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DEP Cleanup Cleans House: Triple Damages and Individual Corporate Owner Liability

June 2014

In a recently decided case, the Department of Environmental Protection (“DEP”) was awarded three times its costs to cleanup a contaminated property. The case is a rare instance in which the DEP was awarded “treble damages” available under the Spill Compensation and Control Act The decision provides the department with additional precedential leverage in future cleanup settlement discussions and serves as a caution to responsible parties and purchasers of potentially contaminated property.

The case involves a property in Franklin Township where defendant Accutherm, Inc. manufactured mercury thermometers from 1988 to 1992. As early as 1988, the DEP notified Accutherm that it had contaminated the property. Accutherm abandoned the property in 1992, filed for bankruptcy and thereafter ignored the DEP’s 1995 cleanup order. In 2001, Navillus, a general partnership, purchased the property through a tax sale and later transferred it to a related corporate defendant, Jim Sullivan, Inc., for one dollar. In 2003, the property was leased to the ill-fated child care facility “Kiddie Kollege.” When the DEP learned of Kiddie Kollege’s existence in 2006, the facility was shut down and the DEP eventually demolished the building and remediated the property at a cost of over $2 million.

The court’s decision held Accutherm’s shareholder individually liable based on Spill Act liability arising from him insufficiently training employees in handling and disposing mercury, his decision to abandon the property and his control as the sole shareholder at the time of a discharge. The $6 million in treble damages were likely sought in this instance because of the complete failure of Accutherm to comply with the DEP’s directives.

Navillus and its partners were also held liable for cleanup costs (but not treble damages). Their innocent purchaser defense was denied because, against the advice of counsel, they did not undertake a preliminary assessment of the environmental conditions at the property prior to purchase. At the time of purchase, abundant information concerning the contamination at the site was publicly available, rendering their $2 million in liability wholly avoidable.

The court also disregarded the corporate structure of Jim Sullivan, Inc. and held its owner individually liable based on comingled assets, the $1 property transfer and the more recent sale of other property resulting in diminished corporate assets available for cleanup. More disciplined adherence to corporate formalities may have prevented the court’s veil piercing.

While most contaminated properties in New Jersey are not scrutinized as sharply or as publicly as the Kiddie Kollege site, property owners and operators should consider the potential for a treble damage assessment before refusing to address on-site contamination that is known or easily discoverable. Moreover, the wholly unnecessary liability assumed by Navillus provides yet another cautionary tale for entities acquiring property without conducting appropriate environmental due diligence and strictly complying with the innocent purchaser requirements of the applicable statutes.

For more information, please contact your Wolff & Samson PC attorney or the authors listed below.

Dennis M. Toft | Co-Chair, Environmental Group | | (973) 530-2014
C. Nicole Sullivan | Associate | | (973) 530-2059
Michael K. Plumb | Associate | | (973) 530-2148

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