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Lacey Municipal Utilities Authority v. New Jersey Dep't of Evironmental Protection

May 19, 2004


On appeal from an arbitration decision of the Spill Compensation Fund, Office of Administrative Law, OAL Docket No. ESF 6012-00.

Before Judges King, Lisa and S.L. Reisner.

The opinion of the court was delivered by: S.L. Reisner, J.A.D.


Argued April 21, 2004

Appellant Estate of George Djambinov appeals from the decision of an arbitrator ordering the New Jersey Spill Compensation Fund (Spill Fund) to reimburse Respondent Lacey Municipal Utilities Authority the sum of $2,128,796 plus interest for the cost of constructing a portion of its water-supply system. Having reviewed the record and the detailed decision of the arbitrator, we affirm.


We begin by reviewing the procedural history. In response to the contamination of private wells in the 1980s in Lacey Township (Township), the Lacey Municipal Utilities Authority (LMUA) constructed a water-supply system in an area of the Township designated as"Zone 12." In 1991, the LMUA filed a claim with the New Jersey Department of Environmental Protection (DEP), under the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 to -23.24 (Spill Act), to recover the costs of expanding the LMUA's system into Zone 12.

The DEP initially denied the claim on statute-of limitations grounds, but the claim was later reinstated following the LMUA's successful appeal. Lacey Mun. Utils. Auth. v. New Jersey Dep't. of Envtl. Prot., 162 N.J. 30, 39-40 (1999). At that point the Estate of George Djambinov (Estate), a party identified by the DEP as being potentially responsible for the contamination in Zone 12, intervened and requested arbitration. Through the Office of Administrative Law (OAL), the matter was assigned to an administrative law judge who acted as arbitrator pursuant to N.J.S.A. 58:10-23.11n.

After five days of hearings, the arbitrator rendered a detailed decision concluding that the water supply in Zone 12 had been contaminated by a discharge occurring after the effective date of the Spill Act, that the LMUA acted reasonably in extending its water supply system to Zone 12, that the costs were reasonable, and that the Spill Fund must reimburse the LMUA for approximately two million dollars in construction costs. This appeal followed.*fn1


A review of the facts is necessary to understand our decision. On June 4, 1971, the Township passed an ordinance creating the LMUA. Two of the stated purposes of the LMUA were the provision of"sewage collection and disposal service" to the Township and the"provision and distribution of an adequate supply of water for the public and private users of the Township." During the 1970s, the LMUA fulfilled the first of these purposes by constructing a"sanitary sewer collection system" in the Township. Action in furtherance of the second purpose did not begin until the mid-1980s, when many of the private wells in the Township became contaminated by pollutants.

Beginning in 1959, George Djambinov owned and operated the Lacey Amoco Service Station (Lacey Amoco), on Route 9 in the Township on the western edge of the area variously referred to in the record as Zone 12, Constitution Avenue, or Riviera Beach. Djambinov owned the Lacey Amoco site, along with its underground storage tanks, lines and pumps, from 1959 to 1970, when he sold the tanks, lines and pumps to Seacoast Oil, Inc. (Seacoast). In 1984, he sold the remainder of the site and its appurtenances to Seacoast.

The operations performed at Lacey Amoco from 1959 to 1990, first by Djambinov and later by Seacoast, included dispensing gasoline and diesel fuel and repairing automobiles. There were five underground storage tanks beneath the station. Of those five tanks, three gasoline tanks and a diesel oil tank had been installed in 1966, while a waste oil tank had been installed in 1983.

In August 1986, the tanks were emptied and relined with an epoxy compound. According to the LMUA's engineering expert, such relining is"a procedure to help with the integrity of the tank, either to plug existing leaks or to help extend the life of the tank in terms of containing material."

In 1984, well contamination was found in a section of the Township that would subsequently be designated as Zone 1. The contamination was attributed to a gasoline service station, but not to Lacey Amoco. Zone 1 is located about one to three miles to the west of Zone 12.

The ground water contamination in Zone 1 raised public concern. In response, the DEP delineated a ground water impact area (GWIA)*fn2 for Zone 1 and, in 1985, authorized an engineering firm, R. E. Wright Associates (Wright),"to perform an analysis to evaluate alternate water supplies for the GWIA known as Zone 1." Wright issued a report later in 1985, primarily recommending to the DEP that the Township build a"central public water supply and distribution system encompassing the entire affected and threatened areas." A Township official summarized Wright's recommendation, testifying that"the most feasible way to resolve the problem as far as the residents were concerned is to build a public water supply system in that area," meaning Zone 1. There was no community water-supply system in the Township at that time.

In June 1986, the LMUA authorized an engineering firm, Remington and Vernick (Remington), to study the feasibility of constructing a central public water-supply system in Zone 1. The feasibility study was evidently favorable; construction of the system in Zone 1 began in August 1986 and was still ongoing in October 1987.

Also in 1986, but prior to any decision to construct the water-supply system in Zone 1, the LMUA developed a Water System Master Plan (master plan) for the construction of a central public system to distribute water throughout the entire Township. The master plan comprised four construction phases, the first of which involved building in an area that included both Zone 1 and the area that would later be designated as Zone 12. At the arbitration hearing, a DEP official testified that the existence of a master plan in a community would not preclude DEP from considering that community's Spill Fund claim for building a central public water-supply system. This is so, according to the official, because such comprehensive long-range plans are commonly made by municipalities and do not"necessarily mean that they [the municipalities] are going to build something right then."

On October 8, 1986, the Township entered into a service contract with the LMUA to have the LMUA supply, treat, and distribute potable water throughout the Township. The immediate impetus for this contract was the LMUA's need for a revenue source so that it could procure financing for the then-ongoing water-supply system construction"within a portion of the Township," apparently Zone 1.

Meanwhile, the DEP and the Ocean County Health Department continued to test groundwater in the Township to determine whether the contamination had extended beyond Zone 1. In 1986, while construction of the water-supply system was proceeding in Zone 1, additional well contamination was discovered in a nearby area designated Zone 2; the LMUA responded by extending its construction into that area to supply residents with potable public water. Thereafter, but still in 1986, well contamination was discovered in another nearby area, Zone 6; the LMUA extended water-supply system construction into that area also.

In October 1986, well contamination was found at two private residences on Constitution Drive in Zone 12. There was major public concern, as some residents were instructed not to use their well water for bathing, cooking or drinking and were directed to take showers at the local high school. At that point, the Township and the LMUA"looked at the potential of expanding the water into ...

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