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Morgan Stanley Services Company, Inc v. New Jersey Department of Environmental Protection


January 26, 2011


On appeal from the Department of Environmental Protection, PI#009027.

Per curiam.


Submitted December 14, 2010 - Decided Before Judges Parrillo, Yannotti and Skillman.

Morgan Stanley Services Company, Inc. (Morgan Stanley) appeals from the June 8, 2009 action of the Department of Environmental Protection (DEP) rescinding its May 19, 1998 No Further Action (NFA) letter granted to Morgan Stanley's predecessors in interest, Levolor Corporation (Levolor) and Dean Witter Services Company Inc. (Dean Witter), following years of environmental investigation and remediation on its former industrial facility in Hoboken. The DEP's rescission was based on Morgan Stanley's alleged failure to adequately investigate and remediate given the discovery, eleven years later, of levels of contamination in excess of those originally reported. On appeal, Morgan Stanley maintains that the DEP failed to make specific findings of fact supported by the record and to explain the basis for its conclusions. For the following reasons, we reverse and remand.

The Environmental Cleanup and Responsibility Act (ECRA), N.J.S.A. 13:1K-6 to -13.1, now known as the Industrial Site Recovery Act (ISRA), "requires owners and operators of industrial sites, as a condition precedent to closing, sale or transfer, either to develop a cleanup plan for real property contaminated by hazardous waste or to certify in a 'negative declaration' that remediation is unnecessary." In re Cadgene Family P'ship, 286 N.J. Super. 270, 273 (App. Div. 1995), certif. denied, 143 N.J. 330 (1996); N.J.S.A. 13:1K-7; see also In re R.R. Realty Assocs., 313 N.J. Super. 225, 228 (App. Div. 1998). Under a procedure adopted by the DEP, an owner or operator may seek an administrative consent order (ACO) allowing a transfer to take place before full compliance with ISRA and obligating the applicant to complete the site investigation and any required remediation at a future time. N.J.A.C. 7:26B-4.3. Non-compliance with ISRA may result in voiding the sale of an industrial site and may make the owner or operator strictly liable, without regard to fault, for all remediation costs.

N.J.S.A. 13:1K-13; In re Adoption of N.J.A.C. 7:26B, 128 N.J. 442, 449 (1992).

Underlying the present controversy is the question whether Morgan Stanley complied with this statutory mandate when and after it sold the site in question to Colpro, Inc. (Colpro) in 1990. By way of background, in 1951, Levolor's predecessors began operating a vinyl blind manufacturing facility on Monroe Street in Hoboken (the site). Through a merger in 1988, Dean Witter acquired Levolor as its wholly-owned subsidiary and Morgan Stanley subsequently became the successor to Dean Witter and Levolor.

The cessation of industrial operations at the site simultaneous with the merger transaction in 1988 triggered Levolor's remedial obligation under ISRA. Accordingly, on August 3, 1988, Levolor and the DEP entered into an ACO whereby Levolor agreed to clean up contamination at the site. Levolor eventually sold the property to Colpro, an entity owned by Dilawez Hoda and Gerard Saddel, thereby necessitating an amended ACO requiring Levolor to complete the ISRA cleanup.

Between 1988 and 1998, Levolor conducted a remedial investigation and cleanup at the site pursuant to ISRA, and submitted documentation to the DEP detailing the remediation effort. Levolor's investigation disclosed the presence of petroleum hydrocarbons (PHCs) and volatile organic compounds (VOCs), including trichloroethylene (TCE), in the soil and groundwater at the site, in addition to historic fill. Early remediation efforts included the removal of two underground storage tanks (USTs) containing No. 6 heating oil as well as the removal of petroleum-impacted soil.

To delineate the residual PHC contamination in the area, test pits were installed and additional sampling conducted, with results exhibiting concentrations that were generally well below the DEP's then residential soil cleanup criterion for total organic compounds. However, in one particular area where Levolor had stored drums containing TCE, which were destroyed in a fire in 1985, testing uncovered the presence of VOC concentrations in excess of ISRA guidelines and PHC contamination above residential soil cleanup criterion for total organics, which Levolor attributed to fuel contamination and not related to the TCE drums. Additional sampling in April 1989 discovered PHC contamination in both shallow and deep soil samples, some of which exceeded criterion, and trace levels of VOCs that were all below ISRA standards. No further TCE contamination was reported in the drum storage area.

On October 7, 1996, the DEP directed Levolor to take additional samples in a broader area to delineate the residual PHC contamination, and required Levolor to install two monitoring wells within the area where the USTs were removed. The resultant samples revealed the presence of PHCs, but because the contamination did not appear to be extensive in that area, the DEP determined that no further action was required.

Additionally, two groundwater monitoring wells were installed in the same area but Levolor reported to the DEP that "[t]he analyses of groundwater samples collected from monitoring wells MW-13 and MW-14 confirmed that local groundwater quality has not been adversely affected by the slightly elevated PHC concentrations identified in the shallow soils in this area." Subsequently, the DEP required no additional groundwater sampling and approved the closure of MW-13 and MW-14.

During the ISRA investigation, the only groundwater contaminants that were consistently identified by Levolor above DEP standards were VOCs, primarily consisting of chlorinated solvents, including TCE and its decomposition products. In fact, Dean Witter reported that the only significant occurrence of these contaminants had been in monitoring well MW-2. Specifically, a November 1996 groundwater sampling event indicated TCE, cis-1,2-dichloroethylene (DCE), and vinyl chloride (VC) in MW-2 at concentrations above DEP standards. The report further stated that in all of the remaining wells, contamination only "slightly exceeded" DEP standards, and in many cases, was "consistent with regional background quality for the region."

In accordance with the cleanup plan conditionally approved by the DEP on December 11, 1992, Levolor did not remove all of the PHC and VOC contamination on the site. Instead, to address the residual soil and groundwater contamination in the area, Levolor proposed a multi-pronged remedy including the installation of a bituminous asphalt cap over the site for containment; execution of a Declaration of Environmental Restrictions (DER), restricting the site to non-residential use;*fn1 and the establishment of a Classification Exception Area (CEA), restricting the use of groundwater under the site because of chlorinated solvent contamination remaining above DEP groundwater quality standards. Levolor's proposal was embodied in its December 5, 1997 Final Remedial Action Report and a CEA Proposal submitted to the DEP.

The DER, which was executed on December 31, 1997, documented the remaining fuel oil contamination in the soil in excess of cleanup criteria:

Contaminants have been found at sampling points described on the map attached hereto which, as of the date of this Declaration, exceed residential direct contact soil cleanup criteria and/or non-residential direct contact soil cleanup criteria and/or impact to groundwater soil cleanup criteria.

An exhibit to the DER presented a summary of all of the soil samples that were collected at the site in which the DEP's soil cleanup criteria were exceeded. The exhibit listed six sample locations at the site where PHC contaminant levels exceeded DEP soil cleanup criteria and one additional location where TCE was found above DEP standards.

Moreover, the DER warned that contaminants may be found at other locations that were not sampled:

Contaminants above residential direct contact soil cleanup criteria and/or non-residential direct contact soil cleanup criteria and/or impact to groundwater soil cleanup criteria may be found at other locations that were not sampled, however, because of the existence of historic fill material throughout the site.*fn2

Meanwhile, the duration and extent of the CEA were based partly on the results of the November 1996 groundwater sampling event, indicating TCE, DCE and VC in monitoring well MW-2. Additionally, on May 5, 1998, Dean Witter submitted a negative declaration affidavit, in which it certified that any discharge of hazardous substances had been remediated in accordance with the Technical Requirements for Site Remediation.

After Levolor and its successors completed the remediation effort, installed the impermeable asphalt cap, executed the DER, and established the CEA, the DEP issued a NFA letter on May 19, 1998. A "NFA letter" means: a written determination by the [DEP] that based upon an evaluation of the historical use of a particular site, or of an area of concern or areas of concern at that site, as applicable, and any other investigation or action the [DEP] deems necessary, there are no discharged contaminants present at the site, at the area of concern or areas of concern, at any other site to which a discharge originating at the site has migrated, or that any discharged contaminants present at the site or that have migrated from the site have been remediated in accordance with applicable remediation regulations. [N.J.S.A. 58:10B-1.]

Accordingly, the NFA letter in this case discharged Levolor's successor in interest, Morgan Stanley, from the obligation to conduct further remediation at the site. The NFA also approved a CEA and well restriction area (WRA) for the site, which would remain for eighty-one years, because of known chlorinated solvent contamination, including TCE, in the groundwater. The NFA further noted that the DER had been executed and recorded.

In the years since the issuance of the NFA, the site has continued to be owned by Colpro and its successors in interest, Monroe Center Development, LLC (MCD) and Monroe Center II Urban Renewal Company, LLC (Monroe II). Actually, even before the issuance of the NFA, in furtherance of its development plans, Colpro submitted an application to the DEP on March 4, 1998 for a Memorandum of Agreement (MOA) to conduct further remediation on the site in preparation for use of the property for residential purposes. The DEP approved the MOA on April 20, 1998, but then terminated the MOA on June 1, 2000 after Colpro failed to conduct any remediation on the property.

On July 31, 2001, MCD, a related entity owned by Hoda and Saddel, submitted another MOA application seeking to develop the site to "include artist/office/retail space and residential condominiums and/or rental [apartments]." The DEP, in August 2002, conditionally approved a work plan whereby the asphalt cap would be removed but noted its concern that "chlorinated solvent contamination in the shallow [groundwater] on Block 87 could be a concern for indoor air issues . . . ." Thereafter, MCD removed the cap and began additional remedial activities, including soil and groundwater sampling. According to the DEP, despite groundwater sampling results in April 2004 suggesting the VOC contamination had actually decreased in the groundwater beneath the site since the filing of the CEA, MCD subsequently reported substantial chlorinated VOC contamination in both the soil and groundwater at the site, as well as significant concentrations of TCE, DCE and VC above groundwater quality standards.

On April 22, 2009, the DEP rescinded the 2001 MOA, citing MCD's failure to conduct remedial activities, make timely submissions and pay DEP oversight costs. Then on June 8, 2009, the DEP issued a letter to Morgan Stanley rescinding the NFA approval letter issued to Levolor on May 19, 1998 for the site.

The rescission letter recounted that the DEP had granted NFA approval based upon certified information given to it by Levolor, including satisfactory remediation, the filing of a deed notice and the recordation of a CEA "for low level exceedences of chlorinated [VOCs] in the groundwater at the site." However, in anticipation of developing the site, a remedial investigation conducted by MCD uncovered the presence of fuel oil and VOCs (primarily TCE and tetrachloroethene (PCE)) in the soil and groundwater. As a result, the DEP concluded that contamination exceeded DEP soil cleanup standards and groundwater quality standards. Most important, the results of MCD's investigation undermined the agency's NFA approval, which required full disclosure of "all previous site operations . . . and areas where hazardous materials [were] used, generated, stored and conveyed." According to the letter, the DEP rescinded NFA approval "due to [the] failure of Levolor . . . to complete the remedial investigation and remedial action pursuant to [ISRA,]" resulting "in VOC and fuel oil contamination for almost the entire site."

Based thereon, the DEP subsequently issued to Morgan Stanley a directive, dated June 19, 2009, directing it to "[c]onduct a remedial investigation and implement an approved remedial action" as memorialized in an ACO within thirty days of receipt of the directive or it would potentially face liability for publicly-funded remediation conducted by the DEP. The directive further indicated that Dean Witter, Monroe II and Morgan Stanley were all responsible for the hazardous substances and remediation, including all cleanup and removal costs.

We now examine Morgan Stanley's challenge to the rescission letter as bereft of factfinding in light of this background.

Ultimately, the underlying controversy in this case presents a conflict between, on the one hand, a former property owner's expectation of repose upon receiving NFA approval and, on the other hand, the public interest in obtaining remediation of contaminated property that is embodied in various pieces of legislation, including ISRA and the Brownfield and Contaminated Site Remediation Act, N.J.S.A. 58:10B-1 to -31. However, this conflict may only be resolved by a process that is fair and just, and by a determination based on specific factfinding reasonably supported by sufficient credible evidence in the administrative record.

In this regard, no one questions the DEP's authority to reopen the case. "An administrative agency has the inherent power to rehear and modify orders it has previously entered." Cadgene, supra, 286 N.J. Super. at 277 (citing In re Trantino Parole Application, 89 N.J. 347, 364 (1982)); Ruvoldt v. Nolan,

63 N.J. 171, 183 (1973); Burlington Cnty. Evergreen Park Mental Hosp. v. Cooper, 56 N.J. 579, 600 (1970). An agency charged with protecting the public health has a continuing responsibility to administer the provisions of its governing statute in the public interest. Saint Joseph's Hosp. & Med.

Ctr. v. Finley, 153 N.J. Super. 214, 223 (App. Div. 1977), certif. denied, 75 N.J. 595 (1978). An agency's power to reopen matters previously decided must, of course, be exercised fairly, reasonably and with due diligence. Cadgene, supra, 286 N.J. Super. at 277; see also Ruvoldt, supra, 63 N.J. at 183. On this score, Morgan Stanley maintains that the agency's administrative action in this matter is devoid of specific factfindings and any explanation of how the rescission decision was reached. We agree.

While courts generally owe deference to an administrative determination grounded on substantial evidence in the record, In re Herrmann, 192 N.J. 19, 28 (2007), "the orderly process of judicial review requires that the grounds for the administrative agency's action be clearly disclosed by it." Monks v. N.J. State Parole Bd., 58 N.J. 238, 245 (1971) (citing SEC v. Chenery Corp., 318 U.S. 80, 94, 63 S. Ct. 454, 462, 87 L. Ed. 626, 636 (1943)). For our review to be meaningful, the agency must state its reasons for its action grounded in the factual record. In re Authorization for Freshwater Wetlands Gen. Permits, 372 N.J. Super. 578, 595 (App. Div. 2004). "The only rational way in which a court can accomplish the limited task thus imposed upon it is to examine why . . . the agency acted, and knowing that, to examine the record as a whole for substantial credible evidence supporting the conduct." Drake v. Dep't of Human Servs. Div. of Youth & Family Servs., 186 N.J. Super. 532, 536 (App. Div. 1982). "That is why we have been so insistent over the years respecting the need for factfinding and the bounden duty of the factfinder simply but fully and clearly to tell us why." Id. at 538. "[E]ven the best record will be unavailing unless we can also discern the use to which it was put by the factfinder." Ibid.

It is simply not for an appellate court to scour the record to ascertain whether there is a basis for an agency's final action. Instead, "[f]act-finding is a basic duty that agencies acting in a quasi-judicial capacity must perform." Cadgene, supra, 286 N.J. Super. at 278. "An agency must engage in fact- finding to the extent required by statute or regulation, and provide notice of those facts to all interested parties." In Re Issuance of a Permit, 120 N.J. 164, 173 (1996); see also In re Application of Howard Sav. Inst., 32 N.J. 29, 52 (1960).

It is axiomatic in this State by this time that an administrative agency acting quasi-judicially must set forth basic findings of fact, supported by the evidence and supporting the ultimate conclusions and final determination, for the salutary purpose of informing the interested parties and any reviewing tribunal of the basis on which the final decision was reached so that it may be readily determined whether the result is sufficiently and soundly grounded or derives from arbitrary, capricious or extra-legal considerations. [Howard Sav. Inst., supra, 32 N.J. at 52.]

This requirement is a matter of substance, not a mere technicality. It is not sufficient for the agency merely to state conclusions. See N.J. Bell Tel. Co. v. Commc'n Workers of Am., 5 N.J. 354, 375 (1950). Nor are "'appellate counsel's post hoc rationalizations for agency [orders]'" an adequate substitute for administrative factfinding. Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 212, 109 S. Ct. 468, 474, 102 L. Ed. 2d 493, 502 (1988) (alteration in original) (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168, 83 S. Ct. 239, 246, 9 L. Ed. 2d 207, 216 (1962)).

Here, the DEP's factfinding has not been adequately articulated and the basis for its rescission decision is not sufficiently clear. The agency's essential determination is contained in the following brief excerpt from its two-and-one-quarter page rescission letter:

Based on the results of the [MCD] investigation it was determined that there was a fuel oil discharge and volatile organic (primarily Trichloroethene (TCE) and Tetrachloroethene (PCE)) discharge to the soil and [groundwater].

Elevated concentrations of volatile organic compounds (VOC's) are present in the site soil above the NJDEP's Soil Cleanup Standards. Elevated concentrations of VOC's are present in [groundwater] above the NJDEP's Ground Water Quality Standards (N.J.A.C. 7:9-6).

This text certainly expresses conclusions which ultimately may prove sound - or they may not. However, without specific findings, of which there are essentially none, to support the DEP's conclusion that Levolor "failed to adequately investigate the site" and to disclose the true level of contamination thereon, we are unable to make an informed judgment either way. This is especially so because the DEP, in its June 8, 2009 rescission letter, is reversing its prior NFA decision rendered eleven years ago.

As noted, the sole basis for the DEP's conclusions that Levolor failed to adequately investigate and disclose appears to be MCD's discovery of VOCs (such as TCE) and PHCs in levels exceeding those originally reported. Yet the DEP fails to explain why rescission is the proper regulatory response eleven years after both its own NFA letter recognized the presence of excedent levels of contamination remaining on site but protected by the asphalt cap, and the DER, which it approved, expressly warned that additional unknown contamination might exist in unknown areas of the site. Even assuming the soil and groundwater contamination discovered by MCD was far more extensive than initially identified by Levolor, the DEP also fails to explain why the environmental control originally approved to contain contamination levels in excess of DEP cleanup standards is no longer considered adequate to protect the public health, safety and the environment. N.J.S.A. 13:1K-7. Nor has the DEP explained why, after issuing a NFA letter in 1998 based on remediation for non-residential use and installation of an asphalt cap, the agency approved removal of the cap in 2002 in connection with a residential development plan not originally contemplated.

Although the DEP's appellate filing attempts to cure some of these deficiencies, such a post hoc effort is no substitute for agency factfinding and reasoning not contained in the rescission letter itself. Under the circumstances, it was incumbent upon the DEP to support its rescission decision with specific factfinding and reasoned explanation. Its failure to do so is all the more glaring given the passage of so much time since granting the NFA approval in 1998; the investigation and remediation efforts that preceded its issuance; the explicit notification in the DER; the extended duration of the CEA; the DEP's knowledge that contamination would remain in the soil and groundwater at the site; and the DEP's approval of encapsulation of the contamination under the asphalt cap after weighing the risks of unknown hot spots and groundwater contamination above cleanup criteria in areas not sampled.

Accordingly, the rescission letter is vacated and the matter is remanded to the DEP for further consideration. After appropriate opportunity is afforded Morgan Stanley to submit supplemental material, the agency shall accompany its final determination with detailed and complete findings of fact.

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