Appellate Division Clears Way for Business Entities to Receive Brownfield Innocent Party Grants When Property Is Transferred among Family Members

Kevin R. Doherty

The New Jersey Appellate Division recently lessened the rigidity by which an innocent purchaser may be eligible for a so-called “Innocent Party Grant” to cover costs associated with the remediation of contaminated property. On September 20, 2017, the Court in Cedar Knolls 2006, LLC v. New Jersey Dep’t of Envtl. Prot.[1] reversed the New Jersey Department of Environmental Protection’s (“NJDEP”) attempt to limit Innocent Party Grants to natural persons, and found that an LLC may qualify as a “person” under the Brownfield and Contaminated Site Remediation Act, N.J.S.A. 58:10B-1, et seq. (“Brownfield Act”).

The dispute arose in 2015, when Cedar Knolls 2006, LLC (“Cedar Knolls”) applied to NJDEP for a Hazardous Discharge Site Remediation Fund Innocent Party Grant to remediate certain property in Hanover Township. Under the Brownfield Act, a “person” who owns contaminated property may qualify for such a Grant to pay for the remediation of contaminated property if, among other things, that person acquired the property prior to December 31, 1983, and continued to own the property until such time that the authority approves the Grant. NJDEP, however, issued a tentative decision denying the application, finding that the Cedar Knolls entity was not a “person” under the Act due to the manner in which it acquired the property. The property at issue was first purchased in 1977 by an individual who, upon his death, bequeathed it to his wife in two separate trusts. The wife then assigned her interest in the property to two other trusts, and when those trusts expired, the interest in the property was transferred to the wife’s son, who then transferred his interest to the newly created LLC, Cedar Knolls.

Cedar Knolls sought reconsideration, arguing that the property’s transfer to various trusts among family members was not a change in ownership, and thus qualified Cedar Knolls as a “person” as a result of the initial individual purchase of the property in 1977. NJDEP disagreed and issued a final agency decision rejecting the application. Cedar Knolls appealed.

The Appellate Division reversed NJDEP’s decision. The Court looked at the legislative history of innocent party grants and cited to the definition of a “change in ownership” under the Industrial Site Recovery Act (“ISRA”), finding that although the same definition is not included in the Brownfield Act, it “nevertheless reflect[s] the Legislature’s concerns with respect to changes of ownership at the time the innocent party grants were established.” The definitional sections of ISRA provide that a “change in ownership” is not “a transfer where the transferor is the sibling, spouse, child, parent, grandparent, child of a sibling, or sibling of a parent of the transferee.” The Court noted that adopting NJDEP’s strict position would require it to “find that a transfer of a property solely among parents and a child through the vehicle of trusts does not qualify as a property eligible for a remediation innocent party grant,” but recognized that “[i]nnocent party grants were clearly intended to help the owners of a contaminated property defray the costs of remediation if they were not responsible for the contamination.” The Court observed that “the Legislature appears to have been more concerned with the substance of ownership and continuity than the technicalities of the legal form.” Thus, although Cedar Knolls is an LLC, because the transfers were made between family members the Court found that Cedar Knolls qualifies as a “person” under the Brownfield Act and should therefore be permitted to receive an Innocent Party Grant to remediate the property.

[1] Cedar Knolls 2006, LLC v. New Jersey Dep’t of Envtl. Prot., 2017 N.J. Super. Unpub. LEXIS 2360 (App. Div. Sept. 20, 2017).

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