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Owners Who Purchased Property Prior To September 1993 Liable Under NJ Spill Act Unless Due Diligence Was Conducted At Time Of Purchase

In July, 2001, the New Jersey Superior Court decided the case of White Oak Funding, Inc. v. Winning, 341 N.J. Super. 294 (App.Div.), cert. denied. 170 N.J. 209 (2001), holding that an owner of contaminated property purchased before September 14, 1993, was not liable for historic contamination that the owner did not contribute to.  Only a week later, amendments to New Jersey’s Industrial Site Recovery Act (“ISRA”) became effective.  Among other things, those amendments provided that owners who acquired property prior to September 14, 1993 would not be liable for clean-up costs if “at the time of acquisition, [the purchaser undertook] 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).  So, did this amendment abrogate the holding in White Oak?   A decade later, on October 29, 2012, the New Jersey Superior Court has said that it did.

In the case of New Jersey Schools Development Auth. v. Marcantuone, Docket No. A-1868-10T3 (N.J. Super. Oct. 29, 2012), a condemner sought to recover environmental clean-up costs  from the prior owner pursuant to the Spill Act.[1]  The source of the contamination was a dry cleaning establishment on the property that had been open for many years under various operators.  However, it was undisputed that that the defendant had not in any way contributed to the contamination and there was no evidence of any leak or spill during the defendant’s ownership of the property.  Having purchased the property in 1985, relying on White Oak Funding, Inc., the defendant moved for summary judgment and the trial court granted the motion.

However, the Superior Court reversed.   First, the Court noted that owners purchasing after September 13, 1993, were strictly liable for remediation of contamination on their properties if the owner “knew or should have known that a hazardous substance at been discharged at the real property,”  N.J.S.A. 58:10-23.11g(c)(3).   According to the Court, the 2001 amendment which added an innocent purchaser defense for owners who purchased property before September 13, 1993,  implied that such owners were also strictly liable for contamination on their properties regardless of whether they contributed to the contamination, subject to the defense.  Thus, “defendants [who purchased property prior to September 13, 1993 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.”

A second argument made by the defendant, unique to the condemnation aspect of the case, was that,  since the contamination was not discovered until after title transferred to the condemning agency, it was not a liable owner at the time of the discovery.  This too was rejected by the Superior Court:  “for purposes of Spill Act liability, we consider condemnees to be the “current owners” of property.”   Thus, in sum, the Court held that the defendants “may face liability for remediation costs unless they can establish the elements in the [innocent purchaser] defense.”

[1] New Jersey law provides that, for valuation purposes, “just compensation” in a condemnation proceeding is the value of the property uncontaminated, but that the property owner must pay for any necessary remediation.