NJ Court Decision Highlights Risks of Failing to Conduct Independent Environmental Due Diligence

NJ Court Decision Highlights Risks of Failing to Conduct Independent Environmental Due Diligence

When purchasing a commercial property, it is imperative to conduct your own environmental due diligence for any potential risk of environmental contamination…

When purchasing a commercial property, it is imperative to conduct your own environmental due diligence for any potential risk of environmental contamination. As highlighted by the New Jersey Superior Court, Appellate Division’s decision in Sunway Equity, LLC v. Suburban Propane, et. al., simply going through the motions, without conducting a thorough assessment, can lead to significant legal risks. 

In Sunway Equity, the Plaintiffs obtained and reviewed some remediation reports, but failed to review the attachments to the reports and failed to conduct their own independent environmental investigation. As a result, the Appellate Division held that Plaintiffs did not qualify as “innocent purchasers” under the New Jersey Spill Act. The court further held that Plaintiffs had waited too long to bring suit, allowing the six-year statute of limitations to run, and dismissed the claims against the property seller and seller’s environmental consultants.

Facts of the Case

In 1991, Defendant Suburban Propane, LP contracted JM Sorge, Inc. (JMS) to remove three underground fossil fuel storage tanks from Suburban’s property. After five years of remediation work by JMS, the New Jersey Department of Environmental Protection (DEP) determined that no further action was required for the soils where the tanks were located. However, it did advise that further groundwater testing for volatile organic compounds (VOC) contaminates was required. 

In 1998, JMS submitted a “Final Remedial Action Report and Classification Exception Area [(CEA)]Proposal” to the DEP. Referring to its supplemental investigation in 1996, JMS “proposed to remediate [a] relatively limited area of contaminated soil” and conduct additional groundwater sampling. Testing of the groundwater found that contamination was decreasing but still exceeded DEP quality standards. Ultimately, DEP issued a no-further-action (NFA) letter. The NFA letter imposed a CEA and well-restricted area on the property, suspending the use of groundwater within the area for fourteen years or until Suburban demonstrated that benzene contamination no longer exceeded groundwater quality standards. 

In 2000, Plaintiffs purchased the property from Suburban. The contract permitted Plaintiffs to obtain all JMS and DEP records pertinent to JMS’s remediation in Suburban possession, to have the property professionally investigated, and to terminate the contract without liability if hazardous conditions were found on the property. Several years after purchasing the property, Plaintiffs leased it to Wawa, Inc., which found contamination of various hazardous substances. 

Plaintiffs filed suit against JMS, alleging negligence and violations of the Spill Act. In their complaint, Plaintiffs argued that it was reasonably foreseeable buyers of the property would rely on the NFA letter and the 1991 reports in deciding to purchase the property, and therefore, if JMS’s reports were “negligently generated, incomplete[,] and misleading,” injury to them as subsequent buyers of the property was also reasonably foreseeable. 

Appellate Division’s Decision

The Appellate Division ruled that the trial court properly dismissed Plaintiffs’ suit as time-barred under the applicable six-year statute of limitations. The court further held that the suit should also be dismissed because JMS owed no duty to Plaintiffs with respect to its remediation work at the property. 

The Appellate Division first rejected Plaintiffs’ assertion that the tolling of the statute of limitations started in February 2016, when Wawa’s investigation uncovered contaminants in the property. According to the court, the clock began on April 11, 2000, when Plaintiffs Gail and Glen Wertheim took ownership of the property, and Plaintiffs reasonably could have known of its contamination had they exercised due diligence. As the court explained:

The contract permitted Glenn to obtain all JMS and DEP records pertinent to JMS’s remediation in Suburban possession, to have the property professionally investigated, and to terminate the contract without liability if hazardous conditions were found on the property. There is no equitable basis to toll the six-year statute of limitations period until February 2016, almost sixteen years after Gail took ownership of the property in April 2000. Simply put, plaintiffs’ conduct was unreasonable by failing to exercise contractual rights to obtain all the property’s pertinent environmental records and conduct an investigation regarding the property’s environmental condition. 

The Appellate Division also determined that even if not time-barred, the Plaintiffs’ negligence claims should be dismissed. In reaching its decision, the court found that JMS could not have foreseen reliance on any particular combination of incomplete documents that Suburban decided to submit to a buyer, or on the resulting nondisclosure of facts that JMS disclosed to Suburban and DEP. 

The Appellate Division further found “there is no fairness or policy interest in imposing a duty of care on JMS.” As the court further explained:

Finding a duty would unreasonably disregard any reliance on documented remedial actions and NFA letters. A buyer who purchases a property with a known history of contamination “as is” and without any independent investigation, in reliance on a facially incomplete record of remediation and an NFA letter that applies only to a portion of a property, does so at his or her own risk. As this describes plaintiffs’ conduct, they should not be able to pursue negligence claims against JMS. 

While the Appellate Division acknowledged that dismissal of Plaintiffs’ Spill Act claims was not being appealed, it noted that the act was relevant to evaluating the fairness or policy interests at issue. “Because plaintiffs did not conduct their own environmental assessment of the property, they cannot claim they were innocent purchasers under the Spill Act, nor can they seek invocation of comparative negligence to avoid summary judgment,” the court wrote. “Consequently, there is no fairness or policy reason to impose any duty on JMS, which remediated the property and obtained an NFA letter in accordance with its duty to Suburban, with respect to plaintiffs.”

Key Takeaway

The Appellate Division’s decision serves as an important reminder that commercial property purchasers should always conduct their own independent environmental due diligence investigation, and not simply rely upon a record of remediation or a review of remediation, which may be inaccurate or incomplete.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, John Scagnelli, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.