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In re Adoption of N.J.A.C. 7 26B. Public Interest Research Group of New Jersey

Decided: May 6, 1991.

IN RE ADOPTION OF N.J.A.C. 7:26B. PUBLIC INTEREST RESEARCH GROUP OF NEW JERSEY, NEW JERSEY ENVIRONMENTAL LOBBY, KEITH ONSDORFF, SOCIETY FOR ENVIRONMENTAL ECONOMIC DEVELOPMENT, CHEMICAL INDUSTRY COUNCIL OF NEW JERSEY, ASHLAND CHEMICAL COMPANY AND COOPER INDUSTRIES, INC., APPELLANTS,
v.
NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION, RESPONDENT



On appeal from the Commissioner of the Department of Environmental Protection.

King, R.s. Cohen and Stern. The opinion of the court was delivered by King, P.J.A.D.

King

[250 NJSuper Page 197] This is a challenge by industry and environmental appellants to regulations promulgated by the Department of Environmental

Protection (DEP) to implement the Environmental Cleanup Responsibility Act (ECRA or the Act), N.J.S.A. 13:1K-6 to -14, L. 1983, c. 330. ECRA imposes responsibilities on owners and operators of industrial establishments as a precondition for the sale, transfer, or termination of operations at these facilities.

In this matter the Society for Environmental Economic Development, Chemical Industry Council of New Jersey, Ashland Chemical Company and Cooper Industries, Inc. (industry appellants) have lodged broad-based attacks on several sections of the regulations, particularly those sections which "trigger" operation of the Act. The Public Interest Research Group of New Jersey, the New Jersey Environmental Lobby, and Keith Onsdorff (environmental appellants), present a more limited challenge to the regulations which exempt from ECRA certain intra-family transfers and partial conveyances.

Industry appellants contend that DEP is without statutory authority to issue these "business-oriented" regulations, that the regulations are not entitled to any presumption of validity because they are beyond the scope of DEP's special expertise, and that they violate the Commerce Clause as an impermissible burden on interstate commerce because they provide that transactions by an out-of-state parent corporation may impose ECRA obligations on an industrial establishment in New Jersey owned by that parent corporation. In addition, industrial appellants contend that several specific provisions of the regulations -- primarily those regulations which define and elaborate on the transactions which trigger ECRA -- impermissibly expand the scope of the statute and apply it to situations remote from the actual transfer or sale of an industrial establishment.

Specifically, industrial appellants attack regulations which: (1) provide that certain transactions involving a parent corporation trigger ECRA obligations with respect to an industrial establishment owned or operated by a subsidiary of the parent; (2) define the statutory trigger "proceeding through which an industrial establishment becomes nonoperational for health or

safety reasons" as including temporary closing for fires, explosions or other events; (3) apply ECRA to some situations where only a portion of the real property of the establishment is conveyed; and (4) define such terms as "sale of the controlling share of the assets" of a corporation, a statutory ECRA trigger. Appellants also attack regulations which hold that ECRA is applicable to any sale of a general partnership interest, as well as certain sales of limited partnership interests, in a partnership which operates an industrial establishment and regulations which require the "cleanup plan" required by ECRA to include measures for remedying contamination not actually on the site of the industrial establishment.

This is the procedural background of these challenged regulations. On May 4, 1987, DEP published proposed rules which were designed to implement ECRA, 19 N.J.R. 681(a). Public hearings on the proposed regulations were held in June, 1987; written comments were also accepted. On November 30, 1987 the Commissioner of DEP adopted these regulations and the notice of adoption was published on December 21, 1987, 19 N.J.R. 2435(a).

In January 1988, the industry appellants filed appeals challenging these regulations (hereafter "prior regulations"). The environmental appellants also filed a joint notice of appeal challenging the regulations on February 4, 1988. The appeals were consolidated by us on February 22, 1988.

DEP moved on September 21, 1988 to remand the matter to allow it to reconsider the prior regulations and develop revised regulations after consultation with appellants. We granted DEP's motion on October 20, 1988 and directed that the proceedings on remand be completed, as proposed by DEP, by March 1, 1989.

After consultation with appellant, DEP proposed amendments to the prior rules on February 21, 1989, 21 N.J.R. 596(a). On February 10, 1989, DEP requested an extension of time until June 30, 1989 to complete its rulemaking process. We

granted this request on April 10, 1989. Revised rules were adopted by DEP on June 30, 1989, and published in the New Jersey Register on August 7, 1989, 21 N.J.R. 2367(a). This appeal followed.

Table of Contents

Page

I - Review of ECRA 200

II - Standards of Review for ECRA "Trigger" 204

Regulations

III - Parent-Subsidiary Triggers 207

IV - Regulation Defining "Corporate Reorganiza- 216

tion"

V - Regulation Defining "Controlling Interest" 218

VI - Regulation Defining "Cessation of All Opera- 223

tions"

VI(A) - Standards Needed for Nonapplicability Provi- 225

sion, N.J.A.C. 7:26B-1.9

VII - Closures for Health or Safety Reasons under 230

N.J.S.A. 13:1K-8b

VIII - Sales of Partnerships Triggers 232

IX - Changes in SIC Number Triggers 238

X - Regulation Defining "Sale of Controlling 240

Share of Assets"

XI - ECRA as "Site Specific" 243

XII - Regulations on Condemnations as "Triggers" 246

XIII - Regulation Defining "Industrial Establish- 249

ment"

XIV - The Commerce Clause Challenge 252

XV - Regulations Exempting Intrafamily Trans- 254

fers

Conclusion 255

I

A General Review of ECRA

A brief review of ECRA and its regulatory progeny is useful in understanding the Act. "A determination of responsibility for contamination plays no part in the ECRA process." Dixon Venture v. Joseph Dixon Crucible, Co., 235 N.J. Super. 105, 109, 561 A.2d 663 (App.Div.1989), modified and aff'd, 122 N.J.

228, 584 A.2d 797 (1991). ECRA was designed to impose a "self-executing duty to remediate without the necessity and delay of a determination as to liability for the contamination" upon closure, sale or transfer of certain potentially polluted properties. Superior Air Prod. v. NL Indus., Inc., 216 N.J. Super. 46, 62-63, 522 A.2d 1025 (App.Div.1987). Environmental cleanup, or firm arrangements for such remediation, was a precondition of the land transaction and was under the control of DEP.

Our Supreme Court recently stated as to ECRA:

ECRA is quite unlike other environmental regimes in that it uses market forces to bring about the reversal of environmental pollution. It recognizes that some environmental conditions not posing an imminent hazard to air or water resources of the state may safely attend economic activities. Thus, ECRA does not impose an independent duty to clean up the property during a period of operation, although the owner cannot walk away from the scene after deciding to cease operations. But, absent provisions in the contract, in the event of sale, under ECRA the seller assumes the risks of compliance. [ Dixon Venture v. Joseph Dixon Crucible, Co., 122 N.J. at 231-232, 584 A.2d 797.]

N.J.S.A. 13:1K-7 sets forth the legislative findings which resulted in the enactment of ECRA: the legislation was prompted by a concern that the generation, handling, storage and disposal of hazardous wastes posed an inherent danger to the citizens, property and natural resources of the State. The Legislature determined that it was necessary to ensure that appropriate cleanup procedures be implemented as a precondition for the closure or transfer of facilities involved in these activities. Ibid. The only legislative history for ECRA is the "Senate Energy and State Energy and Environmental Committee Statement" for Assembly No. 1231-L. 1983, c. 330. See Schmidt, "New Jersey's Experience Implementing The Environmental Cleanup Responsibility Act," 38 Rutgers L.Rev. 729, 744, n. 79 (1986). This statement is included after N.J.S.A. 13:1K-6 and outlines the theory of the Act. For other comments on the Act see generally: Farer, "ECRA Verdict: The Successes and Failures of the Premiere Transaction-Triggered Environmental Law," 5 Pace Envir.L.Rev. 113 (1987); Note,

"The Environmental Cleanup Responsibility Act," 8 Seton Hall Leg.J. 331 (1984-1985).

N.J.S.A. 13:1K-8, the definitional section of the Act, delineates those industrial establishments which are subject to the Act, and those cessations, transfers or terminations of operations which trigger the Act. Only businesses which have a Standard Industrial Classification Number (SIC) as set forth in N.J.S.A. 13:1K-8f are subject to the Act. SIC numbers are set forth in a SIC manual prepared by the federal Office of Management and Budget. N.J.S.A. 13:1K-8f. This section also defines the "cleanup plan" which must be approved by DEP when ECRA applies to a particular transaction.

N.J.S.A. 13:1K-9 requires that upon closing or cessation of operations an owner or operator of an industrial establishment must submit either a cleanup plan or a "negative declaration" to DEP. The latter is a statement by the owner, subject to approval by DEP, that there has been no discharge of hazardous substances on the site or that any discharge has been cleaned up in accordance with procedures approved by the Department. N.J.S.A. 13:1K-8a. N.J.S.A. 13:1K-10, as will be discussed in more detail, gave DEP the authority to adopt regulations to implement the Act and directs it to review cleanup plans and negative declarations on a case-by-case basis until such regulations are adopted.

N.J.S.A. 13:1K-11 specifies that the transfer of an industrial establishment is contingent on implementation of the Act, although this section also provides that implementation of a cleanup plan may be deferred upon approval of DEP if the transferee plans to continue the previous use of the property. One commentator tells us that DEP has "flatly refused" to use this provision permitting deferral of cleanup when the use remains the same after transfer. Farer, supra, 5 Pace Envtl.L.Rev. at 124 n. 45. Failure of the transferor to comply with the Act is grounds for voiding the sale or transfer and renders the owner or operator strictly liable for all cleanup and removal

costs and all direct and indirect damages resulting from failure to implement a cleanup plan. DEP has the authority to void transactions for failure to submit a negative declaration or a cleanup plan. N.J.S.A. 13:1K-13b.

ECRA became operative on December 31, 1983. L. 1983, c. 330, ยง 11, see historical note following N.J.S.A. 13:1K-6. On December 30, 1983, DEP filed interim ECRA regulations which were adopted on an emergency basis. 16 N.J.R. 151(a). These regulations were formally promulgated on March 19, 1984 but were still denominated "interim" regulations. With respect to the transactions which triggered the Act -- i.e., cessation, termination or transfer of operations -- those regulations essentially tracked the statute and did not further define those terms as do the regulations under review here.

During this period when the interim regulations were in effect, DEP became involved in the practice of issuing "letters of nonapplicability" in which DEP declared, after reviewing submissions by the regulated community, that a particular business or a particular transaction was not subject to ECRA. See also In re Robert L. Mitchell Technical Center, 223 N.J. Super. 166, 168-169, 538 A.2d 410 (App.Div.), certif. denied, 111 N.J. 605, 546 A.2d 526 (1988); see Schmidt, supra, 38 Rutgers L.Rev. at 746-748 (1986).

According to DEP, it built on the "general policies and procedures" developed in this process in issuing the regulations under challenge here. The current regulations specifically provide for procedures for obtaining a letter of non-applicability, see N.J.A.C. 7:26B-1.9. In addition, as DEP emphasizes in responding to several of the industry appellants' challenges to specific sections of the regulations, individuals may in many cases seek to obtain a letter of non-applicability even in circumstances where the regulations literally require that a particular business or particular transaction is subject to ECRA. See N.J.A.C. 7:26B-1.5(b)1-6 (various corporate events -- e.g., certain sales of stock -- trigger ECRA unless the Department determines

otherwise pursuant to N.J.A.C. 7:26B-1.9). DEP has repeatedly emphasized to us that the availability of N.J.A.C. 7:26B-1.9 is a regulatory solution which, on the one hand, ensures that no situations potentially subject to ECRA escape environmental review and, on the other hand, prevents the broadly written ECRA regulations from effecting unanticipated factual scenarios not intended by the Legislature or DEP.

These regulations essentially allow a member of the regulated community the opportunity to contend that ECRA should not be applied to a particular business or transaction, but they do not contain any specific criteria for when particular sections should or should not apply. The lack of standards is the weakness in the scheme. The nonapplicability section states in pertinent part:

(a) In order to obtain a determination from the Department concerning the applicability of the Act or this chapter to a specific site . . . a person shall:

1. Submit a completed and notarized applicability determination form available from the Department, executed by the owner or operator, to the address specified at N.J.A.C. 7:26B-1.11;

2. Submit the fee set forth at N.J.A.C. 7:26B-1.10 required for applicability determinations;

3. Grant written permission allowing the Department to enter and inspect the site and operations for which the applicability determination is requested pursuant to N.J.A.C. 7:26B-1.12; and

4. Demonstrate, to the Department's satisfaction that the Act or this chapter is not applicable. [ N.J.A.C. 7:26B-1.9].

In the context of this nonapplicability section, DEP urges approval of these broadly drafted regulations. We conclude that these expansive "trigger" regulations are acceptable only if appropriate standards in the "nonapplicability" regulation, N.J.A.C. 7:26B-1.9, are adopted. Thus our decision today, in part, directs a remand for formulation of reasonable standards for nonapplicability, as discussed in VI(A) post.

II

Standard of Review for ECRA "Trigger" Regulations

A threshold concern in this matter is the degree of deference to be accorded to DEP's ECRA regulations. The

industry appellants argue that because the regulations, or the portions which they challenge, involve business and corporate matters, they are outside the scope of DEP's traditional expertise and are not entitled to a presumption of validity. They also use the same reasoning in part to argue that DEP is without any implied statutory authorization under ECRA to issue these business-oriented regulations.

DEP counters that administrative regulations are entitled to a presumption of validity unless there is a clear showing that there is no statutory authorization for them. DEP also contends that ECRA should be liberally construed, that regulations intended to protect the health and general welfare are generally given a liberal interpretation, and that, contrary to appellants' assertion, ECRA and its regulations are primarily environmental in nature, rather than business-oriented controls.

We conclude that DEP is indeed statutorily authorized to promulgate regulations under ECRA which may define and impact on certain business transactions and that the regulations under challenge here are entitled to the same deference usually accorded by this court to administrative regulations. In re Amendment of N.J.A.C. 8:31B-3.31, 119 N.J. 531, 543-544, 575 A.2d 481 (1990); see A.A. Mastrangelo, Inc. v. DEP, 90 N.J. 666, 683, 449 A.2d 516 (1982), quoting Motyka v. McCorkle, 58 N.J. 165, 181, 276 A.2d 129 (1971) (administrative regulations are customarily afforded a rebuttable presumption of validity).

An administrative agency derives its authority to promulgate regulations from its enabling legislation and, in addition, may be found to have those incidental powers which are reasonably necessary to enable it to accomplish its statutory responsibilities. New Jersey Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 562, 384 A.2d 795 (1978). DEP adopted its regulations pursuant to N.J.S.A. 13:1K-10a:

The department shall, pursuant to the "Administrative Procedure Act," P.L.1968, c. 410 (C. 52:14B-1 et seq.), adopt rules and regulations establishing: minimum standards for soil, groundwater and surface water quality necessary for the detoxification of the site of an industrial establishment, including

buildings and equipment, to ensure that the potential for harm to public health and safety is minimized to the maximum extent practicable, taking into consideration the location of the site and surrounding ambient conditions; criteria necessary for the evaluation and approval of cleanup plans; a fee schedule, as necessary, reflecting the actual costs associated with the review of negative declarations and cleanup plans; and any other provisions or procedures necessary to implement this act. [Emphasis added].

In our view, appellants are unpersuasive in arguing that DEP's regulations are authorized and entitled to deference only when they deal with specifically or uniquely environmental issues, such as soil or groundwater standards. The statute itself expressly gives DEP the power to promulgate such regulations as it believes are necessary to implement the Act and this general language appears to permit both specifically environmental regulations and other regulations which, in the opinion of DEP, are necessary to implement or prevent evasion of the Act. Indeed, DEP has responded to many of appellants' challenges to specific regulations by explaining that they are necessary to prevent attempts at evasion.

Appellants insist that DEP improvidently ventured into the area of business or corporate law in writing the regulations and that the regulations are entitled to no deference. We are not persuaded on this point. The statute on its face is environmentally-targeted legislation which is quite clearly intended to directly, profoundly and significantly affect business decisions concerning cessation of operations, or transfer of operations and land. In giving DEP the authority to administer the statute, the Legislature must necessarily have authorized DEP to draft regulations which to some extent trench on business or corporate matters.

In this vein, New Jersey Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 384 A.2d 795 (1978), is particularly apposite. There, the New Jersey Guild of Hearing Aid Dispensers (Guild) argued that regulations adopted by the Board of Medical Examiners impermissibly extended beyond the scope of health and safety regulation of such practitioners. The applicable enabling legislation sought to regulate the dispensing of hearing

aids, authorized the establishment of educational and licensing requirements for dispensers, and enabled the Director of Consumer Affairs to discipline licensees for certain unethical conduct. The Guild urged that regulations which governed the business aspects of hearing aid dispensing were beyond its statutory power. The regulations mandated advance disclosure and itemization in pricing, posting of a retail price on all hearing aids offered for sale, and set price guidelines for dispensing services and equipment. The Supreme Court disagreed with the Guild's position, emphasizing that such an interpretation would run counter to the mandate to liberally construe legislation intended to further the public welfare. Id. at 563, 384 A.2d 795.

This perspective is even more applicable to ECRA. Since the legislation on its face necessarily affects business decisions, we can safely assume that the Legislature intended that DEP might have to define and circumscribe certain business transactions. We conclude that the regulations in issue should be the subject of the same inquiry normally applicable to review of agency action: whether (1) the agency action violates the enabling act's express or implied legislative policies; (2) there is substantial basis in the record to support the findings upon which the agency based the application of legislative policies; and (3) in applying the legislative policies to the facts, the agency clearly erred by reaching a conclusion that could not have been reasonably made upon a showing of the relevant factors. In the Matter of Water Supply Critical Area, 233 N.J. Super. 280, 284, 558 A.2d 1321 (App.Div.1989), citing Public Service Elec. v. DEP, 101 N.J. 95, 103, 501 A.2d 125 (1985). We conclude that the agency's rulemaking generally meets this test.

III

Parent-Subsidiary Triggers

The first substantive question is whether the regulations impermissibly expand ECRA by imposing responsibility because

of changes in a parent corporation which owns an industrial subsidiary. ECRA is triggered by the closing or transfer of operations of an industrial establishment. N.J.S.A. 13:1K-7; N.J.S.A. 13:1K-9. The statute defines "closing, terminating or transferring operations" as,

b. "Closing, terminating or transferring operations" means the cessation of all operations which involve the generation, manufacture, refining, transportation, treatment, storage, handling or disposal of hazardous substances and wastes, or any temporary cessation for a period of not less than two years, or any other transaction or proceeding through which an industrial establishment becomes nonoperational for health or safety reasons or undergoes change in ownership, except for corporate reorganization not substantially affecting the ownership of the industrial establishment, including but not limited to sale of stock in the form of a statutory merger or consolidation, sale of the controlling share of the assets, the conveyance of the real property, dissolution of corporate identity, financial reorganization and initiation of bankruptcy proceedings; [ N.J.S.A. 13:1K-8b].

Appellants challenge those portions of DEP regulations which provide that ECRA is triggered by sales, transfers, or dissolutions of a parent corporation which owns or operates a subsidiary which in turn owns or operates an industrial establishment.

N.J.A.C. 7:26B-1.3 ("definitions") defines "closing or terminating or transferring operations" as, ". . . any change in ownership of the industrial establishment including, but not limited to, transfer by any means of shares of a corporation which results in a change in the controlling interest in the owner or operator. . . ." Analogous provisions in N.J.A.C. 7:26B-1.5 ("applicability") make explicit that transactions at the parent corporation level may trigger ECRA, even though the industrial establishment which may have a hazardous waste problem is owned and/or operated by a ...


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