Who Is a “Person” Entitled to an Innocent Party Remediation Grant?

Who Is a “Person” Entitled to an Innocent Party Remediation Grant?

In Cedar Knolls 2006, LLC v. New Jersey Dept. of Environmental Protection, the Appellate Division of the New Jersey Superior Court clarified who qualifies as an “innocent party” entitled to financial assistance to remediate a contaminated property. The New Jersey appeals court held that the property’s transfer to trusts among family members did not constitute a change of ownership and, therefore, qualified the plaintiff as a “person” under the Industrial Site Recovery Act (ISRA). 

Innocent Party Grants Under the Brownfield Act

Pursuant to the Brownfield and Contaminated Site Remediation Act (Brownfield Act), a “person” who owns contaminated property may be entitled to a Hazardous Discharge Site Remediation Fund Innocent Party Grant (innocent party grant) to pay for remediation of the property. The statute provides:

A person qualifies for an innocent party grant if that person acquired the property prior to December 31, 1983 and continues to own the property until such time as the authority approves the grant, the hazardous substance or hazardous waste that was discharged at the property was not used by the person at that site, and that person certifies that he did not discharge any hazardous substance or hazardous waste at an area where a discharge is discovered. 

Transfer of Contaminated Property

The New Jersey Department of Environmental Protection (DEP) denied the request of plaintiff Cedar Knolls 2006, L.L.C. (Plaintiff or Cedar Knolls) to receive an innocent party grant for property in the Township of Hanover based on the determination that Cedar Knolls did not qualify as a person under the Brownfield Act.

In 1977, Robert Higginson purchased the property. When he passed away, he bequeathed the property to his wife, Evelyn, in two fifty-percent shares placed in two separate trusts. Less than two years later, Evelyn transferred her respective shares in the property to two separate trusts, the Evelyn B. Higginson 1996 Qualified Seven Year Annuity Trust Agreement (Seven Year Trust) and the Evelyn B. Higginson 1996 Qualified Ten Year Annuity Trust (Ten Year Trust). When the Seven Year Trust expired, the trustees transferred the trust’s interest in the property to Evelyn’s son, William. In 2006, William transferred his interest in the property to the newly created Cedar Knolls. When the Ten Year Trust expired the same day that Cedar Knolls was created, the trustees transferred the remaining fifty-percent interest in the property from the trust to William, which he simultaneously transferred to the company. Thus, Cedar Knolls became the sole owner of the property.  

Nine years later, Cedar Knolls applied to the DEP for an innocent party grant to cover the costs to remediate the contaminated property. The DEP denied the request; it determined that “Cedar Knolls is not the same ‘person’ that acquired the property prior to December 31, 1983[]” because the property was initially acquired by Robert, but is now currently owned in its entirety by Cedar Knolls.” Cedar Knolls appealed.  

Court Rules Plaintiff Qualifies as “Person”

The Appellate Division reversed the DEP’s determination, concluding that Cedar Knolls qualifies as a person that is entitled to an innocent party grant. The appeals court further determined that there was no “change in ownership” that would preclude an innocent party grant under the Industrial Site Remediation Act (ISRA), which developed from the Environmental Contamination Remediation Act. 

In reaching its decision, the Appellate Division looked to the legislative intent of the New Jersey environmental remediation statutes and concluded that the Brownfields Act and ISRA should be liberally construed. “Innocent party grants were clearly intended to help the owners of a contaminated property defray the costs of remediation if they were not responsible for the contamination and had acquired the property prior to enactment of [Environmental Contamination Remediation Act] in 1983, assuming they satisfied the other requirements,” the panel held.

The appeals court further noted that ISRA’s definitional section concerning changes of ownership “reflects the Legislature’s concern that there be a basic continuity of beneficial ownership between the entities, retention of the prior entity’s liability by the resulting entity, and preservation of the prior entity’s available assets by the resulting entity to meet its remediation responsibilities.” Accordingly, it determined that the “Legislature appears to have been more concerned with the substance of ownership and continuity than the technicalities of the legal form.”

In reversing the DEP’s final agency decision, the court highlighted that the DEP “would have us find that a transfer of a property solely among parents and a child through the vehicle of trusts do not qualify as a property eligible for a remediation innocent party grant.” It concluded such a result was not what the Legislature intended.

The Appellate Division’s broad interpretation of “person” is beneficial for owners of contaminated properties in New Jersey. It confirms that an applicant for an innocent party grant does not have to be the same entity that initially purchased the property and may have received the property from an estate or trust.

If you have any questions or if you would like to discuss the matter further, please contact me, Dan McKillop, at 201-806-3364.