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Litgo New Jersey Inc v. Commissioner New Jersey Department of Environmental Protection

United States Court of Appeals, Third Circuit

August 6, 2013

LITGO NEW JERSEY INC; SHELDON GOLDSTEIN, Appellants
v.
COMMISSIONER NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION; UNITED STATES OF AMERICA; UNITED STATES DEPARTMENT OF ARMY; UNITED STATES DEPARTMENT OF THE AIR FORCE; UNITED STATES DEPARTMENT OF NAVY; ALFRED SANZARI ENTERPRISES INC; MARY SANZARI; DAVID SANZARI, as Executor of the Estate of Alfred Sanzari; FRANK HUTTLE, as Executor of the Estate of Alfred Sanzari; MIAN REALTY; KIRBY AVENUE REALTY HOLDINGS

Argued February 14, 2013.

On Appeal from the United States District Court for the District of New Jersey (D.C. No. 3-06-cv-02891) District Judge: Honorable Anne E. Thompson.

John McGahren [ARGUED] Andrew McNally Daniel F. Mulvihill, IV Patton Boggs, Brendan M. Walsh Pashman Stein, Attorneys for Appellants/Cross-Appellees Sheldon Goldstein.

Edward Devine Rachel J. Lehr A. Paul Stofa Office of Attorney General of New Jersey Division of Law, Attorneys for Defendant Commissioner of the New Jersey Department of Environmental Protection

Brian C. Toth [ARGUED] Aaron P. Avila United States Department of Justice Environment & Natural Resources Division, Jessica O'Donnell Christina L. Richmond United States Department of Justice Environmental Defense Section Land and Natural Resources Division T. Monique Peoples United States Department of Justice Environmental Defense Section Attorneys for Appellees/ Cross-Appellants Department of Air Force, United States Department of Navy and United States Department of the Army.

Robert A. Bornstein Berger & Bornstein, David F. Edelstein Christopher R. Gibson Archer & Greiner One Centennial Square, Attorneys for Defendants.

Kenneth K. Lehn [ARGUED] Winne, Banta, Hetherington, Basralian & Kahn Attorneys for Appellees/Cross-Appellants Frank Huttle, David Sanzari and Alfred Sanzari Enterprises Inc.

Craig S. Provorny Anthony J. Reitano Herold Law, Attorneys for Defendant-Appellee Mian Realty

Before: HARDIMAN, and GARTH, Circuit Judges and STARK [*] District Judge.

OPINION

HARDIMAN, Circuit Judge.

This appeal comes to us following a seventeen-day bench trial that involved several claims arising under federal and state environmental laws. At issue is which parties bear the responsibility for the removal of hazardous substances present in the soil and groundwater at a parcel of land in Somerville, New Jersey (the Litgo Property or Property). Although this issue is complicated by the fact that the Property has been the site of various private and public concerns since 1910, the District Court engaged in a careful examination of the evidence and the arguments of the parties, and we essentially agree with its adjudication of the case. We disagree with the District Court's determination, however, in two respects, and will reverse in part and remand.

I. Background

A. Contamination of the Litgo Property

The Litgo Property is located at 40 Haynes Street in Somerville, New Jersey. During the past century, title to the Property has passed hands many times, and the site has been put to various uses. Somerville Iron Works, a company that operated a sanitary landfill on adjacent tracts of land, owned the Property in the early 1900s and used it to manufacture pipes and fittings. In 1941, the Property was leased to Columbia Aircraft, a manufacturer that machined precision parts for the United States military effort during World War II. Decades later, in 1976, the Property was purchased by Alfred Sanzari, who converted the buildings thereon into warehouses. Those warehouses were then leased to a number of commercial and industrial tenants, including a company known as JANR Transport, Inc.

Both the soil and the groundwater on the Litgo Property became contaminated as a result of the commercial activity that occurred there over the years. The soil contained high levels of metals and petroleum hydrocarbons, and the groundwater currently contains a high level of volatile organic compounds (VOCs), including trichloroethylene (TCE) and tetrachloroethylene (PCE). The District Court provided a thorough account of the history of this contamination in its opinion, see Litgo N.J., Inc. v. Martin (Litgo I), 2010 WL 2400388, at *2–19 (D.N.J. June 10, 2010), on reconsideration in part, 2011 WL 65933 (D.N.J. Jan. 7, 2011) (Litgo II), and so we will recount it only briefly here.

The contamination most likely began in the 1940s, when Columbia Aircraft leased the Property. Columbia Aircraft machined precision parts on-site for military equipment using some equipment owned by the United States government, including boring mills, grinding machines, lathers, milling machines, and a shaper. After the precision parts were machined, they were cleaned of excess grease as part of the "finishing" process. Columbia Aircraft degreased the precision parts in vapor degreaser tanks, using TCE as the degreasing agent. It then disposed of the TCE by dumping it onto the ground and allowing it to evaporate.

The contamination worsened after a series of accidents that occurred between 1983 and 1987. In 1983, a company known as Signo Trading International was storing both hazardous and non-hazardous waste at a location other than the Litgo Property. Some of this waste had been generated by the United States, which had contracted with Resource Technologies Service (RTS), a then-reputable hazardous waste transporter, for its disposal. RTS had arranged to store the waste at Signo's property, but the waste containers were removed under the supervision of the New Jersey Department of Environmental Protection (NJDEP) following a fire in April 1983. Signo was allowed to send non-hazardous substances to a location of its choice, but NJDEP was responsible for ensuring that the hazardous wastes were moved by licensed haulers to licensed facilities. As a result of NJDEP's inadequate supervision, thousands of containers of materials were shipped to the JANR warehouse on the Litgo Property, and some of them contained hazardous waste.

In 1984, the Borough of Somerville became aware that hazardous materials were being stored improperly at the JANR warehouse, and that many of the containers were spilling and leaking. An inspection and inventory of the materials at the warehouse revealed that it contained 106 gallons of TCE. NJDEP hired an inexperienced contractor to remediate the site, resulting in significant problems, including spills and leaks. Both TCE and PCE were likely released into the soil and the groundwater during the warehouse cleanup, contributing to the contamination.

Some of the remedial actions that have since taken place at the Litgo Property may have contributed further to the contamination. Sanzari—the owner of the Litgo Property between 1976 and 1990—hired environmental consultants to investigate the extent of the contamination and conduct remedial activities, such as soil excavations. One of the monitoring wells installed on the Property, however, had a faulty seal, a defect that likely increased the zone of contamination on the Property.

Although significant action has since been taken to remediate the soil contamination, groundwater contamination remains a significant problem on the Litgo Property. In this case, the central issue is who should be held responsible for past and future remediation.

B. The Litgo Appellants' Involvement at the Litgo Property

The Litgo Property is currently owned by Appellant Litgo New Jersey, Inc., a single purpose entity. Its sole shareholder, Appellant Sheldon Goldstein, first learned about the Property in the 1980s from an acquaintance, Lawrence Seidman, who suggested forming a partnership to develop it. Goldstein, who had previous experience in real estate, intended to have the Property rezoned for residential use, get approvals to build townhouses, and then sell the Property. He entered into an agreement of sale (Sales Agreement) with Sanzari to acquire the Property in August 1985.

Goldstein knew at the time that he entered into the Sales Agreement with Sanzari that there were problems with the site. Sanzari had informed him that there was some soil contamination, and a letter from NJDEP, incorporated by reference into the Sales Agreement, stated that hazardous wastes were being improperly stored at the JANR warehouse and that Sanzari had been ordered to take remedial steps. Goldstein was not, however, aware that TCE was present in the groundwater. Before entering the sale, he neither visited the Property nor further investigated the environmental issues.

The Sales Agreement stated that Sanzari would comply with all of the provisions of the New Jersey Environmental Cleanup Responsibility Act (ECRA), as well as obtain a cleanup plan from NJDEP. It also provided, however, that if the costs of obtaining and processing a cleanup plan were to exceed $100, 000, Sanzari would have the option of terminating the Sales Agreement, unless Goldstein agreed to pay all costs in excess of $100, 000.

NJDEP rejected Sanzari's proposed cleanup plan, and Sanzari—concerned about the potential cleanup costs— attempted to exercise his right to cancel the contract. Goldstein sought specific performance of the Sales Agreement in the Superior Court of New Jersey. During the suit, Goldstein hired an environmental consulting firm, EWMA, to review the compliance documents and cost estimates created by Sanzari's environmental consultants. EWMA criticized the reports for not fully disclosing the soil contamination and for failing to address potential groundwater issues. It found that the actual costs of a cleanup could not be accurately estimated based on the present information, and concluded that the actual costs could be far greater than the existing estimate.

Nevertheless, Sanzari and Goldstein reached an agreement regarding the Litgo Property, pursuant to which samples taken from monitoring wells on the Property would be tested for various substances. Goldstein could elect to move forward with the transaction within ten days of receiving the results, and, if he did so, he would assume all ECRA compliance costs in excess of $100, 000.

The wells were tested for VOCs, including TCE, as well as metals, PCBs, pesticides, and cyanide. Sanzari received the preliminary results for all of the substances, but sent only the preliminary results for metals, PCBs, pesticides, and cyanide to Goldstein's counsel. He also failed to disclose that there were concerns about TCE contamination on a farm near the Litgo Property.

Meanwhile, Goldstein's partner, Seidman, decided not to proceed with the sale because of concerns about potential environmental costs. Goldstein nevertheless reelected to proceed with the transaction in June 1989. Thereafter, Goldstein received a report that included the full test results, stating that the TCE levels at the Property exceeded NJDEP guidelines.

When he discovered that he would be responsible for additional groundwater investigation, Goldstein tried to refuse to take title to the Litgo Property, but the New Jersey Superior Court issued an order in December 1989 requiring him to proceed with the transaction. After he assumed ownership of the Property and Sanzari's obligations under the cleanup plan, Goldstein transferred title of the Property to Litgo New Jersey.

Beginning in 1990, Goldstein and Litgo New Jersey (the Litgo Appellants) retained two environmental consultants (first EWMA, and, after a dispute with EWMA, JM Sorge, Inc.) to carry out the cleanup plan. The consultants investigated the soil contamination and conducted remedial activities, including the excavation of contaminated soil. The Litgo Appellants did not, however, conduct comprehensive sampling for VOCs until 1997. Although they have installed multiple wells on or near the Property to determine the extent of the groundwater contamination, they had not, at the time of trial, engaged in any work to remediate that contamination.

C. Prior Litigation

Before filing the present action, Goldstein had been involved in several other lawsuits regarding the contamination at the Litgo Property. In 1996, he filed a lawsuit in the New Jersey Superior Court against multiple parties, including Sanzari, Sanzari's environmental consultants, and Dande Plastics, a company that conducted machining and manufacturing operations at a building near the Litgo Property. He alleged, among other things, that Sanzari's environmental consultants had failed to properly investigate and remediate the TCE contamination at the Litgo Property. The New Jersey Superior Court granted summary judgment in favor of the consultants. Goldstein also asserted a Spill Act claim against Dande Plastics, asserting that it was a source of contamination at the Property. The District Court granted Dande Plastics' motion to dismiss in part, and Goldstein and Dande Plastics then settled the remainder of the claims for $105, 000.

Goldstein was also involved in a lawsuit against his environmental consultant, EWMA. EWMA sued the Litgo Appellants after they failed to pay their bills, and the Litgo Appellants brought a counterclaim, asserting that EWMA had performed negligently and provided substandard services at the Property.

D. Current Litigation

1. Claims

In June 2006, the Litgo Appellants filed the present action in the United States District Court for the District of New Jersey, which named the Sanzari Appellees and the United States Appellees as defendants.[1] The claims asserted in the complaint were aimed at shifting responsibility for the remediation onto the defendants.

First, the Litgo Appellants brought claims against the Sanzari Appellees and the United States Appellees under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. § 9601 et seq.[2] As we shall explain in more detail, CERCLA § 107(a) allows private parties to seek compensation for the costs of remediation from parties that are statutorily responsible for the contamination. The Litgo Appellants sought additional compensatory relief under the New Jersey Spill Compensation and Control Act (Spill Act), N.J. Stat. Ann. § 58:10-23.11 et seq., a statute that functions much like CERCLA, except that it permits parties to recover costs incurred because of petroleum-related contamination. Cf. 42 U.S.C. § 9601(14) (excluding petroleum from the definition of "hazardous substance"). The Sanzari Appellees and the United States Appellees filed counterclaims against the Litgo Appellants and cross-claims against each other, seeking contribution for the remediation costs under CERCLA § 113(f) and the Spill Act.

The Litgo Appellants also sought injunctive relief under the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. § 6972, which permits citizen suits against any person who has contributed or is contributing to the disposal of waste in a way that might present an "imminent and substantial endangerment to health or the environment." 42 U.S.C. § 6972(a).

Finally, the Litgo Appellants sought rescission of the Sales Agreement under the New Jersey Sanitary Landfill Facility Closure Act and Contingency Fund (Closure Act), N.J. Stat. Ann. § 13:1E-100 et seq., a statute that requires sellers of land to disclose in the contract of sale whether the property has ever been used as a landfill.

2. The District Court's Decisions

The District Court entered summary judgment in favor of the Sanzari Appellees on the Litgo Appellants' RCRA claim. It found that this claim was barred by New Jersey's entire controversy doctrine because it should have been asserted in the 1996 New Jersey Superior Court proceedings. It held a bench trial on the remaining claims, which began on January 19, 2010 and ended on February 12, 2010. For reasons that we shall discuss in more detail, the District Court determined that the Litgo Appellants, the Sanzari Appellees, and the United States Appellees were each liable for the costs of remediation under CERCLA. It then allocated the percentage of costs to be borne by each party, ultimately assigning 70% of the costs to the Litgo Appellants, 27% of the costs to the Sanzari Appellees, and 3% of the costs to the United States Appellees. The District Court also found that the Sanzari Appellees and the Litgo Appellants were liable for the costs of remediation under the Spill Act, and allocated the Spill Act costs based on the same factors that it had considered in allocating the CERCLA costs.

The District Court determined that the United States Appellees were likely liable parties under RCRA, but expressed doubt as to whether injunctive relief would be appropriate. It reserved judgment on that issue until after the damages hearing. Finally, the District Court found that because the Litgo Property had not been used as a landfill, the Litgo Appellants were not entitled to rescission under the Closure Act.

The Litgo Appellants and the United States Appellees entered into a settlement agreement before the damages hearing was held. The Litgo Appellants dismissed their claim for injunctive relief under RCRA, but claimed to have reserved the right to seek litigation costs from the United States Appellees as prevailing parties under RCRA. The parties stipulated that the Litgo Appellants had incurred $1, 729, 279 in CERCLA response costs, and that the United States Appellees owed $51, 878.37 based on their allocation.

Following the damages hearing, the District Court found that the Litgo Appellants had incurred $1, 566, 236.78 in recoverable costs under CERCLA, and denied the Litgo Appellants' request for prejudgment interest. It also found that the Litgo Appellants had incurred an additional $315, 098.30 in recoverable costs under the Spill Act. Finally, it held that the Litgo Appellants were not entitled to litigation costs under RCRA because no relief had been granted on that claim.

The Litgo Appellants appealed, raising a plethora of challenges to the District Court's liability determinations, its allocation of costs, and the damages award. With respect to the CERCLA claims, they argue that the District Court: (1) erred when it held them liable as "operators"; (2) erred when it held that the United States Appellees were not liable as "owners" based on their involvement at the Columbia Aircraft site; (3) abused its discretion when it allocated CERCLA costs; and (4) erred when it denied their request for prejudgment interest. In addition, the Litgo Appellants claim that the District Court's allocation of costs under the Spill Act was an abuse of discretion. As to their RCRA claims, they argue that the District Court erred in two respects: (1) in granting summary judgment for the Sanzari Appellees based on the entire controversy doctrine; and (2) in denying their request for litigation costs. Finally, they claim that the District Court erred in denying their claim under the Closure Act.

The Sanzari Appellees cross-appealed. Like the Litgo Appellants, they claim that the District Court's allocation of CERCLA and Spill Act costs was an abuse of discretion. They also claim that the District Court erred in refusing to grant them a settlement credit for CERCLA damages.

II. Jurisdiction and Standard of Review

The District Court had jurisdiction over the parties' federal law claims under 42 U.S.C. §§ 6972(a) and 9613(b) and 28 U.S.C. § 1331. It had supplemental jurisdiction over the parties' state law claims under 28 U.S.C. § 1367. We have jurisdiction pursuant to 28 U.S.C. § 1291. We may set aside the District Court's factual findings only if they are clearly erroneous, and we exercise plenary review over the District Court's interpretation of the relevant statutes. Agere Sys., Inc. v. Advanced Envtl. Tech. Corp., 602 F.3d 204, 216 (3d Cir. 2010). We review the District Court's allocation of costs for abuse of discretion. Id. (citing Beazer E., Inc. v. Mead Corp., 412 F.3d 429, 445 n.18 (3d Cir. 2005)).

III. CERCLA Claims

A. Overview

Congress enacted CERCLA "to promote the timely cleanup of hazardous waste sites and to ensure that the costs of such cleanup efforts were borne by those responsible for the contamination." Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 602 (2009) (internal quotation marks omitted); see also United States v. Alcan Aluminum Corp., 964 F.2d 252, 257–58 (3d Cir. 1992). To accomplish this goal, CERCLA § 107(a) gives private parties the right to recover costs incurred in cleaning up a waste site from "potentially responsible parties" (PRPs)—four broad classes of persons who may be held strictly liable for releases of hazardous substances that occur at a facility. Burlington N., 556 U.S. at 608-09 (citing 42 U.S.C. § 9607(a)).

Under CERCLA, PRPs are: (1) current owners and operators of the "facility" at which the contamination occurred; (2) persons who were owners or operators of the facility "at the time of disposal of any hazardous substance"; (3) persons who arranged for the disposal or treatment of the hazardous substance; and (4) persons who transported the hazardous substance. 42 U.S.C. § 9607(a). A party falling into one of these four categories will be liable when there is a "release" or a "threatened release" of a hazardous substance from the facility that generates response costs. Id.; see Burlington N., 556 U.S. at 608-09; N.J. Turnpike Auth. v. PPG Indus., Inc., 197 F.3d 96, 103–04 (3d Cir. 1999). Once liability has been determined, the court allocates the remediation costs among the PRPs "using such equitable factors as [it] determines are appropriate." 42 U.S.C.§ 9613(f). PRPs may seek contribution from other PRPs— including the party that originally brought the § 107(a) action—under CERCLA § 113(f). Id.; United States v. Atl. Research Corp., 551 U.S. 128, 138–39 (2007).

Here, the District Court determined that the United States Appellees, the Sanzari Appellees, and the Litgo Appellants were each PRPs. The Sanzari Appellees were liable because they had owned and operated the Litgo Property when hazardous waste was disposed at the JANR warehouse. Litgo New Jersey was liable as the current owner of the Property, and both Litgo Appellants were liable as current operators of the Property. The United States Appellees were liable because they arranged for the disposal of some of the hazardous waste that was ultimately stored at the JANR warehouse. The District Court determined, however, that the United States Appellees did not incur PRP liability based on any releases that had occurred at the Columbia Aircraft site because they did not own any of the relevant facilities; they did not manage, direct, or conduct any of the operations at the Columbia Aircraft site; and they did not own or possess any of the VOCs that were disposed of at the Columbia Aircraft site.

The District Court then turned to the allocation of the remediation costs. It determined that the Sanzari Appellees were responsible for 21% of the costs.[3] Although it recognized that Sanzari was not directly involved in the generation, storage, treatment, or disposal of hazardous wastes, it determined that he had nevertheless taken actions that justified assigning the Sanzari Appellees a significant percentage of the costs. For example, Sanzari failed to provide Goldstein with a full set of the preliminary test results from the monitoring wells and with information regarding TCE contamination on a nearby plot of land before Goldstein opted to proceed with purchasing the Property. The Court explained that Sanzari was "the only party that had notice of the full extent of the contamination prior to Goldstein's election yet acted in a manner which would ensure that someone else—Goldstein—would have to take the responsibility for the remediation." Litgo I, 2010 WL 2400388, at *39. Additionally, one of Sanzari's environmental contractors installed a monitoring well with a faulty seal, and this seal, "which was discoverable and fixable, " likely increased the extent of contamination. Id. at *38.

The District Court found that the Litgo Appellants were responsible for 54% of the response costs. It found them liable as PRPs "based solely on their current ownership and operation of the Litgo Property, " and acknowledged that they had not been directly involved in the generation, storage, treatment, or disposal of hazardous wastes. Id. at *39. It also acknowledged that the Litgo Appellants' only activities on the site "have been those necessary to remove and remediate the soil and groundwater contamination." Id. The Court found, however, that the Litgo Appellants had consistently put off taking any steps to remediate the groundwater contamination, and this lack of action may have increased the threat to the environment and the public. Additionally, Goldstein, in the Sales Agreement, had agreed to remediate the Property in accordance with ECRA, and accepted financial responsibility for remediation beyond the first $100, 000. Although he did not know specifically that there was TCE contamination, he was aware that there were significant environmental issues, and voluntarily assumed that risk. The District Court also noted that the Litgo Appellants were the only parties that stood to benefit financially from the remediation of the Property.

The United States Appellees, in contrast, were allocated only 2% of the costs. The Court noted that they had previously generated and possessed some of the hazardous substances that were transferred to the JANR warehouse, and that some of those substances may have been released there. However, it explained that the United States Appellees had not been involved in the transportation of the substances to the Litgo Property, in their storage in the JANR warehouse, or in their treatment and disposal. It also found that the United States Appellees had exercised reasonable care regarding the transportation of the substances by entrusting them to a hazardous waste disposal contractor who, at the time, was considered reputable. It explained that, "[a]lthough the United States [Appellees] arranged for the disposal of these wastes, the materials they generated appear to have reached the JANR warehouse only due to the inappropriate and potentially illegal conduct of other third-party actors not involved in the suit." Litgo II, 2011 WL 65933, at *6.

The District Court then determined that the poor execution of the JANR warehouse cleanup—which had been overseen by NJDEP—had contributed to the contamination at the Litgo Property. Because of Eleventh Amendment immunity, however, NJDEP could not be held liable. The Court thus assigned the NJDEP Commissioner an "orphan share" of 23% of the costs.[4] It then distributed these costs among the PRPs. After this recalculation, the Sanzari

Appellees were ultimately responsible for 27% of the costs, the Litgo Appellants were responsible for 70% of the costs, and the United States Appellees were responsible for 3% of the costs.

Both the Litgo Appellants and the Sanzari Appellees raise multiple challenges to the District Court's analysis of the CERCLA claims. First, the Litgo Appellants contend that the District Court incorrectly identified who could be held liable as PRPs under CERCLA. They claim that the United States Appellees should have been liable as past owners based on their involvement in Columbia Aircraft's manufacturing operations, and that the Litgo Appellants should not have been found liable as current operators. Second, both the Litgo Appellants and the Sanzari Appellees contend that the District Court abused its discretion in allocating costs among the liable parties. Third, the Sanzari Appellees argue that the District Court erred in failing to assign it a settlement credit, based on the United States ...


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