Spill Act Innocent Purchaser Defense: What Does Due Diligence Really Provide?

Since 1993, purchasers of land in New Jersey have had access to a statutory safe harbor from the potentially significant obligation under the New Jersey Spill Compensation and Control Act (Spill Act) to respond to discharges of hazardous substances that occurred prior to ownership. For many, however, status as an “innocent purchaser” has remained elusive. New Jersey courts have found purchasers unable to support the defense because they did not perform adequate pre-acquisition due diligence. Adequate due diligence necessary to establish innocence is not always straightforward. Accordingly, counsel should carefully discuss with their clients the appropriate level of pre-acquisition environmental due diligence to be conducted before proceeding with any land transaction, even for property that does not seem to pose environmental risk, including residential property.

The Spill Act places the cost of cleaning up pollution not only on the dischargers of hazardous substances but also on any person who can be deemed to be “in any way responsible” for the pollution. Prior to 1993, however, the purchase of already-contaminated land was not necessarily sufficient to impose Spill Act liability. See NJDEP v. Ventron Corp., 94 N.J. 473 (stating while ownership or control at the time of discharge is sufficient, “[t]he subsequent acquisition of land on which hazardous substances have been dumped may be insufficient to hold the owner responsible.”) Since 1993, amendments to the Spill Act have clarified that post-1993 purchasers of contaminated land who knew or should have known through due diligence about previous discharges will be held liable. N.J.S.A. 58:10-23.11g(c)(3). Notwithstanding this provision, purchasers have argued, based on NJDEP v. Dimant, 212 N.J. 153 (2012), that they cannot be held liable for pre-existing contamination because they did not have a sufficient “nexus” to the discharge. Our courts, however, have rejected these arguments, confirming that a defendant who conducts less than the required due diligence before purchase establishes a connection with the discharge and becomes “responsible” for it. See, State Farm Fire & Cas Co. v. Shea, 2012 N.J. Super. Unpub. LEXIS 2208 (App. Div.); Casino Reinvestment Dev. Auth. v. Lin, Docket No. ATL-L-338-12 (Law Div. Dec. 9, 2015).