Turning Back the Clock: NJ Appellate Division Holds That ISRA De Minimis Quantity Exemption Still Available Following Withdrawal of NFA

The New Jersey Appellate Division recently announced several interesting holdings regarding the New Jersey Industrial Site Recovery Act (“ISRA”), N.J.S.A. 13:1K-6, et seq. In R&K Associates, LLC v. New Jersey Department of Environmental Protection, Docket No. A-4177-14T1, the Court held that a former owner of an industrial site may apply for an exemption from the ISRA process even when the former owner has not owned the site for many years and elected to not pursue the exemption in the past.

The case concerned the final decision of the Department of Environmental Protection (“DEP”) denying a De Minimis Quantity Exemption (“DQE”) under ISRA to the former owner of the subject industrial site. ISRA is the New Jersey law which generally requires owners of industrial sites to remediate on-site environmental contamination or expressly assume responsibility for remediation prior to transferring an ownership of the site. A DQE under ISRA allows an owner of an industrial site to avoid the requirements of ISRA where only trivial amounts of hazardous substances were used on-site.

The case has an extensive procedural history with three appeals and numerous DEP actions, beginning with DEP’s withdrawal of a 1997 No Further Action (“NFA”) letter to the former owner. When the former owner sold the site in 1997, it submitted a Preliminary Assessment Report (“PAR”) indicating that, because significant amounts of hazardous substances were not used on-site, no environmental investigation or remediation was needed. DEP then issued the NFA, which indicated that the former owner had complied with its obligations under ISRA. Later, in 2005, nearby groundwater contamination was attributed to the site, and DEP withdrew the NFA.

Following the withdrawal of the NFA, the former owner submitted a DQE application in order to show that, even though the NFA had been withdrawn, it had no further responsibilities under ISRA as a result of the small amount of hazardous substances used during its ownership of the property. DEP initially denied the application, and several administrative hearings and appeals followed in which the current owner of the property intervened to challenge the DQE application, which was then approved in 2012. Eventually, following additional appeals, DEP again denied the DQE on the basis that the former owner was not entitled to the exception because: (1) it lacked standing to obtain a DQE after selling the property and (2) it waived its ability to obtain a DQE when it did not pursue the exception in its initial ISRA filings in 1996 and 1997.

The Court reversed the Commissioner’s decision, holding that DEP’s interpretation of ISRA was “fundamentally unfair.” Specifically, DEP argued that the language of ISRA only allows “owners,” i.e. current owners, to apply for a DQE. The Court held that such a narrow reading detracted from the purpose of ISRA, which is to see contaminated industrial sites cleaned up, and, as a result, “owners” under ISRA could also encompass former owners. Further, the Court held that it would be inequitable to allow liability under ISRA on the part of former owners of industrial sites in the same manner as current owners, but deprive former owners of the opportunity to apply for the exemptions available to current owners. Similarly, the Court found that the statutory scheme of ISRA does not make a DQE mutually exclusive with other modes of satisfying ISRA. Accordingly, given that the former owner had no reason to believe in the mid-1990s that submitting a PAR would preclude it from later seeking a DQE if necessary, coupled with the fact that the record included nothing to suggest that the former owner had knowingly and voluntarily waived its right to seek a DQE, there had been no waiver as to the former owner’s right to file for a DQE.

Finally, the Court also faulted the ALJ and DEP for placing the burden on the intervenor-current owner to show that the former owner was not entitled to a DQE. The Court held that, as the party seeking a benefit from the government, the burden was on the former owner to prove it was entitled to a DQE.

While this matter provides some clarification for parties who may face the unfortunate situation of DEP withdrawing an NFA issued pursuant to ISRA, it also raises questions with regard to the definition of “owner” in other environmental statutes, and whether or not the term includes former owners. The latter interpretation could have broad implications for former property owners across New Jersey. Moreover, the case does not address how the situation would play out if it concerned a site that went through the ISRA process after the implementation of the Site Remediation Reform Act (“SRRA”) and the Licensed Site Remediation Professional (“LSRP”) program, which overhauled site remediation process in New Jersey in 2009. Pursuant to SRRA, DEP no longer issues NFAs, rather LSRPs licensed by the State issue Response Action Outcomes once they deem remedial activities complete at a particular site. Furthermore, the decision has not been approved for publication, so the ultimate impact of the decision is uncertain. Attorneys in the Gibbons P.C. Real Property & Environmental Department, who regularly counsel clients through the ISRA process, will continue to monitor and report on any developments in this area.

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