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Lacey Municipal Utilities Authority v. New Jersey Department of Environmental Protection

October 28, 1999

LACEY MUNICIPAL UTILITIES AUTHORITY, APPELLANT-RESPONDENT,
v.
NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION, ENVIRONMENTAL CLAIMS ADMINISTRATION, SPILL COMPENSATION FUND,
RESPONDENT-APPELLANT.



The opinion of the court was delivered by: Verniero, J.

Argued September 13, 1999 -- Decided October 28, 1999

On certification to the Superior Court, Appellate Division, whose opinion is reported at 312 N.J. Super. 298 (1998).

This appeal requires us to determine whether the Lacey Municipal Utilities Authority (Lacey or the Authority) may proceed with its reimbursement claims against the fund established by the New Jersey Spill Compensation and Control Act (the Spill Fund) or whether those claims are barred by the one-year statute of limitations found at N.J.S.A. 58:10-23.11k. The administrative law Judge who arbitrated the claims concluded that they were time barred and that the New Jersey Department of Environmental Protection (DEP) had not waived a strict application of the statute of limitations. The Appellate Division reversed, concluding that the one-year time bar did not begin to run until Lacey actually expended the funds for which it seeks reimbursement. 312 N.J. Super. 298 (App. Div. 1998).

We granted the DEP's petition for certification, 157 N.J. 545 (1998), and now affirm the judgment but for reasons different from those expressed by the Appellate Division. Because of the uncertainty surrounding the application of the statute to this public-entity claimant, we conclude that Lacey should be permitted to proceed with its claims. We express no opinion on the merits of those claims, which must be evaluated in accordance with the normal administrative process. In the future, similar applications by governmental entities will be governed by the DEP's newly-adopted regulation, which should bring necessary certainty to the claims process that was lacking in this case. See N.J.A.C. 7:1J-6.1.

I.

The essential facts are undisputed. On November 18, 1986 and January 6, 1987, a residential potable well in Lacey Township, in an area designated as Municipal Utilities Authority Zone 12 (Zone 12), was found to contain benzene, a hazardous substance, in excess of the level established as safe for drinking purposes. Sometime later, additional wells were discovered to be contaminated with benzene and other hazardous substances. On March 3, 1988, Lacey began preliminary engineering work necessary for the Authority to conduct a public hearing on whether it should expand its water system into Zone 12. The work performed included projected cost estimates and the preparation of a water master plan report for potential expansion of the water distribution system.

The Zone-12 project consisted of a contract to construct a water transmission main and a contract for a water distribution system for several zones, including Zone 12. Lacey solicited the first bids for the water transmission contract in late 1989 and awarded the contract on December 20, 1989. Actual construction of the main portion of the Zone- 12 water project began two months later in February 1990. Lacey approved the first payment for the construction of the water transmission main on April 4, 1990. Lacey also solicited bids and awarded a contract for the water distribution system, approving the first payment on September 5, 1990. Finally, on February 28, 1991, Lacey filed its claim in the amount of $746,540 against the Spill Fund, seeking compensation for costs related to the Zone-12 projects.

In July 1990, a residential potable well located in an area designated as Municipal Utilities Authority Zone 10 (Zone 10) was found to contain trichloroethylene, a hazardous substance, at a level unsafe for drinking. Thereafter, additional wells were discovered to be similarly contaminated so Lacey approved the expansion of its waterlines into Zone 10. On January 2, 1991, Lacey solicited bids for that water- extension project, awarding the contract only weeks later on January 23, 1991.

Actual construction of the Zone-10 extension began on May 2, 1991, with Lacey approving the first payment for this project on June 26, 1991. Slightly less than a year later, on June 22, 1992, Lacey filed a claim in the amount of $181,834 against the Spill Fund, seeking reimbursement of the costs of the Zone-10 project.

Acting in its capacity as administrator of the Spill Fund, the DEP denied both claims. The DEP considered the claims barred by N.J.S.A. 58:10-23.11k, which provides that "[c]laims shall be filed with the administrator not later than one year after the date of discovery of damage." Thereafter, Lacey requested arbitration pursuant to N.J.S.A. 58:10-23.11n, and the matter was transferred to the Office of Administrative Law.

Serving as arbitrator, an administrative law Judge conducted a two- day hearing and issued a final decision barring Lacey's claims. The arbitrator concluded that the claims were untimely because they were filed in excess of one year from the date Lacey entered into the construction contracts. The arbitrator further found that nothing in the record of prior dealings between the parties could have led Lacey reasonably to conclude that the DEP would waive or otherwise relax its strict adherence to the one-year limitations period.

The Appellate Division disagreed. 312 N.J. Super. 298 (App. Div. 1998). Citing N.J.A.C. 7:1J-1.4, which provides that damages shall include "all cleanup and removal costs and all direct and indirect damages actually incurred," and N.J.S.A. 40A:5-16 and 40A:5-17, which prohibit local entities from paying claims not properly approved by a governing body, the Appellate Division reasoned that Lacey did not actually incur damages until it authorized payment for the two construction projects. Id. at 307-12.

II.

The Spill Compensation and Control Act (the Act) provides for the establishment of a revolving fund known as the Spill Fund. N.J.S.A. 58:10-23.11 to -23.24. The fund's central purpose is to finance the prevention and cleanup of hazardous-waste discharges and to compensate persons damaged by such pollution. N.J.S.A. 58:10-23.11a; see also Buonviaggio v. Hillsborough Township Comm., 122 N.J. 5, 7-10 (1991). When the Act was first enacted in 1977, the Department of Treasury (Treasury) administered the fund. In 1985, the ...


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