48 HORSEHILL, LLC v. KENRO CORPORATION, et al.

Annotate this Case

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-2682-04T52682-04T5

48 HORSEHILL, LLC,

Plaintiff-Appellant,

v.

KENRO CORPORATION, AFP

TECHNOLOGIES, AFP, ATLANTIC

GEOSCIENCE, MICHAEL A.

PELLERIN, P.E.,

Defendants-Respondents,

-and-

GARY SULLIVAN, I.C.C. INC.,

and MICHAEL SULLIVAN

Defendants/

Cross-Appellants.

________________________________________

 

Argued January 17, 2006 - Decided February 22, 2006

Before Judges Cuff, Parrillo and Gilroy.

On appeal from the Superior Court of New Jersey,

Law Division, Morris County, Docket No. MRS-L-43-02.

Stuart J. Lieberman argued the cause for appellant (Lieberman & Belcher, attorneys; Mr. Lieberman and Lawrence C. Kroll, on the brief).

Steven R. Tombalakian argued the cause for respondent (Podvey, Meanor, Catenacci, Hildner, Cocoziello & Chattman, attorneys; Mr. Tombalakian, on the brief).

PER CURIAM

This is an environmental contamination case. Plaintiff, 48 Horsehill, Inc., appeals from orders of the Law Division dismissing its common law claims of fraud, negligent misrepresentation and negligent remediation, and its statutory claims alleging violations of the Consumer Fraud Act, N.J.S.A. 56:8-1 to -20, and the Spill Fund Act, N.J.S.A. 58:10-23.11 to

-23.24, against defendants, Gary and Michael Sullivan and I.C.C., Inc. (collectively, the Sullivan defendants). For the following reasons, we affirm in part and reverse in part.

By way of background, the property in issue, located at 46-48 Horsehill Road in Cedar Knolls, was owned by Kenro Corporation from 1958 to 1985. During this time, Kenro operated a manufacturing facility on the property, dedicated to the assembly of photographic and graphic arts equipment. The manufacturing process included "degreasing" the equipment, i.e., removing oils and grease from the surface prior to painting the items, with the use of the hazardous chemical compound trichloroethylene (TCE).

The degreasing process took place in a concrete-lined "degreaser well" or pit that Kenro constructed on the property and TCE was stored nearby in fifty-five gallon drums. Kenro employees would lift photographic equipment over the well, thereby exposing the items to the TCE solution vapors, which would in turn dissolve oils and grease. To ensure the equipment was adequately covered with TCE, the degreaser machinery misted the equipment with the chemical. The equipment was then shaken to remove the excess TCE, allowed to drip-dry above the well, removed from the well and placed in other locations in the factory.

In 1985, Gary Sullivan, the sole shareholder of I.C.C., Inc., purchased the property from Kenro and leased it to I.C.C. to operate a computer software business not involving the use of TCE or any other hazardous chemical for that matter. The sale triggered a filing with the Department of Environmental Protection (DEP), pursuant to the Environmental Cleanup Responsibility Act, N.J.S.A. 13:1K-6 to -19, in which Kenro represented that it stored two fifty-five gallon drums of TCE near the degreaser well, which were "delivered and manifested by Detrex Chemical Industries, Inc." (Detrex). Kenro also represented that when it terminated its operation it would engage Detrex to remove the TCE and the degreaser well. Kenro then sought a negative declaration allowing the final sale of the property to Gary Sullivan, which DEP issued.

Gary Sullivan owned the property until 2001, when he transferred it to his son, Michael. At no time during their ownership of the property did the Sullivans utilize TCE. However, the degreaser well was never removed from the property by either Kenro or the Sullivans. Instead, the Sullivans placed a concrete patch over the contaminated area. Plaintiff purchased the property from Michael Sullivan in January 2001. The contract of sale did not contain any express representations or warranties concerning the property's environmental condition, and plaintiff agreed to perform its own "due diligence" environmental investigation. To this end, plaintiff retained Atlantic Geosciences and Michael Pellerin, a Geoscience employee, to conduct a Phase I environmental audit. Because a concrete patch obstructed access to the degreaser well, Pellerin failed to uncover the contamination. He concluded that the property was not exposed to hazardous materials.

Plaintiff took title to the property on January 3, 2001. Subsequent to closing, plaintiff's downgrade neighbors notified plaintiff of the discovery of TCE in their drinking well-water, and identified plaintiff as the source of the contamination. Consequently, plaintiff retained Triassic Technology (Triassic) to perform a soil and ground water investigation of the property. Triassic noted the concrete patch, and based on historical information, deduced that it was the site of the degreaser well or pit.

Triassic drilled two holes through the concrete, which covered approximately 200 square feet, to determine what was below. Below the patch was a void, containing black masonry, that was permeated by a strong chemical odor. One-and-a-half feet below the surface patch was more concrete. After taking samples, Triassic found elevated levels of TCE in the soil and ground water on the property, necessitating remediation. The highest concentrations of TCE were found near and within the degreaser well. Furthermore, high levels of TCE contamination was also found near a floor drain close to the degreaser well.

The degreaser pit was eventually excavated. Michael Obolensky, an environmental consultant with Triassic, was present during excavation and later noted that "[t]he smell of chemicals and ambient vapor concentrations were so strong . . . that it was necessary for individuals working in the vicinity of the pit to wear full face respirators." As a result, Obolensky opined that "the individual(s) who filled this pit had to have been aware that there were volatile chemicals inside." He concluded, "based on contaminate concentrations in the soil below the pit . . . to a reasonable degree of scientific certainty[,] that the pit was improperly decommissioned, very likely exacerbating the TCE soil and ground water contamination."

An August 15, 2003 report by Triassic concluded similarly, namely that the "failure to decommission the degreaser pit caused subsurface contamination." Among its specific findings were:

During ownership of the property, Kenro conducted degreasing operations using the hazardous substance TCE. These operations took place within a degreasing well housed within a sunken concrete impoundment . . .;

. . . .

A floor drain was present in the immediate vicinity of the drum storage area and degreaser pit. It is suspected that discharges in the floor drain allowed the TCE to spread, and

Kenro did not properly decommission the degreaser well or pit, allowing TCE and other CVOC byproducts to discharge to the subsurface after operations were terminated.

[Emphasis added.]

A later Triassic report of March 29, 2004, estimated that "[b]ased on the hydraulic properties of the underlying geological materials and the chemical characteristics of TCE, the on-site release occurred in the late 1960s[,]" and that the contaminate had been spreading for about "33 years." A final Triassic report of September 14, 2004, concludes that the degreaser "pit was in hydraulic communication" with the surrounding ground water[,]" and therefore was "a significant source of ground-water contamination."

This much appears to be undisputed. Plaintiff and the Sullivan defendants disagree as to the responsibility for decommissioning the pit. According to plaintiff, Kenro contracted with I.C.C., instead of Detrex, for the removal and disposal of the TCE and the degreaser well. Kenro supposedly paid I.C.C. $6,340 to remove the degreaser, then to fill in and close the degreaser well. The Sullivan defendants denied that any such agreement existed.

On December 26, 2001, plaintiff filed a complaint against Kenro based on trespass, nuisance, negligence and violation of the Spill Act, and against Atlantic Geoscience and Pellerin based on breach of contract and professional malpractice. Pursuant to leave granted, on October 27, 2003, plaintiff filed its first amended complaint adding the Sullivan defendants, seeking damages pursuant to the Spill Act (count VII); in trespass (count VIII) (as to Gary Sullivan and ICC Inc.); in negligence (count IX) (as to Gary Sullivan and ICC Inc.); in nuisance (count X) (as to Gary Sullivan and ICC Inc.); pursuant to the Consumer Fraud Act (count XI) (as to Gary and Michael Sullivan); in fraud (count XII) (against Gary Sullivan); and for negligent misrepresentation (count XIII) (against Gary Sullivan). Another count against the Sullivan defendants alleging negligent remediation (count XIV) was added by leave granted to file a second amended complaint.

Plaintiff moved for summary judgment against Kenro under the Spill Act, and Kenro cross-moved to dismiss the nuisance and trespass counts. The Sullivan defendants also moved to dismiss all counts against them under Rule 4:6-2(e), for failure to state a claim upon which relief can be granted. The motion judge heard argument on January 23, 2004, and denied plaintiff's motion, as well as that part of defendants' motion to dismiss the Spill Act claim (count VII), reasoning:

[T]he Court does find that in making a determination that there is a genuine issue as to the material fact in existence, and that is the source of the TCE contamination, not -- not who -- who used it; that's clear. Only Kenro used TCE, but the Court finds there's a genuine issue of -- of material fact in dispute as to when the discharge, which is -- which is the reason for this litigation, took place. So the Court finds that for that reason the motion for summary judgment as to AFP is denied.

And I'm going to deny that . . . without any prejudice because during the course of further discovery, you may be able to develop facts as to -- as to the discharge, and I don't want to preclude you from bringing it out again. So it's without prejudice.

In addition, the judge dismissed the trespass and nuisance counts against Kenro and the Sullivan defendants and reserved decision on the balance of the Sullivan defendants' motion to dismiss counts IX (negligence), XI (Consumer Fraud Act), XII (fraud), and XIII (negligent misrepresentation). Shortly thereafter, however, by order of February 10, 2004, and without additional findings of facts and conclusions of law, the judge dismissed counts IX (negligence), XI (Consumer Fraud Act), XII (fraud), and XIII (negligent misrepresentation) against the Sullivan defendants. He subsequently denied plaintiff's motion for reconsideration without argument.

Prior to the scheduled trial date of December 6, 2004, plaintiff settled its claims against Kenro, and eventually also settled with Atlantic Geoscience and Michael Pellerin as well. The remaining defendants, the Sullivans and I.C.C., filed motions in limine to exclude certain evidence at trial. In response, although no motion to dismiss was before it, the court sua sponte dismissed the balance of plaintiff's complaint against the Sullivan defendants, namely counts VII and XIV alleging violation of the Spill Act and negligent remediation respectively. It appears that the basis for the court's dismissal was twofold, namely (1) plaintiff's last-minute change in position alleging for the first time continuous discharge; and (2) its spoliation of evidence. As to the former, the judge concluded:

It's only speculation to say that the discharge occurred while the Sullivans and I.C.C., or anybody else, was on the property. The experts have said over and over again that they believe that the discharge took place before the Sullivans or I.C.C. came into the property.

So I don't think there's any doubt in this case that the defendants had been severely prejudiced by their inability to inspect the premises before this excavation took place.

I agree with the defense that the plaintiffs have taken a definite position in this case. Throughout the case they have taken the position that Kenro was the sole discharger and this concept that I.C.C. was also a discharger came late in the case and is really a change in position . . . because throughout the case, in expert's reports and in expert deposition that was read by counsel, the position was taken not that the discharge started in 19 -- in the late 1960s, but that the discharge took place at that time.

Nobody could really, . . . when you settle with the discharger and you want to get somebody else as also a discharger, can change their position and say, now we feel that the discharge continued . . . . I think that's playing fast and loose with the Court and with the . . . defendants, and coming up with a new theory in order to prove a case after you've settled with the one that's responsible.

As to the latter, the judge stated:

I believe that there is [sic] many assertions made throughout the reports that I've seen that suggest that there is some defect, either in the way the degreaser pit was put together or perhaps a crack or some other kind of problem with the degreaser pit wall itself, the concrete.

There's nothing that I see in any report that would suggest that concrete is porous enough to allow TCE to enter into the soil, without any kind of a vent, crack, opening of any kind. As a matter of fact, it would appear that basically the expert in this case is trying to determine how, other than through -- and there's no opinion that I see, that would suggest that this can leach through the concrete because concrete is porous.

As a matter of fact, there's a report that is referred to by the plaintiff's attorney on a number of occasions . . . .

There's a -- it is suspected that, according to this expert report, that there is discharges into the floor drain and that allowed the TCE to spread, and there could have been a discharge to the subsurface after the operations were terminated. But it is clear that in everything that I've read, everything that I've heard that the -- that maybe so, but once it's terminated in the -- in the short period of time after that, there wouldn't be anything more being leached through, or there shouldn't be.

So I can't, without more evidence in the case, come to any other conclusion than that there's a . . . belief by everyone in this case that there was some problem . . . maybe with the wall itself had cracks in it and there's some evidence that maybe there was a patch that might have been put on at some time, and maybe the walls weren't built with a perfect seal so that leakage could occur, but all of this could have been determined . . . that they could have come and they could have investigated, they could have found out.

I suppose there could have expert testimony about whether the concrete itself is so porous that TCE could leak through it. At least the defendant would have had a chance to get expert opinion that it couldn't have happened that way, that it had to happen with a crack, and there's no way they could have investigated whether there was a crack there, whether there was an improper seal, whether it was leaking out through the drain, and that was taken away from the defendants by this excavation, without any notice, and there's no doubt that these defendants had no notice whatsoever that this work was going to be done.

So, on spoliation, I think there is a strong spoliation argument, which took away the chance that the defendants had to determine how this material leached out though the soil. And there may very well be a difference if you find that there was a crack or a drain or improper seal that was there when the experts say this discharge occurred; and you settled with that defendant that did it, there may be a strong argument that these defendants shouldn't be responsible, despite what the statute says because they were not the openers of the property at the time of the discharge.

. . . .

So I don't think there's any doubt in this case that the defendants had been severely prejudiced by their inability to inspect the premises before this excavation took place.

The Sullivan defendants filed a post-dismissal motion for sanctions and fees pursuant to Rule 1:4-8 and Rule 4:46-6 on February 1, 2005, and plaintiff cross moved for fees and sanctions. The judge denied both motions.

On appeal, plaintiff raises the following issues:

I. THE COURT BELOW ERRED IN DISMISSING THE PLAINTIFF'S COMPLAINT AGAINST MICHAEL SULLIVAN, GARY SULLIVAN, AND ICC, INC. UNDER THE CONSUMER FRAUD ACT, COMMON-LAW FRAUD, AND NEGLIGENT MISREPRESENTATION.

II. THE COURT FAILED TO FOLLOW APPELLATE DIVISION PRECEDENT WHICH ALLOWS CONSUMER FRAUD ACT CLAIMS AGAINST SELLERS OF COMMERCIAL PROPERTY.

III. THE COURT FAILED TO CONSIDER THE SULLIVAN DEFENDANTS' FAILURE TO DISCLOSE THE TCE CONTAMINATION AND THEREFORE INCORRECTLY DISMISSED PLAINTIFF'S COMMON-LAW FRAUD AND NEGLIGENT MISREPRESENTATION COUNTS.

IV. IT WAS REVERSIBLE ERROR FOR THE COURT BELOW TO CONSIDER THE ARGUMENTS AND BRIEFS IN SUPPORT OF THE DEFENDANT'S IN LIMINE MOTIONS BECAUSE OF THE DEFENDANT'S FAILURE TO COMPLY WITH THE NEW JERSEY COURT RULES.

V. IT WAS REVERSIBLE ERROR FOR THE MOTION JUDGE, THE HON. DAVID S. CRAMP, J.S.C., TO FIND AGAINST THE PLAINTIFF ON THE SULLIVAN DEFENDANTS' MOTION IN LIMINE ARGUING SPOILATION OF EVIDENCE.

On cross-appeal, the Sullivan defendants challenge the trial court's denial of its Rule 1:4-8 motion for sanctions and fees.

I

As a threshold matter, we note that the motion judge entered Rule 4:6-2(e) dismissals of plaintiff's common law fraud and negligent misrepresentation claims and statutory fraud claim without the requisite findings of fact and conclusions of law. R. 1:7-4; R. 4:46-2(c); Hungerford v. Greate Bay Casino Corp., 213 N.J. Super. 398, 402 (App. Div. 1986). Yet, "an articulation of reasons is essential to the fair resolution of a case." Schwarz v. Schwarz, 328 N.J. Super. 275, 282 (App. Div. 2000). Indeed, Rule 1:7-4(a) specifically provides that a "court shall, . . . find the facts and state its conclusions of law . . . on every motion decided by a written order that is appealable as of right." More particularly, Rule 1:6-2(f) provides, in relevant part, that:

[i]f the court has made findings of fact and conclusions of law explaining its disposition of the motion, the order shall so note indicating whether the findings and conclusions were written or oral and the date on which they were rendered. If no such findings have been made, the court shall append to the order a statement of reasons for its disposition if it concludes that explanation is either necessary or appropriate.

As our Supreme Court has noted in another context, "[f]ailure to perform that duty 'constitutes a disservice to the litigants, the attorneys and the appellate court.'" Curtis v. Finneran, 83 N.J. 563, 569-70 (1980) (quoting Kenwood Assocs. v. Bd. of Adjustment Englewood, 141 N.J. Super. 1, 4 (App. Div. 1976)).

Ordinarily the absence of such reasons precludes meaningful appellate review, Raspantini v. Arocho, 364 N.J. Super. 528, 532 (App. Div. 2003), and we would remand for the motion judge to perform this necessary function. In this case, however, we decline to do so, Rule 2:10-5, because the record demonstrates that defendants were entitled to dismissal of plaintiff's Consumer Fraud Act claim as a matter of law, cf. Slohoda v. United Parcel Serv., Inc., 193 N.J. Super. 586, 591-92 (App. Div. 1984), but the Rule 4:6-2(e) dismissals of plaintiff's common law fraud and negligent misrepresentation claims were clearly error.

(A)

The Consumer Fraud Act provides in pertinent part:

The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing concealment, suppression or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate . . . is declared to be an unlawful practice . . . .

[N.J.S.A. 56:8-2.]

Plaintiff argues the Act applies to any sale of non-residential or commercial property. That expansive interpretation, however, was rejected in Strawn v. Canuso, 140 N.J. 43, 60 (1995), which held that only professional sellers of real estate were subject to the Act's proscriptions. See also DiBernardo v. Mosley, 206 N.J. Super. 371, 376 (App. Div.), certif. denied, 103 N.J. 503 (1986). In Strawn, supra, the Court reasoned that when applying the Act to real estate disputes, it is not the type of real estate that is dispositive, but rather, the type of seller:

The first factor causes us to limit our holding to professional sellers of residential housing (persons engaged in the business of building or developing residential housing) and the brokers representing them. Neither the reseller of residential real estate nor the seller of commercial property has that same advantage in the bargaining process.

[Id. at 59-60 (emphasis added).]

Thus, the Court held that both a residential builder-developer and a broker are liable to a buyer not only for intentional and affirmative misrepresentations, but also for off-site, undisclosed conditions that were known to the broker-builder-developer and "not readily observable by the buyer." Id. at 65.

In DiBernardo, supra, we addressed "the question of whether the Consumer Fraud Act applies to the sale by a homeowner of a one-family home." 206 N.J. Super. at 374. We "concluded that the Act was intended as a response only to the public harm resulting from 'the deception, misrepresentation and unconscionable practices engaged in by professional sellers seeking mass distribution of many types of consumer goods,' and not to the isolated sale of a single family residence by its owner." Id. at 376 (quoting Kugler v. Romain, 58 N.J. 522, 536 (1971)). Moreover, "[o]ur research discloses that the majority of other appellate courts which have studied the question have reached the same conclusion." Ibid. (citing Young v. Joyce, 351 A.2d 857 (Del. 1975) and Zeeman v. Black, 273 S.E.2d 910 (Ga. Ct. App. 1980) and Allen v. Anderson, 557 P.2d 24 (Wash. Ct. App. 1976) and Lantner v. Carson, 373 N.E.2d 973 (Mass. 1978)). See also Kavky v. Herbalife Int'l of Am., 359 N.J. Super. 497, 502 (App. Div. 2003) (stating "that the [Strawn] Court held that '[r]eal estate brokers, agents, and salespersons representing professional sellers of real estate are subject to the provisions of the Consumer Fraud Act.'" (quoting Strawn, supra, 140 N.J. at 660)); Fink, D.M.D., MS, PC v. Ricoh Corp., 365 N.J. Super. 520, 571 (Law Div. 2003).

A seller of commercial property is, therefore, not the equivalent of a professional seller to whom the Consumer Fraud Act is applicable. Here, the record indicates only that the Sullivans used the property to conduct a mobile computer software business and there is no indication that they were engaged in the commercial practice or business of buying, selling, developing or marketing real estate. Absent proof that defendants were commercial sellers of realty, plaintiff's count XI, alleging a violation of the Consumer Fraud Act, was properly dismissed.

(B)

We next address the dismissals of plaintiff's common law claims of fraud and negligent misrepresentation. Defendants argue these claims fail because the elements of a duty to disclose and reliance are absent here. We disagree.

At the outset, we note that Rule 4:6-2(e) applications to dismiss a complaint for failure "to state a claim [up]on which relief may be granted" should be "approach[ed] with great caution." Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 771-72 (1989). These motions, "brought at the very earliest stage of the litigation, should be granted in only the rarest of instances." Id. at 772. The application should be granted only "after it has been accorded . . . meticulous and indulgent examination," and the dismissal should not prejudice the plaintiff when and if he chooses to file an amended complaint. Ibid.

It is well-settled that the test used to determine whether a pleading is adequate is "whether a cause of action is 'suggested' by the facts." Printing Mart-Morristown, supra, 116 N.J. at 746 (quoting Velantzas v. Colgate-Palmolive Co., 109 N.J. 189, 192 (1988)). The "inquiry is limited to examining the legal sufficiency of the facts alleged on the face of the complaint." Ibid. (citing Rieder v. State, Dep't of Transp., 221 N.J. Super. 547, 552 (App. Div. 1987)). The court reviewing the application should "search[] the complaint in depth and with liberality to ascertain whether the fundament of a cause of action may be gleaned even from an obscure statement of claim, opportunity being given to amend if necessary." Di Cristofaro v. Laurel Grove Mem'l Park, 43 N.J. Super. 244, 252 (App. Div. 1957).

Because the litigation is in a preliminary stage, the court should not be preoccupied with whether the plaintiff can prove the allegations stated in the complaint. Printing Mart-Morristown, supra, 116 N.J. at 746 (citing Somers Constr. Co. v. Bd. of Educ., 198 F. Supp. 732, 734 (D.N.J. 1961)). Proper analysis mandates that the plaintiff is afforded "every reasonable inference of fact." Ibid. (citing Indep. Dairy Workers Union v. Milk Drivers & Dairy Employees Local No. 680, 23 N.J. 85, 89 (1956)). In turn, each fact should be approached from a "generous and hospitable" mind-set, and examined in a "painstaking" manner. Ibid.

Measured by this standard, we are satisfied plaintiff's complaint states viable causes of action for common law fraud and negligent misrepresentation. Specifically, the fraud count of plaintiff's first amended complaint (count XII), alleges:

63. Plaintiff repeats and realleges the allegations contained in paragraphs 1 through 62 above.

64. The actions by Defendant Gary Sullivan failing to disclose that TCE had not been removed from the subject property despite his knowledge of his authorized concealment constitutes Common Law Fraud.

The negligent misrepresentation count (count XIII) alleges:

65. Plaintiff repeats and realleges the allegations contained in paragraphs 1 through 64 above.

66. Defendants [sic] Gary Sullivan's failure to disclose that TCE was not removed from the subject property constitutes negligent misrepresentation.

67. The misrepresentation was material to Plaintiffs purchase of the property. If plaintiff had known the property was contaminated with TCE, Plaintiff would not have purchased the property.

Clearly, count XII properly pleads the five elements of common law fraud:

(1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages.

[Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997) (citing Jewish Ctr. of Sussex County v. Whale, 86 N.J. 619, 624-25 (1981)).]

Having properly pled the elements of legal fraud, the amended complaint, in count XIII, necessarily subsumed the common law cause of action of negligent misrepresentation, in as much as both require "the plaintiff to have 'received or relied on any of the alleged misstatements.'" Kaufman v. I-Stat Corp., 165 N.J. 94, 109 (2004).

Under the facts alleged in plaintiff's complaint, there arises a duty to disclose. "'[S]ilence may be fraudulent' and that relief may be granted to one contractual party where the other suppresses facts which he, 'under the circumstances, is bound in conscience and duty to disclose to the other party, and in respect to which he cannot, innocently, be silent.'" Weintraub v. Krobatsch, 64 N.J. 445, 449 (1974) (quoting Keen v. Executors of Wm. James, 39 N.J. Eq. 527, 540-41 (E. & A. 1885)). In other words, "'fraud may consist of concealment of a material fact.'" Id. at 453 (quoting Loghry v. Capel, 132 N.W.2d 417, 419 (Iowa 1965)). See Berman v. Gurwicz, 178 N.J. Super 611, 619 (Ch. Div. 1981) ("Silence in the face of an obligation to speak may be fraud."), aff'd, 189 N.J. Super. 49 (App. Div.), certif. denied, 94 N.J. 549 (1983).

More specifically, in the context of a real estate transaction, a buyer proves that the seller fraudulently concealed information, by showing "the deliberate concealment or nondisclosure by the seller of a material fact or defect not readily observable to the purchaser, with the buyer relying upon the seller to his detriment." State, Dep't of Envt'l Prot. v. Ventron Corp., 94 N.J. 473, 503 (1983). See Fox v. Mercedes-Benz Credit Corp., 281 N.J. Super. 476, 481 (App. Div. 1995) (explaining that in Ventron Corp. the cornerstone of the "cause of action for fraudulent concealment in the sale of real estate" was the "intentional concealment of evidence"). In Ventron Corp., supra, the seller was found liable for fraudulent concealment because it sold property it knew was contaminated with mercury, a latent defect "not readily observable" by the purchasers, without disclosing the contamination to the purchasers. 94 N.J. at 504.

Irrespective of any alleged breach of a duty to disclose, defendants argue that because plaintiff commissioned its own inspection of the property, the essential element of reliance is missing. They specifically point to the following provision of the parties' contract of sale in support of their position:

ENVIRONMENTAL CONDITIONS. Purchaser shall have the right to have the Property inspected within Thirty (30) days of the date of this Agreement for the existence of contamination by hazardous substances or wastes. In the event such inspection reveals the presence of any quantity of hazardous substances or wastes, the Purchaser shall have the option to cancel this Agreement or notify Seller in writing within thirty (30) days of the date of this Agreement (time being of the essence) and provide Seller with a copy of the report.

To be sure, in instances in which a party "undertakes to make an independent investigation and relies on it," there can be no reliance. Golden v. NW. Mut. Life Ins. Co., 229 N.J. Super. 405, 415 (App. Div. 1988). But that does not resolve the question of whether plaintiff relied on the results of its own inspection and not on defendants' nondisclosure prior to purchase of a latent - indeed concealed - defect allegedly known to them. See, e.g., Byrne v. Weichert Realtors, 290 N.J. Super. 126, 137 (App. Div.), certif. denied, 147 N.J. 259 (1996). As plaintiff claims, its independent investigation was not only limited, but also obscured by defendants supposedly intentional hiding of the contamination under a concrete patch. Thus, it is of no consequence that plaintiff conducted its own due diligence because defendants failed to provide all information critical to the evaluation - a fact upon which plaintiff may have justifiably relied. In other words, in light of defendants' alleged concealment of TCE contamination, plaintiff's use of an outside inspection service does not foreclose its right to pursue its fraud and misrepresentation claims at trial. See Byrne, supra, 290 N.J. Super. at 139. Plaintiff was still entitled to rely on the fact that sellers would not willfully conceal environmental contamination on the property in finalizing the contract of sale. See Ibid. That plaintiff may have also relied on its own physical inspection for visible damage does not mean it was eschewing reliance on defendants' alleged willful omissions. These are factual matters best resolved at trial. For present purpose, we simply find that the facts and circumstances alleged in plaintiff's complaint clearly suggest justifiable reliance by plaintiff on defendants' omissions sufficient to support plaintiff's fraud and misrepresentation claims. The court's dismissal of both claims, therefore, was error.

(II)

The judge also dismissed the counts alleging violation of the Spill Act (count VII) and negligent remediation (count XIV) because defendants were prejudiced by plaintiff's last-minute theory of liability of continuing discharge and its loss of crucial evidence. We find the remedy of dismissal unwarranted under the circumstances.

(A)

The Spill Act, in pertinent part, states:

[A]ny person who has discharged a hazardous substance, or is in any way responsible for any hazardous substance, shall be strictly liable, jointly and severally, without regard to fault, for all cleanup and removal costs no matter by whom incurred. Such person shall also be strictly liable, jointly and severally, without regard to fault, for all cleanup and removal costs incurred by the department or a local unit

. . . .
 
[N.J.S.A. 58:10-23.11g c (1).]

See Hous. Auth. v. Suydam Investors, L.L.C., 177 N.J. 2, 18 (2003). In turn, a discharge is defined as an "action or omission," either "intentional or unintentional," that "result[s] in the releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of hazardous substances into the waters or onto the lands of [New Jersey]." N.J.S.A. 58:10-23.11b. The commonality among "these terms is that they all describe methods by which a substance can be transferred from a vessel, vehicle, pipe, container, or any other source onto the land or into the water." White Oak Funding, Inc. v. Winning, 341 N.J. Super. 294, 300 (App. Div.), certif. denied, 170 N.J. 209 (2001). "[T]he Legislature intended 'discharge' to mean a release into the air, water or land of a hazardous or toxic substance." Ibid.

Although the statute does not define "in any way responsible," the legislative intent behind the Spill Act requires us to "liberally construe[]" its terms "to effect its purposes." Ventron Corp., supra, 94 N.J. at 502. While "[t]he subsequent acquisition of land on which hazardous substances have been dumped may be insufficient to hold the owner responsible[,] [o]wnership or control over the property at the time of the discharge, however, will suffice." Ibid. For example, in Marsh v. Dep't of Envtl. Prot., 152 N.J. 137 (1997), the Court held that the plaintiff was responsible because the subterranean tanks of gasoline leaked during his ownership. Id. at 146. By the same token, "passive migration of pre-existing contamination does not result in Spill Act liability." White Oak Funding, Inc., supra, 341 N.J. Super. at 302.

Here, the court sua sponte dismissed plaintiff's Spill Act and negligent remediation claims against the Sullivan defendants because it found that plaintiff's original theory of liability was "that Kenro was the sole discharger." In furtherance of this position, the judge found that plaintiff's "expert's reports and . . . deposition . . . read by counsel, . . . take[] . . . [the position] that the discharge took place" in the in 1960s, "not that the discharge started in . . . the late 1960s

. . . ." (emphasis added). We disagree. Plaintiff's previous expert reports, of which defendants had ample notice, clearly demonstrate plaintiff's consistent theory of liability was that the continuous failure to decommission the pit, by both Kenro and the Sullivans, caused the environmental contamination.

For instance, on January 14, 2004, Michael Obolensky certified that "the individual(s) [the Sullivans] who filled this pit had to have been aware that there were volatile chemicals inside . . . ." Obolensky opined that "based on contaminate concentrations in the soil below the pit, I believe to a reasonable degree of scientific certainty that the pit was improperly decommissioned, very likely exacerbating the TCE soil and ground water contamination."

Earlier, in a report dated August 15, 2003, Triassic Technology concluded that Kenro operated a commercial enterprise that utilized TCE, that "TCE was present in the former degreaser pit after the cessation of Kenro's commercial operations; [that] [t]he degreaser pit was not properly decommissioned at the cessation of Kenro's commercial operations; . . . [and that] Kenro's commercial operations and their failure to decommission the degreaser pit caused subsurface contamination."

Although a later Triassic report, dated March 29, 2004, stated that "the on-site release occurred in the late 1960s[,]" the same report also measured the rate that the plume had been spreading, and found that the contaminate had been spreading for "about 33 years (from 2001)." The TCE, "migrated to the property boundary and . . . extend[ing] at least 500 feet downgradient from its origin." And the final Triassic report of September 14, 2004, concluded that the degreaser "pit was in
hydraulic communication with the surrounding ground water and, [thus] a significant source of the ground-water contamination."

Thus, contrary to the judge's finding, the record demonstrates that plaintiff's position consistently has been that the degreaser pit was an ongoing source of contamination, and the failure to properly decommission the well allowed TCE to continue to discharge to the subsurface well after Kenro operations terminated. In other words, plaintiff's proofs in discovery alerted defendants to its theory of liability espousing that TCE remained in the degreaser well and continued to leak from the well to impact soils and ground water.

Even assuming, however, that plaintiff's theory of liability represented a belated change in position, no reason was given by the court as to why dismissal - the most drastic sanction - was invoked as opposed to lesser sanctions, which are clearly favored. Abtrax Pharms., Inc. v. Elkins-Sinn, Inc., 139 N.J. 499, 514 (1995); Crispin v. Volkswagenwerk v. A.G., 96 N.J. 336, 345 (1984) (since dismissal with prejudice is the ultimate sanction, it will normally be ordered only when no lesser sanction will erase the prejudice suffered by the non-delinquent party). Certainly, the situation here was remediable, and the failure to consider such other remedies, under the circumstances, constituted an abuse of discretion.

(B)

The other ground for dismissing the Spill Act claim was plaintiff's destruction of the degreaser pit. Yet this draconian sanction, invoked by the court sua sponte, exceeded even the remedy sought by defendants. Indeed, defendants' in limine application practically on the eve of trial merely sought to "preclud[e] the plaintiff from introducing any evidence that the defendants could not challenge because of the plaintiff's spoliation of evidence . . ." Nevertheless, despite the limited relief sought by defendants, the court dismissed plaintiff's Spill Act and negligent remediation claims, finding "a strong spoliation argument, which took away the chance that the defendants had to determine how this material leached out through the soil."

"Spoliation, . . . is the term that is used to describe the hiding or destroying of litigation evidence, generally by an adverse party." Rosenblit v. Zimmerman, 166 N.J. 391, 400-01 (2001) (citing Black's Law Dictionary 1409 (7th ed. 1999) and Bart S. Wilhoit, Comment, Spoliation of Evidence: The Viability of Four Emerging Torts, 46 UCLA L. Rev. 631, 633 (1998)). There are several remedies a court may invoke when a party's evidence has been subjected to spoliation. One such remedy, the "spoliation inference," comes into effect when "a litigant is made aware of the destruction or concealment of evidence during the underlying litigation." Rosenblit, supra, 166 N.J. at 401. This inference is called "'omnia praesumuntur contra spoliatorem,' which means 'all things are presumed against the destroyer.'" Id. at 401 (quoting Hirsch v. Gen. Motors Corp., 266 N.J. Super. 222, 258 (Law Div. 1993)). This inference "even[s] the playing field" and creates the "presum[ption] that the evidence the spoliator destroyed or otherwise concealed would have been unfavorable to him or her." Id. at 401-02.

Another remedial option, "the discovery sanction," comes into effect "where a party fails to comply with a discovery demand or request," and allows a "court [to] order that designated facts be taken as established, refuse to permit the disobedient party to support or oppose designated claims or defenses, prohibit the introduction of designated matters into evidence, dismiss an action, or enter judgment by default." Id. at 402-03. Moreover, the remiss party may be required "to pay reasonable expenses," i.e. attorney's fees, due to his or her conduct. Id. at 403.

The final remedy available upon the destruction of evidence used in litigation lies in tort. Ibid. In New Jersey, the tort action is grounded in fraudulent concealment. Id. at 403, 405-06.

Here, it is undisputed that the degreaser well, the concrete patch, the TCE that remained inside the well, and the masonry enclosing the TCE were all removed from the property and presently unavailable. To be sure, this is a critical source of evidence in assessing defendants' liability. Once removed, the items could not be replaced, and the potential evidence that could have been garnered from the well is permanently lost. This much is clear. What is far less certain is whether defendants were given notice of plaintiff's claim of liability in sufficient enough time to allow their inspection or examination of the degreaser pit prior to its destruction. The trial judge, of course, answered that inquiry in the negative, based on its finding, however, that plaintiff's theory of liability changed too late in the proceedings for defendants to have been effectively apprised of the evidential significance of the degreaser pit. We have already noted our disagreement with this assessment based on the record proof, available in discovery, supporting plaintiff's position that the degreaser pit was the source of continuing and unabated discharges beginning in the late 1960's and through defendants' ownership.

Separate and apart from this defect in the judge's reasoning, there is no explanation given for the court's invocation of the sanction of dismissal when other less drastic remedies may have been readily available. For example, assuming spoliation was properly established, the court may have elected to prevent plaintiff, as a consequence of defendants' inability to challenge such proof, from offering any evidence contradicting its own report issued to the DEP in November 2001, to the effect that the degreaser pit was fully intact when uncovered in September 2001, without any cracks, breaches or holes.

We are satisfied, as we are concerning the judge's "estoppel" reasoning, that the failure to consider less draconian alternatives, was an abuse of discretion. Thus, not only were the court's findings as to "estoppel" and "spoliation" essentially flawed, but even if proper, did not warrant the ultimate legal consequence imposed. Accordingly, we reinstate the Spill Act and negligent remediation counts. For reasons previously stated, we also reinstate the counts of plaintiff's complaint alleging fraud and negligent misrepresentation. We affirm the dismissal of the count alleging a violation of the Consumer Fraud Act.

(B)

Lastly, especially in light of the above, we find no warrant for our interference with the trial court's denial of defendants' Rule 1:4-8 motion for attorney's fees.

Affirmed in part; reversed in part; and remanded for further proceedings consistent with this opinion.

 

Kenro's corporate successor is AFP Technologies Corporation and both entities will be referred to as Kenro.

(continued)

(continued)

33

A-2682-04T5

February 22, 2006

 


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