an industrial property that formerly housed various commercial printing businesses, thus warranting sanctions for spoliation of evidence.  Spoliation occurs when a party violates its duty to preserve evidence that could be relevant to a matter at issue in litigation.  The duty to preserve evidence generally arises when a party has actual knowledge of pending litigation, or when litigation is “probable.”  Spoliation can result in the court issuing various degrees of sanctions, ranging from an adverse inference, a prohibition from introducing anything related to the spoliated evidence, striking pleadings, payment of attorneys’ fees, or the most harsh sanction – a complete dismissal of the case.  

In the Pollit case, before acquiring the property, Pollit hired environmental consultants to perform an environmental site assessment of the property, which revealed that there was a history of use of hazardous substances at the site and that the property was also adjacent to the Fair Lawn Well Field Site, which EPA had designated a Superfund Site in 1983 due to the presence of PCE and TCE in local municipal water supply wells.  After acquiring the property, Pollitt retained additional environmental consultants who performed multiple soil, groundwater and air quality tests on the property, which confirmed that the property was extensively contaminated.  On February 26, 2008, Pollitt reported the findings to the NJDEP and thereafter assumed remediation obligations for the property.  At approximately the same time, the PRPs at the Fair Lawn Well Field Superfund Site issued a demand for contribution to Pollitt, on the basis that PCE contamination from Pollitt’s property had migrated to the Fair Lawn Well Field Superfund Site. 

In September 2009, Pollitt’s counsel issued several demand letters to the prior owners and operators of the property, demanding contribution for the remediation costs Pollitt was incurring.  Pollitt filed its complaint against these prior owners and operators in April 2010, asserting claims for contribution under the Spill Act and CERCLA, and common law nuisance and negligence claims.  During the litigation, the defendants argued that Pollitt was guilty of spoliation of evidence, and as a sanction, that Pollitt’s entire complaint should be dismissed. 

The first piece of evidence at issue was a corroded pipe that was originally located beneath the building slab within the foundation walls of the building, which was removed in 2008, two years before Pollit filed the complaint, and a year before its counsel sent the demand letters.  Before removing the pipe, Pollitt took photographs to document its condition.  In 2012, two years after the complaint was filed, Pollitt’s trial expert relied on the photographs of the corroded pipe and samples of similar pipe located outside of the building foundation to conclude that the original pipe was corroded, had breached in 1971, and caused the discharges that led to the contamination at the property.  When the defendants requested additional information on the materials Pollitt’s expert reviewed in arriving at these conclusions, Pollitt revealed for the first time that it had lost the similar pipe sample the expert had partially relied upon. 

The defendants moved to dismiss the complaint on spoliation grounds, or in the alternative, to bar the introduction of the pipe photographs, similar pipe samples, or any related evidence.  The trial court agreed with the defendants, and issued an order barring plaintiff’s reliance on any evidence concerning the pipe or the similar pipe samples.  The trial court’s reasoning was that Pollitt “was a sophisticated investor which, having received guidance from experienced remediation professionals and environmental experts, should have known that litigation was possible.”  The trial court also found fault in the fact that Pollitt did not direct its consultants to preserve either the original pipe or the similar pipe samples, which the court found to be key evidentiary items.    

Pollitt had also destroyed other pieces of physical evidence, including an acid dilution sump pit and a section of the concrete slab floor in the building, both of which were excavated in July 2011 while the litigation was pending.  Pollitt again photographed the condition of these structures before they were removed from the property.  Because the sump pit and the concrete floor had been destroyed, Pollitt’s trial experts relied upon the photographs and data from sludge removed from the structures and surrounding soil samples in reaching their conclusions that the discharges of hazardous substances occurred after the building was constructed by prior owners and operators.   The defendants again argued that it was impossible to verify or refute the expert’s scientific conclusions without examining the actual sump pit and concrete slab structures, and that dismissal of Pollitt’s claims was an appropriate sanction. 

The court again admonished Pollitt for destroying the physical evidence, and found that Pollitt’s “failure to preserve all relevant evidence departed from accepted remediation protocols and prejudiced defendants’ ability to mount a proper defense.”  Without the original physical structures, the trial court held that Pollitt would not be able to “establish the source and time of the leak,” and that Pollitt could not offer any alternative proof to tie the defendants to the contamination.  As a sanction, the trial court issued an order dismissing the complaint with prejudice as to all defendants, and also agreed to certain of defendants’ applications for attorneys’ fees and costs.

On appeal, Pollitt agreed that the pipe was relevant evidence in the case, but argued that it was not required to preserve the pipe because it did not plan to file a lawsuit at the time it disposed of the pipe.  The Appellate Division disagreed, and reaffirmed the general principle that “the obligation to preserve evidence is not triggered by the spoliator’s intent to bring suit but rather it arises when litigation is ‘probable.’”  The Appellate Division pointed to the fact that Pollitt knew before it purchased the property in 2006 that various commercial printing companies had operated at the site, that those operations “relied on chemical substances,” that Pollitt’s environmental consultants had cautioned that further investigations of the property were needed, and that Pollitt received actual knowledge that the property was contaminated in December 2007.   The Appellate Division stated that:

Given the extent of the contamination on the subject property, plaintiff’s sophistication and access to remediation experts, and the clean-up occurring at the [Fair Lawn Well Field] Superfund site, plaintiff should have anticipated that it could become involved in litigation, whether as a plaintiff against the prior owners and uses of the property or in some other capacity in regards to the Superfund site.  Thus, the trial court reasonable concluded that plaintiff had a legal duty to preserve the lateral pipe.

In affirming that Pollitt had likewise spoliated evidence when it discarded the sump pit and concrete slab floor, the court held that all of Pollitt’s theories to establish source and timing of the discharges “are based on the very evidence that plaintiff destroyed.” 

Despite affirming the trial court’s finding that Pollitt had spoliated key evidence, the Appellate Division remanded the case for further proceedings. The Appellate Division noted that when the trial court issued the spoliation order, the record did not demonstrate that the trial court considered whether a less severe sanction, such as an adverse inference, would have been appropriate.  The Appellate Division also reviewed the trial court’s rationale in support of the spoliation order, and found that the trial court improperly dismissed the complaint in part on substantive grounds, rather than as a pure spoliation sanction –  since the court made a specific finding that Pollitt would be unable to establish the essential elements of its Spill Act contribution claim without the spoliated evidence.

This case presents a clear warning for parties who remediate contaminated property in New Jersey – even if you are not currently pursuing a cost recovery or contribution lawsuit against other potentially responsible parties – the Pollitt case affirms that you have an obligation to preserve any evidence that is revealed during the remediation efforts that may point to the source, timing, and location of discharges of hazardous substances at the site.