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Clifton Savings Bank, S.L.A. v. Source 1 Capital Corp.

November 2, 2007

CLIFTON SAVINGS BANK, S.L.A., PLAINTIFF-RESPONDENT,
v.
SOURCE 1 CAPITAL CORP., DEFENDANT-APPELLANT.



On appeal from the Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. C-147-05.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted October 15, 2007

Before Judges Parrillo, Graves and Alvarez.

Seven months after contracting to buy real estate from defendant Source 1 Capital Corp., plaintiff Clifton Savings Bank, S.L.A., canceled the contract and demanded a refund of its $100,000 deposit on the basis that the property was environmentally contaminated. Defendant refused to return the deposit, so plaintiff filed suit. On cross-motions for summary judgment, the general equity judge found in plaintiff's favor, reasoning that it had one year, pursuant to the contract, to cancel the deal due to environmental contamination. Defendant appeals from orders of the Chancery Division requiring return of plaintiff's deposit and awarding plaintiff $5000 in counsel fees pursuant to the contract. We affirm.

The material facts are not in dispute. On January 10, 2005, the parties signed a purchase and sale agreement wherein plaintiff agreed to buy from defendant property on Route 23 South in Little Falls that defendant owned and operated as a mortgage and loan company. Plaintiff intended to operate a bank on the property, and to that end the contract provided that plaintiff could cancel the deal if plaintiff was unable to obtain bank-related approvals from local, state and federal agencies.

Another of plaintiff's primary concerns involved environmental issues. Consequently, the contract allowed plaintiff to cancel the deal if the property contained environmental contamination:

12.24 Environmental Report and/or ISRA Compliance. As a condition precedent to Buyer's obligation to purchase the Property, Buyer may at its expense obtain an environmental report by an engineering firm of the Buyer's choice indicating the Property is free of any industrial or environmental wastes or problems of any kind. Additionally, the Buyer may obtain from the New Jersey Department of Environmental Protection ("NJDEP") either (a) a non-applicability letter or (b) a no further action letter for which Seller shall promptly apply pursuant to the Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq. and the regulations promulgated thereunder ("ISRA"), as amended and supplemented. As to this contingency, the Buyer shall make best efforts to satisfy the same within sixty days from the Effective Date [January 10, 2005 -- the date the contract was signed]. If this condition precedent shall not be satisfied, then Buyer may terminate this Agreement by written notice to Seller and Escrow Agent and, upon such termination, the Earnest Money shall be refunded to Buyer and the parties shall be without any further obligation to each other.

In addition to allowing the buyer to conduct an environmental due diligence of the property, provided it used best efforts to do so within sixty days of the agreement's execution, the contract also provided for a one-year contingency period during which plaintiff could void the agreement as a matter of right for environmental contamination. Thus, Section 12.27 provided:

The Buyer shall have the right to waive any contingency set forth above [i.e. the conditions on banking and contamination in paragraphs 12.24, 12.25 and 12.26]. If [sic] the event that the Buyer has not been able to obtain any and all governmental approvals and environmental clearance within ONE YEAR from the effective date, either party shall have the right to void this Agreement and, upon such termination, the Earnest Money shall be refunded to Buyer and the parties shall be without any further obligation to each other.

Four days after signing the contract, on January 14, 2005, plaintiff retained Boswell Engineering to conduct a "Phase I Environmental Site Assessment" on the property to determine whether the property was contaminated. Around that same time, plaintiff applied for the bank-related government approvals.

In April 2005, Boswell completed the Phase I Assessment, which included interviewing defendant, and notified plaintiff of the results. The Phase I Assessment report "indicated two potential environmental concerns (a prior gasoline filing [sic] station . . . and fill material . . .)" and, as a result of its findings, Boswell believed it was necessary to conduct a Phase II Assessment "(1) to determine if the site contain[ed] any UST's [underground storage tanks] or potential subsurface contamination sources; (2) to investigate any potential contamination sources; [and] (3) to determine any potential contaminant impact to soil and groundwater."

In accordance with Boswell's advice, plaintiff ordered a Phase II Assessment. Boswell began that assessment in May 2005 and concluded it in August 2005. During that time plaintiff continued to pursue the bank-related government approvals.

In August 2005, Boswell reported, according to plaintiff, that the property contained: "(1) organic contamination and an estimated 400 cubic yards of contaminated soil; (2) tentatively identified compounds exceeding the State's threshold; and (3) lead concentrations above the Residential Direct Contact." Because the Phase II Assessment uncovered the existence of environmental contamination, plaintiff decided to cancel the contract and so notified defendant in an August 15, 2005 letter, requesting return of its deposit monies. Defendant refused, and in its August 17, 2005 reply asserted that plaintiff could not cancel the contract because plaintiff had not "made best efforts ...


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