U.S. District Judge Kevin McNulty. (Photo: Carmen Natale/ALM)

A federal judge in Newark has declined to dismiss claims against Bath Iron Works for $19 million in environmental contamination at the former Congoleum property in Kearny, rejecting an argument that the claims are precluded by the settlement of related asbestos claims in bankruptcy court.

U.S. District Judge Kevin McNulty of the District of New Jersey denied Bath Iron's motion to dismiss third-party claims against it lodged by DVL Inc., a New York real estate company that paid $19 million to remediate contamination at the Kearny site, at 160-194 Passaic Ave., and Congoleum Inc., which is accused in a suit of causing the contamination to the site.

Bath Iron contended that the current claims against it by DVL and Congoleum are identical to, or encompassed by, issues that it settled in Congoleum's 2010 bankruptcy proceedings. But McNulty said he could not endorse Bath Iron's theory.

The issues arose in DVL Inc. v. Congoleum Corp., a 2017 suit over cleanup of the Kearny property, which is now known as the Kearny Square Mall but was the site of a Congoleum manufacturing plant from the 1880s until 1959. DVL brought claims against Congoleum under the Comprehensive Environmental Response, Compensation and Liability Act and New Jersey's Spill Compensation and Control Act, and it later amended its complaint to add Bath Iron as a defendant.

According to Congoleum, the entity named as a defendant in the complaint, Congoleum Corp. of Mercerville, was only formed in 1986 and is not liable for damages to the Kearny property. Congoleum asserts that liabilities for its historic operations were transferred to a separate entity, Congoleum Industries, which later merged with Bath Iron Works of Bath, Maine.

A plant at the site manufactured products for the U.S. military, including tent cloth, torpedoes, sandbags and camouflage netting, and manufactured commercial products that included linoleum, adhesives and waxes. The property was contaminated with polychlorinated biphenyls, tetrachloroethene, perchloroethylene, trichloroethene, and poly-aromatic hydrocarbons. DVL bought the site around 1960 and became aware of the contamination in 2015, according to the decision.

Congoleum filed for bankruptcy under Chapter 11 in 2003, while it was in a coverage dispute with insurers over personal injury claims against it relating to asbestos-containing products. After a settlement was reached with insurers, Congoleum's chief financial officer filed a declaration stating that “Bath Iron Work Corp. [and certain other entities] have no responsibility for any of the liabilities of the Congoleum Flooring Business.”

Bath Iron argued that judicial estoppel bars Congoleum's claims because they contradicted its prior position in the bankruptcy case; that res judicata bars DVL's claims in the amended complaint and Congoleum's cross-claims, because the bankruptcy court entered a final order with preclusive effect; and that equitable estoppel also bars Congoleum's claims because Bath Iron relied on the no-liability language in the declaration.

Arguing for judicial estoppel, Bath Iron claimed that Congoleum obtained settlements with insurance companies based on its declaration that Bath Iron was not liable.  McNulty said more information was needed before he could determine whether Congoleum acted in bad faith.

In its res judicata claim, Bath Iron argued that it had been cleared not only of asbestos personal injury liability, but of all liabilities of the Congoleum flooring business. McNulty said the context of the order clearing Bath Iron “suggests that res judicata does not apply to the claims made by DVL and Congoleum. At any rate, I cannot find that res judicata applies in the context of a motion to dismiss.”

And on its argument for equitable estoppel, Bath Iron again said it reasonably relied on Congoleum's representation that it had no liability when Congoleum sought to obtain approval of its settlement in the bankruptcy case. But McNulty said that argument “presents issues of factual interpretation, not suitable for resolution on a motion to dismiss.”

Thomas Curtin of McElroy, Deutsch, Mulvaney & Carpenter in Morristown, representing Bath Iron, declined to comment.

Eitan Blanc of Zarwin, Baum, DeVito, Kaplan, Schaer & Toddy in Philadelphia, representing DVL, and Camille Otero of Gibbons in Newark, representing Congoleum, did not return calls about the ruling.