The dirt that Gloucester was paid to take could of come from GEMS landfill?
Is Gloucester Environmental the company paying Gloucester City to take dirt???
John Kearny represented the companies that ran the GEMS landfill.
NEW JERSEY DEPT. OF ENVTL. PROTECTION & ENERGY V.
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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
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Docket Number available at www.versuslaw.com
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Citation Number available at www.versuslaw.com |
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September 1, 1994
STATE OF NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION AND ENERGY, Plaintiff,
v.
GLOUCESTER ENVIRONMENTAL MANAGEMENT SERVICES, INC. et al., Defendants.
For New Jersey Department of Environmental Protection and Energy, Plaintiff: DEBORAH PORITZ, Attorney General of New Jersey, EDWARD DEVINE, Deputy Attorney General, Trenton, NJ. , For Township of Gloucester, Defendant: WILLIAM S. GREENBERG, ESQ., McCarter & English, Newark, NJ. For Amadei Sand & Gravel, Inc. and Anthony Amadei, as Officer, Shareholder and/or Director of Amadei Sand & Gravel, Inc. Only, Defendants: JOHN B. KEARNEY, ESQ., KENNEY & KEARNEY, Cherry Hill, NJ. For Gloucester Environmental Management Services, Inc., Richard Winn, David Ehrlich, and Anthony Amadei, as Officers, Shareholders and/or Directors of Gloucester Environmental Management Services, Inc. Only, Defendants: JEFFREY P. HEPPARD, ESQ., PARKER, MCCAY & CRISCUOLO, Marlton, NJ.
SIMANDLE
The opinion of the court was delivered by: JEROME B. SIMANDLE
OPINION
SIMANDLE, DISTRICT JUDGE:
Presently before the court are the motions of defendant Township of Gloucester and the defendant Operators *fn1" for partial summary judgment, seeking to dismiss the various lien claims made against them herein by the plaintiff, New Jersey Department of Environmental Protection of Energy ("NJDEPE") under the Sanitary Landfill Facility Closure and Contingency Fund Act, N.J.S.A. 13:1E-100, et seq. ("Closure Act"), which total approximately $ 6 million in claims paid to date. These claims were largely paid to property owners in the general vicinity of the Gloucester Environmental Management Services ("GEMS") Landfill who allegedly suffered diminution in property value due to the operation or closure of the Landfill, under a Closure Act provision that created an NJDEPE-administered fund which is held "strictly liable for all direct and indirect damages . . . proximately resulting from the operation or closure of any sanitary landfill." N.J.S.A. 13:1E-106. The principal issues decided in this motion are: whether the Closure Act authorizes payment for diminution in property value where no tangible physical damage has occurred to the property; whether the methodology adopted by NJDEPE for addressing such diminution of value claims is arbitrary and capricious; and whether various types of diminution in value claims paid by the Fund are barred by the Closure Act's statute of limitations. For the reasons set forth below, the motions are granted in part, and denied in part.
I. FACTUAL AND PROCEDURAL BACKGROUND2
This court has subject matter jurisdiction under 28 U.S.C. ? 1331. *fn3" The cause of action discussed in the present motion arises under the law of New Jersey and is within this court's supplemental jurisdiction, 28 U.S.C. ? 1367(a).
The present litigation arose out of the closure of the Gloucester Environmental Management Services, Inc. ("GEMS") landfill site located in Gloucester Township, New Jersey. The sixty-acre GEMS site was established in the late 1950's by the Township of Gloucester and operated at various times by Amadei Sand & Gravel, Inc., GEMS, and others until its state-ordered closure on November 4, 1980. While in operation it received toxic municipal and industrial liquid and solid waste from hundreds of different sources.
In 1980 the New Jersey Department of Environmental Protection and Energy (the "NJDEPE") filed suit to force the closure of the landfill and to recover clean-up costs. Eventually the United States Environmental Agency (the "EPA") became involved in the clean-up, identifying GEMS as a Superfund site in July 1982, and listing the GEMS landfill as twelfth on its national priority list of hazardous waste sites. See 40 C.F.R. Part 300, Appendix B (1992).
The instant motion focuses on whether plaintiff NJDEPE acted reasonably in implementing the New Jersey Sanitary Landfill Closure and Contingency Fund Act (the "Closure Act" or the "Act"), N.J.S.A. 13:1E-100, et seq.4 The Closure Act, enacted in 1981, created a fund (the "Fund") to be held "strictly liable for all direct and indirect damages . . . proximately resulting from the operation or closure of any sanitary landfill." N.J.S.A. 13:1E-106. This Fund receives its capital from fees assessed for solid waste disposal in New Jersey. The bulk of the GEMS-related claims herein were submitted and processed under the NJDEPE's 1983 regulations, N.J.A.C. 7:1I-1, et seq., (15 N.J.R. 2034(d) (Dec. 5, 1983)), which procedures were subsequently revised and markedly contracted in coverage in July, 1988, as discussed further below. Upon NJDEPE's payment of any claim from the Fund, NJDEPE would acquire by subrogation the rights of that claimant against the owner or operator of the sanitary landfill. N.J.S.A. 13:1E-111.
According to the Township (Township Br. at 2-3), and not disputed by plaintiff, the NJDEPE received 959 GEMS-related claims for payment from the Fund created by the Act, as of October 22, 1991. Almost all claims are from homeowners living at varying distances up to more than two miles from the landfill. Some bought the property at issue while the landfill was operated, others after it closed in 1980. Some sold their property, most never sold nor offered it for sale. Many claims had not been reviewed by NJDEPE as late 1991. Of the claims reviewed, 296 have been approved by plaintiff and paid by the Fund, with such payments totalling approximately $ 5.9 million. Of these 296 paid claims, the Township has examined the files in 268 and has found that 252 were claims based totally or in part upon diminution in property value. Of the remaining 16 claims examined by the Township, four (4) were based on physical illness and/or physical intrusion of contaminants from the GEMS landfill, and the remaining twelve (12) did not have a basis that could be discerned from the claim form. Id.
NJDEPE now seeks to recover against the defendant owners and operators for its subrogated claims. *fn5" Defendants in turn seek summary judgment, arguing, inter alia, that the NJDEPE exceeded its statutory authority under the Act and that the claims payment procedure implemented by the NJDEPE was constitutionally defective.
Specifically, the Township and Operators allege that NJDEPE exceeded its statutory authority by adding diminution in property value to the types of damages compensable to claimants under the Act. Even if such a claim for diminution in property value could be consistent with the Act, the movants argue that the NJDEPE's methodology for paying such claims was arbitrary and resulted in diminution-of-value claims being paid to claimants who had failed to demonstrate that they in fact suffered any such loss. The Township and Operators argue that the NJDEPE improperly paid claims that were time-barred by the one-year statute of limitations of N.J.S.A. 13:1E-107, urging this court to adopt the Act's effective date - January 1, 1982 - as the latest triggering date by which a claimant knew or should have known of the damage to their property value caused by the operation and closure of the GEMS landfill, which ceased operations in November, 1980.
The defendants have also argued that the Act was not intended to apply to landfills like GEMS, which allegedly did not fit the definition of a "sanitary landfill" under pre-1988 regulations, as discussed below.
These defendants further argue that payment of these claims created liens which violated their constitutional rights of due process and equal protection.
Each of these arguments is now addressed.
II. LEGAL DISCUSSION
A. The Summary Judgment Standard
A court may grant summary judgment only when the materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). As the motions by agreement of the parties and court order raise only issues of law rather than fact, see Case Management Order No. 12, filed October 7, 1991, no genuine issues of disputed fact exist.
B. Was The Compensation of Diminution in Property Value Ultra Vires?
The Closure Act lists certain types of damages compensable by the Fund, including, but not limited to:
(1) The cost of restoring, repairing or replacing any real or personal property damaged or destroyed;
(2) The cost of restoration and replacement, where possible, of any natural resource damaged or destroyed, including any potable water supply;
(3) The cost of any personal injuries, including medical expenses incurred and income lost as a result thereof;
(4) The costs of the design, construction, installation, operation and maintenance of any device or action deemed necessary by the department to clean up, remedy, mitigate, monitor or analyze any threat to the public health, safety or welfare of the citizens of this State, including the installation and maintenance of methane gas monitors and vents and leachate monitoring wells and collections systems, and the sampling and analysis of any public or private potable water supply.
N.J.S.A. 13:1E-106. Indeed, the same statutory section deems the Fund to be "strictly liable for all direct and indirect damages. . . proximately resulting from the operation or closure of any sanitary landfill." Id. (emphasis added). These statutory provisions are unamended since 1981.
NJDEPE issued implementing regulations in 1983 which broadened this list by making the Fund strictly liable not only for "the cost of restoring, repairing or replacing any real or personal property damaged or destroyed," but also for "the diminution in fair market value of any real property." N.J.A.C. 7:1I-1.5 (emphasis added). *fn6"
Defendants contend that the NJDEPE's compensation of diminution in property value was unauthorized by the Closure Act. Regulations that exceed the Legislature's grant of authority are deemed ultra vires. An ultra vires finding is strongly disfavored, and is made only in exceptional circumstances, as administrative regulations are accorded a strong presumption of validity and reasonableness. City of Newark v. Natural Resource Council, 82 N.J. 530, 539, 414 A.2d 1304, cert. denied, 449 U.S. 983, 66 L. Ed. 2d 245, 101 S. Ct. 400 (1980); New Jersey Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 561, 384 A.2d 795 (1978); In re New Jersey Bd. of Public Utilities, 200 N.J. Super. 544, 557, 491 A.2d 1295 (App. Div. 1985). The party attacking the regulation bears the burden of proving that the administrative regulation is arbitrary, capricious or otherwise unreasonable. Long, 75 N.J. at 561.
In determining whether an administrative regulation is authorized by the statute, "the reviewing court may look beyond the specific terms of the enabling statute to the statutory policy to be achieved by examining the entire statute in light of its surroundings and objectives." Long, 75 N.J. at 561-62. Significantly, "the absence of an express statutory authorization in the enabling legislation will not preclude administrative agency action where, by reasonable implication, that action can be said to promote or advance the policies and findings that served as the driving force for the enactment of the legislation." In re New Jersey Bd. of Public Utilities, 200 N.J. Super. at 557.
In interpreting a regulatory statute, a court must accord great deference to the agency's construction of that statute. Long, 75 N.J. at 575. In fact, the agency's construction is "'a substantial factor to be considered in construing the statute,'" particularly where the agency is responsible for implementing a newly-enacted statute. Id. (quoting Youakim v. Miller, 425 U.S. 231, 235, 47 L. Ed. 2d 701,96 S. Ct. 1399 (1976)).
A court may not substitute its judgment regarding the wisdom of an administrative action for the judgment of the agency as long as the action is statutorily authorized and reasonable. K.P. v. Albanese, 204 N.J. Super. 166, 176, 497 A.2d 1276 (App. Div. 1985). "If there is any fair argument in support of the agency's action or any reasonable ground for difference of opinion among intelligent and conscientious officials, 'the decision is conclusively legislative, and will not be disturbed unless patently corrupt, arbitrary, or illegal.'" IFA Ins. Co. v. New Jersey Dept. of Ins., 195 N.J. Super. 200, 208, 478 A.2d 1203 (App. Div.), cert. denied, 99 N.J. 218, 491 A.2d 712 (1984) (quoting Flanagan v. Civil Serv. Dept., 29 N.J. 1, 12, 148 A.2d 14 (1959).
NJDEPE's determination that the diminution in fair market value of real property may be compensable under the Act accords with the plain language of the statute and its purposes, and thus is not ultra vires. Examining the plain language of the statute, it is important to note that the Closure Act did not limit compensation to the four types of damages listed. Instead, the legislature purposefully made the list non-exclusive, in keeping with the broad remedial purpose behind the statute. The Fund's purpose is to compensate persons for "all direct and indirect damages . . . proximately resulting from the operation of a closure of any sanitary landfill," N.J.S.A. ? 13:1E-106, supra. It was within these broad confines that the NJDEPE expanded the list of examples to include diminution in property value.
The impetus for the Act's passage was the Legislature finding in pertinent part "that compensation for the damage resulting from improper operation or closure is, at best, inadequate; and that it is necessary to provide a mechanism for the prompt and adequate compensation for these damages." N.J.S.A. 13:1E-101. As discussed more fully infra, the Act created an extra-judicial procedure for adjudicating common law nuisance claims. Under the common law, diminution in value may be recovered in a nuisance action. See, Barberi v. Bochinsky, 43 N.J. Super. 186, 190, 128 A.2d 1 (App. Div. 1956).
The Legislature has chosen to leave NJDEPE's well-known and long-standing interpretation undisturbed. As the New Jersey Supreme Court has recognized, "an agency's construction of a statute over a period of years without legislative interference will generally be granted great weight as evidence of its conformity with the legislative intent." Last Chance Development Partnership v. Kean, 119 N.J. 425, 434, 575 A.2d 427 (1990). Had the Legislature disagreed with compensating diminution in value claims, the Legislature could easily have corrected NJDEPE's misinterpretation. Under New Jersey's rule of statutory interpretation, the fact that it did not further supports NJDEPE's interpretation.
Defendants contend, nonetheless, that such an expansion is void under the doctrine of ejusdem generis. This doctrine of statutory construction provides that when specific items are listed in a statute as part of a general category, only items similar to those enumerated are included in that general category. See 2A Sutherland Statutory Construction ? 47.17 (4th ed. 1984). A court may not resort to this rule until first determining the intent of the legislature in drafting the statute. State v. Port Authority of New York and New Jersey, 151 N.J. Super. 127, 133-34, 376 A.2d 591 (Law Div. 1977), aff'd, 159 N.J. Super. 102, 387 A.2d 367 (1978).
Defendants argue that because diminution in property value is "intangible," while the other listed damages are "tangible," the former does not belong in the latter category of physical, tangible damages. The court disagrees with defendants' analysis. Actual diminution in property value is not so qualititatively different from physical damages to property as to be outside the realm of legislative purpose and intent. For a claimant whose principal asset is a home and the land on which it is situated, diminution in the value of that asset is no less real or harmful than physical damage. The NJDEPE's inclusion of diminution in value claims recognizes an important type of damage to the community that is caused, in the words of the Closure Act, "directly or indirectly" by a large landfill like GEMS.
Had the NJDEPE disregarded the Legislature's delegation of discretion to craft an appropriate list of compensable damages, many claimants would have been left without a remedy. Such a result would contravene the broad legislative purpose behind the Act, a quintessentially remedial statute. Accordingly, the court finds that the inclusion of diminution in value claims by the NJDEPE was not ultra vires and thus denies summary judgment as to this issue.
C. Was The Appraisal Procedure Arbitrary and Capricious?
1. Valuation of Diminution of Value Claims under NJDEPE Procedures before July 18, 1988
Neither the Act nor the 1983 regulations promulgated by the NJDEPE imposed a procedure for evaluating diminution in property value claims. Instead, the 1983 regulations merely stated that "the department will consider only those damages for which the claimant can produce substantial evidence." N.J.A.C. 7:1I-1.7(a). In practice, the NJDEPE devised a formula to be applied to each claimant's home. Essentially, the NJDEPE would add an "appreciation factor" *fn7" and the value of any improvements to the purchase price of each home to arrive at a "net value." The NJDEPE would then deduct 25%, *fn8" to reflect "an estimated decrease in the realty's fair market value," irrespective of the actual dates of purchase or sale, nor whether any sale was actually ever attempted. This 25% figure, plus estimated costs of moving and resettlement, would then be awarded without any requirement for substantial evidence of an actual diminution in the subject property's value.
NJDEPE applied this -25% factor across the board, no matter the individual circumstances of the claimant or the location of the property. Thus, the value of a home one mile from the landfill would receive the same -25% diminution in value factor as one contiguous to it. A home purchased in one year, as to which the homeowner claimed diminution in value in the next year, would recover a 25% diminution factor from the Fund. Further, the homeowner may have purchased the property at a depressed market price reflecting known proximity to the landfill; the formula nonetheless assumes that the marketplace was unaware of the landfill's existence at the time of every purchase, resulting in compensation for a loss that may not have, and in all likelihood would not have, in fact occurred.
Significantly, the homeowner was not required to sell or even attempt to sell the home in order to receive compensation. *fn9" NJDEPE simply assumed that a diminution in value of claimant's property had occurred, that it was caused by the landfill rather than other market forces, and that it amounted to 25% of the home's "net value."
This liberal approach to resolving diminution in value claims created unintended consequences, leading the NJDEPE to overhaul its regulations in 1988. As NJDEPE explained:
Based on past experience, the Department determined in connection with the GEMS landfill, its largest claims area to date, that claims were being filed for homes farther and farther away from the landfill and were in a pattern unrelated to the effects of the landfill itself. This trend[] in the area of property value diminution indicated the creation of the very condition which the law was established to remedy.
20 N.J. Reg. 1732, 1735 (July 18, 1988) (emphasis added); see also Citizens for Equity v. New Jersey Dept. of Environmental Protection, 126 N.J. 391, 395, 599 A.2d 507 (1991) (David C. Mack, Acting Administrator of NJDEPE's Environmental Claims Administration explaining that "once a claim was satisfied without requiring the property to be sold, that settlement seemed to promote the perception of similar damages to surrounding properties.") NJDEPE further reported that "past claims handling experience has shown that any correlation between property diminution and the presence of the landfill may be highly questionable."
Believing that "the Department [could not] continue to settle claims in a manner it finds to be contrary to its statutory duty, 20 N.J. Reg. 1734 (emphasis added), the NJDEPE amended its regulations to include a "sale requirement," whereby a claimant could only collect on the Fund once he sold his house or tried in good faith to sell it. In that way, the value of the house would be fixed by the sale price, rather than by the NJDEPE formula. As NJDEPE explained, "the Department believes that one factor in the development of any past diminution was due to its past settlement practices. To reverse the trend that has developed, the new rules require that properties be marketed at full value absent the landfill, an offering price value which the Department believes would more approximate the property's true value." Id. at 1736.
Defendants claim that NJDEPE's pre-1988 procedure violated their substantive due process rights, and thus that claims compensated under that procedure must be dismissed. Substantive due process requires that a law not be unreasonable, arbitrary or capricious, and that the means selected bear a rational relation to the legitimate aim sought to be achieved. Sea Girt Restaurant v. Borough of Sea Girt, 625 F. Supp. 1482, 1491 (D.N.J.), aff'd, 802 F.2d 448 (3d Cir. 1986) (challenging statute allowing regulation of hours of sale of alcohol by local referendum); see also Worthington v. Fauver, 88 N.J. 183, 204, 440 A.2d 1128 (1982) (holding that Commissioner of Corrections' decision to house state prisoners in county jails to alleviate overcrowding not arbitrary or capricious).
In its defense, NJDEPE argues that its appraisal procedure was rationally related to the legislative purpose behind the Act. According to the NJDEPE, "in electing to provide compensation on a standardized basis (i.e., applying a 25% diminution figure to all claimants), NJDEPE was able to process more quickly the mounting number of claims, and to avoid the expense and time of having teams of appraisers assess ultimate home values on a case by case basis." Pl. Br. at 21.
Neither expense nor expediency may justify abandoning standards of substantive due process. As the Citizens for Equity court noted, "the statutory requirement for 'prompt' compensation [does not] require the agency to forego necessary but time consuming steps to satisfy itself of the validity of claims." Citizens Equity, 252 N.J. Super. 62 at 72, 599 A.2d 516. Nor does a sense of urgency exist where, as here, the majority of claimants never moved from their homes.
Simply assuming that a diminution in value occurred in some fixed amount of unknown origin, without any meaningful investigation into a claimant's individual circumstances, and without regard to any actual market data arising from a sale or attempted sale of the home, is an arbitrary and wasteful methodology. While the agency enjoyed a broad legislative mandate, this does not excuse it from acting outside the confines of rationality. Ultimately, as the NJDEPE knew, defendants would be held responsible for any claims reasonably paid by the Fund. The procedure implemented by NJDEPE was, both facially and practically, unreasonable. In fact, the NJDEPE itself admitted as much, *fn10" as discussed above.
Under NJDEPE's compensatory scheme, claimants who had suffered no actual damage recovered substantial amounts of money from the Fund. The Fund paid claims for diminution in value where the properly was never sold or offered for sale. The NJDEPE adopted an automatic market deflation factor of 25% without rational explanation. Such a windfall-creating procedure was arbitrary and capricious, and thus fatally flawed. Furthermore, this court finds that this administrative claim procedure also violated the agency's own regulations which required, as noted above, that the department "will consider only those damages for which the claimant can produce substantial evidence." N.J.A.C. 7:1I-1.7(a). Accordingly, the court grants summary judgment dismissing NJDEPE's cause of action for all diminution in value claims paid under the pre-1988 procedure.
2. Valuation of Diminution of Value Claims Under NJDEPE Regulations On and After July 18, 1988.
The Operators also have challenged the amended mechanism for paying diminution of value claims promulgated in July of 1988, 20 N.J.R. 1732-1743 (July 18, 1988), codified at N.J.A.C. 7:1I-1.1, et seq. Under the 1988 amendments, the NJDEPE has tightened the eligibility criteria for diminution of value claims to require the sale of the property *fn11" or an inability to sell after one year of continuous good faith attempts to do so, measured from the date of listing with a multiple listing service licensed real estate broker.*fn12" Detailed regulations were enacted in 1988 to reasonably assure a true fair market value determination under the criteria of N.J.A.C. 7:1I-3.3, including notification procedures for persons who filed property value diminution claims before March 7, 1988, instructing claimants about the new procedures and giving each claimant an option of requesting that the claim be suspended for up to two years, or withdrawn, pursuant to N.J.A.C. 7:1I-3.3(c). *fn13"
The 1988 mechanism was upheld as a reasonable limitation upon recovery for diminution of value claims, in a suit by pre-1988 claimants who alleged that the new restrictions upon proofs were unfair and allegedly inconsistent with the statutory requirement for "prompt and adequate compensation," pursuant to N.J.S.A. 13:1E-101, supra. Citizens for Equity v. New Jersey Dept. of Environmental Protection, 252 N.J. Super. 62, 70-71, 599 A.2d 516 (App. Div. 1990), aff'd, 126 N.J. 391, 599 A.2d 507 (1991). The provision of the 1988 amendments in N.J.A.C. 7:1I-3.3(a) that restricted certain diminution of value claims, not involving physical intrusion, to locations within one-half mile of the landfill was struck down by the Appellate Division. Id., 252 N.J. Super. at 71-74, aff'd, 126 N.J. 391, 599 A.2d 507, as discussed below in Part II.D.
The Operator defendants have not shown in this motion how the post-1988 market-based compensation system is arbitrary or capricious. The NJDEPE's 1988 amendments established "objective, neutral standards by which the fact and extent of value diminution damage [is] to be determined," as the Citizens for Equity court found, 252 N.J. Super. at 71, and as this court now finds. The movants have not met their burden of proving that the administrative regulation amendments in July 1988 resulted in a compensation scheme that was arbitrary, capricious or otherwise unreasonable. Long, 75 N.J. at 561. The new scheme indeed takes the relevant economic factors of the particular property into account in measuring diminution of value, and it properly restricts compensation to properties that were actually sold or held out for sale in good faith through a multiple listing broker for one year. The reconstructed market value for such unsold homes is computed not by a generalized diminution factor but instead from actual market loss data, namely, "the average diminution percentage determined for the area," N.J.A.C. 7:1I-4.2(b), supra. Although this court expresses no opinion regarding the manner in which the post-1988 regulations have actually been applied in any individual claim (because no examples of post-1988 claim processing have been included in the record), *fn14" it is clear that the regulatory mechanism itself suffers from no impairment in its approach to diminution of fair market value determinations. Therefore, the motion for summary judgment will be denied with respect to the facial validity of the July, 1988 regulations *fn15" for compensating diminution of value claims.
D Geographical Limitations On Diminution In Value Claims
Defendants also seek to limit diminution in value claims to land contiguous to the landfill. A similar limitation has already been considered and rejected by the New Jersey state courts. See Citizens for Equity v. New Jersey Dept. of Environmental Protection,252 N.J. Super. 62, 599 A.2d 516 (App. Div. 1990), aff'd, 126 N.J. 391, 599 A.2d 507 (1991).
In amending its appraisal procedure in 1988, NJDEPE had also sought to limit awards for diminution in value to property located within a half-mile radius of a landfill. Claimants outside that limit would be required to show both physical intrusion and diminution in value to receive compensation. While the revised claims procedure successfully withstood a legal challenge by disgruntled claimants, the geographic limitation was struck down as ultra vires.
As the Appellate Division stated:
[NJDEPE] does not have authority to limit the scope of the statutory liability by fashioning territorial requirements for recovery. Nor can the territorial restriction be justified as an administrative determination that, in the absence of any physical intrusion, a landfill could not proximately cause diminution of value beyond one-half mile. . . . Since the Fund liability at issue here is for diminution of value without physical intrusion, the absence of physical intrusion cannot alone establish the absence of value diminution.
252 N.J. Super. at 74.
This reasoning applies with equal force to defendants' argument in the case at hand. Accordingly, summary judgment is denied as to this issue.
E. Were Claims Paid By The NJDEPE Time-barred?
The Closure Act provides that "claims against the fund shall be filed within one year of the date of discovery of damage, and in the manner as shall be prescribed by the department." N.J.S.A. 13:1E-107. Arguing that passage of the Closure Act was prompted solely by the GEMS landfill, defendant Gloucester Township contends that the Legislature intended the "date of discovery" to be the date upon which the Closure Act became effective, January 1, 1982. Accordingly, it argues, any claims brought after January 1, 1983 are time-barred.
Gloucester Township theorizes that by adopting the "date of discovery," the Legislature merely intended to allow claimants to pursue otherwise time-barred claims, that is, claims arising before 1981, and not to allow payment for claims "discovered" years after the Act's passage. This theory rests on the fact that Senator Dalton, one of the five Assembly cosponsors of the Act, represented the legislative district in which the GEMS landfill was located.
Ironically, the Operators counter the Township of Gloucester's argument most effectively. First, they note correctly that Gloucester Township's contention relies not on "legislative history or any other source" but rather on "coincidence;" although Senator Dalton introduced the bill, his district includes the Kinsley, Mac and Fazzio landfills in addition to GEMS. Thus, it is just as likely that concern over these other landfills also motivated the Senator.
Second, GEMS had already closed when the Act passed, yet its thrust is prospective in nature. See N.J.S.A. 13:1E-101 ("The Legislature finds and declares . . . that closure activities can require capital expenditures at a time when revenues collected by sanitary landfill facilities are minimal or nonexistent; . . . . that the improper operation or closure of sanitary landfill facilities can result in the contamination of surface and groundwaters . . .; that the migration of methane gas from sanitary landfill facilities poses a significant threat to life and property.") (emphasis added).
The notoriety surrounding GEMS may have been an important motivating factor behind the Act's passage. Even if the GEMS situation were the forefront of the Legislature's mind in 1981, the Legislature has made no presumption that GEMS has caused its harm to all properties alike and no future harm could occur. Instead, the Legislature adopted the date of discovery trigger to encompass all landfill hazards, past, present and future.
In addition, Gloucester Township overlooks the fact that the Legislature could easily have chosen a date certain or included a "sunset provision", but rather chose to adopt the more liberal "date of discovery of damage" to trigger the limitations period. Accordingly, the court declines to read a date into the statute which lacks support in either fact or law.
Taking a somewhat different tack, defendants alternatively urge this court to find that persons buying property after November 4, 1980, the date the GEMS landfill closed, knew or should of known of the site's contamination problem. Because such persons, defendants argue, voluntarily assumed the risk involved in owning property near the landfill, their claims must be non-compensable.
Defendants' argument mixes concepts of timeliness and knowledge. As this court has already found, the sole time limitation on claimants is one year from the date of discovery of damage. The date of discovery of damage depends upon the facts surrounding each particular claim. The Closure Act does not start the statute of limitations upon the "date of discovery of the Landfill," as the movants apparently argue. The date on which a claimant should have become aware of damage is the date on which the statute of limitations commences. It is quite plausible, for instance, that the statute of limitations for certain diminution in value claims has not yet been triggered. For example, it appears that if a home near the GEMS landfill was purchased in 1970 without knowledge in the marketplace *fn16" of the deleterious impact of the landfill, and the home is resold for the first time in 1994 at a loss in value proximately caused by the landfill's operation or closure, the first occurrence of recognized "damage" for diminution of value occurs on the sale date in 1994, starting the one-year statute of limitations for previously unrealized loss of value. *fn17"
Finally, Gloucester Township argues that plaintiff has paid claims which were barred even under the NJDEPE's application of the discovery rule. Such an argument is inappropriate in this context. Determining the date of discovery is necessarily a fact-specific exercise. All parties have agreed, and the court has ordered, that the instant motion for summary judgment would exclude any fact-specific inquiries. See Case Management Order No. 12. Accordingly, this portion of defendant's argument is also premature and will be denied without prejudice.
F. Defendants' Constitutional Claims
1. Did The Claims Procedure Violate Defendants' Due Process Rights?
Under NJDEPE regulations, claimants may contest a claims decision by the NJDEPE by requesting a hearing before an administrative law judge. N.J.A.C. 7:1I-5.4. Defendants argue that because they are denied the same opportunity, their rights to due process and equal protection have been violated. *fn18"
Procedural "due process is the opportunity to be heard at a meaningful time and in a meaningful manner, but the concept is flexible, calling for procedural protection as dictated by the particular circumstance." Kahn v. United States, 753 F.2d 1208, 1218 (3d Cir. 1985). "Where only property rights are involved, mere postponement of the judicial enquiry is not a denial of due process, if the opportunity given for the ultimate judicial determination of the liability is adequate." Id. at 1219 (quoting Phillips v. Commissioner,283 U.S. 589, 596-97, 75 L. Ed. 1289, 51 S. Ct. 608 (1931)).
Courts must undertake a three part analysis to determine whether due process requires a pre-deprivation hearing in any given case. *fn19" Id. However, the court need not embark on that inquiry, because pre-deprivation hearings will be made available to the owners and operators.
To understand this issue, we must first understand the process by which claims are paid. The Fund is financed by taxes levied on every solid waste transaction conducted in the state. N.J.S.A. 13:1E-104. Once a claimant is paid by the Fund, the NJDEPE acquires by subrogation all claims and rights held by that claimant against the owners and operators of the landfill. N.J.S.A. 13:1E-111.
Until NJDEPE prevails in the pursuit of its subrogated claims, defendants have suffered no deprivation of property. *fn20" In order to prevail, NJDEPE must stand in the shoes of the claimant, and prove in a court of law that substantial evidence supports the department's determination that the claimant suffered actual damages recoverable under the Closure Act. At that time, defendants are free to rebut the evidence presented by the NJDEPE, and to proffer their own evidence. Accordingly, defendants will receive full due process protection in a judicial forum before any deprivation of property occurs.
2. Defendants' Equal Protection Claims
Defendants claim that the NJDEPE regulation and the Act violate their rights to equal protection first, by affording claimants but not owners and operators the right to an administrative hearing and second, by "singling owners and operators out for liability" without imposing similar liability upon generators and transporters of hazardous wastes.
To withstand constitutional scrutiny under the equal protection clause, a state must demonstrate that a classification is rationally related to achieving a legitimate governmental objective. *fn21" New Jersey State League of Municipalities v. New Jersey, 257 N.J. Super. 509, 518, 608 A.2d 965 (App. Div. 1992), cert. dism'd, 133 N.J. 423 (1993). "In general, the Equal Protection Clause is satisfied so long as there is a plausible policy reason for the classification." Id. (quoting Nordlinger v. Hahn, U.S. , 112 S. Ct. 2326, 2332, 120 L. Ed. 2d 1 (1992)). The challenger, who bears the burden of proving the classification "palpably arbitrary or capricious," "must refute all possible rational bases for the differing treatment, whether or not the Legislature cited those bases" as reasons for the differential treatment. Id. (citing Chamber of Commerce v. New Jersey, 89 N.J. 131, 445 A.2d 353 (1982)). Moreover, the classification must be upheld if the court "can conceive of any reason to justify" it. Id. (quoting Newark Superior Officers Ass'n v. City of Newark, 98 N.J. 212, 227, 486 A.2d 305 (1985)).
The Legislature's purpose in passing the Closure Act was to provide "prompt and adequate" compensation to landfill victims. N.J.S.A. 13:1E-101. Both classifications at issue are rationally related to achieving that governmental objective.
The Legislature found that it would take years for claimants to receive compensation from defendants through the traditional judicial process. To avoid the delay in identifying and joining potentially responsible parties and conducting pretrial discovery and motion practice in complex environmental litigation, the Legislature created a streamlined, extra-judicial compensation process.
Furthermore, to circumvent the well-known difficulties in identifying responsible parties in this type of litigation, the Legislature imposed liability on owners and operators alone. See, e.g., Lamb v. Global Landfill Reclaiming, 111 N.J. 134, 150-51, 543 A.2d 443(1988); Ayers v. Jackson Twp., 106 N.J. 557, 581-82, 525 A.2d 287 (1987). Damages caused by the ineffectual operation or closure of a landfill often manifest themselves decades after transporters and generators have dumped their wastes. Ayers, 106 N.J. at 583. Ineffective record keeping, changes in company ownership, and other developments make identification of responsible generators and transporters a herculean task.
By comparison, identifying owners and operators of landfills is relatively straight-forward. Owners and operators are fewer in number, and traceable through public records. Once identified, the NJDEPE can sue to reimburse the Fund, and in turn, the owners and operators can likely sue the transporters and generators for contribution although this contribution issue is neither pressed nor decided at this time. See Owners & Operators Br., at 15 n.2. Indeed, the owners and operators have asserted such claims for contribution against alleged generator, transporter and municipal entities.
Such a scheme ensures prompt and low-cost reimbursement of the claimants, and ultimately of the Fund, while allowing owners and operators to seek to distribute the financial burden among the other responsible parties through a contribution action, if allowed by law. Allowing defendants to contest each claim at the initial hearing stage, and forcing the state to identify all responsible parties before compensating claimants, would completely undermine this streamlined compensation scheme. Accordingly, the court denies summary judgment with respect to defendants' equal protection claims.
G. Was The Act Intended To Apply To Landfills Like GEMS?
The defendant Operators argue that GEMS should not be considered a "sanitary landfill." In 1970, the Legislature passed the Solid Waste Management Act, N.J.S.A. 13:1E-1, et seq ("SMWA"), but failed to define the term "sanitary landfill." Not until 1983 did the NJDEPE define the term, explaining that
"sanitary landfill" means a solid waste facility at which solid waste is deposited on or in the land as fill for the purpose of permanent disposal or storage for a period exceeding six months, except that it shall not include any waste facility approved for disposal of hazardous waste pursuant to this chapter.
N.J.A.C. 7:26-1.4 (emphasis added). This definition was subsequently codified by the Legislature and incorporated into the SMWA. See N.J.S.A. 13:1E-3(q); N.J.S.A. 13:1E-5.3; N.J.S.A. 13:1E-137(w).
In 1981, the Legislature passed the Closure Act as a supplement to the SMWA. In 1988, the NJDEPE promulgated a regulation which adopted the following definition of "sanitary landfill:"
a facility which is, or at one time was, governmentally approved, at which solid waste (including hazardous waste) is or has been permanently deposited, disposed or otherwise discarded on or into the land as fill.
N.J.A.C. 7:1I-1.5 (emphasis added).
Defendants contend that the 1988 NJDEPE regulatory definition contravenes "the legislature's clearly expressed desire to exclude landfills like GEMS from its definition of 'sanitary landfill.'" Owners & Operators' Br., at 20. Citing evidence which purportedly demonstrates that GEMS was authorized to handle hazardous wastes, defendants argue that GEMS was not a "sanitary landfill" under pre-1988 NJDEPE regulations, and thus that the operators and owners are not liable for claims paid during that period.
According to defendants, on June 5, 1970 the NJDEPE sent a letter to Gloucester Township officials advising that defendant Anthony Amadei, Jr. had requested permission to accept "chemical wastes from Rohm & Haas" for disposal at the GEMS landfill. See Owners & Operators Br., Exhibit A. The NJDEPE stated that it "would not object at this time to the acceptance of these types of [chemical] wastes," but if a "threat of pollution exists, it may become necessary to curtail immediately the acceptance of these types of waste." Id. Twenty-one days later, NJDEPE revoked this letter on June 26, 1970 after the Rohm & Haas waste caught fire. See id., Exhibit B. According to defendants, the GEMS landfill was reauthorized to accept chemical wastes on August 11, 1970, see id., Exhibit C, until permission was again revoked 38 days later on September 18, 1970. See id., Exhibit D.
Even accepting the dubious proposition that these letters authorized GEMS to handle hazardous wastes, *fn22" defendants' argument must be rejected. Under defendants' theory, the Legislature knew that ten years prior, GEMS was "governmentally approved" to accept chemical waste during a seven week period, and on that basis it specifically intended to immunize GEMS from Closure Act liability.
The Legislature passed the Closure Act partly in response to what it perceived as a crisis at GEMS. See II.C., supra. To argue that by codifying the SMWA definition of sanitary landfill the Legislature intended to immunize GEMS owners and operators from liability under the Closure Act flies in the face of the broad legislative purpose behind the Act. Accordingly, the court must deny defendants' motion for summary judgment with respect to this issue.
III. CONCLUSION
The court will grant summary judgment to defendants with respect to pre-1988 diminution in property value claims, but deny summary judgment with respect to all other issues.
The accompanying Order is entered.
JEROME B. SIMANDLE
UNITED STATES DISTRICT JUDGE
DATED: September 1, 1994
ORDER GRANTING IN PART, AND DENYING IN PART, MOTION FOR SUMMARY JUDGMENT BY TOWNSHIP OF GLOUCESTER AND OPERATOR DEFENDANTS CONCERNING CLOSURE ACT CLAIMS - September 1, 1994, Filed
This matter having come before the court on the joint motion for partial summary judgment by defendants Township of Gloucester, Amadei Sand & Gravel, Inc., Anthony Amadei, as officer, shareholder and/or director of Amadei Sand & Gravel, Inc., Gloucester Environmental Management Services, Inc. ("GEMS"), Richard Winn, David Ehrlich, and Anthony Amadei, as officers, shareholders and/or directors of GEMS only;
This court having carefully reviewed the submissions of both parties and the oral arguments previously held, together with the supplemental submissions of these parties;
For the reasons set forth in the court's Opinion of this date;
IT IS on this 1st day of September, 1994 hereby
ORDERED that defendants' joint motion for partial summary judgment is GRANTED IN PART, in that it is ADJUDGED that plaintiff's claims based solely on diminution in property value (without physical damage) under the New Jersey Sanitary Landfill Closure and Contingency Fund Act, N.J.S.A. 13:1E-100, et seq., with respect to such claims as were paid to property owners under the procedures in effect prior to implementation of the regulations at N.J.A.C. 7:1I-1.1, et seq. (effective July 18, 1988), be and they hereby are DISMISSED;
IT IS FURTHER ORDERED that the remainder of defendants' joint motion for summary judgment is DENIED.
JEROME B. SIMANDLE
UNITED STATES DISTRICT JUDGE
Opinion Footnotes
*fn1 The Operator Defendants consist of the defendants which allegedly operated the GEMS Landfill at times relevant to the litigation. These parties are Amadei Sand & Gravel, Inc., Anthony Amadei, as officer, shareholder and/or director of Amadei Sand & Gravel, Inc., Gloucester Environmental Management Services, Inc. ("GEMS"), Richard Winn, David Ehrlich, and Anthony Amadei, as officers, shareholders and/or directors of GEMS only ("Operators").
*fn2 The procedural and factual background of this case is set forth in greater detail in New Jersey Dept. of Environmental Protection v. Gloucester Environmental Management Services, Inc., 719 F. Supp. 325, 328-30 (D.N.J. 1989).
*fn3 Id. at 329-330, 333-335.
*fn4 Defendant Gloucester Township moved for partial summary judgment. Joining in this motion, the Operator Defendants rely on the arguments advanced by the Township, as well as those advanced in their own briefs.
*fn5 Other claims asserted by NJDEPE against these defendants, such as under ? 107(a) of the Comprehensive Environmental Response and Comprehensive Liability Act ("CERCLA"), 42 U.S.C. ? 9607(a), and under New Jersey statutes such as the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23, are not at issue in the present motion for partial summary judgment.
*fn6 As of 1988, approximately $ 4.8 million of the $ 5.1 million in claims paid by the Fund were to claimants alleging diminution in property value. Citizens for Equity v. New Jersey Dept. of Environmental Protection, 126 N.J. 391, 395, 599 A.2d 507 (1991).
*fn7 This appreciation factor was derived from Marshall & Swift's Residential Cost Handbook, which apparently estimates the normal appreciation in the value of residential property over time, irrespective of the actual values of any particular properties. See NJDEPE Br. at 20-22 and Township's Br. at 29.
*fn8 The NJDEPE nowhere explains the basis in fact for the 25% reduction figure. Instead, NJDEPE simply acknowledges it determined the diminution or decrease "by applying a factor of -25% to the net value as calculated above, to which was added the claimant's original settlement costs." NJDEPE Br. at 20. Later, NJDEPE defends the 25% diminution figure, again without proving that this assumption had a meaningful basis: In electing to provide compensation on a standardized basis (i.e., applying a 25% diminution figure to all claimants), NJDEPE was able to process more quickly the mounting number of claims, and to avoid the expense and time of having teams of appraisers assess ultimate home values on a case by case basis. NJDEPE Br. at 21.
*fn9 In fact, homeowners who chose not to sell or move from their homes still received compensation for moving and resettlement expenses under the NJDEPE's pre-1988 policies.
*fn10 Relying by analogy on Fed. R. Evid. 407, NJDEPE argues that the fact that it amended its procedures in 1988 is not admissible to prove that the original regulations were constitutionally void. Rule 407 provides in pertinent part: When, after an event, measures are taken which, if taken previously, would have made the event less likely to occur, evidence of the subsequent measures is not admissible to prove negligent or culpable conduct. Invoking the policy considerations behind the rule, NJDEPE argues that if the court accepts defendants' argument, "legislatures and agencies would be loathe to make any improvements in existing statutes and regulations for fear that those who feel 'victimized' by prior, duly enacted laws would sue for compensation." In deciding this motion, the court does not rely on the mere fact that NJDEPE revised its appraisal procedure as evidence of the original regulations' constitutional defects. Instead, this court relies on NJDEPE's own public statements criticizing those regulations. See Rule 801(d)(1). The New Jersey privilege of critical self-analysis is not implicated here because the self criticism by NJDEPE was public, indeed, it was the basis for promulgating amended regulations. Moreover, while the law should not discourage agencies from correcting past mistakes, neither should it allow agencies to immunize themselves from responsibility by merely confessing error and revising constitutionally deficient procedures. Accordingly, the court finds NJDEPE's reliance on Rule 407 misplaced.
*fn11 N.J.A.C. 7:1I-3.3(a) & (b) (1988) provided: (a) Claims for real property value diminution as a result of the operation or closure of a sanitary landfill are compensable upon sale of the property. The claimed property must be located within one-half mile of the landfill area except: 1. Claims for property value diminution which were filed prior to March 7, 1988 are not subject to the one-half mile limitation, or to the criteria at (d) below if the damaged property was sold prior to July 18, 1988, but shall meet all other criteria of this section. Damaged property shall be considered sold prior to July 18, 1988 if a binding agreement of sale was entered into prior to this date. 2. Claims for property diminution which include physical intrusion are not subject to the one-half mile limitation but shall meet all other criteria of this section. (b) All claims file subsequent to the effective date of this chapter for which the property has been sold prior to receipt of an appraisal of the subject property value from the Department are barred from compensation.
*fn12 N.J.A.C. 7:1I-4.2 (1988) provides: (a) Upon satisfactory sale of a property pursuant to the requirements of N.J.A.C. 7:1I-3.3, the Department will pay the claimant damages in an amount equal to the Department's appraisal of the property value absent the landfill minus the actual selling price. (b) In the event that a claimant makes a good faith attempt to sell the property in accordance with the requirements of N.J.A.C. 7:1I-3.3 and cannot do so within one year measured from the date of the initial real estate listing, the Department will, upon verification of the good faith nature of the attempt, appraise the value of the property absent the landfill and survey sales base claims settlements in the area to determine the average percentage diminution for the area. The Department shall pay, as damages, the dollar value arrived at by multiplying the appraised value of the property absent the landfill by the average diminution percentage determined for the area. 1. If a sale occurs within two years after initial settlement with the Fund, upon satisfaction of all requirements of N.J.A.C. 7:1I-3.3(f), a further claim may be awarded based on a comparison of the initial settlement paid with actual diminution. Actual diminution shall be determined by subtracting the sales price received from the appraisal value of the property absent the landfill. The Department may pay the difference between the two figures where the actual diminution is greater then (sic) the initial settlement paid. If the initial settlement paid is greater than the actual diminution upon sale, the claimant shall be liable to the Fund for the excess settlement received. Payback of excess settlement received must be made within 10 days of property settlement. i. In order to qualify for additional payments under this subsection the claimant may not reduce the asking price by more than 2.5 percent per month after initial settlement with the Fund without written permission from the Fund. (c) The Department will not, in compensating damages claimed under (a) or (b) above, include in its calculation of the appraisal of the value of the damaged property, the values of any improvements to the property made after the date of discovery of damages. (d) If settlement under this section occurs more than two months after the Department's appraisal, the Department will adjust the appraisal value used in calculating settlement or determining adjustments to initial settlement to reflect appreciation or depreciation of real estate values in the area.
*fn13 N.J.A.C. 7:1I-3.3(c) states: The Department shall notify each claimant who filed a claim before March 7, 1988 of the requirements of this chapter. Such claimants shall then have 60 days from receipt of such notice to inform the Department by certified mail return receipt requested, of their intent to pursue their claim for property value diminution pursuant to this chapter, immediately, request that the claim be suspended for a period of up to two years, or to withdraw that claim for those damages. If a claimant requests suspension of their claim, the claimant may at any time during the period of suspension, request reactivation of the claim. At the end of the two year suspension period, the claim will be automatically reactivated, unless the claimant has previously withdrawn the claim. Priority status of reactivated claims will be established based on the date of receipt of the reactivation request.
*fn14 The NJDEP's claim for reimbursement of such post-July 1988 payments will be subject to the department's burden of proving that substantial evidence supports its decision to pay each claim, as discussed in Part II.F.1, below.
*fn15 Likewise, the Operators' challenge to the amendments to the Fund's regulations pertaining to diminution of value claims, effective February 22, 1994, in 26 N.J.R. 1114, is unavailing. The 1994 amendments are substantially similar in relevant part to the 1988 amendments. Compare, e.g., N.J.A.C. 7:1I-4.1 (eff. Feb. 22, 1994) with N.J.A.C. 7:1I-3.3 (eff. July 18, 1988).
*fn16 If the real estate marketplace had knowledge of the deleterious proximity of the GEMS Landfill, the market price presumably already reflected that knowledge in the price. Assuming that the local real estate market already discounted property values in the landfill vicinity at some point in time, the purchaser acquired the property at the depressed price. Unless conditions worsened thereafter, the market value of that property will not be apt to decline further based on landfill proximity. It is doubtful that persons who purchased homes after the marketplace already reflected negative impacts from proximity to the GEMS Landfill will suffer a loss in property value thereafter, assuming conditions did not worsen. This economic fact applies to the knowledge of the marketplace, independent of what the individual purchaser actually knew. Quite apart from any statute of limitations issue, if one could determine the date when the local marketplace had acquired sufficient knowledge of the notoriety of the GEMS Landfill to discount neighborhood property values, and if one could also determine whether property values thereafter stabilized, then one could establish the date after which property purchased in the GEMS area in fact would not have suffered diminution in value, again independent of the actual knowledge of the individual purchaser.
*fn17 The prospect of such a claim being successfully asserted in the future would appear to be minimal, as no evidence in this motion supports such a long term decline in area property values. Further, in the case of any physical damage or personal injury, the discovery of damage for such claims triggered the one-year statute of limitations years ago, in all likelihood.
*fn18 For purposes of this motion, it is assumed that Gloucester Township, a municipality, may raise equal protection and due process claims against the state. See Township Br. at 32-35 (discussing availability of such claims against state).
*fn19 A court must consider "(1) the private interest that will be affected by the official action; (2) the risk of erroneous deprivation of such interest through additional procedural safeguards, and (3) the government's interest in additional adjudicative process." Kahn, 753 F.2d at 1219 (citing Mathews v. Eldridge, 424 U.S. 319, 332, 47 L. Ed. 2d 18, 96 S. Ct. 893 (1976)).
*fn20 The disposition of the pre-1988 diminution in property value claims, see II.C.1, supra, illustrates this fact. Where such diminution in value claims were improperly paid, it is the Fund, not the defendants, which is ultimately liable.
*fn21 Defendants concede that the rational basis tier of review is appropriate in this case. See Brief of Owners and Operators ("Owners & Operators Br."), at 16.
*fn22 As NJDEPE notes, the letters never specified whether GEMS was authorized to handle hazardous, as opposed to non-hazardous, chemical waste. See Pl. Opposition Br. at 33-34.
|
Class Action Allowed Over Gems Landfill The Gloucester Twp. Site Held Toxic Waste. The Suit Could Represent About 1,300 Nearby Homes.
A Camden County Superior Court judge has ruled that Gloucester Township residents living near the GEMS landfill can sue as a group for alleged health and property-value loss caused by toxic waste at the federal Superfund site.
Judge Theodore Z. Davis, in permitting a class-action suit Thursday, said hundreds of people in a one-square-mile area around the 60-acre Gloucester Environmental Management Services landfill shared common claims concerning devalued properties and health problems, such as recurrent nosebleeds and respiratory ailments.
Had he ruled against the plaintiffs, they would have had to pursue their claims individually, said their attorney, Steven E. Angstreich.
"The cost to establish liability is substantial, so that in order for each homeowner to proceed, the cost may chill the lawsuit," Angstreich said. "By having a class action, those costs are spread throughout the class. Another major advantage is (the question of) liability for damages will only be tried once. It becomes a simpler, shorter trial."
The residents affected live or have lived in the Deer Park, Fox Chase I and Fox Chase II developments and in homes along Hickstown and Erial Roads near the dump site, which opened in 1957 and closed in 1980.
A 1985 suit demanding a cleanup was filed against more than 100 defendants, including former landfill operators, waste haulers and waste generators who the complainants said contributed to the environmental mess.
In 1988, five families and one individual, representing an estimated 1,300 homes in a one-square-mile zone surrounding the landfill, requested permission to file as a class. This so-called "red-line zone" was established by the state.
The site is now undergoing a cleanup, estimated to cost nearly $70 million, said Mindy Mumford, a spokeswoman with the state Department of Environmental Protection and Energy.
John B. Kearney, the attorney for Amadei Sand & Gravel, one of the landfill's two former operators, said there would be an appeal.
ATLANTIC DISPOSAL SERVICE, INC., Now known as ACR of SOUTH JERSEY, INC., ALVIN WHITE, AVE MARIE CARITE AND STEPHEN MINER AS THE EXECUTORS OF THE ESTATE OF CHARLES CARITE, ANTHONY CARITE, JR., AND A.C. REALTY,
Plaintiffs-AppellantsCross-Respondents,
V.
THE FEDERAL INSURANCE COMPANY, FIRST STATE INSURANCE COMPANY and INTERSTATE INSURANCE COMPANY,
Defendants-RespondentsCross-Appellants,
and
PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY, SAFETY NATIONAL CASUALTY CORPORATION, and NEW JERSEY PROPERTY-LIABILITY INSURANCE GUARANTY ASSOCIATION,
Defendants-Respondents,
and
INTEGRITY INSURANCE CO., Defendant,
HARLEYSVILLE MUTUAL INSURANCE COMPANY,
Defendant-Third Party Plaintiff-Respondent-Cross-Appellant,
V.
UTICA MUTUAL INSURANCE COMPANY, Third Party Defendant.
Argued March 29, 2004 – Decided
Before Judges Petrella, Fuentes and Bilder.
on appeal from Superior Court of New Jersey, Law Division, Burlington County, BUR-C-9199.
Sanford F. Schmidt argued the cause for appellants-cross-respondents Atlantic Disposal Service, Inc., A.C. Realty, Alvin White and Anthony Carite, Jr. (Schmidt & Tomlinson, attorneys; Mr. Schmidt and Eileen K. Fahey, on the joint brief).
John B. Kearney argued the cause for appellants-cross-respondents Ave Marie Carite and Stephen Miner as Executors of the Estate of Carite (Kenney & Kearney, attorneys; Mr. Kearney on the joint brief).
Lance J. Kalik argued the cause for respondent-cross-appellant Harleysville Mutual Insurance Company (Riker, Danzig, Scherer, Hyland & Perretti, attorneys; Glenn A. Clark, of counsel; Mr. Kalik and Ronald Z. Ahrens, on the brief).
Michael F. O'Neill and Stephen Gimigliano argued the cause for respondent-crossappellant First State Insurance Company (Purcell, Ries, Shannon, Mulcahy & O'Neill, and Graham, Curtin & Sheridan, attorneys; John M. Bowens on the brief).
Antonio D. Favetta argued the cause for respondent Pennsylvania Manufacturers' Association Insurance Company (Garrity, Graham, Favetta & Flinn, attorneys; Mr. Favetta of counsel; Mr. Favetta and Monica E. de los Rios, on the brief).
William P. Shelley argued the cause for respondent-cross-appellant Federal Insurance Company (Cozen O'Connor, attorneys; Mr. Shelley and Daniel L. Bessel, on the brief).
William S. Wachenfeld argued the cause for respondent Safety Mutual Casualty Co. (Mendes & Mount, attorneys; Mr. Wachenfeld and Shari R. Marko, of counsel and on the brief).
Peter A. Olsen argued the cause for respondent New Jersey Property-Liability Insurance Guaranty Association (Francis & O'Farrell, attorneys; Mr. Olsen on the brief).
Brian R. Ade argued the cause for respondent-cross-appellant Interstate Fire and Casualty (Bonner, Kiernan, Trebach & Crociata, attorneys; Mr. Ade and Anthony J. LaPorta, on the brief).
PER CURIAM
This is a declaratory judgment action for indemnification and defense costs arising from state and federal environmental actions. Plaintiffs, Atlantic Disposal Service, Inc. (ADS), a former South Jersey trash removal service, its principals Alvin White, Anthony Carite, Jr. and related concerns1 appeal from various summary judgments and trial determinations that denied their claims for indemnification and defense costs against the defendant carriers who insured plaintiffs for varying levels of liability during the years at issue. Defendants cross-appeal from certain trial determinations regarding defenses and evidential rulings. The underlying cleanup actions involved plaintiffs' disposal activities at various state-licensed non-hazardous waste dump sites and a tract of undeveloped farmland in Tabernacle Township in Burlington County.2
We affirm the decisions denying coverage for the Tabernacle site and dismissing plaintiffs' bad faith complaints against the carriers, reject the contentions asserted on defendants' cross-appeal, reverse on the issue of the duty to defend for the landfill sites, and remand on the issue of counsel fees.
Specifically, plaintiffs argue3 that the trial court erred in (1) denying ADS coverage for the landfill sites and declaring there was no duty to defend and indemnify on these claims; (2) declaring that the insurers did not act in bad faith in handling the landfill claims; (3) denying coverage for ADS for the Tabernacle site; (4) denying coverage for the plaintiffs on the Tabernacle site after February 1984 on the basis of the known loss doctrine; (5) denying the plaintiffs coverage on the Tabernacle site on the basis of the owned property exclusion; (6) finding that defendant insurers owed no duty to defend or indemnify White or the Estate of Carite with regard to the Tabernacle site; (7) finding that defendant insurers owed no duty to White or the Estate of Carite to defend and indemnify them in regard to the Tabernacle site on the basis of the Know Loss Doctrine; (8) finding that White and Carite spoliated evidence with regard to the Tabernacle site; (9) finding that defendants' insurance policies should be rescinded as to plaintiff Alvin White with regard to the Tabernacle site; (10) denying plaintiffs' in limine motion to prohibit defendants from challenging the settlement in the underlying federal court litigation regarding the Tabernacle site and limiting the admissibility of certain sections of the consent order from the underlying litigation; and (11) finding that defendants had not acted in bad faith in denying coverage for ADS, White and the Estate of Carite on the Tabernacle site.
Plaintiffs also assert they are entitled to attorneys' fees for bringing this action, relying on R. 4:42-9(a)(6) and Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 478 (1994).
In order to understand the legal issues in this voluminous appeal we set forth the salient facts. ADS was a New Jersey corporation operating as a waste disposal service.` ADS was licensed to transport non-hazardous municipal, non-chemical industrial, bulky, and commercial waste to state-licensed landfill sites. According to White, ADS was a "containerized" operation, which did not pick up liquid wastes in the usual course. ADS typically serviced what white referred to as "small, dry waste material companies," and when it acquired a new or potential customer he and his sales staff inquired whether the customer had "liquid-type material" in its "waste stream." Their general policy was not to accept liquid wastes, materials that were "too heavy," or those items that could not be successfully compacted by ADS's equipment.
According to defendants, however, in 1974 ADS filed a registration certification with DEP indicating that ADS was "hauling liquid hazardous waste." Plaintiffs acknowledged that during that period ADS hauled limited amounts of "drummed liquid waste" and "liquid chemical waste," but not hazardous liquid wastes. In any event, statements White filed with the DEP from 1975 to 1979 indicated that ADS did not haul liquid hazardous waste. Rather, registration statements ADS routinely filed with the Bureau of Solid Waste Management identified the solid wastes ADS hauled as: municipal household and commercial, institutional, bulky waste, construction, demolition, dry-non hazardous chemical waste, tires, leaves, chopped tree waste, tree stumps, food processing wastes and non-chemical industrial.
ADS did not acknowledge on those filings that it hauled pesticides, hazardous waste containers, dry hazardous waste, "oil spill clean-up wastes," or liquid wastes. However, White admitted that ADS did haul liquid wastes for certain customers, including U.S. Steel (USX). White added that ADS hauled such drums only after issuing a proviso to its customers that whatever the liquid material. ADS would pick it up so long as it "doesn't hurt the man." White said they did not want such material spilling on the truck, and if the drums were leaking ADS could get a ticket. Sometimes, too, ADS rejected a customer's drum.
Nonetheless, white reasoned that his trucks were expensive, about $125,000 each by the early 1990s, and not ordinarily configured to accept liquid wastes, so that it would have been poor business and harmful to their equipment if they had routinely accepted such liquids. Although he could not remember the particular dates or years when ADS accepted such drums of liquid, he asserted that ADS did so only during the period before it was illegal to transport and dispose of any such drums routinely at the landfills. He implied that customers might have unilaterally disposed of hazardous liquids with their regular solid wastes.
Between 1973 and 1988, the period during which ADS allegedly dumped hazardous wastes at all the relevant sites, defendants issued primary, umbrella or excess comprehensive general and commercial liability policies to ADS in varying amounts ranging annually from $100,000 in 1973 to $10.5 million in 1988. Plaintiffs total all insurance for the coverage years at over $100 million.
Although the policies were not always identical, for the most part they were substantially similar. The typical coverage, as illustrated by Utica's policy, states that the carrier agreed to pay:
all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence and arising out of the ownership, maintenance or use of the insured premises and all operations necessary or incidental to the business of the named insured conducted at or from the insured premises and the Company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent . . . .
An "occurrence" is "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured."5 Exclusions included those for damages to property "owned, occupied by or rented" to the insured, or for property "used" by the insured. For purposes of determining the company's liability limit all property damage "arising out of continuous or repeated exposure to substantially the same general conditions shall be considered as one occurrence." All the policies in question were occurrence based. All ADS policies also insured any officer, director or stockholder for actions within the scope of their duties.
LANDFILL SITES
In the course of its business, ADS delivered wastes to the Gloucester Environmental Services, Inc. Industrial Landfill (GEMS), the Buzby landfill, the Kramer landfill, and the Cinnaminson landfill.6 Hazardous materials were discovered at all these sites. The parties' dispute involves whether ADS intentionally dumped the hazardous materials found at those sites.
ADS began depositing wastes at these sites at least since the 1970s and was one of numerous disposal companies that utilized these locations.' When hazardous materials were found at those sites and state and federal environmental actions were instituted against ADS on the basis of its hauling activities, ADS gave notice of the claims to its carriers. All claims were denied by the carriers. However, when all these actions settled the carriers funded the settlements under reservations of rights. In the declaratory action, ADS sought its litigation costs in connection with its defense of these environmental actions.
For purposes of the declaratory judgment action, plaintiffs' expert, Clarke, was of the opinion that ADS transported waste to Kramer from 1976 to 1981, to GEMS from 1974 to 1980, to Buzby from 1973 to 1978 and to Cinnaminson from 1974 to 1980. He concluded that the contamination that resulted at each site was neither "expected" nor "intended" by ADS because DEP had licensed the landfills during the periods ADS disposed of waste there. Although he did not specify the constituents of the waste and whether they were harmful, Clarke said whenever any hazardous wastes were released "their transport through the environment was and continues to be a continuous process" unless modified by remediation. There is otherwise no evidence, direct or circumstantial, that showed ADS's intent in transporting hazardous wastes to these locations. The Pennsauken landfill was not discussed in Clarke's report.
USX AND TABERNACLE SITE
USX operated a plant in Delair, New Jersey, and was an ADS customer for whom ADS removed drummed liquid waste or sludge and solid plant trash from approximately 1974 to 1979. ADS would receive annual purchase orders from USX, which listed the rates for each drum of liquid waste and described the contents of the drums as "waste paints and thinners," "solvents," "caustic solutions," "zinc phosphate sludge," and "flammable waste."
In 1977, ADS informed USX that "disposal of this material has become increasingly difficult . . . (in as much as] there is no certified landfill in the State of New Jersey that will accept this material," and that ADS was accordingly raising the removal price. ADS further informed USX that "[w]aste material must not be hazardous/caustic, flammable or considered to be dangerous to handle in any way." At oral argument, ADS's counsel asserted that liquid wastes at that time could only be stored in drums or in tanker trucks and that the landfills would accept neither. Nevertheless, the 1977 purchase order to ADS prepared by USX set forth, among other things, the following:
Blanket Order
1. Furnish services, as required for the removal and disposal of waste paints and thinners; solvents, caustic solutions, and zinc phospate sludge etc. and flammable waste removal, in drums, 22 drums being the minimum quantity. $12.00/drum.
2. Furnish services, as required, for the removal and . . . (sic] sludge, etc. in pails and 30 gallon drums. Pails .90 each, 30 gallon drums: 4.95 each.
2A. Pails, Flammable Materials, 1.00 each.
The USX plant that ADS serviced generated about eighteen to twenty such drums per month. When enough drums had accumulated, ADS would be contacted and would arrive the next day to remove the drums. USX prepared bills of lading and receiving reports to confirm that drums were actually removed.
At one point, according to ADS's former chief financial officer, he was told by Tony Carite of ADS that they had attempted to negotiate with USX not to haul the drums, but U.S. Steel gave them an ultimatum that ADS had to keep handling the drums or lose its contract. At that point ADS continued taking the drums, storing them in a yard at its office headquarters.
At the same time that ADS was accepting these drums from USX, Robert Ware was a truck mechanic for ADS and lived on a rural fifteen-acre tract in Tabernacle with his wife and children. According to Ware there were a number of drums being stored in front of the ADS shop garage at that time. At some point a manager approached him about ADS transporting the drums to Ware's property because ADS no longer had room to store them. Ware's understanding was that he would merely have to store the drums, and that, eventually, ADS would take them back. However, there was no mention of when ADS would take the drums back, and according to Ware the deal he struck included the possibility that Ware might actually sell the drums. Ware stated that ADS agreed to pay him between $2 and $5 per drum, and ware received a check from ADS. The exact date of this check is unclear. According to Edith Ruhl Ware, Ware's wife at the time, the check was made payable to Ware for "a couple hundred dollars." The Wares received the check before the drums arrived on their property. ADS's chief financial officer in 1982 and 1983 acknowledged the existence of the check, but it was never produced at trial and it was ADS's usual policy to destroy these records after seven years.
According to Edith, in 1976, three ADS trucks delivered drums to their property. The trucks deposited the barrels by raising their beds and "roll[ing] [them] off onto the ground." Edith said some of the barrels were full and some were empty, and as she and her children watched the dumping, she witnessed the following:
When the last truck dumped, one of the barrels split open, and that's -- gray paint -- that's what I thought it was, gray paint. It looked like that decking paint [sic] went everywhere, and then when I looked around, there was [sic] some other barrels that were -- you know, had these rings on the top. They were sealed, and I thought, "oh my gosh, don't tell me that's what [sic] in these things" and then I went livid after that because I can't have that on my property.
As soon as Edith realized some of the barrels were "full of liquid," she climbed onto the truck and spoke to the driver, whom she identified as Larsen, an ADS employee she knew, and told him "I don't want this. They've got to come out here." The driver called on his radio and explained that Edith was “upset" and that she did not want "these barrels here." Edith overheard the transmission and the person on the other end stated "there was nothing that they could do about it because we had already received the payment for the barrels."
According to Edith, there were about "a hundred or so" barrels, and "[s]ome of them looked petty decent, and others were rusty." The barrels "were not organized" but rather after they were dumped from the trucks "wherever they landed that's where they stayed." when Ware got home that evening he inspected the area. The drums "were distributed all over the place," which was not how Ware thought they would be left. He saw the one barrel from which "the lid had popped off and some stuff oozed out," and he and his son righted the drum and "pushed the stuff back in." Some of the other barrels did not have tops and inside those Ware saw "hardened paint and rags and scraps and maybe some wood." According to the Wares, other than the barrels dumped by ADS there were no drums placed by any other person or source on their property.
ADS's version of the events was that Ware had been taking empty drums to sell and that it never paid Ware to take the drums. Instead, it claimed that Ware transported the drums on his personal pick-up truck. Ware denied having had such a vehicle. Nonetheless, ADS admitted that it had possession of drums of liquid waste because the landfill stopped taking them and it continued to receive drums from customers. According to White he did not have any knowledge of any drums in Tabernacle until December 1983.
Larsen stated that he drove ADS trucks from a out 1969 to 1980. He testified that he did not know either of the Wares, that he never drove a truck "out to a property in Tabernacle and [left] drums there," and that while he worked at ADS he operated a "front loader" type truck as opposed to the "roll off" type that Edith ware had described. The ADS truck dispatcher stated also that he never received a call in connection with the Tabernacle dumping.
On August 5, 1982, the Burlington County Health Department received a citizens' complaint about the site and referred it to the DEP. The next day the county health department and the DEP investigated the site, and found about 120 fifty-five-gallon drums "randomly dumped along the side of the [access] road near a slope to a small marsh." They reported what they found as follows:
Upon close inspection of the drums, it appears the waste can be categorized as paint waste, solvents, epoxy waste and some galvanized steel drums with corrosive labels. The majority of the drums either contain solidified material or are rusted through and have released there (sic] contents. There were several drums still containing liquid and some of these were presently leaking. The only odors that were detected were among one section of leaking forty cubic yards of solid waste. The contents liquid drums. These odors resembled Acetone. There was considerable ground staining among the drums.
They concluded from the condition of the site, the road leading to it and the drums that the dumping occurred "several years ago." The investigation noted that some of the drums had USX markings and contained USX paperwork. Thereafter the Burlington County Prosecutor's Office participated in the investigation, but by April 1983 the matter was referred to the DEP for enforcement and remediation action.
On February 17, 1984, the EPA issued an administrative order to ADS under CERCLA requiring that it remove the drums, remove the contaminated soils, conduct soil sampling and install four groundwater-monitoring wells at the site. ADS numbered and logged 193 drums, thirty-one of which were empty. The remaining drums contained approximately 3000 gallons of liquid wastes and chromium, lead and 1.1.1 trichloroethane (TCA), all hazardous substances under CERCLA. After removing the drums about eight truckloads of contaminated soil were excavated.
Subsequently, ADS notified Harleysville, First State and Utica that it had been named a responsible party under CERCLA for the Tabernacle site. Among the information ADS disclosed to the carriers was that in the EPA's administrative order ADS was a responsible party and had dumped drums of hazardous materials on the lands of one of its employees. On April 13, 1984, Harleysville responded by denying coverage, relying upon the information received from ADS, the pollution exclusion language in its policy and the timing of the damage, which it claimed, was prior to the date of coverage. First State responded by indicating it had begun to conduct an investigation.
First State's investigation revealed that Ware did in fact obtain the drums from ADS, and it in turn had received them from a customer. Nevertheless, the report found "no clear-cut indication of a sudden or accidental discharge." Periodic contact between ADS and First State nonetheless continued, with ADS providing updates and additional demands and First State at times indicating it might be interested in some sort of settlement but also continuing to assert defenses.
On July 10, 1987, EPA and ADS entered a consent decree whereby ADS paid $115,000 in return for a release of EPA's investigative and oversight costs at Tabernacle to date in relation to the administrative order. So far as we are aware, this payment was not funded by the carriers.
In February 1988 EPA completed the final remedial investigation and feasibility study for the site. According to the EPA, ADS failed to follow-up the earlier administrative order by installing monitoring wells which had been recommended given the "evidence of drum deterioration, coupled with the sandy nature of the site soil" and thus the strong potential for groundwater contamination. Among the report's conclusions were that the groundwater was contaminated with TCA and that the contamination was migrating from the site toward the southeast, to reach a down gradient residential well by 2001. Chromium cyanide and lead were also found in the soil at elevated levels.
On June 30, 1988, EPA issued its record of decision directing further remedial action. USX agreed to implement a pump-and-treat system, but ADS refused because it felt it had already paid its share to clean up the property and because it was generally dissatisfied with the treatment it had received from EPA.
In August 1990, EPA filed the underlying federal environmental action against USX and ADS demanding approximately $1.1 million in unreimbursed response costs for the site connected with the investigation and oversight, administration, inspection and enforcement expenses.. USX denied additional liability, filing a cross-claim against ADS. When ADS filed its amended cross-claim and third party complaint in July 1992 it named its various carriers, including Chubb, First State, Harleysville, Interstate, Pennsylvania Manufacturers' and Safety National as third-party defendants. The carriers denied coverage.
In July 1992, USX filed third party claims against Carite's estate against Ave Maria Carite and Stephen Miner as executors, A.C. Realty and Anthony Carite, Jr.8 In October 1992, plaintiffs filed an amended third party complaint against the insurers after the carriers had refused to defend those additional parties as insureds.
Meanwhile, USX continued remediating the site, installing additional monitoring wells and then, beginning in early 1994, pumping the contaminated groundwater. USX's groundwater pumping and treatment program at the site continued until 1997, at which point the remediation goals were determined to have been met.
In June 1994, the federal EPA action against USX was settled, and in November 1994 the court entered a consent order joined by plaintiffs here, which provided, among other things, for payment to USX from plaintiffs of $2 million. ADS's carriers did not offer to participate in that settlement. Plaintiffs say they spent $1,028,815.61 to defend the federal litigation without any carrier contribution to the costs of their defense. In this declaratory judgment action, plaintiffs seek, in part, indemnification of its settlement amounts and defense costs relating to Tabernacle. Coverage as to ADS was dismissed on summary judgment, leaving only the issue of coverage for the individual plaintiffs. At trial, plaintiffs offered the expert testimony of Clarke as to the contamination of the Tabernacle site. He stated that TCA was a substance primarily used in manufacturing facilities for degreasing, but it was not used as a paint thinner per se. Paint wastes and thinners had been found at the Tabernacle site originally but not in the soil, though there were some trace amounts of some chemicals in the soil which "could have been associated with paints perhaps." Clarke believed that the amount USX spent to remediate the site was reasonable, including sums spent on studies and monitoring. As far as he knew, no money was spent "on the Ware property itself."
According to Clarke, until the mid- or late 1970s the scientific community believed that the soil would filter the kinds of chemicals found at the Tabernacle site before they contaminated the groundwater. "My position is that nobody knew that aquifers could be contaminated by the chemicals that drove the remediation at Tabernacle until the later '70s." Rather, the original environmental regulations focused on air and surface-water pollution, and the analytical model used to determine whether such chemicals were even present in groundwater was not developed until 1974. TCA was one such chemical, and according to Clarke "the groundwater treatment and remediation wouldn't have been necessary at Tabernacle without the presence of TCA." Clarke believed that the TCA contamination found at the Tabernacle site came from the barrels dumped there. He also believed the settlement ADS made at the site was reasonable in light of the potential liabilities.
Dr. Marwan Sadat, the defendants' expert, agreed that the TCA originated from ADS's dumping. However, his position was that the scientific community was aware of the dangers of liquid waste, especially in the sandy soil found at Tabernacle. By 1976 there was only one landfill which was permitted to accept liquid waste, Kimbuc, and that was closed in mid-1976. At approximately that same time (and in some cases even before) new incinerator and chemical-processing plants were handling such materials. Sadat stated that by 1976, TCA was considered to be a threat to groundwater and public health, and TCA was known "to have contaminated wells from septic tank usage."
After the trial, the judge concluded that the individual plaintiffs were not covered on the basis of their knowledge that environmental damage would result from their actions at Tabernacle, and hence not entitled to indemnification for reasonable defense costs. The trial judge issued supplemental written findings April 11, 2003, which detailed Carite and White's expertise in the business, their relationship with USX, and the manner in which the barrels were kept on the ADS property.
I.
Plaintiffs assert that the trial court improperly denied their summary judgment motion for defense costs regarding the policies, the carrier's duties to defend are implicated in the case of an "occurrence," that is, "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." While the trial judge correctly noted that ADS's intent was dispositive of its entitlement to a defense, he also wrote "issues hinging upon a party's mental state generally are not appropriate for resolution by way of summary judgment," relying on CPC Int'l, Inc. v. Hartford Accident & Indem. Co., 316 N.J. Super. 351 (App. Div. 1998), certif. denied, 158 N.J. 74 (1999). Therefore, the judge denied summary judgment for plaintiffs because he believed there was a genuine issue as to intent. We disagree and now reverse and grant summary judgment for plaintiffs.
Based on the voluminous record, we find it useful to set forth the issues that are not addressed for the landfill sites. Most importantly, we are not asked to determine issues of coverage for those sites. So far as we are aware, the carriers have contributed to the settlement of those litigations under reservations of rights, and have not sought reimbursement from ADS for those amounts. Nor is the specific source of the hazardous materials found at the landfills at issue. Moreover, there was no question that ADS's activities, as alleged in the state and federal environmental complaints, were temporally and geographically covered under the policies. Thus, the only issues before us regarding the landfill sites are whether the judge properly denied plaintiffs summary judgment on the issue of the carrier's duty to defend based on an intent of ADS to pollute and whether the carriers exhibited good faith in denying ADS's claims.
In addressing the first of these two issues, we begin with the standard for summary judgment as set forth in Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520 (1995), where the Court stated:
a determination whether there exists a "genuine issue" of material fact that precludes summary judgment requires the motion judge to consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party. The "judge's function is not himself (or herself] to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." [Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct., 2505, 2511, 91 L. Ed. 2d 202, 212 (1986).] Credibility determinations will continue to be made by a jury and not the judge. If there exists a single, unavoidable resolution of the alleged disputed issue of fact, that issue should be considered insufficient to constitute a "genuine" issue of material fact for purposes of Rule 4:46-2. Liberty Lobby, supra, 477 U.S. at 250, 106 S. Ct., at 2511, 91 L. Ed. 2d at 213. The import of our holding is that when the evidence "is so one-sided that one party must prevail as a matter of law," Liberty Lobby, supra, 477 U.S. at 252, 106 S. Ct. at 2512, 91 L. Ed. 2d at 214, the trial court should not hesitate to grant summary judgment.
[Id. at 540.]
Moreover, if the issue of fact only exists as to an "insubstantial nature," summary judgment is permitted. Id. at 529 (citing Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 75 (1954)).
We are satisfied that after considering all the materials submitted in this voluminous appeal, that defendants never met their burden of showing any evidence of intent by plaintiffs to pollute the landfill sites. No evidence was presented which would create a genuine issue of fact or allow a rational fact finder to determine that the plaintiffs intentionally deposited hazardous wastes at the various landfills. Since our supreme Court has stated "an insurer must bear the burden of proving that an insured intended or expected environmental damage," Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312, 330 (1998), the defendants could not rely on the plaintiffs' inability to show their lack of intent, i.e., to prove a negative. Accordingly, summary judgment was improperly denied to plaintiffs because the defendants presented no materials of evidential weight as to plaintiffs' intent.
Similarly, the judge's reliance on CPC Int'l, was misplaced. In that case, the plaintiff-insured operated three industrial facilities that ultimately polluted the surrounding areas. CPC Int'l, supra, (316 N.J. Super. at 356). After the plaintiff sued its insurers to recover remediation costs, the insurers presented testimony of several of the plaintiff's former employees regarding its knowledge and intent to pollute. Id. at 374. Relying on this evidence, the Law Division granted summary judgment for the insurers. However, in reversing the grant of summary judgment, we stated:
The simple and overriding fact is that these witnesses exhibited immense hostility toward CPC. We do not think that their testimony should go untested. "A case may present credibility issues requiring resolution by a trier of fact even though a party's allegations are uncontradicted." D'Amato by McPherson v. D'Amato, 305 N.J. Super. 109, 115 (App. Div. 1997). As Chief Justice Vanderbilt observed in Ferdinand v. Agricultural Ins. Co. of Watertown, N.Y., 22 N.J. 482 (1956), "[w)here [persons] of reason and fairness may entertain differing views as to the truth of testimony, whether it be uncontradicted, uncontroverted or even undisputed, evidence of such character is for the jury." Id. at 494; see also Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 415 (1997).
[CPC Int'l, supra (316 N.J. Super. at 375).]
Here, unlike CPC Int'l, no evidence was ever presented that plaintiffs intended or expected to pollute. Plaintiffs did not utilize hazardous materials in the course of their business. Plaintiffs were not obligated to inspect in detail all the materials they transported to the landfills. Plaintiffs also deposited the materials at state-licensed landfills. Under these circumstances, defendants failed to establish that the plaintiffs' dumping activities constituted intentional or expected acts of pollution. Therefore, what this all amounted to was that there was no issue of intent to be resolved by a trier of fact.
Although there was some amount of contention regarding whether ADS in fact hauled hazardous substances to the landfill sites that issue was largely irrelevant and was of "insubstantial nature." Plaintiffs were entitled to a defense so long as they did not intend to cause environmental damage. Whether or not plaintiffs actually transported the materials had no bearing on the duty to defend. Indeed, an insured is entitled to a defense even if the complaint against it was meritless or frivolous. Burd v. Sussex Mut. Ins. Co., 56 N.J. 383, 388-389 (1970); Muralo Co., Inc. v. Employers Ins. of Wausau, 334 N.J. Super. 282, (App. Div.), certif. denied, 167 N.J. 632 (2000). Based on our reading of Muralo, if ADS never hauled hazardous wastes to the landfills, the complaint against it would have been meritless, yet it still would have been entitled to a defense from its carriers. If ADS did haul such waste, it is still entitled to a defense insofar as it may have done so unintentionally.
While the issue is not before us, we note that the position of the insurers, as expressed at oral argument, was to disclaim responsibility for litigation expenses unless there was a showing of an act of pollution during the covered period. Thus, they stated, if the insurer does not undertake a defense and the
insured wages a successful defense so that it is found not to have been guilty of an act of pollution, then there has not been a showing of an "occurrence" and the insured is not entitled to a defense in any form, including a reimbursement of its litigation expenses. On the other hand, the defendants continued, if the insured is unsuccessful in defending the case,an "occurrence" would have been found and the insured would be entitled to a defense and reimbursement of its litigation expenses.
This argument defies logic and common sense. It also defies the normal expectations of a policyholder. The rule must be that the duty to defend arises from the claims made in the complaint. if the complaint alleges an act or acts of pollution during a stated period of time, any insurer whose policy covered any of the period encompassed in the complaint has a duty to defend with respect to the acts alleged during the covered period unless and until the insurer establishes non-coverage. As a practical matter, how multiple insurers and the insured deal with the defense and litigation expenses is a matter of negotiation.
When its assured is sued on an occurrence on claims which on its face falls within the policy coverage, and the period covered by the policy, the insurer must provide a defense subject to the constraints of Burd (56 N.J. 383), unless and until a pollution exclusion or non-coverage is competent proofs. Otherwise, the insurers can continue to sell policies to haulers purporting to afford coverage and collect premiums while never having to pay a cent for either defense or indemnification. These maneuverings described by the defendants follow the "unholy mantra" of the insurance industry, as characterized by Judge Baime, that "we collect premiums; we do not pay claims." Owens-Illinois, Inc. v. United Ins. Co., 264 N. J. Super. 460, 491 (App. Div. 1993), aff'd in part, rev 'd and rem'd in part, 138 N.J. 437 (1994).
II.
Plaintiffs also argue that the Law Division Judge erred in granting defendants summary judgment on plaintiffs' claims of bad faith in the manner in which they handled plaintiffs' demands for coverage for the landfill sites. Plaintiffs do not raise this issue as to the Tabernacle site. Among their arguments are that the carriers wrongly denied coverage, took too long to issue their coverage decisions and performed inadequate investigations into the claims before issuing denials.9
An insured cannot claim that the insurer's denial of coverage was in bad faith if coverage is "fairly debatable." Pickett v. Lloyd's, 131 N.J. 457, 473 (1993). In other words, "a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and [the insurer's] knowledge or reckless disregard of the lack of a reasonable basis for denying the claim." Ibid., (citations omitted).
We are satisfied the Law Division Judge's decision on plaintiffs' bad faith claims was correct. The carrier's obligation to defend was "fairly debatable" because of the question of whether there had been an "occurrence" under the various policies. At that time, this was a reasonable basis to deny the claim where the carriers attempted to operate, although erroneously, within the framework of Burd, supra (56 N.J. 283) and Muralo, supra (334 N.J. Super. 282). At the very least, plaintiffs failed to show the defendants had knowledge or reckless disregard of a lack of reasonable basis.
Incidentally, plaintiffs also fault all the "ADS insurers" for dragging their feet in investigating the landfill claims and issuing their denials. We disagree and point out that "the insurer has no duty to investigate possible ramifications of the underlying suit that could trigger coverage." SL Indus., Inc. v. American Motorists Ins. Co., 128 N.J.
III.Plaintiffs contend that the judge erred in granting defendants summary judgment respecting coverage and duty to defend for the Tabernacle site. Although they raise numerous claims they cite two overall reasons why the judge erred: (1) there was no evidence plaintiffs intentionally discharged known hazardous substances or intended or expected the type and severity of harm that occurred; and (2) there was a fact question presented, given the state of scientific knowledge at the time, as to whether plaintiffs could have known the materials in question might cause the damage resulting.
An "occurrence" in the pollution exclusion clause should be "interpreted to preclude coverage in cases in which the insured intentionally discharges a known pollutant, irrespective of whether the resulting property damage was intended or expected." Morton int'l, Inc. v. General Accident Ins. Co. of Am., 134 N.J. 1, 78 (1993). Because in environmental cases insureds held responsible for remediation of pollution nonetheless "vary significantly in their degree of culpability for the harm caused by pollutant discharges," a general rule cannot be fashioned simply based on knowingly discharging pollutants. Id. at 86. Rather:
in environmental-coverage litigation a case-by-case analysis is required in order to determine whether, in the context of all the available evidence, "exceptional circumstances [exist] that objectively establish the insured's intent to injure." Voorhees, [v. Preferred Mut. Ins. Co., 128 N.J. 165, 185 (1992)]. Those circumstances include the duration of the discharges, whether the discharges occurred intentionally, negligently, or innocently, the quality of the insured's knowledge concerning the harmful propensities of the pollutants, whether regulatory authorities attempted to discourage or prevent the insured's conduct, and the existence of subjective knowledge concerning the possibility or likelihood of harm.
[Id. at 86-87.]
We affirm the judge's application of the Morton factors and his grant of summary judgment after finding that ADS knowingly discharged the pollutants at Tabernacle. The facts supporting his finding included the duration of the discharge as determined by the prior USX federal lawsuit, the length of time ADS allowed the drums to remain on the property, the reckless manner in which ADS deposited the barrels and allowed one barrel to break open in the process, ADS 's careful actions when storing the barrels on its own property, ADS's failure to quickly remediate the damage, ADS's specific knowledge that the barrels contained liquid waste from USX's shipping papers, and ADS's general knowledge that other landfills did not accept such wastes due to their hazardous nature.
We agree with the trial judge that these facts "[lead] to the inescapable inference that ADS knew that environmental damage would result when it dumped the drums of waste at the Tabernacle site."
Similarly, in light of the judge's additional findings submitted on April 11, 2003, plaintiffs' contentions that the judge erred in ruling that White and Carite intentionally discharged the pollutants are without merit. R. 2:11-3(e)(1)(A). We add that regardless of the state of scientific knowledge at the time regarding TCA and groundwater contamination, the plaintiffs at least knew that the dumping of these chemicals would enter the soil. Indeed, plaintiffs' expert stated "the scientific community believed that the soil would filter the chemicals." Also, Dr. Sadat stated that the chemical class in which TCA belonged was identified as a "bad actor" in 1972 and was adopted by the EPA on its pollutants list in 1976, the same year that ADS disposed of the drums at Tabernacle. Where our Supreme Court has stated "we do not consider that differences in harm relating to the severity of environmental damage give rise to a finding of 'improbability' of harm that invokes the need for evidence of subjective intent," Morton, supra, (134 N.J. at 90-91), it must be concluded that the plaintiffs' knowledge of certain environmental harm precluded them from coverage.
IV.
Based on the prior discussion, plaintiffs' remaining claims are moot, as well as the cross-appeals. However, in accordance with this opinion, a remand is required on the issue of counsel fees. See R. 4:42-9(a)(6).
Affirmed in part and reversed and remanded in part for further proceedings consistent with this opinion. The cross-appeals are dismissed. No costs to any party.
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1. A.C. Realty was one of White and Carite's corporations involved with the running of ADS, and it and other related White and Carite concerns were named insureds on some of the policies. Carite's estate was named in place of Carite, who died in the interim. Anthony Carite, Jr. was Carite's brother and involved in ADS's operations and management.
2. All plaintiffs sought coverage and indemnity for the Tabernacle site because they were all defendants in that underlying action. Only ADS was a named defendant in the landfill cases.
3 Numerous issues are raised based on the voluminous record with over 13,000 pages of appendices and twenty-eight transcripts.
4. The principals eventually sold ADS, which became known as ACR of South Jersey, Inc.
5. This definition is from the 1976 Utica policy inasmuch as the definition sections of the earlier Utica CGL policies are not in the record. Nonetheless, no one asserts that the definition differed in earlier policies, or was different in the other carriers' policies.
6. ADS also utilized a fifth landfill site, Pennsauken, but did not appeal the judge's denial of indemnification related to that site. Therefore, that issue is not before us.
7. For example, some 300 companies used the Kramer landfill.
8. Carite had died earlier in October 1991 in a plane accident
9. Although plaintiffs generalize these claims against their "carriers" or "insurers" or "defendants," the only specific claims of bad faith they address are directed against their primary insurers such as Harleysville, First State and Pennsylvania Manufacturers' and do not expressly include arguments about the excess carriers' bad faith denials.
