New Jersey Appellate Division Clarifies Spill Fund Lien Law & Procedure

In an unpublished opinion captioned In Re Spill Fund Lien, DJ No. 129570-02; 954 Route 202, the Appellate Division affirmed the final agency decision of the Spill Compensation Fund (Fund) holding that the lien filed against the property and revenues to recover remediation costs that the Fund expended in cleanup was appropriate under the New Jersey Spill Act (Spill Act).

The property owner, Branch 2002 LLC (Branch), had purchased a gas station from a previous owner who was ordered by the New Jersey Department of Environmental Protection (NJDEP) to conduct a remedial investigation and remove or treat contaminated soil from leaking underground storage tanks at the property. Ultimately, the previous owner did not conduct the required remediation, so the NJDEP oversaw remediation of the property using Fund resources. The property was later sold to Branch, with the prior owner’s insurance company indemnifying all subsequent owners for any liability arising out of the prior owner’s discharge.

The Fund Administrator filed the initial lien on the property for expenditures and commitments incurred by the Fund in 2002, and then later amended this lien in 2015 to reflect additional costs expended and requested that the Superior Court Clerk enter the addresses of both the previous owner and Branch in the record of docketed judgments. The NJDEP sought reimbursement for remediation costs expended by the Fund from Branch, as the owner and a person in any way responsible for the discharge, and placed liens on Branch’s revenues and other real or personal property. A Spill Act lien recorded by the NJDEP is a first priority lien against affected real property. This first priority status means that the Spill Act lien will be given priority over previously filed liens against the affected property.

Branch contested the lien with the NJDEP, but was unsuccessful. The Fund Administrator affirmed the recommendation of the Lien Contest Final Decision noting that the decision was “narrowly limited to the issue of whether or not the Spill Fund had a reasonable basis” to file the lien and did not preclude any defense Branch may have in subsequent cost recovery or enforcement proceedings.

On appeal, Branch made the following three arguments: 1) that Branch was not a “discharger” as the Spill Act’s plain language required; 2) Branch was deprived its due process right to contest the costs and reasonable basis for the lien; and 3) that the agency acted in bad faith pursing Branch while aware of the prior owner’s and its insurer’s agreement to indemnify Branch.

On Branch’s first argument that the Spill Act only authorizes liens against the property and revenues of a “discharger” as defined by the Spill Act, the Appellate Division held that since the lien notice expressly characterized Branch as a “person in any way responsible” for the discharge the NJDEP could file a lien against Branch, which is consistent with the Supreme Court’s holding in In re Kimber Petroleum Corp., 110 N.J. 69 (1988).

Next, the Appellate Division held that the Fund did not deny Branch its due process right to contest the costs and reasonable basis for the lien. In answering the question of what process is due, the Court applied the three factors in Mathews v. Eldridge, 424 U.S. 319, 335 (1976). While the court admitted that the mere presence of a lien affects Branch’s private interests, the facts in this case do not support a constitutional violation because Branch has not asserted that the lien has interfered with actual efforts to sell or mortgage the property, Branch has not alleged that it owns any other real property affected by the lien, or that the lien has affected its revenues. Next, the Court found that the NJDEP adhered to the statutory and regulatory procedures provided by giving Branch advance notice of the lien filing and providing Branch access to the detailed records of the Fund’s expenditures. The NJDEP’s neutral hearing officer held that substantial credible evidence in the record supported the filing of the lien based on the evidence of the hazardous substance discharge, the costs incurred, and Branch’s property ownership and Branch’s knowing purchase of contaminated property.

The Court held that there was little risk that the procedure would produce an erroneous result because the NJDEP offers a prompt post-filing review of the lien by a neutral agency officer in which the officer can review public records and the NJDEP’s file to verify the basis for filing the lien. Branch can later challenge the reasonableness of the costs expended by the NJDEP in a cost recovery action under the Spill Act, so it is not necessary that the NJDEP’s procedures resolve this issue before filing the lien.

Branch’s final argument that the NJDEP was barred from filing the lien because Branch’s alleged indemnification agreement with the previous owner and its insurer was rejected by the Court. The Appellate Division held that NJDEP may pursue remedies against responsible parties at its discretion, so the NJDEP did not have to seek recovery of the cleanup costs directly from the insurer.

This unpublished decision provides some clarity for the rights of a property owner who has a Fund lien filed against them as well as the process involved. But in the event a property owner fails to resolve the lien with NJDEP upon notice and prior to its filing, the burden is still on the current owner to later file a cost recovery action against prior owners and insurers to recoup the costs expended to extinguish the lien.