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The Hartz Mountain Corporation v. The General Motors Corporation

94-4814 (U.S. Dist. Ct. D. N.J. 1998) (Unpublished)

ENVIRONMENTAL LIABILITY; DRAFTING—To avoid transfer of environmental liability from a seller to its buyer, an express assumption of risk statement must be in the contract; a standard “as-is” provision is insufficient.

A property owner and its tenant filed an action against a predecessor owner for the recovery of cleanup costs they incurred and will continue to incur because of environmental contamination of the property. They asserted numerous causes of action including claims for contribution under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and the New Jersey Spill Compensation and Control Act (Spill Act).

The site had been used for industrial purposes from the 1890’s until the late 1960’s. The manufacturing processes included machining, heat treating, bearing assembly and fabrication, and recovery of machining fluid and scrap. These operations generated various waste materials such as hydraulic, lubricating, and soluble oils, scrap metal shavings from the machining processes, off specification products, and sludge from the grinding solutions. In a contract executed in 1970, the current property owner agreed to purchase the plant. Before the sale closed, it inspected the premises and developed concern about its condition. Repairs were needed and the seller’s remaining equipment needed removal. At a meeting before closing, the parties negotiated a $75,000 reduction in the purchase price. In consideration, the buyer waived “all claims which it might have had concerning the condition of the property, the items left on the property, the condition of the utilities, etc. and agree[d] to take the entire property in an ‘as is condition[.]’” The following year, the buyer leased the plant to the tenant. In 1993, its tenant announced that it intended to discontinue operations at the site. This triggered the application of the New Jersey Cleanup Responsibility Act (now the Industrial Site Recovery Act). Under the statute, the tenant was required to conduct an environmental investigation of the property. It hired an environmental consultant and contamination was discovered. By the end of May 1997, the tenant had expended $1,675,000 for remediation measures.

The tenant sought partial summary judgment against the prior owner (the manufacturing company) under CERCLA and the Spill Act. The Court found that the tenant could not hold the prior owner liable under the cost recovery provision of CERCLA because that remedy is only available to innocent parties that have incurred cleanup costs. The Court also held that the prior owner could only be liable for contribution under the Spill Act. As such, the prior owner’s affirmative defense that the “as is” provision in the sales contract transferred liability to the buyer was rejected based on case law which held that standard “as is” provisions do not transfer liability for cleanup costs from a seller of contaminated property to its buyer. To do so, the contract must contain an express statement that the buyer assumes all the environmental liabilities. The fact that the buyer knew the site had been used for heavy industrial manufacturing did not mean that the buyer assumed the risk, especially because the tenant did not produce any evidence to indicate that the buyer knew the property was contaminated with PCBs or any of the other hazardous substances found at the site.


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