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In re Railroad Realty Associates.

June 17, 1998


Before Judges Long, Kleiner and Kimmelman.

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

[9]    Argued May 27, 1998

On appeal from a final order of the State of New Jersey, Department of Environmental Protection.

Appellant First Indemnity of America Insurance Company, as surety for Railroad Realty Associates, a bankrupt company, appeals from a final agency decision of the State of New Jersey, Department of Environmental Protection (DEP), which denied appellant's request to rescind two negative declaration approvals issued under the New Jersey Environmental Cleanup Responsibility Act (ECRA), now known as the Industrial Site Recovery Act (ISRA), N.J.S.A. 13:1K-6 to -33.

ISRA requires owners and operators of industrial establishments to demonstrate that the property is environmentally sound as a precondition to sale or transfer of the property or the closure of a business. N.J.S.A. 13:1K-9a. This precondition may be met through submission to the DEP of either a negative declaration or a "remedial action workplan." N.J.S.A. 13:1K-9c; N.J.A.C. 7:26B-6.7; N.J.A.C. 7:26B-1.6. ISRA defines a "[n]egative declaration" as follows:

[A] written declaration, submitted by the owner or operator of an industrial establishment or other person assuming responsibility for the remediation . . . to the [DEP]certifying that there has been no discharge of hazardous wastes on the site, or that any such discharge has been remediated in accordance with procedures approved by the [DEP] and in accordance with any applicable remediation regulations[.]

[N.J.S.A. 13:1K-8; see also N.J.A.C. 7:26B-1.4] The statute further provides that all obligations imposed pursuant to ISRA constitute "continuing regulatory obligations imposed by the State" which may not be avoided by bankruptcy proceedings. N.J.S.A. 13:1K-12; see In re Torwico Electronics, Inc., 8 F.3d 146, 150 n.4 (3d Cir., 1993), cert. denied, 511 U.S. 1046, 114 S.Ct. 1576, 128 L.Ed 2d 219 (1994).

The property at issue is located at 204 Railroad Avenue in Hackensack, and consists of eleven separate tax lots. The property was purchased by Vending Components, Inc. in the late 1930's, and that company used the property as the site for a new facility occupied by its Taprite Products Division, a manufacturer of carbonated beverage dispensing equipment.

On November 7, 1985, Vending Components reached an agreement with Buildex, Inc. (Buildex), to sell to Buildex the property and substantially all of its assets. Later that month, Vending Components submitted documentation to the DEP in which it was asserted that there had been "no known spills or discharges of hazardous substances or wastes" on the property. In that documentation, Vending Components asserted that, "[b]ased on the background information supplied and a site inspection, we feel that no environmental sampling is necessary." See N.J.A.C. 7:26B-3.2(d) (repealed) (sampling may be avoided if owner or operator provides fully documented justification). Vending Components informed the DEP that a number of industrial solvents and other chemicals had been used on the premises and that some hazardous substances would remain stored at the site after the sale to Buildex. Vending Components also informed the DEP that the site contained an abandoned well and an abandoned underground oil tank, which was full of oil. The tank had been tested in November 1985 and was found to be "tight."

After receipt of this documentation, an inspector from the DEP's Bureau of Industrial Site Evaluation examined the site. The only deficiency he noted was one inch of oily sludge on the floor of the compressor room. After receipt of his report, the DEP approved Vending Components' negative declaration on January 10, 1986. The approval recognized the presence of "limited quantities of hazardous substances" on the site, but found that the materials were "being handled in accordance with appropriate DEP regulations." The sale to Buildex was completed. Buildex continued the Taprite operation and renamed the company Taprite Products Corp.

Less than one year later, in April 1986, Taprite Products agreed to sell the property to Railroad Realty Associates (RRA). Taprite submitted the required negative declaration documentation to the DEP. It was substantially similar to that submitted by Vending Components, and indicated that Taprite did not believe that any environmental sampling was necessary. A second inspector from the Bureau of Industrial Site Evaluation examined the site in June 1986 and found no deficiencies. Taprite's negative declaration was approved on September 11, 1986, and RRA assumed ownership of the property shortly thereafter.

RRA altered the property, and in 1989, took in three industrial tenants; two of which utilized solvents containing trichloroethane in their operations.

When it undertook to sell the property in February 1990, RRA found that it had an ECRA problem. The abandoned oil tank failed a precision test, and after its removal, hazardous contaminants including trichloroethane were found in the soil around the excavation site. On April 9, 1990, RRA submitted an application to the DEP for an administrative consent order pursuant to N.J.A.C. 7:26C-7.1 to -7.6, which permits an industrial establishment to be sold before ISRA remediation requirements are satisfied, if the seller makes adequate financial assurance that the clean-up will eventually be carried out.

The parties entered into an administrative consent order on May 9, 1990, which required RRA to obtain and post financial assurance in the amount of $250,000. On May 15, 1990, appellant executed and issued to the DEP a performance bond in that amount, assuring RRA's performance under the ...

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