NJ District Court Opens CERCLA Consent Decree and Agreement with Insurers For Neighbors Who Were Not Involved in Initial Actions and Settlement

In recent N.J. Federal Court decision, US v. South Jersey Clothing Co, et. al, the District of New Jersey addressed a scenario to decide whether a decade-old consent decree and settlement between responsible parties and their insurers should be reopened in light of newly-discovered groundwater contamination at a property a mile away which was alleged to have originated at the property in question.

In 1988, in response to the discovery of groundwater contamination around property owned by South Jersey Clothing Company and Garden State Cleaners (collectively,“Defendants”), the USEPA decided to place this property on the National Priorities List under the federal Superfund Program. After conducting studies of the sites, it was concluded that the operations of both Defendants contaminated the groundwater here. The United States then brought this action in 1996 pursuant to CERCLA § 107, seeking reimbursement of response costs.

During discovery, it became clear that Defendants could not meaningfully pay the judgment, and the only assets available were proceeds from their insurance policies. The insurers (who were not made parties to this action) disputed that coverage was available, but participated in mediation, which resulted in a Consent Decree which was signed by the Court in 2002. This Consent Decree resolved the USEPA’s enforcement action and memorialized representations by Defendants to the USEPA that the cleanup liabilities at their respective sites greatly exceeded the assets of the companies and the individuals who owned them. It incorporated several appendices containing settlement agreements and releases executed by Defendants and their insurers that amounted to a “site release,” wherein Defendants released their insurance carriers from any other potential liabilities associated with the ground water contamination on the Property.

The insurers agreed to fund this compromise by paying from the disputed coverage but being released by Defendants from any further liability for coverage on the disputed policies. The insurers then made payment to the federal and state governments in exchange for the release from any further liability. The State and federal governments executed covenants not to sue the insurers or Defendants. Before the Consent Decree could be executed there was a mandatory 30-day public notice period.

Then, in 2006, Richard Marolda, Sherry Marolda, Rigi Holdings LLC, and Marolda Farms, Inc. (collectively, the “Marolda Litigants”) discovered groundwater contamination on their property over a mile away, which they alleged to originate at Defendants’ property over a mile away. The Marolda Litigants filed a state court action seeking compensation for this contamination, which resulted in a default judgment in the amount of $9.2 million after a proof hearing. However, in December 2010, the Marolda Litigants’ writ of execution was returned unsatisfied, leading them to file a post-judgment action against Defendants’ insurers seeking to reach the proceeds from the policies issued to Defendants, pursuant to N.J.S.A. 17:28-2. Defendants filed motions to dismiss, arguing that these claims were prohibited by the federal court’s 2002 consent decree.

The Superior Court dismissed the action without prejudice, ruling that it lacked jurisdiction to hear the claims asserted in the Maroldas’ complaint and directing the Marolda Litigants to take their argument to federal court. More specifically, the state court held that it could not make a determination that the settlement agreement and release were void as against public policy when the federal court had already ruled upon the issue in incorporating the agreement into the consent decree. This holding was affirmed by the Appellate Division. Accordingly, the Marolda Litigants filed the present motion pursuant to Fed. R. Civ. P. 60(b)(4) and (5) to be relieved from the 2002 Consent Decree, or in the alternative to reopen and intervene in order to argue the lawfulness of the settlement agreement and release.

The court first addressed whether it had jurisdiction over the motion. Noting that all parties to the motion agree that the Court properly retained jurisdiction pursuant to Paragraph 56 of the consent decree in order to enforce the judgment, the court held that this was sufficient to grant jurisdiction to hear the Marolda Litigants’ motion for relief.

Next, the court discussed the issue of the Marolda Litigants’ standing and the timeliness of the motion. The Insurers and the government first argued that the Maroldas lacked standing because they were not parties to the underlying action. Noting Rule 60’s limitation of those who can seek relief to a “party or its legal representative” and that the Maroldas are neither parites nor legal representatives, the court nonetheless ruled that the Maroldas were “sufficiently connected and identified with” the underlying suit to confer standing. They next argued that the Maroldas’ Rule 60 motion is out of time, as it was filed a decade after the Consent Decree was entered into. The Maroldas argued that despite this lapse of time, they filed their underlying state court action against Defendants’ insurers within six weeks of the unsatisfied judgment. The Court agreed that it was not until the Appellate Division directed them to federal court that the Marolda Litigants realized the state court would not determine the effect of the CERCLA decree on their rights, and accordingly they “cannot be said to have sat on their rights.” As such, the motion was determined to be timely.

The next issue taken up by the court was the effect of the settlement agreements incorporated into the Consent Decrees. These agreements were between Defendants and their respective insurance companies; the releases were silent as to third parties, such as the Marolda Litigants. However, all of the settlement agreements purported to release the insurers from any past, present or future, known or unknown environmental claims arising from the sites. “Textually, these releases would encompass negating coverage for the Maroldas’ claims against the insureds, SJCC and GSC.” The question of whether these agreements were enforceable against the Marolda Litigants “turns on whether the Maroldas had a protected property interest in such coverage at the time of the Consent Decree and whether the Maroldas had notice required by due process that their rights were being foreclosed by this agreement.” Holding that there is a “colorable argument that such an interest existed,” the court pointed to N.J.S.A. 17:28-2 as plausibly applying to the claims at issue here. However, because this is purely an issue of state law, the federal court declined to make a determination of this issue and instead assumed that such an interest did in fact exist for the purposes of its analysis.

The court next addressed whether the Marolda Litigants had sufficient notice of the impending Consent Decree and associated settlements to satisfy the requirements of due process. Notice was published five times in the Federal Register of “Lodging of Consent Decree Pursuant to [CERCLA],” but the court held that this was insufficient to put the Maroldas on notice that their protected interest in the insurance policies would be cut off. Specifically, publication in the Federal Register pursuant to CERCLA is meant to provide notice of a proposed settlement regarding a CERCLA action, that is, remedial action and cost recovery. It is not meant to provide notice to injured third parties that their rights to recover from a non-party to a CERCLA action are being adversely affected. Such a ruling would impose an unrealistic obligation on the general public to read the Federal Register on a daily basis regarding the settlement of lawsuits to which they are not parties or class members, or risk losing a vested property interest.

Additionally, the language of the notice in the Federal Register gave no indication that the insurers (who were not parties to the CERCLA action)were involved in funding the response costs or that settlement agreements were incorporated into the Consent Decree. In fact, the text of the published notice made no reference to the non-party insurers, did not state that the insurers funded the response costs, nor that settlement agreements were being incorporated. Accordingly, the Maroldas, as non-parties to the CERCLA action, had no notice that their right under New Jersey law to proceed against the insurers was being foreclosed. The court made clear that “[i]f the insurers wanted to claim the protection of this notice, then they should have insisted on at least being mentioned in the notice as the funders of the response costs who were receiving a total site release against all claims of the governments, the PRPs, and off-site non-parties.”

Finally, the court summarily rejected the argument that the Maroldas are bound by the Consent Decree under the theory of res judicata. Despite the insurers arguments, the court held that the federal CERCLA action is not preclusive against the Maroldas because they were not joined as parties, they are not themselves PRPs, they had no notice that the settlements sought to foreclose their rights, and their interests were not represented by anyone involved in the CERCLA action.

Though the court decided favorably for the Maroldas, this was based upon its assumption that the Marolda Litigants did in fact have a protected property interest pursuant to N.J.S.A. 17:28-2 prior to he Consent Decree being executed. The court made clear that this “result does not obtain, however, if the Maroldas’ interest as of 2002 was not a protected property interest.” This issue was left to the Superior Court to decide, but the court made it clear that “[w]here there is no pre-existing claim asserted and no protected property interest recognized in some third-party, a CERLCA settlement can and does foreclose the later assertion of a claim against an insurance policy that no longer provides coverage to the PRPs due to the compromise settlement agreement.” Due process does not require notice or an opportunity to object to a proposed CERCLA settlement to be provided to unknown persons who may have some future claim but presently have no recognized property interest.

DiFrancesco, Bateman, Coley, Yospin, Kunzman, Davis, Lehrer & Flaum, PC is a full service law firm in New Jersey which provides a broad range of legal services, including the representation of clients in environmental and defense of toxic exposure matters. For additional information about the matters in this bulletin or in the firm’s environmental practice, please contact Steven A. Kunzman, Esq. who heads our Environmental and Latent Injury Litigation Department.

The information contained in this blog is intended solely for informational purposes; it is a advertising publication of DiFrancesco, Bateman, Coley, Yospin, Kunzman, Davis, Lehrer & Flaum P.C.This publication is intended to alert recipients of developments in the law and is not intended to provide legal counsel, advice or opinion on any specific facts or circumstances. The contents are intended as general information only. You are urged to consult a member of this firm or your own attorney concerning your particular situation and any specific legal questions you might have.  


DiFrancesco, Bateman, Kunzman, Davis, Lehrer & Flaum PC (http://www.dbnjlawblog.com) is a full service law firm in New Jersey which provides a broad range of legal services. For additional information about the matters in this bulletin or in the firm’s Employment Practice, please contact Richard P. Flaum, Esq.

The information contained in this blog is intended solely for informational purposes; it is a advertising publication of DiFrancesco, Bateman, Kunzman, Davis, Lehrer & Flaum P.C.This publication is intended to alert recipients of developments in the law and is not intended to provide legal counsel, advice or opinion on any specific facts or circumstances. The contents are intended as general information only. You are urged to consult a member of this firm or your own attorney concerning your particular situation and any specific legal questions you might have.