No HDSRF Funds for Applications Submitted Prior to Program Elimination

New Jersey Superior Court Rules That Developer is not Entitled to HDSRF Funds for Applications Submitted Prior to Program Elimination

A New Jersey developer is not entitled to the payment of future remedial costs under the state’s former innocent party grant program because its application was not sufficiently complete prior to the termination of the program, according to the Appellate Division of the New Jersey Superior Court. However, that may not be the end of the story. According to Cedar Knolls 2006, an appeal to the Supreme Court of New Jersey is coming.

Innocent Party Grants Under the Brownfield Act

In his final days in office, Gov. Chris Christie signed legislation that removed the innocent party grant from the realm of grants offered under the Hazardous Discharge Site Remediation Fund (HDSRF). HDSRF grants and loans are available to public entities, private entities, and non-profit organizations who need financial assistance to perform a remediation pursuant to New Jersey Department of Environmental Protection’s (DEP) Site Remediation Program requirements.

Prior to the amendment, New Jersey’s Brownfield and Contaminated Site Remediation Act provided that “[g]rants may be made from the remediation fund to persons who own real property on which there has been a discharge of a hazardous substance or a hazardous waste and that person qualifies for an innocent party grant pursuant to section 28 of P.L.1993, c.139 (C.58:10B-6).” The statute defined an “innocent party” as a person who acquired the site prior to December 31, 1983; did not use hazardous substance/waste; and did not discharge any hazardous substance/waste at the area where the discharge is discovered.

Prior to the amendments to the HDSRF program, private parties who qualified as an innocent party were eligible for grants equal to 50 percent of the costs to complete certain remediation activities, with a cap of $1 million per project. Assembly Bill 1954 completely eliminated the provision providing for such funding from the Brownfield and Contaminated Site Remediation Act. With respect to its impact on pending applications, the legislation stated:

This act shall take effect immediately and shall apply to any application for financial assistance or a grant from the [innocent party grant program] pending before [the DEP] on the effective date of this act, or submitted on or after the effective date of the act, but shall not apply to any application determined to be technically eligible and recommended for funding by [the DEP] and pending before the New Jersey Economic Development Authority [(EDA)] on the effective date of this act.

Facts of the Case

Cedar Knolls is no stranger to environmental litigation involving the HDSRF.  In Cedar Knolls 2006, LLC v. New Jersey Dept. of Environmental Protection, the Appellate Division  clarified who qualifies as an “innocent party” entitled to financial assistance to remediate a contaminated property, holding 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).

Following the court’s ruling, Cedar Knolls reached out to the DEP to reactivate its previously denied grant request for an innocent party grant. On December 26, 2017, the DEP informed Cedar Knolls that its application was approved with recommended funding of $97,837.78 for past remedial costs, and “[fifty percent] of eligible costs related to future work may be added to the total recommendation amount.” (emphasis added). In response to the DEP’s request, Cedar Knolls provided the DEP with documentation for the estimated costs of future work totaling $2,159,466.38.

On January 9, 2018, the DEP issued a letter to Cedar Knolls stating it “received notice of the Appellate [Division’s September 20, 2017] decision to reverse the [DEP’s] November 2, 2015 denial” of Cedar Knolls’ application and, therefore, “revisited the Innocent Party Grant . . . request that was submitted . . . ,” and offered the company the original $97,837.78 in grant funds for incurred costs, but made no mention of future remedial costs. Seven days later, the New Jersey Legislature passed Assembly Bill 1954, and Gov. Christie signed it into law.

On February 20, the Attorney General’s Office, on behalf of the DEP, sent an e-mail to Cedar Knolls’ advising that “the descriptions and total sums for the [future] work were administratively incomplete . . . [and] required significantly more detail on the specific tasks to be performed, rather than general statements and lump sums.” The email stated further that, in light of the amendment and because the future remedial work was requested with the application for past work, the DEP “elected to review and approve the application for the [past] work and present it to the EDA on an expedited basis” in lieu of denying the entire application. At the same time, the DEP determined the application for future remedial costs was denied as incomplete.

On May 1, Cedar Knolls was formally notified of the agency’s decision denying its request for future remedial costs. The company appealed, arguing that its application was grandfathered under the amendment to the Brownfield Act. In the alternative, Cedar Knolls contended that, due to equitable considerations, the amendment should not be applied prospectively to deny its request.

Appellate Division Upholds DEP’s Denial

The Appellate Division upheld the DEP’s denial of Cedar Knolls’ application for future remedial costs. “There is … no indication that the DEP’s actions were arbitrary, capricious, or unreasonable in not approving the application for funding or submitting it,” the court held. “Hence, Cedar Knolls’ application for future costs was not grandfathered and approved for funding prior to the elimination of the innocent party grant program.”

In reaching its decision, the court acknowledged that Cedar Knolls’ application was submitted prior to the termination of the innocent party grant program and, hence, technically eligible. However, it concluded that the application was not subject to the grandfather clause because the application had not been recommended for funding or was pending before the Economic Development Authority prior to the program termination. As the panel explained:

The record demonstrates that Cedar Knolls acted immediately to reactivate its application following our decision and promptly submitted additional documentation concerning its future remedial costs after being notified by the DEP that its submission was deficient. There is, however, no indication that the DEP’s actions were arbitrary, capricious, or unreasonable in not approving the application for funding or submitting it to the DEP. Hence, Cedar Knolls’ application for future costs was not grandfathered and approved for funding prior to the elimination of the innocent party grant program.

The Appellate Division also rejected Cedar Knolls’ argument that equitable considerations warrant revival of its application. “We are sensitive to its contention that it had reasonable expectations to receive funding for the entirety of its remediation costs. Yet, we do not conclude that those expectations warrant the company’s entitlement to future remedial costs, given the Legislature’s action unfolded in the public eye and clearly directed an end of the innocent party grant program,” the court explained. “There is nothing in the record indicating that the DEP acted in bad faith and delayed its review of Cedar Knolls’ application to conserve state remediation funds by not recommending and submitting future remedial costs to the [New Jersey Economic Development Authority] for funding.”

What’s Next?

Counsel for Cedar Knoll has already publicly stated that the developer plans to appeal. The attorneys of Scarinci Hollenbeck’s Environmental Law Group will continue to monitor the case and provide updates should the New Jersey Supreme Court elect to consider the case.

If you have any questions, please contact us

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