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Fibermark North America, Inc v. State of New Jersey

August 5, 2011


On appeal from Superior Court of New Jersey, Law Division, Hunterdon County, Docket No. L-0294-08.

Per curiam.


Argued May 3, 2011

Before Judges Wefing, Baxter and Koblitz.

Plaintiff appeals from a trial court order dismissing its complaint under Rule 4:37-2(b). After reviewing the record in light of the contentions advanced on appeal, we affirm in part, reverse in part, and remand for further proceedings.

James River Paper Company, Inc. (James River) owned paper mills in Warren Glen and Hughesville, New Jersey, that it no longer needed for its own operations. James River leased these mills to two wholly-owned subsidiaries of Specialty Coatings Group, Inc. (Specialty), one of which was Custom Papers Group Holdings (Custom Papers). Custom Papers leased the Warren Glen mill, which was located on the Musconetcong River. As part of the lease transaction, James River agreed to construct and operate a landfill to accept the waste generated in connection with the mill's operations, and it placed the landfill across the Musconetcong River from the Warren Glen mill.

In 1991 James River, Specialty and its two subsidiaries, including Custom Papers, executed an agreement under which the tenants agreed to share in the cost of constructing the landfill and to limit the type and quantity of waste they could deposit into the landfill. Under the agreement, James River was responsible for managing, operating and ultimately closing the landfill in compliance with applicable laws and regulations. The agreement called for the tenants to pay tipping fees to James River, to be adjusted annually in light of the cubic yardage deposited by the tenant the previous year; the agreement specified that the tipping fee was "to reflect the costs of operations, overhead, capital recovery, anticipated closing costs of the [landfill], taxes, long-term monitoring and liability insurance incurred by James River. . . ." Further, it specified that James River would deposit in an interest-bearing escrow account the portion of the tipping fees that related to the anticipated closing costs and set down the formula by which the tenants' share of the closing costs would be determined. The record does not disclose whether the parties abided by that contractual provision.

Paper manufacturing requires the use of quantities of water, not all of which is consumed in the manufacturing process. The water used at the Warren Glen mill could not be directly discharged into the river but first had to be treated; part of the mill's premises included lagoons into which this water would be funneled and treated before being returned to the river. The Warren Glen mill held a permit from the New Jersey Department of Environmental Protection ("DEP") known as a New Jersey Pollutant Discharge Elimination System ("NJPDES") permit, authorizing the return to the river of the water remaining at the completion of the mill's processing operations after it had been treated in the lagoons.

The parties to the 1991 agreement recognized that operation of the landfill would generate leachate, that is, water that percolated through the contents of the landfill. The Warren Glen landfill was designed and constructed so that the leachate, through the force of gravity, would accumulate at the "toe" of the landfill and then, again through gravity, flow through a pipe across the Musconetcong River to the treatment lagoons at the Warren Glen mill, where it was treated with the waste water from the paper mill and ultimately discharged into the river. Thus, under the 1991 agreement, the operator of the Warren Glen mill had the right to deposit its waste into the landfill, and the operator of the landfill had the right to funnel its leachate to Warren Glen's treatment lagoons.

In or about 1995, James River went through a corporate reorganization, one result of which was the sale of the Warren Glen paper mill to Custom Papers and the sale of the landfill to Crown Vantage, Inc. (Crown). As a result of this transaction, Crown succeeded to James River's right to have the landfill's leachate flow into the paper mill's treatment lagoons, and Custom Papers succeeded to the right to use the landfill and the obligation to accept the landfill's leachate into the mill's treatment lagoons. Plaintiff FiberMark purchased the stock of Custom Papers in October 1996, and it succeeded to these same rights and obligations, the right to deposit waste in the landfill and the agreement to accept the landfill's leachate into its treatment lagoons.

Some time after the sale to Crown, the landfill ceased accepting any new waste; the record does not contain a precise date upon which this happened nor does it explain how the operators of the Warren Glen mill disposed of its waste after this occurred.

Approximately six years after Crown purchased the landfill, it filed for bankruptcy protection in the Northern District of California. As part of those bankruptcy proceedings, it filed a motion under 11 U.S.C.A. § 554 to abandon its interest in this landfill, as well as several others that it owned and operated. The DEP objected to this abandonment because of the potential risks to the environment posed by abandoned landfills. To secure the DEP's agreement to this motion, Crown agreed to pay $1 million to the DEP to be used "to investigate, close, cleanup, or otherwise remediate any environmental condition on any and all property" of Crown in New Jersey. Based upon this payment, the DEP withdrew its objection to the motion, and the bankruptcy court entered an order on March 2, 2001, authorizing the abandonment of this property. The order entered by the bankruptcy court simply referred to abandoning the property and did not mention the 1991 agreement that structured the manner in which the landfill was to operate, nor did it convey title to the underlying land.

Following entry of that order, the DEP used a majority of the funds from Crown to close up another of Crown's landfills that it considered to require immediate attention. The DEP did no more with the Warren Glen landfill than to periodically visit it and to mow the grass to keep it from becoming overgrown.

FiberMark proved no more successful in its business operations than had Crown, and in 2004 FiberMark filed for bankruptcy protection in Vermont. As part of those bankruptcy proceedings, FiberMark filed a motion under 11 U.S.C.A. § 365(a). It reasoned that Crown, which had had the contractual right to have leachate from the landfill treated at the mill's treatment lagoons, had abandoned the landfill. Accordingly, FiberMark, by its motion, sought authorization to reject the 1991 agreement under which, as the operator of the Warren Glen paper mill, it was obligated to accept into its treatment lagoons the leachate from the Warren Glen landfill. This motion was granted on June 23, 2005. The DEP was not notified of FiberMark's bankruptcy filing or its motion under § 365(a) of the bankruptcy code and thus interposed no objection.

FiberMark continued to operate the paper mill for a period of time despite the bankruptcy filing. These operations necessitated maintenance of the treatment lagoons and, despite the June 23, 2005, order of the bankruptcy court, leachate from the landfill continued to flow without objection into the mill's lagoons and, after treatment, into the Musconetcong River under the mill's NJPDES permit.

FiberMark eventually determined, however, in or around November 2005 that it was no longer economically viable to operate the paper mill and began to explore shutting it down and disposing of it and its equipment. Closing the mill of necessity involved closing the treatment lagoons into which leachate from the landfill was continuing to flow.

FiberMark did not immediately contact the DEP about its plans, and the DEP learned of them through newspaper reports in early 2006 and began the process, internally, of considering how to proceed. In April 2006, the DEP hired a consulting team formed by The Louis Berger Group, Inc. and Sadat Associates, Inc. ("Berger/Sadat") to investigate conditions at the Warren Glen landfill, with a particular focus on the potential for erosion, the condition of the landfill's cap, which appeared to contain cracks, and leachate from the landfill.

FiberMark meanwhile explored how to obtain the greatest value for the Warren Glen plant and its equipment, some of which had been installed fairly recently at great expense. As part of the corporate transactions outlined above, FiberMark had also become the owner of the Hughesville paper mill, and it arranged the sale of that property to International Process Plants and Equipment (IPPE), which planned to dismantle the mill and sell the land for real estate development. FiberMark explored the same avenue for the Warren Glen mill, but the fact that the landfill's leachate was continuing to flow into the mill's treatment lagoons even after manufacturing ceased at the plant in June 2006 proved to be a significant stumbling block.

By letter dated June 7, 2006, FiberMark notified the DEP of the plant's imminent closure and demanded that the leachate flow be stopped. This letter stated in pertinent part:

You must cease immediately dumping on our property. We are no longer operating this mill, and we cannot continue treating your waste.

You do not have permission to allow leachate or any other form of pollution to flow onto or otherwise pollute FiberMark property, and this needs to cease immediately. As I mentioned, the facility will be fully closed on June 9th. FiberMark did not receive a response to its letter and sent a similar demand on June 20, 2006. Again, it did not receive a response.

In August 2006, Berger/Sadat, having completed its inspection of the landfill, submitted a draft work plan to the DEP, the bulk of which concentrated on the risk of erosion and the condition of the landfill's cap. With respect to the flow of leachate, it simply noted that it had collected samples and sent them off for analysis and that once the ...

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