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State, Dept. of Environmental Protection v. Standard Tank Cleaning Corp.

September 29, 1995

STATE OF NEW JERSEY, DEPARTMENT OF ENVIRONMENTAL PROTECTION, PLAINTIFF-RESPONDENT-CROSS-APPELLANT,
v.
STANDARD TANK CLEANING CORP., STANDARD MARINE SERVICES, INC., EVELYN BERMAN FRANK, AND PETER MALCOLM FRANK, DEFENDANTS-CROSS-RESPONDENTS, AND JANE KRESCH AND SUSAN FRANK, DEFENDANTS-APPELLANTS-CROSS-RESPONDENTS, AND ESTATE OF NATHAN BERMAN AND ESTATE OF MORRIS BERMAN, DEFENDANTS.



On appeal from Superior Court of New Jersey, Chancery Division, Hudson County.

Approved for Publication September 29, 1995.

Before Judges Skillman, Wallace and Kleiner. The opinion of the court was delivered by Skillman, J.A.D.

The opinion of the court was delivered by: Skillman

The opinion of the court was delivered by SKILLMAN, J.A.D.

This appeal requires us to determine the circumstances under which officers and directors of a corporation may be held personally liable for violations of the Water Pollution Control Act (WPCA), N.J.S.A. 58:10A-1 to -43, and the fairness of the trial procedures pursuant to which the appellant corporate officers were held liable for substantial monetary penalties. The other significant issue presented by this appeal is whether the WPCA authorizes the Department of Environmental Protection (DEP) to obtain an award of counsel fees for the time expended by Deputy Attorneys General in an enforcement action.

Defendant Standard Tank Cleaning Corporation (STCC) operated a treatment facility which cleaned hazardous materials stored in barges that were used to remediate oil spills on the Kill Van Kull. STCC cleaned the hazardous residue remaining in the barges by filtering the water in the barge, treating the residue, filtering the material again, and then discharging into the waterway.

On June 30, 1986, the DEP issued a New Jersey Pollution Discharge Elimination System (NJPDES) permit to STCC, which became effective on September 1, 1986.

On September 16, 1988, the DEP issued an administrative order assessing a civil administrative penalty of $175,000 upon STCC for violations of the permit. We affirmed this order in an unreported opinion, In re Standard Tank Cleaning Corp., A-2334-88T3 (Oct. 3, 1989), and the Supreme Court denied STCC's petition for certification. 121 N.J. 618 (1990).

The DEP filed this suit on May 9, 1990, alleging that STCC had failed to pay the $175,000 administrative penalty and had committedvarious additional violations of its NJPDES permit between March 1988 and December 1989. The DEP sought to enjoin STCC from operating its facility in violation of the 1988 administrative order and the permit. The complaint also sought an order requiring STCC to pay the $175,000 penalty and the imposition of additional penalties for continuing violations of the administrative order and permit. The sole defendant named in the original complaint was STCC.

The court conducted a bench trial over a five-day period between June 14, 1990, and August 1, 1990. On the first trial day, the court ordered STCC to pay the $175,000 administrative penalty imposed in 1988, and STCC complied a few days later. The DEP filed an amended complaint during trial that alleged additional violations in the period from January 1990 through April 1990. This amended complaint, like the original complaint, named only STCC as a defendant.

At the Conclusion of the trial, the court issued an oral opinion in which it concluded that STCC had violated the effluent limitations contained in its NJPDES permit on 137 occasions between May 1988 and April 1990. The court also concluded that STCC had violated the reporting requirements of its permit on 15 occasions between May 1988 and April 1990.

On September 14, 1990, the DEP moved for leave to file a second amended complaint, alleging additional violations that had occurred during the pendency of the action. This complaint also sought to add as defendants STCC's parent company, Standard Marine Services, Inc. (Standard Marine), and various officers and directors of STCC, including Evelyn Frank, Jane Kresch, Peter Frank and Susan Frank.

The court granted this motion, but by an order entered on November 9, 1990, further provided that the newly added "defendants shall not be required to file an answer" and that "all further action on the amended complaint [shall be] stayed pending further order of [the] court." This order also stated that "the penalty phase of trial shall commence on December 13, 1990," and that after it is concluded, "the trial shall continue on the liability issue of the original defendants." Due to these provisions, the active involvement in the litigation of the newly named defendants, including Susan Frank and Kresch, was delayed for a substantial period of time.

The order entered on November 9, 1990, seemed to indicate that the next phase of the case would involve solely the determination of penalties for the previously adjudicated violations. However, when the trial ultimately resumed on April 9, 1991, the DEP also presented evidence relating to the additional violations alleged in the second amended complaint, even though the only defendant then participating in the proceedings was STCC. Although a trial on these alleged additional violations was conducted over a two-day period, the trial Judge retired without making any findings of fact or Conclusions of law and without entering any further order.

The case was then transferred to another Judge, but there was a delay of nearly two years until the trial continued on June 1, 1993. It was at this stage of the litigation that the DEP first proceeded against the other defendants who had been added to the case by the order of November 9, 1990. Over these defendants' objections, the DEP read into the record substantial portions of the testimony it had presented in the prior trial proceedings involving only STCC, including testimony by witnesses who were not offered for cross-examination at this resumed trial.

At the close of the DEP's case, the court granted motions for dismissal by Evelyn Frank, Peter Frank and Standard Marine, but denied motions for dismissal by Susan Frank and Kresch. Thereafter, the court concluded that STCC had violated its permit 20 times which, added to the 152 violations adjudicated on August 1, 1990, totalled 172 violations. The court also concluded that Susan Frank and Kresch were liable for those 20 violations, but not for the 152 violations adjudicated prior to their joinder in the litigation. The court assessed STCC penalties of $3,925,000 for 157 permit violations ($25,000 for each one) and $41,825 for 15 reporting violations. Susan Frank and Kresch were each assessed penalties of $500,000 ($25,000 for each of the 20 permit violations). Finally, STCC, Kresch, and Frank were held jointly and severally liable for a $266,000 penalty based on the late payment of the 1988 administrative penalty. After a post-trial hearing, the court denied the DEP's application for an award of litigation costs.

Susan Frank and Kresch appeal from the part of the judgment imposing substantial penalties upon them individually, arguing that (1) the order permitting the DEP to file a second amended complaint adding them as defendants after the completion of a trial on liability against STCC violated the entire controversy doctrine; (2) the late amendment of the complaint adding them as defendants prejudiced their defense and consequently denied them due process; (3) the trial court erred in concluding that their participation in STCC's management provided a sufficient foundation for the imposition of personal liability for the corporation's violations of the WPCA; and (4) the court did not properly weigh all relevant factors in assessing penalties upon them individually. The DEP cross appeals, arguing that the trial court erred in dismissing its claims against Evelyn Frank, Peter Frank and Standard Marine and in denying its application for various litigation expenses, including counsel fees. The DEP also argues that the trial court erred in failing to find various additional violations by the defendants.

We conclude that the trial court did not abuse its discretion in permitting the DEP to amend its complaint to add Susan Frank and Kresch as defendants. However, we also conclude that the trial procedures under which Frank and Kresch were found personally liable for STCC's violations violated the New Jersey rules of evidence and were fundamentally unfair. Therefore, the judgments against Frank and Kresch must be reversed and the case remanded for a new trial against these defendants. On the State's cross-appeal, we conclude that the trial court properly dismissed the DEP's complaint against Standard Marine but that it erred in dismissing Evelyn Frank and Peter Frank. Therefore, the case also must be retried with respect to these defendants.We affirm the trial court's order denying the DEP's application for an award of counsel fees for time expended by Deputy Attorneys General in handling this litigation. Finally, we agree with the DEP that the trial court erred in refusing to impose additional penalties for violations of the WPCA that also constituted violations of administrative and/or court orders. Therefore, the matter must be remanded for the imposition of additional penalties upon STCC.

I

On their appeal, Susan Frank and Jane Kresch argue that the trial court violated the entire controversy doctrine by granting the DEP's motion for leave to file a second amended complaint naming them as defendants after a trial as to STCC's liability had been completed. On its cross-appeal, the DEP argues that the trial court erred in limiting Frank's and Kresch's liability to violations that were adjudicated after the second amended complaint was filed. Since these arguments both involve the DEP's late joinder of Frank and Kresch as defendants, it is appropriate to consider them together.

The DEP's original complaint, which alleged violations occurring between May 1988 and December 1989, and its first amended complaint, which alleged violations occurring between January 1990 and April 1990, named only STCC as a defendant. However, the DEP charged that STCC continued to commit violations during the period between the filing of the original complaint on May 9, 1990, and the Conclusion of the first phase of the trial on August 1, 1990. Consequently, the DEP moved for leave to file a second amended complaint which, among other things, alleged that STCC had committed twenty additional violations during the pendency of the action. See R. 4:9-4. This second amended complaint also sought to join various additional defendants, including Frank and Kresch.

The trial court granted the DEP's motion for leave to file this second amended complaint. In rejecting the argument that it would be unfair to join additional defendants after substantial portions of the case had already been tried, the court stated:

I am satisfied that substantial Justice dictates that the amendment be granted to permit DEP to pursue its case against those parties it feels are responsible for the violations in issue. At the same time, I will ensure as best I can that defendants will not be prejudiced and will afford defendants an opportunity to pursue the same kind of discovery that was afforded the original defendants to meet DEP's proof against it in Court with a full opportunity for direct and cross examination.

The applicability of the entire controversy doctrine turns on whether "parties or persons will, after final judgment is entered, be likely to have to engage in additional litigation to conclusively dispose of their respective bundles of rights and liabilities that derive from a single transaction or related series of transactions." DiTrolio v. Antiles, 142 N.J. 253, 268, 662 A.2d 494 (1995) (emphasis added); accord Wm. Blanchard Co. v. Beach Concrete Co., 150 N.J. Super. 277, 293-94, 375 A.2d 675 (App. Div.), certif. denied, 75 N.J. 528 (1977). Therefore, the entire controversy doctrine only bars the maintenance of a subsequent lawsuit arising out of the same overall controversy as an earlier lawsuit, see DiTrolio v. Antiles, supra, 142 N.J. at 271, and has no applicability to a motion for leave to file an amended complaint prior to the entry of final judgment.

When the DEP moved for leave to file a second amended complaint alleging additional violations and adding new parties, a final judgment had not yet been entered. Although the trial court had entered a series of injunctive orders against STCC, it had not yet adjudicated any of the DEP's penalty claims against STCC. Therefore, the entire controversy doctrine did not apply to the court's consideration of the DEP's motion. *fn1

Instead, the DEP's motion was governed by Rule 4:9-1, which provides that once a responsive pleading has been served, "a party may amend a pleading only by written consent of the adverse party or by leave of court which shall be freely given in the interest of Justice." The determination whether to grant such relief is committed to the sound discretion of the trial court, Du-Wel Prods. v. United States Fire Ins. Co., 236 N.J. Super. 349, 364, 565 A.2d 1113 (App. Div. 1989), certif. denied, 121 N.J. 617 (1990), which must consider "what course of action will further the interests of Justice." Brower v. Gonnella, 222 N.J. Super. 75, 81, 535 A.2d 1006 (App. Div. 1987). Consequently, if a claim does not arise until after a complaint has been filed, leave to amend to add that claim should be granted as of course so long as the moving party has exercised due diligence and the amendment will not cause the trial to be unduly delayed or complicated.

The DEP did not become aware of any of the additional alleged violations asserted in its second amended complaint until late June at the earliest, and even then the violations were not brought directly to the attention of the DEP representatives and Deputy Attorney General responsible for handling this litigation. Consequently, the DEP's delay in moving for leave to amend its complaint until after the Conclusion of the first phase of the trial on August 1, 1990, was not unreasonable. Moreover, since further trial court proceedings had to be conducted in any event in order to determine the amount of penalties to be assessed upon STCC, the trial court did not abuse its discretion in allowing the DEP to pursue its additional claims in this lawsuit rather than by a separate action. See Brown v. Brown, 208 N.J. Super. 372, 381-82, 506 A.2d 29 (App. Div. 1986).

We turn next to the more difficult question of whether the trial court abused its discretion in allowing the DEP to join additional defendants, including Frank and Kresch, after the trial of the first phase of the case had been completed. Frank and Kresch argue on appeal that they were "severely prejudiced" by their late joinder in the action:

Had they been named at the outset, they could have settled, defended with their own counsel, resigned from Standards' employ to avoid personal liability, or engaged in other efforts to avoid an adjudication of liability and penalties. The actual prejudice is emphasized by the fact that Frank and Kresch were the only two Standard employees who testified at the trial on liability ...


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