Action Item: The New Jersey Supreme Court’s decision in NL Industries, Inc. v. State of New Jersey will frustrate the equitable allocation of cleanup costs at sites involving pre-1977 discharges where the State would otherwise qualify as a responsible party. Such a result would be particularly severe considering the high cleanup price tag for many sites predating 1977. Any party involved in or contemplating such a contribution action against the State should be mindful of this decision when determining how best to proceed. This should include determining whether a federal forum and contribution claims under the NJ Spill Act’s federal counterpart, CERCLA, might achieve a better result.

Last week, in a 6-1 decision, the New Jersey Supreme Court ruled that the State of New Jersey (the “State”) was not on the hook for contributing towards a $79 million site cleanup despite having allegedly played a role in causing the contamination. In rendering this decision, the Court determined the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 to -23.24 (the “Spill Act”) did not retroactively abrogate the State’s sovereign immunity for State action taken prior to the Spill Act’s 1977 effective date, holding “the State’s sovereign immunity prevails against Spill Act contribution claims based on State activities that occurred prior to the original effective date of the Act.” Reversing the Appellate Division, which affirmed the trial court’s judgment, the Court concluded “the Spill Act contains no clear expression of a legislative intent to waive the State’s sovereign immunity retroactively to cover periods of State activity prior to the Spill Act’s enactment. Absent a clear and specific indication that the Legislature intended to impose a retroactive liability that could have profound impact on the fiscal affairs of the State, retroactive waiver of the State’s sovereign immunity for Spill Act contribution claims concerning pre-Act activities will not be inferred.”

This case involved contamination of the Laurence Harbor shoreline, a part of Raritan Bay, in Old Bridge Township. In 1966, the State of New Jersey, along with the Township, completed the building of a levee and the placement of beach fill on riparian land owned by the State to protect the Laurence Harbor beach from erosion.

In September 1968, Sea-Land Development Corporation (“Sea-Land”), which had earlier acquired land in Laurence Harbor for development, notified the State of its plans to protect Laurence Harbor from future erosion by the construction of a seawall that would be made partly with slag, an industrial byproduct. In December 1969, the New Jersey Department of Environmental Protection (“NJDEP”) issued a permit to Sea-Land to build the seawall and, in the early 1970s, it completed the project, using slag on both the seawall and an existing jetty. The seawall was located on land owned by Sea-Land as well as by the State. During construction, a Township official informed NJDEP that slag was being dumped into Raritan Bay. During the fall of 1972, NJDEP examined the reported information and, in March 1973, the slag issue was discussed but no further action was taken.

In 2007, NJDEP detected contamination along the seawall in Laurence Harbor. The United States Environmental Protection Agency (“EPA”) was notified in June 2008 and, after investigation, in 2009, placed Laurence Harbor on a national list of contaminated sites. In May 2013, EPA issued a decision that estimated cleanup to cost $79 million overall.

In January 2014, EPA demanded that NL Industries, Inc. (“NL”), which had operated a factory in Perth Amboy that created slag as a byproduct, remediate the site based on the assertion that Sea-Land had obtained slag from NL for use in Laurence Harbor. NL filed a state court complaint seeking contribution from the State under the Spill Act, alleging that the State caused or contributed to the Raritan Bay contamination in its roles as regulator and riparian landowner.

The State filed a motion to dismiss NL’s claim based on sovereign immunity and other grounds. The trial court denied the State’s motion finding, inter alia, that the Spill Act provided a clear and unambiguous waiver of the State’s sovereign immunity by including the State in the definition of a potentially liable “person” and relying on Department of Environmental Protection v. Ventron Corp., 94 N.J. 473 (1983), which allows NJDEP to sue private parties for recovery costs associated with cleanup of pre-Spill Act discharges. The Appellate Division affirmed the denial of the State’s motion, relying substantially on the reasons set forth by the trial court. On appeal to the Supreme Court, NL largely relied on the arguments it made in the courts below, arguing the State was liable in contribution because: (1) the plain language of the Spill Act includes the State as among entities potentially responsible for a hazardous discharge, and (2) the Spill Act has been amended to permit private contribution actions against a potentially responsible party for a discharge that predates passage of the Spill Act. As such, NL argued, the Legislature authorized a retroactive waiver of the State’s sovereign immunity for pre-Spill Act activities by the State relating to discharges in Laurence Harbor. The New Jersey Supreme Court rejected NL’s arguments.

The New Jersey Supreme Court emphasized that principles of statutory interpretation favor prospective application of statutes unless the Legislature explicitly expressed its intent to have the statute apply retroactively. The Supreme Court evaluated the Spill Act’s 1979 amendment (authorizing the State to expend Spill Act fund resources to remediate discharges that predate the Spill Act’s existence) and 1991 amendment (assigning liability for cleanup and removal costs “no matter by whom incurred”) and determined they did not provide the necessary deliberate clarity necessary to reach the conclusion the Legislature clearly and unambiguously intended to abrogate, retroactively, the State’s sovereign immunity for activities that occurred prior to enactment of the Spill Act.

The New Jersey Supreme Court also rejected NL’s reliance on Ventron as supporting the proposition that the Spill Act subjects the State to retroactive liability for pre-Spill Act activities, noting that New Jersey courts have avoided a broad interpretation of the Spill Act based on generalized statements about retroactivity contained in the Court’s opinion, and recognized that not all of the Spill Act’s provisions are intended to be retroactive.

The New Jersey Supreme Court concluded that, in light of the fact the State’s regulatory actions in this case preceded the passage of the Spill Act, it could not find any clear evidence in the legislative history of the Spill Act that it was intended to strip the State of immunity for the discretionary governmental activities of a sovereign. Justice Albin dissented from the majority holding that the State has no cleanup liability for its discharge of toxic pollutants before passage of the Spill Act and that only private parties are responsible for cleaning up pre-Spill Act toxic discharges. Justice Albin noted that the Court’s charge is to read the Spill Act as it is written and that the Spill Act defines both the State and private parties as a “person,” and, to the extent the Spill Act applies retroactively, it also does against the State.

As further noted by Justice Albin, the impact to any private company that faces liability for cleanup involved in a pre-1977 discharge could be severe in that it will be solely responsible for footing the bill for contamination in any situation in which the State was jointly responsible, regardless of how egregious the State’s conduct. For example, as Justice Albin noted, even when the State is 90 percent responsible and the private party only 10 percent responsible, the private party will have to fund the entire cleanup. Justice Albin further emphasized that “[t]he unfairness of this outcome is all the more flagrant because the NJDEP can select a site to be remediated where a private party is required to clean up a toxic spill primarily caused by the State.”

The NL Industries decision will have an immediate impact on any contribution action involving or potentially involving the State’s pre-1977 acts or omissions. Accordingly, any party involved in such litigation must consider this decision in shaping its litigation strategy going forward. A separate question for counsel and their clients when faced with these circumstances going forward, and one not addressed here, is whether and to what extent a federal forum and the contribution provisions of federal statutes such as CERCLA can be used to avoid the result obtained in NL Industries.

The case is NL Industries, Inc. v. State of New Jersey, Supreme Court of New Jersey, A-44 September Term 2015 076550, argued October 26, 2016 and decided March 27, 2017.