Editor: Harris Neal Feldman, Esq.

Transcription

1 Issues and Trends in New Jersey Law is published periodically by Schnader Harrison Segal & Lewis LLP to provide current information to clients and friends. Issues and Trends in New Jersey Law is intended only to inform, not to provide legal advice, and readers should seek professional advice for specific applications of the information. Comments and questions always welcome Schnader Harrison Segal & Lewis LLP Editor: Harris Neal Feldman, Esq. Schnader Harrison Segal & Lewis LLP Woodland Falls Corporate Park 220 Lake Drive East Suite 200 Cherry Hill NJ FAX woodland falls corporate park PRESORTED STANDARD U.S. POSTAGE PAID PHILADELPHIA, PA PERMIT NO lake drive east suite 200 cherry hill, nj

2 new york pennsylvania california washington, dc new jersey I S S U E S & T R E N D new jersey law S I N Summer 2005 N EW H OME B UILDERS FACED W ITH A NOTHER P OTENTIAL O BLIGATION By Jeanne Schubert Barnum The New Jersey Supreme Court recently issued an opinion ruling that municipal construction officials can fine builders for code violations even after a house has passed inspection, a Certificate of Occupancy (CO &A) is issued, and the home is sold. The case, DKM Residential Properties Corp. v. The Township of Montgomery et als., 182 N.J. 296 (2005), arose from a dispute between the builder and township code officials. DKM Residential Properties ( DKM ) developed the Cherry Valley Country Club in Montgomery Township, built homes between 1995 and 1998, and was issued COs for the homes it sold. In May 2000, homeowners began writing to the Township complaining about improper installation of the stucco-like exterior IN THIS ISSUE 1 New Home Builders Faced With Another Potential Obligation 3 Suit To Abate RCRA Endangerment Results in $400 Million. Injunction 6 Recent Successes finish that had been applied to their homes. As a result, the homeowners claimed that moisture had penetrated the homes, causing decay, rotting and mold accumulation. The Township construction official determined that the installation had not complied with manufacturer s specifications and violated of the Uniform Construction Code ( UCC ). The Township issued citations identifying 62 individual instances of violations and, after hearings, ordered DKM to submit a remediation plan subject to the consent of the involved homeowners. Meanwhile, DKM had filed a complaint in lieu of prerogative writ against the Township, seeking to have the Notices of Violation ( NOV ) vacated. The trial court rejected DKM s argument that the Township lacked the authority under the UCC to issue an NOV to a builder once a CO had been issued and dismissed the complaint. The Appellate Division reversed and held that neither the UCC nor its regulations authorized a township to bring an enforcement proceeding against a developer concerning property it no longer owned. The Appellate Division was concerned, among other things, that homeowners would use the (continued on page 2)

3 UCC enforcement process to pursue private claims and unfairly shift the cost of such actions to all taxpayers. However, the New Jersey Supreme Court reversed and held that the UCC and its regulations reasonably permit a legal authority to issue an NOV and to order an authorized penalty against a developer after a CO has been issued. The Court addressed only the legal challenge to the municipal enforcing the entity s authority to act against a developer after a CO has been issued. Finding that the UCC must receive liberal construction to advance its purposes under N.J.S.A. 52:27D-141, the Court could find nothing in the UCC expressly limiting the imposition of penalties on a developer after a CO has been issued. It found that the UCC and its regulations reasonably permit issuance of an NOV and imposition of a penalty against a developer after a CO has been issued and that the holding promotes the salutary public policy goal of compliance with the Code. The final sentence of the decision Although we do not attempt to address today the full breadth of that authority, at the very least it certainly would seem to encompass Code violations of the sort that would have supported the withholding of the certificate of occupancy in the first instance had they been known may provide some relief to new home builders. Of course, this will be subject to interpretation, but a developer can argue that post-co NOVs can be issued only for violations that were undiscoverable at the time of completion and that would have prevented the original CO from being issued. For example, the electrical subcode of the UCC requires an outlet to be within three feet of the outside edge of a bathroom basin. It is hard to believe that installing it three and a half feet from the basin, which would have been discoverable, should be grounds to withhold a CO and, therefore, should merit the issuance of an NOV. That may not matter to homeowners who want someone to correct perceived problems without cost to them. Once unhappy homeowners become aware of the opinion in this case, township inspectors may be deluged with complaints that the UCC or its regulations have been violated, placing the burden of investigating and pursuing a claim on the municipality and not the individual homeowner. While this may make some sense in the case of a violation common to a number of homes, which could not have been discovered before the COs were issued (as in DKM), such a policy does not make sense for discoverable or random problems that can best be addressed through new homeowners remedies provided to them through the 2-10 Homebuyers Warranty program. About the Author... JEANNE SCHUBERT BARNUM is a partner who has represented developers, business owners, landlords, lenders and municipalities in a wide variety of business, commercial and creditors rights litigation. She has extensive experience in Bankruptcy Litigation, Environmental Litigation, Trusts Litigation and Construction Litigation. page 2

4 Suit to Abate RCRA Endangerment Results in $400 Million Injunction By John Armstrong and George McGrann REPRINTED WITH PERMISSION OF THE LEGAL INTELLIGENCER In Interfaith Community Organization v. Honeywell International Inc., the 3rd U.S.Circuit Court of Appeals held that a district court did not abuse its discretion in issuing a permanent injunction against Honeywell requiring the company to excavate and remove some 1.5 million tons of chromium contaminated soil from a site, even though the estimated cost of the remedy was $400 million and Honeywell had already entered into a consent order and agreement (CO&A) with the New Jersey Department of Environmental Protection (NJ Dep) requiring the company to delineate the contamination, select a remedy and remediate. In the process, the court also held that the question of whether hazardous waste presents a Resource Conservation and Recovery Act (RCRA) endangerment is a question of fact, that such finding is subject to a deferential standard of review, and that such a determination does not require a further finding of either a population at risk or contamination in excess of state environmental protection standards. FACTS AND BACKGROUND This matter arose out of a suit by a local community organization, the Interfaith Community Organization, against Honeywell under Section 7002(a)(1)(B) of the RCRA, alleging that notwithstanding the CO&A with the NJDEP and Honeywell s efforts to comply, hazardous waste disposed of at the site presented an imminent and substantial endangerment to public health and the environment. As Judge Thomas L. Ambro observed in his concurring opinion, whether a finding of imminent and substantial endangerment is a question of fact or a mixed question of fact and law is significant in that it, in turn, determines the standard of review. Questions of fact are reviewed under the deferential clear error standard. The 3rd Circuit, citing an earlier decision, stated that clear error exists only if [a finding] is completely devoid of a credible evidentiary basis or bears no rational relationship to the supporting data. On the other hand, mixed questions of law and fact are reviewed under a more penetrating standard. The court applies a clearly erroneous legal standard to the core facts, but it exercises plenary review over the interpretation and application of those facts to the legal standards. After reviewing the decisions of three other courts of appeals and concluding that those courts had determined that the question of whether a hazardous (continued on page 4) page 3

5 waste presents a RCRA endangerment is a question of fact, the 3rd Circuit agreed. The finding of a RCRAendangerment does not require the finding of a population at risk or contamination in excess of state standards. Section 7002(a)(1)(B) of RCRA provides, In general any person may commence a civil action against any person including any past or present generator, past or present transporter, or past or present owner or operator of a treatment, storage or disposal facility, who has contributed or who is contributing to the past or present handling, storage, treatment, transportation or disposal of any solid or hazardous waste which may present an imminent and substantial endangerment to health or the environment. The court held that to prevail in an action under Section 7002(a)(1)(B), a plaintiff must prove the following: The defendant is a person including a past or present owner or operator of a treatment, storage or disposal facility; Such person has contributed or is contributing to the past or present treatment, storage or disposal of a solid or hazardous waste; and The solid or hazardous waste may present an imminent and substantial endangerment to health or the environment. In considering the legal standard to be applied to a district court s finding of an endangerment, the court held first that an endangerment can be proved by proof of an endangerment to either public health or the environment. It also held that proof of actual harm is not required, citing Section 7002(a)(1)(B), which states that hazardous waste may present an imminent and substantial endangerment. Finally, it held that proof of exceedance of a quantitative measure such as a state clean-up standard is not required. The court also quoted from its earlier decision in United States v. Price, stating, [S]ection 6972(a)(1)(B) contains expansive language conferring upon the courts the authority to grant affirmative equitable relief to the extent necessary to eliminate any risk posed by toxic wastes. Lastly, the court stated, We do not disagree that, given RCRA s language and purpose, Congress must have intended that if an error is to be made in applying the endangerment standard, the error must be made in favor of protecting public health, welfare and the environment. In setting forth the elements of proof of an endangerment, the district court had developed a fourprong test. The 3rd Circuit ultimately concluded that the district court s test imposed a greater burden on citizen plaintiffs than RCRArequired. The 3rd Circuit reversed the district court s holding that proof of RCRA endangerment requires proof that a potential population is at risk. The court held that such a holding is at odds with the language of RCRA. As noted, Section 7002(a)(1)(B) is in the disjunctive. It provides that in order to prevail, a plaintiff must prove that hazardous waste may present an imminent and substantial endangerment to public health or the environment. The 3rd Circuit also reversed the district court s conclusion that proof of RCRA endangerment page 4

6 requires proof of contamination in excess of state environmental protection standards. The court reasoned that the requirement was adopted to give meaning to the word substantial. It went on to hold that use of a quantitative measure could not be justified by either the language or legislative history of RCRA. One additional reason the court gave for rejecting the district court s conclusion was an argument made by Honeywell. The company argued that its conceded discharges into the Hackensack River could not be substantial because New Jersey had not yet established a remedial standard for river sediment chromium. The court concluded that it did not believe Congress intended Section 6972(a)(1)(B) to be dependent upon the states in such a manner and further that the language provides no support for such dependency. The district court did not abuse its discretion in issuing the injunction. The court held that the standard of review applicable to the district court s issuance of the injunction was an abuse of discretion. The court observed that the district court had found the following: A permanent remedy was necessary within the meaning of Section 7002 of RCRA to remedy the endangerment that had been established; The issuance of an injunction was necessary to achieve a permanent remedy; Honeywell had offered no credible evidence in the district court that capping or remediation of shallow groundwater would result in a permanent remedy; and The excavation and removal of the contamination was necessary to remediate the endangerment that had been established. The evidence the district court considered in making its findings included the site s unique characteristics of a high ph level and indication of the phenomenon known as heaving. Other evidence the district court considered included findings that Honeywell had engaged in dilatory tactics and that the NJDEP was unable to deal effectively with those tactics. According to the 3rd Circuit s opinion, The evidence demonstrates a substantial breakdown in the agency process that has resulted in 20 years of permanent cleanup inaction. The 3rd Circuit also noted that Honeywell argued that the district court, in issuing the injunction, improperly overrode an ongoing administrative process. In response, the court stated, it was clear that in enacting the 1984 amendments to RCRA, including the amendments to Section 7002, Congress did not intend to require citizens to exhaust their administrative remedies before seeking relief under that section. The court further observed that Honeywell s argument in this regard was, in essence, an argument that in issuing the remedial injunction, the court had usurped agency power. The court stated that it had no difficulty in reconciling the court s power in the injunctive context with this position. Depending on the particular characteristics of a given RCRA site, as (continued on page 6) page 5

7 found by a district court on a case-by-case basis, particular types of injunctive relief may not be circumscribed by arguments as to what an agency might have done. Honeywell also asserted that the benefits to be realized from the injunction would not exceed the costs. This court is not unmindful of the potential costs involved. Dr. Brown estimates costs for remediation could be $400 million. In response, the 3rd Circuit held that the district court had properly found that the plaintiffs had satisfied the standard for liability, considered the cost-benefit analysis evidence appropriately and made findings consistent with the public interest. R ECENT S UCCESSES Schnader Helps Secure Reversal of $4 Million Verdict Ateam of Schnader appellate lawyers joined with trial counsel and successfully overturned a jury verdict that had awarded three former employees of Flagship Resort Development Corporation more than $4 million in lost wages, emotional distress damages and punitive damages. The verdict resulted from an alleged violation of the federal Employee Polygraph Protection Act, which prohibits employees from being discharged or retaliated against for refusing to take a polygraph test. In a 30-page opinion granting Flagship s motion for a new trial and sharply limiting the damages that the plaintiffs could recover on re-trial, the District Court of New Jersey ruled that the evidence would not support punitive damages and that the lost wage and emotional distress damage awards were grossly excessive. Schnader attorneys working on the appeal included the Honorable Arlin M. Adams, Nancy Winkelman, Bruce P. Merenstein and Harris Neal Feldman. Schnader Obtains AVictory in a Special Education Case Jerry Tanenbaum recently obtained a significant appellate victory in the Pennsylvania administrative system for a child suffering from a variety of emotional and educational disabilities. Although the child is very bright and obtained decent grades, Mr. Tanenbaum was able to prove that his special educational program was procedurally deficient and had contributed to the child s serious depression and withdrawal. The hearing officer therefore ordered full compensatory education for the child for every hour of every school day for the full one and one-half years at issue. However, the hearing officer also denied tuition reimbursement at the private school in which the parents had enrolled the child, because the private school included only children with disabilities and whose academic progress was uncertain. The School District appealed to the Pennsylvania Appellate Panel and the child cross-appealed on the tuition reimbursement. The Appellate Panel ruled for the child on both issues, holding that a parent s unilateral placement need not meet all the requirements that the District was obligated to meet and that the child s significant improvement in social/emotional areas - the main reason for the unilateral placement - was sufficient to trigger the District s obligation to pay the tuition. The victory entitles the family not only to full compensatory education and full tuition reimbursement, but also to recover fees of expert and attorneys. page 6

8 THE TAKE AWAY Although this case involves unique facts, there are some lessons to be taken away. First, the regulated community can no longer assume, if it ever did, that courts will be precluded or discouraged from involving themselves in areas once thought to be the exclusive province of administrative agencies. On the contrary, this decision makes clear that a district court, at the behest of a citizen s group, pursuant to Section 7002(a)(1)(B) of RCRA, has in effect de novo jurisdiction to determine whether environmental site conditions may present an imminent and substantial RCRAendangerment. Moreover, once involved, this decision also makes clear that a district court has available the full extent of its equitable power to order any action that may be necessary to eliminate any risk posed by toxic wastes, even when those actions are extraordinarily costly. Lastly, the regulated community will not be able to count on much help from the appellate courts, as the 3rd Circuit has made clear that the district court determinations are subject to review under the very deferential clear error and abuse of discretion standards. Given this decision and its implications, members of the regulated community should assume that the appropriateness of their actions or inactions in dealing with an administrative agency will ultimately be judged by a court and not an administrative agency. Accordingly, such members should be mindful of making an administrative record that can be defended in such a context. For instance, it is often the case that a significant portion of the delay in cleaning up a site may be caused by the failure of government agencies to review and approve work performed by members of the regulated community in a timely fashion. Such delays by government agencies should now be well documented to counter any future accusation by a third party of dilatory conduct on the part of the remediator. About the Authors... John M. Armstrong is co-chair of the Firm s environmental practice group and managing partner of the Cherry Hill office. Active as a trial and appellate litigator throughout his career, he focuses on all aspects of environmental litigation, with emphasis on CERCLA and New Jersey s Spill Act. He is also experienced in handling civil litigation, including toxic tort, personal injury and commercial litigation. George E. McGrann is co-chair of the Firm s Environmental Practice Group and a member of the Firm s Executive Committee. Besides his work in environmental law, he focuses on commercial litigation and antitrust matters. Mr. McGrann s two decades of experience include cases in commercial contracts, hostile corporate takeover litigation, directors and officers liability, a wide range of governmental and private-party environmental litigation and toxic tort defense throughout the United States. He has extensive experience representing both defense and prosecution. page 7