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State of New Jersey, Department of Environmental Protection v. Kafil

C-175-01 (N.J. Super. Ch. Div. 2006) (Unpublished)

SPILL ACT — A court decides issues of strict liability, veil piercing, double jeopardy, and the assessment of penalties in a case involving eighteen underground storage tanks and eight gasoline stations.

The New Jersey Department of Environmental Protection (DEP) filed a complaint claiming that numerous individuals, as the alleged owners and/or operators of eight gasoline stations, failed to comply with the Underground Storage Tank Act (USTA), the Spill Compensation and Control Act (Spill Act), and failed to timely investigate or remediate suspected contamination at some of the subject gasoline stations. The alleged owners/operators moved for partial summary judgment.

The basic issue before the Court was whether to grant the alleged owners’ motions for summary judgment. Summary judgment should be granted when the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment as a matter of law. If the moving party makes the requisite showing, the burden shifts to the opposing party to present competent evidence indicating that the facts are not as the movant asserts.

With those principles in mind, the Court first addressed the motion of an alleged owner/operator seeking dismissal of claims alleging violations of the USTA related to his ownership. This alleged owner/operator argued that, despite his ownership, he should not be held liable because he did not operate or participate in the business of the gas station and that the gas station was leased to another individual. The DEP argued that, under the USTA, both the owner and operator are strictly liable for violations of the Act. The Court’s interpretation of the Act, in light of case law, led it to conclude that the Act clearly contemplated strict liability. Therefore, although this alleged owner/operator was undisputedly an innocent owner, the Court reasoned that his status as an owner could have some bearing upon the final resolution. Accordingly, the motion was denied.

Next, the Court addressed the motion of another alleged owner/operator seeking dismissal of claims alleging regulatory violations and requesting remediation funding. This alleged owner/operator argued that he was not the owner pursuant to the USTA. He presented a copy of a deed demonstrating that he transferred ownership. The DEP argued that this alleged owner/operator still signed registration statements and certified documents for the gas station, including some documents stating that he was the owner. In light of the signed documents by the alleged owner/operator and the deed, the alleged owner/operator’s representations raised the question of whether he was actually the owner. Finding that there was no single unavoidable resolution of the alleged disputed issue of fact, the Court denied summary judgment as requested by the alleged owner/operator.

Lastly, the Court addressed the motion of yet another group of alleged owner/operators. Unlike the previous motions, this motion consisted of several large issues. One of these alleged owner/operators argued that she did not own or operate any underground tanks, and that it would be improper to pierce the corporate veil to hold her personally liable. The DEP argued that because she was the sole shareholder of the corporation which owned the gas stations, she should be held personally liable for their violations. This meant that the Court needed to resolve whether it should pierce the corporate veil to find the alleged owner/operator personally liable. The Court reasoned that the DEP had not presented evidence that the corporation was a sham created for the purpose of fraud; that this alleged owner/operator commingled corporate funds with personal funds; or that there has been an abuse of the corporate form. Further, the Court reasoned that just because this alleged owner/operator was in charge of the gas stations, or an employee and stockholder of the corporation, this relationship did not prove sufficient to pierce the corporate veil. Accordingly, the Court granted summary judgment in favor in favor of this alleged owner/operator.

These alleged owner/operators also sought the protection of the double jeopardy clause of the United States Constitution and the corresponding clause of New Jersey’s Constitution. They contended that the whole civil proceeding against them should be dismissed because it was based upon the same conduct as a prior criminal proceeding. Thus, the Court needed to determine whether the facts required the Court to invoke the double jeopardy bar. The Court explained that the double jeopardy clause of the United States Constitution protects against three harms: re-prosecution for the same offense after acquittal, a second prosecution for the same offense after conviction, and multiple punishments for the same offense. The Court then explained that in weighing whether a civil fine is punitive, the court should consider whether the fine can fairly be characterized as remedial or as a deterrent. In making such a determination, the determining factors are the purposes actually served by the sanction as well as the impact of the fine. Finding that the United States Constitution did not apply, the Court analyzed the applicability of the state constitution. Analyzing the purpose of the state constitution, the Court found that the purpose was deterrence. Therefore, the double jeopardy bar applied. Accordingly, the Court found that the DEP violated these alleged owner/operators’ right to be free from double jeopardy. However, the Court also concluded that these alleged owner/operators were not immune from all counts asserted against them. Accordingly, the Court granted the motion for summary judgment with respect to those claims for which the double jeopardy bar applied.

These alleged owner/operators also argued that the DEP was estopped from seeking to collect more than a certain amount based on a memorandum in which the DEP calculated the total civil penalty. These alleged owner/operators claimed that they relied on this amount in turning down the DEP’s settlement offer. The Court reasoned that the argument was not persuasive because the relevant rule provided that any statements made in settlement negotiations were inadmissible. Accordingly, the Court found that these alleged owner/operators could not use the memorandum to argue estoppel. Furthermore, assuming the document was admissible, the Court found that the argument would still fail. The Court reasoned that it was too early to assess the claim of reliance, therefore, the Court could not find, at least at that stage, that equitable estoppel applied. Accordingly, the Court denied summary judgment with respect to this claim.

These alleged owner/operators also argued that the penalties sought should have been limited. Interpreting the relevant statutory provisions in light of these alleged owner/operators’ proposed construction, the Court found that the relevant provisions permitted further penalties. Accordingly, the Court denied summary judgment with respect to this claim.

These alleged owner/operators also argued that the DEP could not seek disgorgement of economic benefit pursuant to the USTA and the Spill Act. The Court concluded that the USTA permitted the DEP to seek disgorgement of economic benefit. Accordingly, summary judgment on this issue was denied.

These alleged owner/operators also argued that the Spill Act did not provide for an order compelling remediation of the subject gas stations. The Court determined that the Spill Act specifically directed that a party that has not remediated a violation would be liable for three times the cost of such remediation, however, the Act did not provide for an order seeking remediation. Thus, the Court reasoned that the Act set forth many penalties, and if it intended to include remediation, the Act would have expressly included it. The Court found that an order seeking remediation was not permitted. Accordingly, the Court granted the motion for summary judgment as to this issue.

These alleged owner/operators also argued that the claim assessing a penalty against them should be dismissed, because the penalty had already been assessed. The DEP argued that the amount was a fee not a penalty. Reasoning that these alleged owner/operators relied on vague deposition testimony upon which the Court could not base a summary judgment, the Court denied summary judgment on this issue.


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