228 F.3d 275 (3rd Cir. 2000), 00-5031, Black Horse Lane Assoc. v Dow Chemical Corp.

Docket Nº:00-5031
Citation:228 F.3d 275
Party Name:BLACK HORSE LANE ASSOC., L.P., a New Jersey limited partnership; UNITED STATES LAND RESOURCES, L.P., a New Jersey limited partnership; UNITED STATES REALTY RESOURCES, INC., a New Jersey Corporation; and LAWRENCE S. BERGER v. DOW CHEMICAL CORPORATION; ESSEX CHEMICAL CORPORATION, a wholly owned subsidiary of DOW CHEMICAL CORPORATION, a Michigan Corpo
Case Date:September 20, 2000
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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228 F.3d 275 (3rd Cir. 2000)

BLACK HORSE LANE ASSOC., L.P., a New Jersey limited partnership; UNITED STATES LAND RESOURCES, L.P., a New Jersey limited partnership; UNITED STATES REALTY RESOURCES, INC., a New Jersey Corporation; and LAWRENCE S. BERGER



Black Horse Lane Associates, L.P., United States Land Resources, L.P., United States Realty Resources, Inc. and Lawrence S. Berger, Appellants

No. 00-5031

United States Court of Appeals, Third Circuit

September 20, 2000

Argued August 8, 2000

On Appeal from the United States District Court for the District of New Jersey, D.C. Civ. No. 97-1250, District Judge: Honorable Nicholas H. Politan

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[Copyrighted Material Omitted]

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Paul H. Schafhauser (argued) Berger & Bornstein 237 South Street P.O. Box 2049 Morristown, N.J. 07960-2049, Attorneys for Appellants

Kenneth H. Mack (argued) Linda Mack Fox, Rothschild, O'Brien & Frankel 997 Lenox Drive Princeton Pike Corporate Center, Building 3 Lawrenceville, N.J. 08648, Attorneys for Appellees



GREENBERG, Circuit Judge.


This matter comes before this court on an appeal by plaintiffs United States Land Resources, L.P. ("USLR"), United States Realty Resources, Inc. ("USRR"), Black Horse Lane Associates, L.P. ("Black Horse"), and Lawrence S. Berger ("Berger") (collectively "appellants") from two orders entered by the district court in this matter: (1) the order entered August 10, 1999, granting a motion by appellees Dow Chemical Corporation ("Dow") and Essex Chemical Corporation ("Essex") for summary judgment pursuant to Fed. R. Civ. P. 56, and denying appellants' cross-motion for summary judgment on appellees' counterclaim; and (2) the "Final Order" entered December 16, 1999, affirming the June 30, 1999 order of the magistrate judge imposing sanctions against appellants, and dismissing appellees' counterclaim without prejudice for lack of subject matter jurisdiction. This litigation arises out of a sale of environmentally distressed

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real property located at 120 Black Horse Lane, South Brunswick, New Jersey (hereinafter "the Property"), by Essex to USLR.

For the reasons that follow, we will affirm the August 10, 1999 and December 16, 1999 orders of the district court in all respects.


A. Factual Background

The historical facts in this case are rather straightforward and, insofar as material to this appeal, essentially are not disputed. Appellants, USLR, USRR, Black Horse, and Berger, are related entities: USLR is the general partner in Black Horse, USRR is the general partner of USLR, and Berger is the president of USRR.1 Appellees Essex and Dow also are related entities as Essex is Dow's wholly-owned subsidiary by virtue of its purchase of all of Essex's stock in 1988.

During the 1980s, Essex owned and operated the Property, where it engaged in the business of preparing adhesive-backed paper products. On or about August 17, 1984, Essex discovered that chemicals it used in that process had leaked into the ground of the Property. In October 1984, Essex entered into environmental cleanup and decommission negotiations with the New Jersey Department of Environmental Protection ("DEP"). Essex submitted a "Clean-Up Plan" to the DEP on December 19, 1985, which the DEP conditionally approved on December 20, 1985.

Prior to Essex's submission of the Clean-Up Plan to the DEP, it entered into a sales agreement ("the Agreement") on September 5, 1985, with USLR to sell the Property to USLR for $3.6 million. The parties do not dispute that appellants were aware of the Property's environmental problems at the time that USLR and Essex entered into the Agreement. The Agreement required Essex to obtain and implement an approved Clean-Up Plan at its sole expense. Paragraph 16 of the Agreement set forth Essex's responsibilities with respect to the remediation and detoxification of the Property:

The parties acknowledge that the Subject Premises to be conveyed are subject to the provisions of the Environmental Clean-Up Responsibility Act, N.J.S.A. 13:1K-6 et seq. (`ECRA') [now named the Industrial Site Recovery Act (`ISRA')]. Seller agrees to obtain approval of a Clean-Up Plan from the Department of Environmental Protection (`DEP'), post the necessary financial security for performance pursuant to ECRA, will implement the approved Clean-Up Plan and complete the detoxification of the Subject Premises in accordance with and to the approval of the DEP. Pending DEP approval of a Clean-Up Plan, Seller will attempt to obtain the consent of the DEP to the conveyance of the Subject Premises. `ECRA Approval' will be deemed to have taken place upon the receipt by Seller from the DEP of the approval of the implementation of the Clean-Up Plan and satisfactory detoxification of the Subject Premises or a consent from the DEP to convey the Subject Premises to Purchaser in the form of an Administrative Consent Order and bond securing the detoxification of the Subject Premises by Seller, all in a form and substance satisfactory to Purchaser's mortgage lender. In no event shall Purchaser be obligated under this Contract to assume any ECRA Clean-Up responsibilities. If ECRA Approval is not obtained prior to January 1, 1986, Purchaser shall have the continuing right to terminate this Contract by giving Seller notice at any time up to January 20, 1986. If ECRA Approval is not obtained by June 1, 1986, this Contract shall be automatically terminated and after the refund of the Deposit to Purchaser, neither party shall have any

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rights or claims against the other arising out of this Contract.

App. at 93a-94a. Title to the Property closed on December 23, 1985, three days after the DEP conditionally approved the Clean-Up Plan, and on that day USLR assigned its rights in the Property to its present owner, appellant Black Horse.

As previously mentioned, at some point in 1988, appellee Dow purchased all of Essex's stock, and Essex became a wholly-owned subsidiary of Dow. Since that time, Dow employees have been involved in the remediation and detoxification of the Property, but these Dow employees have been acting as "consultants" to Essex in that connection. SA at 546, 549.

Essex began its soil remediation efforts shortly after it sold the Property in 1985. While we are not able to ascertain the exact date of completion from the record, appellants' counsel confirmed at oral argument that soil remediation was finished within two years of the sale of the Property. See generally app. at 235a; SA at 536; appellees' br. at 17. Essex commenced groundwater remediation in 1988, app. at 236a, but, to date, it has not completed that remediation. It is Essex's alleged failure to complete remediation and detoxification of the Property within a "reasonable time" that forms the crux of the parties' dispute in this case.

One specific example that appellants cite as proof of Essex's alleged failure to remediate the Property within a reasonable time pertains to Essex's cleanup efforts with respect to certain "chlorinated volatile organic compounds" ("CVOCs") found in the soil and groundwater in certain areas of the Property.2 In 1991, the DEP ordered Essex to perform a "temporary well point survey" to investigate the presence and source of CVOCs found in the groundwater and soil gas. See app. at 304a. After Essex conducted extensive investigations into the source and levels of CVOCs found in the soil gas and groundwater, Essex proposed to remediate the areas of the Property contaminated with CVOCs by means of soil vapor extraction ("SVE") technology, specifically, a "dual phase extraction system." App. at 307a. In May 1992, DEP approved this proposal. App. at 307a, 240a.

Notwithstanding DEP's approval of Essex's proposed system, Essex did not begin to install and operate the system immediately. Rather, from 1992 to 1997, Essex continued to investigate the source of the various CVOCs found on the Property, and conducted various tests at DEP's request. See app. at 238a-40a. This additional investigation required Essex to modify the SVE design, which requirement might account for the delay in its installation. App. at 240a. In any event, Essex completed its installation of the dual-phase extraction system in August 1997. We note, however, that Essex experienced some "start up" difficulties at the outset of its operation of the system. App. at 240a. Insofar as we can determine from the record, Essex is continuing its remediation efforts in connection with the CVOCs detected on the Property.

B. Procedural History

Appellants commenced this action in the district court in 1997, and filed an amended complaint shortly thereafter. The amended complaint sets forth five causes of action against appellees Essex and Dow:3 (1) a claim based on a breach of

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Paragraph 16 of the sales contract as a result of Essex's failure to complete its cleanup of the Property within a "reasonable time", (count I);4 (2) a claim based on a breach of the implied covenant of good faith and fair dealing based on "defendants' " actions in connection with their cleanup efforts, (count II); (3) a claim for damages pursuant to section 107(a)(4)(B) of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. S 9607(a)(4)(B), based on appellants' alleged expenditure of "necessary costs of response," and for declaratory and injunctive relief, (count III); (4) a claim for contribution for the costs of "clean-up and removal" and for injunctive and declaratory relief pursuant to the New Jersey Spill Compensation and Control Act, N.J. Stat. Ann. S 58:10-23.11 et seq. ("the Spill Act"), (count IV); and (5) a claim for "damages"...

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