United States: Innocent Purchasers May Still Be Liable Under the Spill Act

Previously Published in "New Jersey Law Journal" - July 15, 2013

In N.J. Schools Dev. Auth. v. Marcantuone, 428 N.J. Super. 546 (2012), certif. denied, 2013 N.J. Lexis 509 (2013), the Appellate Division ruled that a 2001 amendment to the New Jersey Spill Act had essentially nullified a long line of cases which had found that persons who (prior to 1993) had purchased already-contaminated land were not liable for cleanup costs under the Spill Act. What makes this ruling interesting is that the amendment in question, which the Marcantuone court found had wrought this change, only purported to create a defense to Spill Act liability and was not itself a liability clause.

In fact, the Appellate Division conceded its ruling was somewhat novel and noted that: "Although it may seem counterintuitive to infer liability from legislation establishing an affirmative defense, logic dictates that this is the case." 428 N.J. Super. at 549.

The Marcantuone Decision

In Marcantuone, a landowner had purchased property long before the amendment to the 1993 Spill Act that created an "innocent purchaser" defense for those buying property after the amendment's effective date, so long as a person performed due diligence and investigated a site before buying it for pre-existing contamination at the property. Following the reasoning of a line of cases stretching back to the initial adoption of the Spill Act in 1977, the trial court found that the property owner was not liable for the cleanup of the contamination found at the site, which contamination had been caused by discharges of a dry-cleaning chemical, which discharges had occurred prior to the time the owner took title in 1985.

The trial court found that the owner had not discharged the chemical so was not liable as a "discharger" under the Spill Act, and was not "in any way responsible" for the discharged chemicals, as it had not owned or operated the site when the discharges occurred and had not owned or controlled the discharged chemicals.

The Appellate Division reversed the trial court decision in light of a 2001 amendment to the Spill Act which had created a defense to Spill Act liability for pre-1993 purchasers of already contaminated land if they could demonstrate that they had undertaken "all appropriate inquiry on the previous ownership and uses of the property based upon generally accepted good and customary standards" at the time the person purchased the land. The Appellate Division found that, although prior case law had stated that pre-1993 purchasers of already contaminated land had no liability under the Spill Act, the 2001 amendment had created liability for such pre-1993 purchasers unless the buyer demonstrated it had conducted "all appropriate inquiry" as discussed in the 2001 amendment.

The Statutory and Decisional Background

While the fact that the Appellate Division found that a statutory amendment creating a defense had also, simultaneously, created liability is interesting enough, a brief review of the case law and other amendments to the Spill Act, which had created liability and defenses, further highlights the somewhat curious approach taken by the court in the Marcantuone case.

Prior to the 1993 amendment, which created a defense to Spill Act liability for persons who (after Sept. 14, 1993) purchased already contaminated land if they conducted "due diligence" (preliminary assessment and site investigation, also known as Phase I and Phase II), the courts had consistently ruled that a party who bought land that was already contaminated was not liable under the Spill Act for the previously existing contamination. State v. Exxon Corp., 151 N.J. Super. 464 (Ch. Div. 1977) (no Spill Act liability for a party who knowingly purchased a former oil refinery that was contaminated); N.J.Dep't of Envtl. Prot. v. Ventron, 94 N.J. 473 (1983) (successor landowner to a property previously used as a mercury processing plant was not liable under the Spill Act for the pre-existing contamination); ACMUA v. Hunt, 210 N.J. Super. 76 (App. Div. 1986), and Twp. of S. Orange v. Hunt, 210 N.J. Super. 407 (App. Div. 1986) (continuing contamination from an old spill is not a "discharge" under the Spill Act); N.J. Dep't of Envtl. Prot. v. Arky's Auto, 224 N.J. Super. 200 (App. Div. 1988) (no Spill Act liability for an owner who took title to a known dump site after the discharges had already occurred).

Pursuant to the 1993 amendment, if one wanted to ensure that one could take refuge in an "innocent purchaser" harbor with respect to the purchase of property that might have pre-existing contamination, one needed to carry out "due diligence" first. However, the 1993 amendment clearly stated that the liability of persons who purchased land prior to Sept. 14, 1993, remained unchanged: "Nothing in this paragraph (2) shall be construed to alter liability of any person who acquired real property prior to September 14, 1993." N.J.S.A. 58:10-23.11g(d)(2).

Moreover, decisions issued subsequent to the 1993 amendment by the Supreme Court and Appellate Division continued to find that pre-1993 purchasers were not liable for pre-existing contamination, even if they knew that the past history of the site suggested that pre-existing contamination was quite possible. Marsh v. N.J. Dep't of Envtl. Prot., 152 N.J. 137 (1997) (property owner not found liable under the Spill Act due to her failure to carry out due diligence at a former gas station to which she took title to in 1991); White Oak Funding v. Winning, 341 N.J. Super. 294 (App. Div.), certif. denied, 170 N.J. 209 (2001) (purchaser of a former fuel oil depot in 1983 was not liable for pre-existing contamination even though the person had conducted no due diligence before buying the site).

Perhaps realizing that the creation of a defense against liability for post-1993 purchasers who did not conduct due diligence might not be enough to actually create Spill Act liability for such purchasers, the legislature amended the Spill Act in 1997 to add a new category of liable parties — those who bought land subsequent to Sept. 14, 1993, and knew or should have known (through carrying out due diligence), that the site was already contaminated. N.J.S.A. 58:10-23.11g(c)(3). Like the 1993 amendment, the 1997 amendment contained a clause confirming that "[n]othing in this paragraph shall be construed to alter liability of any person who acquired real property prior to September 14, 1993."

Thus, as of 1997, in two distinct parts of the Spill Act, the "liability" clauses (N.J.S.A. 58:10-23.11g(c)(1)-(3)) and the "defense" clauses (N.J.S.A. 58:10-23.11g(d)(1)-(4), the legislature affirmatively stated that the amendments had not altered the liability (or lack thereof) of persons who purchased land prior to Sept. 14, 1993.

As already noted, in 2001 the legislature created a defense to Spill Act liability for pre-1993 purchasers so long as they had conducted "all appropriate inquiry." Yet up to the present day, the legislature has not seen fit to amend the Spill Act to add a clause actually creating liability for pre-1993 purchasers as it did in 1997 for the post-1993 purchasers.

Furthermore, the legislature has not deleted the two sections of the statute which state that Spill Act liability for pre-1993 purchasers remains unaltered.

Liability Where None Existed Before

Thus, the state of the law at the present time is that a legislative amendment that purported to create an affirmative defense to Spill Act liability for a certain class of persons has been interpreted to have overruled 25 years of decisional case law, including Supreme Court decisions, which had held that pre-1993 purchasers were not liable for pre-existing contamination. Moreover, the Spill Act still contains language stating that the decisional case law governing Spill Act liability for pre-1993 purchasers has not been altered.

Also of interest is the fact that at the time the legislature created the "innocent purchaser" defense for pre-1993 purchasers, not a single reported decision had ever found a pre-1993 buyer liable for pre-existing contamination. Thus, arguably, the legislature created a defense to liability under the Spill Act for a class of persons who had never been deemed liable under the Spill Act to begin with.

If the legislature was, as the Appellate Division opined in Marcantuone, creating a new class of liable parties (pre-1993 purchasers who did not conduct "all appropriate inquiry"), it certainly did it in an odd way. Moreover, as demonstrated by its 1997 amendment to the Spill Act (and other amendments such as the 1979 amendment creating liability for those "in any way responsible" for a discharge), the legislature knows how to legislate liability when it wants to do so.

The new reality is that all the Spill Act cases regarding pre-1993 purchasers, stretching from Exxon to White Oak, are now the proverbial "derelicts on the sea of law" unless and until another court reviews the unique reasoning of the Marcantuone decision. Of course, the decision may also create a cottage industry of experts who will opine for both plaintiffs and defendants as to what constituted "all appropriate inquiry" at any particular time prior to 1993.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.