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Navillus Group, General Partnership v. Accutherm, Incorporated

422 N.J. Super. 169, 27 A.3d 973 (App. Div. 2011)

ISRA; RESCISSION — Although a court has the right to order rescission of a deed where a seller failed to abide by the provisions of New Jersey Industrial Site Recovery Act, rescission is not available when a subsequent transaction, such as acquiring the property in a tax sale, does not implicate the Act.

A manufacturer produced laboratory-grade thermometers from 1984 and 1992. Because of increasing environmental requirements imposed by the Department of Environmental Protection (DEP), it ceased operations in 1992, but did no cleanup of any mercury contamination even though it was required to do so under the New Jersey Industrial Site Recovery Act (ISRA). The manufacturer subsequently filed a bankruptcy petition and stopped paying real estate taxes. In a separate transaction, the municipality then sold two tax sale certificates to a bank who declined to foreclose on the certificates because of potential environmental issues that had been flagged by the bank’s counsel. The municipality later sold a third tax sale certificate for the property to another buyer. That buyer subsequently also acquired the first two certificates by assignment from the bank.

The tax sale certificates contained the following disclaimer: “Purchasers are herewith advised, pursuant to N.J.S.A. 13:1K-6, THAT INDUSTRIAL PROPERTY MAY BE SUBJECT TO THE ‘Environmental Clean Up Responsibility Act,’ the ‘Spill Compensation and Control Act’ or the ‘Water Pollution Control Act.’”

The buyer subsequently obtained a foreclosure judgment for its tax liens. This vested title into the buyer. After entry of this judgment, the buyer conveyed title to a corporation for one dollar.

Later, the corporation leased the property to a daycare center. The DEP sent a letter to the corporation advising it of several unlawful environmental issues at the site, including the presence of mercury at levels. The DEP asked the corporation to provide it “with documentation which outlines what measures, if any, have been undertaken to remediate these environmental concerns.” The corporation then hired an environmental consultant to conduct air quality tests on the site. The tests revealed mercury vapor concentrations far in excess of the DEP’s limits. Immediately thereafter, the daycare center was closed.

The corporation signed an administrative consent order under which it agreed to remediate the site in accordance with the New Jersey Spill Compensation and Control Act (Spill Act). However, it later refused to perform any remediation. Numerous lawsuits were filed against the daycare center, the corporation, the buyer, and the municipality alleging that the children who attended the daycare center and the center’s employees suffered personal injuries as a result of their exposure to mercury.

The buyer and the corporation then sought to void the tax foreclosure judgment so that title would revert back to the municipality. The municipality filed a counterclaim, arguing that the tax foreclosure judgment had vested title in the buyer and extinguished the interest of prior title holders. The DEP also moved to dismiss the complaint on the ground that buyer’s action was a preemptive attempt to avoid possible liability under the Spill Act.

The lower court ruled that the buyer and corporation were entitled to vacate the judgment in the tax foreclosure based on a provision of ISRA under which the failure of a transferor of an industrial site to remediate environmental contamination before the transfer can result in voiding the transaction. The Appellate Division, however, reversed and vacated the lower court’s ruling. It held that the buyer had failed to seek that relief until more than five years after entry of the tax foreclosure judgment, and this was far beyond the three-month limit to do so under the tax sale law.

The Court also ruled that ISRA obligations were first triggered when the manufacturer closed its operations and not when the tax sale certificates were sold. Consequently, it held there was no basis under ISRA to treat the tax foreclosure judgment as a “transfer or sale” triggering ISRA for purposes of applying the remedy of voiding the transaction. The Court also held that the tax sale law was the exclusive grounds under which a tax foreclosure judgment may be vacated. It noted that the tax sale law places “the risk of facts discovered after the tax sale which have an impact on the value of the property” on the purchaser of a tax sale certificate.

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