ELR Citation: ELR 21261
No(s). 90-2678 (D.N.J. Apr 25, 1991)

The court rules that a parent corporation, which dissolved and distributed the stock of its subsidiary corporation, violated the New Jersey Environmental Cleanup Responsibility Act's (ECRA's) notice and reporting requirements and is subject to the subsidiary corporation's private contribution action under ECRA. The parent corporation, which acquired a manufacturing facility and transferred it to its subsidiary corporation, provided the subsidiary with administrative and managerial services, including tax, treasury, legal, risk management, investor relations, corporate development, financial reporting, and data processing. Subsequently, pursuant to a liquidation plan, the parent corporation transferred its 85 percent share in its subsidiary to shareholders of the parent corporation, without providing notice of this rearrangement as required under ECRA. At the time of the distribution, the manufacturing facility had groundwater and other contamination from production processes at the facility.

The court first notes that ECRA's definition of "closing, terminating or transferring operations," which triggers ECRA's notice requirements, is unclear. Moreover, the legislative history of the provision is inconclusive as to the parent corporation's stock distribution. Thus, the court holds that deference must be given to the New Jersey Department of Environmental Protection's (NJDEP's) statutory interpretation of ECRA, unless that interpretation is unreasonable. The court finds that the NJDEP has indicated in published responses to comments on ECRA regulations that ECRA applies to the transfer of a controlling interest in a parent company that owns or operates a facility and to the dissolution of a parent company whose subsidiary owns or operates an industrial establishment. Because the court cannot say that NJDEP's regulations exceed the agency's authority under ECRA or represent an unreasonable construction of the statute, the court holds that the parent corporation's distribution triggered ECRA's notice requirements. The evidence shows that the parent's liquidation and distribution substantially affected the ownership of the subsidiary, which was formerly controlled by the parent but became a completely independent company after the distribution. Moreover, the legislative purpose in enacting ECRA, to impose wide-ranging liability on owners and operators of commercial and industrial real estate prior to transfer or closing of business operations, is effectuated by holding that the parent's distribution triggered ECRA's notice and reporting requirements.

The court next holds that the parent corporation is responsible for ECRA compliance, since it owned the facility and the real property on which the manufacturing facility responsible for the contamination was located. A company's role in initiating a transaction does not determine ECRA liability. Moreover, the parent corporation's level of management and control is sufficient to hold the parent liable under ECRA as an operator of the facility. The court further holds that although ECRA does not specifically provide for a private right-of-action, to imply a private right-of-action in this case is wholly consistent with the legislative purpose of placing the financial burden of cleaning up hazardous waste sites on corporations responsible for such facilities, rather than on state taxpayers. ECRA is more than a buyer protection statute, and represents the considered judgment of the legislature that environmental problems should be remedied prior to any substantial change in ownership of a hazardous waste facility.

Counsel for Plaintiff
John Agnello
Carella, Byrne, Bain, Gilfillan, Cecchi & Stewart
Six Becker Farm Rd., Roseland NJ 07068
(201) 994-1700

Richard E. Wallace, John G. Bickerman
Kaye, Scholer, Fierman, Hays & Handler
901 15th St. NW, Ste. 1100, Washington DC 20005
(202) 682-3500

Counsel for Defendant
Michael L. Rodburg, Stephen H. Skoller, David A. Thomas
Lowenstein, Sandler, Kohl, Fisher & Boylan
65 Livingston Ave., Roseland NJ 07068
(201) 992-8700