Failure to Conduct Preliminary Assessment Renders General Partners Individually Liable Under the Spill Act

The Appellate Division has again emphatically established that a party buying property in New Jersey must perform a preliminary assessment in accordance with DEP rules in order to have a chance of obtaining innocent purchaser protection. The decision was part of the ongoing saga regarding environmental contamination at the Accutherm mercury thermometer manufacturing property in Salem County that later became a Kiddie Kollege daycare. DEP v. Navillus Group, App. Div. Dkt. No. A-4726-13T3 (decided Jan. 14, 2016).

Contamination at the property was first discovered in 1987. Accutherm filed for bankruptcy in 1994. In 2001, Navillus Group acquired title via a tax foreclosure judgment. Two months later, Navillus transferred title to James Sullivan, Inc. (JSI) for one dollar. JSI leased the property to a pre-school daycare until DEP raised concerns about the contamination in 2006. After environmental sampling, the daycare was immediately shut down and litigation commenced. In May 2014, DEP won treble damages against Accutherm and its owner, who did not appeal. That order also resulted in summary judgment against Navillus and its general partners, and JSI and its sole shareholder, all of whom appealed.

The Appellate Division decision issued last week addresses whether Navillus and JSI are innocent purchasers, whether the general partners of Navillus are liable and whether the motion record supported DEP’s damages, corporate veil piercing and unjust enrichment claims.

The decision affirms denial of the innocent purchaser defense, emphasizing, at length, that a preliminary assessment environmental investigation complying with DEP regulations must be conducted prior to acquisition of property to preserve that defense. In this case, despite advice of counsel, the defendants merely relied on various environmental reports. As set forth by the Spill Act, the innocent purchaser defense requires a preliminary assessment, and, in the absence of any evidence that defendants conducted a preliminary assessment, the innocent purchaser defense was denied.

Personal liability for the general partners of the Navillus Group partnership was likewise affirmed based on the general proposition that all partners are liable for a general partnership’s obligations.

The decision also affirmed DEP’s damage claim, even though the certification supporting the claim was not based on personal knowledge as required by Court Rules, because defendants had failed to raise the issue in the trial court.

Defendants fared better, for now, with respect to piercing the corporate veil and unjust enrichment because the motion record did not provide sufficient evidence to establish liability under those theories.

The decision again shows the importance of strict adherence to statutory and regulatory requirements when seeking to purchase potentially contaminated properties, and the need to purchase such properties through properly established and operated corporate entities, and not general partnerships.

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