Real Property & Environmental Law Alert : New Jersey, New York, Pennsylvania & Delaware Lawyers & Attorneys for Real Estate Development & Environmental Law

In Matter of John G. Molloy, et al, the New York Appellate Division, Second Department reminds us that it is critical to preserve the status quo during the pendency of an appeal by moving for a preliminary injunction. Failure to do so resulted in the dismissal of an Article 78 proceeding challenging the grant of a use variance by the Town of Carmel Zoning Board of Appeals to the Putnam Arts Council, a not-for-profit organization, permitting it to operate in a residential zone. Appellants’ failure to preserve their rights during appellate review allowed construction of the new arts center to be completed and a certificate of occupancy to be issued thereby resulting in dismissal of the appeal as academic when it was eventually heard by the Appellate Division.

Jennifer M. Porter is an Associate in the Gibbons Real Property and Environmental Department.

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New Jersey’s Natural Resource Damage (“NRD”) program is cobbled together from an aging policy directive issued in 2003, an Appellate Division decision, NJDEP v. Exxon Mobil Corporation, [393 N.J. Super 388 (App. Div. 2007)] and a handful of lower court rulings on various and sundry motions. There is no specific enabling statute and the agency has never adopted any formal regulations. In short, it’s the type of program which is bound to leave the regulators, the regulated community (and the lawyers who advise them) with plenty of questions. Because there are no clear rules, New Jersey’s NRD program has generated a significant amount of litigation.

A July 26, 2010 ruling issued by the Middlesex County Superior Court following a ten day trial indicates that New Jersey’s approach to NRDs might be in for some careful scrutiny. Of course, a trial court’s findings have limited value as precedent. Nevertheless, the recent ruling in NJ Dept. of Environ. Protection v. Essex Chemical can only be viewed as a disaster for the present ad hoc approach to NRDs favored by the New Jersey Department of Environmental Protection.

In this case, New Jersey’s experts were left without the presumption that usually flows from following duly promulgated rules. Without this presumption New Jersey’s experts were unable to meet their burden and the plaintiff simply failed to prove its case. This is the second time New Jersey has stumbled at the expert proof phase of an NRD case. It is especially noteworthy that the trial judge rejected a modified Resource Equivalency Analysis proposed by New Jersey’s experts. New Jersey is attempting to use this novel method in several other cases and the state may now be forced to change course.

New Jersey’s NRD program is both novel and evolving. So it is hardly surprising that when issues come before the courts, the state and its experts will have good days and bad days. They recently had a very bad day.

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Believe it or not, in the 30 years of recorded decisions under CERCLA, the issue of who is an “owner” has not been decided, according to the Ninth Circuit Court of Appeals in California v. Hearthside Residential Corp., case number 09-55389 (Decided July 22, 2010).

CERCLA Section 107(a)(1) imposes liability on the current "owner and operator of a . . . facility." 42 U.S.C. § 9607(a)(1). In the Hearthside case, Hearthside Residential Corporation ("Hearthside") sold the property in question before the State of California sued it for reimbursement of clean-up costs. The Ninth Circuit determined that ownership for the purposes of CERCLA liability must be determined at the time of cleanup. The Court distinguished United States v. Fleet Factors Corp., 901 F.2d 1550, 1554 (11th Cir. 1990), abrogation on other grounds by statute recognized in Monarch Tile, Inc. v. City of Florence, 212 F.3d 1219, 1221 n.2 (11th Cir. 2000) by noting that Fleet Factors did not decide the temporal feature of when one is an owner for CERCLA liability. Other courts have interpreted the Fleet Factors case to impose owner liability on a party that owned or operated the facility at the time of the filing of the complaint. The Ninth Circuit noted that the Fourth and Sixth Circuits, while not squarely deciding the issue, in dicta suggested that the liable owner was an owner at the time of remediation or cleanup.

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“Beach nourishment” and “beach restoration” projects, where sand from other locations (often the ocean bottom) is dumped on a beach to retard erosion or to repair its effects, are expensive. They also raise complex issues of fairness and equity about who should pay for the projects and who should be compensated for their negative effects. In two decision handed down in June, the New Jersey and United States Supreme Courts grappled with another often controversial aspect of these projects: when can beachfront owners allege that the project has actually taken their property, triggering the requirement of “just compensation” found in the New Jersey constitution and the Fifth Amendment to the federal constitution?

The classic “taking,” of course, is when the government exercises its sovereign right of eminent domain, a process that, in New Jersey, is controlled by statute and which has been the subject of a recent Supreme Court opinion. Even without the exercise of eminent domain, the government is deemed to have taken private property whenever the landowner is required to suffer a permanent physical occupation. At least in the development context, however, most takings cases concern “regulatory takings,” which occur when a regulation has such a significant effect on the landowner’s ability to use the property -- when, in the words of Justice Holmes in Pennsylvania Coal Co. v. Mahon, the regulation has gone “too far” -- that the landowner must be compensated. A landowner who asserts that a government action has effected a taking that requires compensation files what is known as an inverse condemnation action, so called because unlike a normal condemnation case, where the government is the plaintiff, the government is the defendant, and the plaintiff-landowner seeks a declaration that a taking has occurred.

The New Jersey and U.S. Supreme Courts decisions handed down in June do not deal with familiar regulatory takings but rather involve, respectively, novel issues of timing and institutional power. In Klumpp v. Borough of Avalon, -- N.J. --, No. A-49-09 (N.J. June 22, 2010), the New Jersey Supreme Court decided on the applicable statute of limitations for takings claims of any sort. In Stop the Beach Renourishment, Inc. v. Florida Department of Environmental Protection, -- U.S. --, No. 08-1151 (U.S. June 17, 2010), a plurality of the U.S. Supreme Court concluded that a judicial decision that fundamentally changes property rights under state law can effect a “judicial taking” that triggers the constitutional requirement of just compensation. While Klumpp seeks to clarify the law governing takings claims in New Jersey, Stop the Beach Renourishment is likely to cause significant uncertainty in the years ahead.

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Judge Robert J. Bryan of the United States District Court for the Western District of Washington recently issued two opinions in United States v. Washington State Department of Transportation that could have significant implications on the scope and extent of liability under the Comprehensive, Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. §9601 et seq., particularly at urban river sites and harbors. Both decisions examine the liability of the Washington State Department of Transportation (“WSDOT”) at the Commencement Bay/Nearshore Tidelands Superfund Site.

In one opinion, decided on June 7, 2010, Judge Bryan examined WSDOT’s liability as an arranger under §107(a)(3) because it had designed, constructed and operated drainage systems intended to collect highway runoff which drained into nearby water bodies. In the second opinion, decided one month later on July 7, 2010, WSDOT’s potential liability was examined as an owner and operator under §§107(a)(1) and (2) of CERCLA because of its ownership of property near the Thea Foss and Wheeler Osgood Waterways, which are located within the Commencement Bay Site.

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Solar and Wind Energy Generation facilities may soon join the category of uses designated as permitted of right by New Jersey statute rather than by individual municipal ordinance, thus preempting municipal zoning powers granted under the Municipal Land Use Law, N.J.S.A. 40:55D-1 et seq. (MLUL).

Identical Bills, Senate S2126 and Assembly A3139 are pending before their respective house of the New Jersey’s legislature and would amend the MLUL to provide that Solar and or Wind Energy Generation Facilities, when installed on the sites of former landfills, quarries and other extractive industries, are permitted uses. This status would be equally applicable to both public and private sites where landfills, quarries or other extractive industries are closed or closing.

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Last year, the Appellate Division in TAC Associates v. NJDEP, 408 N.J. Super. 117 (App. Div. 2009) had held that an applicant under the NJ Brownfield Innocent Party Grant, N.J.S.A. 58:10B-5, need not be a landowner at the time of application for such grant. In so ruling, the Appellate Division invalidated NJDEP regulations that imposed an ownership requirement, a requirement absent from the underlying statute.

In January of 2010, the legislature amended the Act to require that the landowner must acquire the property before 1983 and own it until application is made for a grant and the application is granted. On July 15, 2010, the New Jersey Supreme Court reversed the Appellate Division in TAC, holding that the “after the fact” amendment by the legislature clarified the intent of the legislation which the NJDEP gleaned in issuing its regulations.

Justice Rivera-Soto, in dissent, criticized the ruling,

The unvarnished and ugly truth is that, recognizing their error, defendants [NJDEP and NJEDA] scurried -- four years after the fact, six and one-half months after their position had been rebuffed by the Appellate Division, and while this appeal was pending before this Court -- to have the Legislature ratify rules defendants adopted that plainly exceeded the original statutory mandate.

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Last week, Governor Rendell signed the Permit Extension Act ("Act") into law as part of the approval of the budget, breathing life into expired and expiring permits and the development projects they represent.

The Act, found at pages 99-110 of the budget bill, extends the expiration date of many governmental approvals, permits and agreements, including building permits and construction permits, relating to construction and development projects.

What Permits Does It Affect?

The Act applies to certain permits issued under more than thirty statutes, including:

• The Pennsylvania Municipalities Planning Code ("MPC"),
• The Clean Streams Law,
• the First Class City Home Rule Act (applicable to Philadelphia and Pittsburgh),
• The Pennsylvania Sewage Facilities Act,
• The Pennsylvania Construction Code,
• The Storm Water Management Act, and 
• certain permits issued by the Pennsylvania Department of Transportation.

The Act also applies to certain permits issued to condominiums, cooperatives and planned communities.

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This summer, the long shadow cast by the oil rig blow-out in the Gulf of Mexico seems to be everywhere. For example, we recently reported that EPA has written to Congress endorsing the concept of reinstating the Superfund tax which expired back in 1995. Thus, it was only a matter of time before New Jersey got into the act.

On July 15, 2010, the Senate Environment and Energy Committee in Trenton took up S-2108. If adopted in its present form this bill would raise the limit on liability pursuant to the New Jersey Spill Compensation and Control Act from $50 million to $1 billion.

It is easy to question the necessity of increasing the limit on Spill Act liability. After all, the Spill Fund is used primarily to address contamination from land based facilities. If New Jersey were to experience an event where the total damages could exceed $50 million there is already overlapping state and federal authority under CERCLA, RCRA and the Oil Pollution Act of 1990.

It remains to be seen whether this sort of legislative reaction to a long hot summer of bad news from the Gulf will resonate with the new business friendly administration in Trenton. But it is already clear that the events in the Gulf have reached Trenton.

*Photo courtesy of EPA.

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Agreements for the sale of real property are commonly contingent upon the contract purchaser's obtaining some sort of development approval. If the approval is not granted, the contract purchaser can walk away from the deal. But what if the landowner wants to challenge the denial? Does the landowner have a sufficient interest in the dispute to step into the contract purchaser's shoes? Last month, the Appellate Division of the New Jersey Superior Court answered in the affirmative. In Campus Associates, L.L.C. v. Zoning Board of Adjustment of the Township of Hillsborough, No. A-0690-08T2, -- N.J. Super. -- (App. Div. June 4, 2010), the court held that a landowner can appeal the denial of a use variance that was sought by a contract purchaser, as long as the application depended on property-specific proofs, and not on factors unique to the applicant.

The case arose in Hillsborough, N.J., where The Richman Group of New Jersey, L.L.C. (Richman) wanted to build affordable housing on a site owned by Campus Associates, L.L.C. (Campus). In 2006, the parties entered into a contract under which Richman would apply for the necessary approvals, and then purchase the property if the approvals were secured. Richman ran into trouble, however, with the township's Zoning Board of Adjustment (Board), which denied its application for a use variance and related bulk variances in early 2008. Richman decided not to appeal, and terminated the contract.

Campus, though, had other ideas. If the variance were granted, it could develop the project itself, or seek to reinstate the contract with Richman, or even seek another contracting partner. So it filed an appeal with the Law Division. But upon the Board's motion, the trial court dismissed the action, finding that Campus did not have "a sufficient stake and real adverseness" regarding the subject matter of the litigation. Campus appealed the dismissal to the Appellate Division, which agreed with Campus, reversed the dismissal, and remanded the matter to the Law Division.

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FASB has proposed rules that, if enacted, would eliminate the distinction between operating and capital leases.  Jonathan Hipp, President and CEO of Calkain Companies, Inc. writes in GlobeSt.com that the economics of transactions won’t change and questions the real impact of the proposed change in accounting rules that will require sale leasebacks to be moved from footnotes to the balance sheet because analysts who follow companies with sale leasebacks “have already baked the operating leases into the debt load of the companies.”

Russell B. Bershad is a Director in the Gibbons Real Property and Environmental Department.

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On June 21, 2010, EPA sent a letter to Congress supporting the reinstatement of the Superfund tax which expired on December 31, 1995. EPA believes that the tax will provide a “stable, dedicated source of revenue ... and increase the pace of Superfund cleanup.” According to EPA, it would also ensure that the parties who manufactured or sold the substances that are being cleaned-up at hazardous waste sites - and not the taxpayers - would bear the cost of cleanup when responsible parties cannot be identified. EPA states that the taxes are needed to ensure that the “polluter pays” for the Superfund program.

Since 1995, the Superfund program has been financed largely from transfers from the country’s general revenue funds. The EPA would like to reinstate the taxes for a 10 year period beginning in January 2011, in the same manner as they were last in effect on crude oil, imported petroleum products, and imported substances that use hazardous chemicals as feedstock.

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On July 6, 2010, the USEPA proposed a new interstate transport of ozone and fine particulate rule for power plants. The goal of the rule is to achieve by 2014 a 72% reduction of sulfur dioxide (SO₂) and a 54% reduction of oxides of nitrogen (NOx) from 2005 levels.

The tri state area, like most of the states east of the Mississippi, is covered by this rule for both fine particulates and ozone. The sulfur and nitrogen oxides are fine particulates in the air.

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The Senate Committee Substitute for S-1, which abolishes the Council on Affordable Housing (COAH) and restructures responsibility for affordable housing policy, was approved by the N.J. Senate on June 3 and sent to the Assembly, where it has come to a stop for the summer. NewJerseyNewsroom reports that the COAH bill is among 34 property tax reform-related bills that Assembly Democrats held over the summer in order to analyze them.

Susanne Peticolas is a Director in the Gibbons Real Property & Environmental Department.

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A long time in coming, but certainly below the radar screen, is the implementation of the EPA rule issued in 2008 requiring contractors engaged in renovations to be certified in handling lead based paint that may be present in homes, child care facilities and schools built before 1978. Certainly many of the buildings built before that time may well have lead based paint in them since it was not specifically prohibited until that date. However, many manufacturers moved long before 1978 to remove lead from their paint.

The rule applies to all trades engaged in renovation. Many trades can expose lead based paint, from the plumber to the electrician who may cut through walls where there may be lead based paint. Accordingly many contractors were unaware that the law applied to them and failed to obtain certification. A mad scramble for certification in the face of an April 22, 2010, deadline, together with industry outcry, led the Senate to introduce and pass a bill requiring EPA to delay implementation of the rule.

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On June 9, 2010, USEPA announced that data centers will be eligible to earn the Energy Star label. The data center must be in the top 25% of its peers in energy efficiency as measured by EPA’s energy performance scale, the Power Usage Effectiveness metric.

Unlike the Energy Star program for consumer appliances which relies on self-reporting, the Energy Star program for data centers requires a licensed professional to independently verify the energy performance of the building and sign and seal the application document that is sent to EPA for review and approval. Such data centers, which account for approximately 1.5% of electricity consumption, will be able to save money and energy and fight climate change. Moreover, with the increase in demand for “green” vendors by federal, state and local governmental agencies and corporations, a data center with an Energy Star label would have a competitive advantage in seeking such customers.

Susanne Peticolas is a Director in the Gibbons Real Property & Environmental Department.

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