Summer 1998
Volume 7, No. 1
New Brownfield Law Provides 75% Reimbursement of Remediation Costs
by
Leah C. Healey, Esq.
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Inheritance of Contaminated Properties - A Legacy to Defend?
by Todd L. Normane, Esq.
The clients who, only a few years ago, believed they had discovered the proverbial pot of gold at the end of the rainbow when a wealthy relative remembered them in her will and made them the proud owner of industrial real estate, may soon discover that the reach of environmental liability is not deterred by death.
The undiscovered legacy of contaminated property may be encountered in many ways. Government action is the normal catalyst for all situations which require an analysis of environmental liability, whether directed to the remediation of a site, cost recovery actions against potentially responsible parties or the genesis of litigation which causes third parties to seek contribution against other responsible parties. Whatever the impetus, the liability of the beneficiaries to the estate must be carefully scrutinized.
Under state law, the most common situation will arise in the context of the Industrial Site Recovery Act, N.J.S.A. 13:1K-6, et seq., (ISRA) and the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11a, et seq., ("Spill Act"). The ISRA mechanism imposes a cleanup obligation on the owner or operator upon the transfer or closing of an industrial establishment. ISRA specifically exempts most intra-family transfers as well as transfers due to devise or intestate succession from its requirements. In the event of a closing or transfer of the industrial establishment while held by an estate or trust, ISRA recognizes the estate or trust as the "owner or operator" of the establishment and holds the estate liable for remediating the contaminated property only to the extent of the assets contained in the trust or estate.
The Spill Act provides the most expansive definition of liability for contamination under state law; though it does contain an innocent purchaser defense to liability which includes protection for persons that acquire property by devise or succession. The Spill Act's generosity, however, is not absolute since the beneficiary's liability will still extend to "any funds or property received by that person from the deceased real property owner who discharged a hazardous substance or was in any way responsible for a hazardous substance."
Federal law provides new and different challenges to resolving beneficiary liability due to the complexity of the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. ?9601, et seq., (CERCLA) The Courts have generally determined that the CERCLA framework applies to a decedent's estate as well as the beneficiaries of that estate. While the battle of applicability is assumed lost, the liability war is not over. CERCLA provides an innocent landowner defense similar to that available under the Spill Act, but it creates a higher threshold to establish the defense. The beneficiary must establish that a third party caused the contamination, that the beneficiary exercised due care with respect to the hazardous substance and that the beneficiary took precautions against the foreseeable acts of the third party. Notwithstanding the foregoing three-prong test, the determination of whether a landowner qualifies as innocent is made on a subjective basis and, therefore, it is possible that a beneficiary may do nothing and still be found to be innocent.
Other avenues which may warrant explanation in the CERCLA analysis include whether CERCLA preempts state nonclaim statutes, the applicability of statutes of limitations or repose, the potential liability of the trustee and potential contribution claims against third parties.
For all of these reasons, the beneficiary of an estate which includes an interest in real property must be prepared to defend against potential liability in the same manner that one would in cases where the interest is obtained through an arms-length transaction. Though Black's Law Dictionary defines a beneficiary as, "one who benefits from the act of another," it seems that we need a different working definition when the beneficiary must address the legacy of environmental liability that comes with inheritance.
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Wearing the Hat of the Subsidiary to Protect the Parent Corporation from Direct Liability Under CERCLA
by
Brent T. Carney, Esq.
Under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. ? 9601, et seq., any person owning or operating a facility at the time a hazardous substance is released to the environment in an unsanctioned manner is strictly liable for the removal and remediation costs associated with the resulting clean-up. Traditionally, however, parent corporations have been immune from direct liability under CERCLA and shielded from derivative liability arising from the acts of their subsidiary except in cases where the corporate veil is pierced. Thus, courts holding parent corporations derivatively liable under CERCLA for the polluting activities of their subsidiaries traditionally engage in a veil piercing analysis to determine whether the parent pervasively controlled the subsidiary so as to commit fraud on the corporate parent's behalf.
Recently, however, the United States Supreme Court, in United States v. Bestfoods, 1998 WL 292076 (June 8, 1998), held that, in addition to the possibility of a parent corporation being held derivatively liable under CERCLA (and provided that the corporate veil is pierced), a parent corporation may also be held directly liable under CERCLA as an operator regardless of the parent-subsidiary relationship if an employee, officer, or director of the parent corporation actively engages in the environmental affairs of the subsidiary's facility while wearing the "hat" of the parent corporation.
It is traditionally held to be entirely appropriate for a director of a parent corporation to serve simultaneously as a director of its subsidiary without exposing the parent corporation to liability for its subsidiary's acts. In fact, there is a presumption in the law that directors and officers holding positions with a parent and its subsidiary can and do change hats to represent the two corporations separately, despite their common ownership. In order for this presumption to be rebutted, it must be shown that the dual officer claiming to have acted on behalf of the subsidiary, in fact, acted plainly contrary to the interests of the subsidiary and for the benefit of the parent.
However, if the agent of the parent only wears the hat of the parent, then there is no presumption to rebut and the parent corporation is exposing itself to direct liability under CERCLA as an operator. For example, if the parent corporation's environmental compliance officer is not an employee, officer, or director of the subsidiary, but actively participates or advises the subsidiary on environmental matters, the parent is exposing itself to direct liability under CERCLA as an operator if there is a release of a hazardous substance at the subsidiary's facility.
Therefore, in order to mitigate against a parent corporation's potential exposure to direct liability under CERCLA, the parent corporation should ensure that the employees that actively control the environmental affairs of its subsidiary facility are neither employees, officers, nor directors of the parent corporation. Short of this, the parent corporation should ensure that the employees actively controlling the environmental affairs of a subsidiary's facility are dual agents of the subsidiary and the parent corporation so as to create a common law presumption that the environmental actions taking place at the subsidiary's facility are directed under the subsidiary corporate hat.
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Exploring the Constitutional Treatment of Industrial Wastewater
by
Christopher H. Falcon, Esq.
In a case of potentially far-reaching implications, Maraziti, Falcon & Healey is defending the Hanover Sewerage Authority (HSA) in a case brought against it in the United States District Court by an industrial user claiming a right to truck its industrial wastewater for disposal outside of the HSA service area. In Cargille Tab Pro Corp. v. Hanover Sewerage Authority, the plaintiff has claimed that in requiring it to discharge its industrial wastewater to the local treatment works, its federally protected constitutional rights have been violated by HSA.
Like most municipalities, sewerage, and water authorities, the HSA has a requirement that properties with reasonable access to the public infrastructure constructed by it, connect and discharge to it the wastewater generated at the properties. This requirement arises from essentially two motivating factors. The first factor relates to the usage and revenue assumptions which underlie the methods of planning and financing the construction of these facilities. To both raise revenue through the issuance of bonds as well as to justify the receipt of federal and state financing, the local units of government have to substantiate a projected use of the facility. The second factor relates to the reality that once in place, there needs to be some assurance that the facility will continue to generate the revenue needed to support its debt service and operation. In preliminary rulings, the Court has found that the local authorities, and inferentially the municipalities, lack the legal authority to require use of the local sewerage systems and that requiring their use contravenes the property owner's constitutional rights. In the pending case, Cargille has advanced the concept that these local units of government are, thus, potentially subject to the assessment of damages under Section 1983 of the United States Code.
Suffice it to say that at present, long-held understandings as to the requirements of the law and of the enactments of local authorities pursuant to the law's dictates are being tested in this litigation. We will keep our readers posted as to future rulings.
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