On certification to the Superior Court, Appellate Division, whose opinion is reported at 182 N.J. Super. 210 (1982).
For affirmance as modified -- Justices Clifford, Schreiber, Handler, Pollock and Garibaldi. For reversal -- None. The opinion of the Court was delivered by Pollock, J.
This appeal concerns the responsibility of various corporations for the cost of the cleanup and removal of mercury pollution seeping from a forty-acre tract of land into Berry's Creek, a tidal estuary of the Hackensack River that flows through the Meadowlands. The plaintiff is the State of New Jersey, Department of Environmental Protection (DEP); the primary defendants are Velsicol Chemical Corporation (Velsicol), its former subsidiary, Wood Ridge Chemical Corporation (Wood Ridge), and Ventron Corporation (Ventron), into which Wood Ridge was merged. Other defendants are F.W. Berk and Company, Inc. (Berk), which no longer exists, United States Life Insurance Company, which was dismissed by the lower courts in an unappealed judgment, and Robert M. and Rita W. Wolf (the Wolfs), who purchased part of the polluted property from Ventron.
Beneath its surface, the tract is saturated by an estimated 268 tons of toxic waste, primarily mercury. For a stretch of several thousand feet, the concentration of mercury in Berry's Creek is the highest found in fresh water sediments in the world. The waters of the creek are contaminated by the compound methyl mercury, which continues to be released as the mercury interacts with other elements. Due to depleted oxygen levels, fish no
longer inhabit Berry's Creek, but are present only when swept in by the tide and, thus, irreversibly toxified.
The contamination at Berry's Creek results from mercury processing operations carried on at the site for almost fifty years. In March, 1976, DEP filed a complaint against Ventron, Wood Ridge, Velsicol, Berk, and the Wolfs, charging them with violating the "New Jersey Water Quality Improvement Act of 1971," N.J.S.A. 58:10-23.1 to -23.10, and N.J.S.A. 23:5-28, and further, with creating or maintaining a nuisance. The defendants cross-claimed against each other; Velsicol and Ventron counterclaimed against DEP, which amended its complaint to allege the violation of the "Spill Compensation and Control Act" (Spill Act), N.J.S.A. 58:10-23.11 to -23.11z (repealing N.J.S.A. 58:10-23.1 to -23.10), enacted in 1977. The Spill Compensation Fund (Fund), created by the Spill Act to provide funds to abate toxic nuisances, N.J.S.A. 58:10-23.11i, intervened.
Because of issues related to the liability of the Fund, a number of its contributors (Mobil Oil Corporation; Chevron U.S.A., Inc.; Texaco, Inc.; and Exxon Company, U.S.A.) filed a complaint, later consolidated with the present action, seeking a declaratory judgment that the Spill Act not be retroactively applied to discharges of toxic wastes occurring before the effective date of the act.
After a fifty-five-day trial, the trial court determined that Berk and Wood Ridge were jointly liable for the cleanup and removal of the mercury; that Velsicol and Ventron were severally liable for half of the costs; that the Wolfs were not liable; and that, while the Spill Act liability provisions did not apply retroactively, monies from the Fund should be made available. The trial court also granted judgment in favor of the Wolfs on their cross-claim against Ventron for fraudulent nondisclosure of mercury pollution in the sale of part of the tract. That judgment included an award of costs and counsel fees incurred by the Wolfs in their defense of the DEP action. Following the entry of judgment, the trial court entered a "Procedural Order
Involving Remedy," which approved for submission to the United States Army Corps of Engineers the DEP plan for the cleanup of Berry's Creek.
The Appellate Division substantially affirmed the judgment, but modified it in several respects, including the imposition of joint and several liability on Ventron and Velsicol for all costs incurred in the cleanup and removal of the mercury pollution in Berry's Creek. 182 N.J. Super. 210, 224-26 (1981). Because of an amendment to the Spill Act after the trial, the Appellate Division further modified the judgment by imposing retroactive liability under the act on Wood Ridge, Velsicol, and Ventron. Id. at 219-22. Furthermore, the Appellate Division precluded payments from the Fund if other sources were available to pay for the cleanup, id. at 228, and approved the future monitoring of Berry's Creek at the expense of Velsicol and Ventron. Id. at 229.
We granted certification to consider the retroactive application of the Spill Act, the liability of Velsicol for the removal of mercury pollution in Berry's Creek, and the liability, including costs and counsel fees, of Ventron to the Wolfs for fraudulent non-disclosure. 91 N.J. 195 (1982). Thereafter we denied motions by Wood Ridge, Velsicol, and Ventron to stay the enforcement of the judgment. We modify and affirm the judgment of the Appellate Division.
From 1929 to 1960, first as lessee and then as owner of the entire forty-acre tract, Berk operated a mercury processing plant, dumping untreated waste material and allowing mercury-laden effluent to drain on the tract. Berk continued uninterrupted operations until 1960, at which time it sold its assets to Wood Ridge and ceased its corporate existence.
In 1960, Velsicol formed Wood Ridge as a wholly-owned subsidiary for the sole purpose of purchasing Berk's assets and operating the mercury processing plant. In 1967, Wood Ridge
subdivided the tract and declared a thirty-three-acre land dividend to Velsicol, which continued to permit Wood Ridge to dump material on the thirty-three acres. As a Velsicol subsidiary, Wood Ridge continued to operate the processing plant on the 7.1-acre tract from 1960 to 1968, when Velsicol sold Wood Ridge to Ventron.
Although Velsicol created Wood Ridge as a separate corporate entity, the trial court found that Velsicol treated it not as an independent subsidiary, but as a division. From the time of Wood Ridge's incorporation until the sale of its capital stock to Ventron, Velsicol owned 100% of the Wood Ridge stock. All directors of Wood Ridge were officers of Velsicol, and the Wood Ridge board of directors met monthly in the Velsicol offices in Chicago. At the meetings, the board not only reviewed financial statements, products development, and public relations, but also the details of the daily operations of Wood Ridge. For example, the Wood Ridge board considered in detail personnel practices, sales efforts, and production. Velsicol arranged for insurance coverage, accounting, and credit approvals for Wood Ridge. Without spelling out all the details, we find that the record amply supports the conclusion of the trial court that "Velsicol personnel, directors, and officers were constantly involved in the day-to-day operations of the business of [Wood Ridge]."
In 1968, Velsicol sold 100% of the Wood Ridge stock to Ventron, which began to consider a course of treatment for plant wastes. Until this time, the waste had been allowed to course over the land through open drainage ditches. In March 1968, Ventron engaged the firm of Metcalf & Eddy to study the effects of mercury on the land, and three months later, Ventron constructed a weir to aid in monitoring the effluent.
Ventron's action was consistent with a heightened sensitivity in the 1960's to pollution problems. Starting in the mid-1960's, DEP began testing effluent on the tract, but did not take any action against Wood Ridge. The trial court found, in fact, that
the defendants were not liable under intentional tort or negligence theories.
Nonetheless, in 1970, the contamination at Berry's Creek came to the attention of the United States Environmental Protection Agency (EPA), which conducted a test of Wood Ridge's waste water. The tests indicated that the effluent carried two to four pounds of mercury into Berry's Creek each day. Later that year, Wood Ridge installed a waste treatment system that abated, but did not altogether halt, the flow of mercury into the creek. The operations of the plant continued until 1974, at which time Wood Ridge merged into Ventron. Consistent with N.J.S.A. 14A:10-6(e), the certificate of ownership and merger provided that Ventron would assume the liabilities and obligations of Wood Ridge. Ventron terminated the plant operations and sold the movable operating assets to Troy Chemical Company, not a party to these proceedings.
On February 5, 1974, Wood Ridge granted to Robert Wolf, a commercial real estate developer, an option to purchase the 7.1-acre tract on which the plant was located, and on May 20, 1974, Ventron conveyed the tract to the Wolfs. The Wolfs planned to demolish the plant and construct a warehousing facility. In the course of the demolition, mercury-contaminated water was used to wet down the structures and allowed to run into the creek. The problem came to the attention of DEP, which ordered a halt to the demolition, pending adequate removal or containment of the contamination. DEP proposed a containment plan, but the Wolfs implemented another plan and proceeded with their project. DEP then instituted this action.
Although Wolf knew he was buying from a chemical company land that had been the site of a mercury processing plant, Ventron knew other material facts that it did not disclose to the Wolfs. Ventron knew that the site was a man-made mercury mine. From a study conducted by Metcalf & Eddy at Ventron's request in 1972, Ventron knew the mercury content of the soil. Although the soil and water adjacent to the plant were still
contaminated in 1974, that fact was not readily observable to the Wolfs, and Ventron intentionally failed to advise the Wolfs of the condition of the site and to provide them with the relevant part of the Metcalf & Eddy report. Based on these factual findings, the lower courts concluded that Ventron fraudulently concealed material facts from the Wolfs to their detriment. The trial court limited damages, however, to the recovery of the actual costs of the containment system on the 7.1-acre tract and other costs of abating the pollution. In affirming, the Appellate Division extended damages to include diminution in the fair market value of the premises below the purchase price because of the undisclosed mercury contamination. Both courts awarded to the Wolfs those counsel fees and costs incurred in defending the DEP action.
The trial court concluded that the entire tract and Berry's Creek are polluted and that additional mercury from the tract has reached, and may continue to reach, the creek via ground and surface waters. Every operator of the mercury processing plant contributed to the pollution; while the plant was in operation, the discharge of effluent resulted in a dangerous and hazardous mercurial content in Berry's Creek. The trial court found that from 1960-74 the dangers of mercury were becoming better known and that Berk, Wood Ridge, Velsicol, and Ventron knew of those dangers. Furthermore, the lower courts concluded that Velsicol so dominated Wood Ridge as to justify disregarding the separate entity of that corporation and imposing liability on Velsicol for the acts of Wood Ridge. Those courts also found that Ventron assumed all of Wood Ridge's liabilities in their merger. Based on those findings, the lower courts concluded that Berk, Wood Ridge, Velsicol, and Ventron were liable for damages caused by the creation of a public nuisance and the conduct of an abnormally dangerous activity. 182 N.J. Super. at 219.
The trial court also determined that the 1977 Spill Act did not impose retroactive liability for discharges of mercury into a waterway of the State. After the entry of the judgment,
however, the Legislature amended the act to impose retroactive strict liability on "[a]ny person who has discharged a hazardous substance or is in any way responsible for any hazardous substance" being removed by DEP. See N.J.S.A. 58:10-23.11g(c).
Exercising its original jurisdiction under R. 2:10-5, the Appellate Division found "overwhelming evidence of mercury pollution in the sediments and waters of Berry's Creek and its substantial and imminent threat to the environment, to marine life and to human health and safety." 182 N.J. Super. at 221. Consequently, the Appellate Division held Wood Ridge jointly and severally liable under the 1979 amendment to the Spill Act.
The lower courts imposed strict liability on Wood Ridge under common-law principles for causing a public nuisance and for "unleashing a dangerous substance during non-natural use of the land." 182 N.J. Super. at 219. In imposing strict liability, those courts relied substantially on the early English decision of Rylands v. Fletcher, L.R. 1 Ex. 265 (1866), aff'd, L.R. 3 H.L. 330 (1868). An early decision of the former Supreme Court, Marshall v. Welwood, 38 N.J.L. 339 (Sup.Ct.1876), however, rejected Rylands v. Fletcher. But see City of Bridgeton v. B.P. Oil, Inc., 146 N.J. Super. 169, 179 (Law Div.1976) (landowner is liable under Rylands for an oil spill).
Twenty-one years ago, without referring to either Marshall v. Welwood or Rylands v. Fletcher, this Court adopted the proposition that "an ultrahazardous activity which introduces an unusual danger into the community . . . should pay its own way in the event it actually causes damage to others." Berg v. Reaction Motors Div., Thiokol Chem. Corp., 37 N.J. 396, 410 (1962). Dean Prosser views Berg as accepting a statement of principle derived from Rylands. W. Prosser, Law of Torts § 78 at 509 & n. 7 (4th ed. 1971).
In imposing liability on a landowner for an ultrahazardous activity, Berg adopted the test of the Restatement of the Law of
Torts (1938). See id., §§ 519-20. Since Berg, the Restatement (Second) of the Law of Torts (1977) has replaced the "ultrahazardous" standard with one predicated on whether the activity is "abnormally dangerous." Imposition of liability on a landowner for "abnormally dangerous" activities incorporates, in effect, the Rylands test. Restatement (Second) § 520, comments (d) & (e).
We believe it is time to recognize expressly that the law of liability has evolved so that a landowner is strictly liable to others for harm caused by toxic wastes that are stored on his property and flow onto the property of others. Therefore, we overrule Marshall v. Welwood and adopt the principle of liability originally declared in Rylands v. Fletcher. The net result is that those who use, or permit others to use, land for the conduct of abnormally dangerous activities are strictly liable for ...