Indication of Environmental Harm That Points to Need for Investigation, Not Actual Sampling Results, Is Sufficient Notice Under New Jersey's Discovery Rule, Says Federal Judge



April 9, 2003

Contrary to the old adage, what you don’t know can hurt you — at least if you had reason to try to discover it. That’s the lesson for prospective plaintiffs in environmental cases that emerges from a recent decision by Judge Stephen M. Orlofsky of the U.S. District Court in New Jersey.

In New West Urban Renewal Co. v. Viacom, Inc., et al., 230 F. Supp. 2d 568 (D.N.J. 2002) (“New West II“), Judge Orlofsky considered the reach of New Jersey’s discovery rule, an equitable doctrine that tolls the accrual of a cause of action until the plaintiff knows or has reason to know the facts that give him or  her a cause of action. The discovery rule operates to give plaintiffs more time to bring their lawsuits. For example, personal injury actions are subject to a two-year statute of limitations. N.J.S.A. 2A:14-2. Without the discovery rule, the limitations period would begin to run as soon as the injury occurs. Thus, if your injury consists of having a surgical instrument inside your body, the limitations period might expire before you were even aware of that injury. The discovery rule postpones, or tolls, the beginning of that two-year period until you know, or have reason to know, that you have been injured by another. It has also been applied in environmental cases.

The plaintiff, New West Urban Renewal Company, purchased the site in question from Westinghouse in 1983. Westinghouse, which continued to occupy the site for one year after the sale under a lease agreement with New West, had used the property for manufacturing for a century. During this time it had used and stored various hazardous substances, some of which had been released into the soils and buildings. New West tried to sell the site in 1987, but the potential buyer backed out of the deal because of several consultants’ reports that identified six “areas of environmental concern” and estimated cleanup costs in the mid-six figures. New West conducted its own environmental investigation in 1992, to evaluate potential development options. The 1992 investigation revealed the presence of environmental contaminants, including PCBs.

New West first sued Westinghouse in 1994. Among other rulings, in that first case Judge William H. Walls held that New West’s claim under the New Jersey Environmental Cleanup Responsibility Act (ECRA) was time-barred under the applicable six-year statute of limitations. New West Urban Renewal Co. v. Westinghouse Elec. Corp., 909 F. Supp. 219 (D.N.J. 1995) (“New West I“). The parties entered into a partial settlement and a stay agreement, but could not resolve their dispute. They later entered into a tolling agreement, under which they agreed to dismiss all claims in the old suit and to toll all limitations periods from the filing of the old suit (March 9, 1994) to the date when any new action was commenced. Hence, for purposes of any statutes of limitations, any new claims would be treated as if they had been filed on March 9, 1994. New West brought its new action, this time against Viacom, Westinghouse’s successor in interest, in 2001.

Viacom moved to dismiss most of New West’s claims as time-barred under the applicable six-year statute of limitations found in N.J.S.A. 2A:14-1. Since the contamination itself clearly took place before March 9, 1988 (six years before New West filed its first lawsuit), New West had to rely on the discovery rule, arguing that it did not have sufficient notice of the contamination until it received its sampling results. Judge Orlofsky rejected this argument, holding that the receipt of actual sampling results is not necessary for a plaintiff to have knowledge of contamination. Instead, with respect to environmental claims, tolling under the discovery rule ceases when “there are enough indications of environmental contamination to put the plaintiff on reasonable notice to investigate further.” 230 F. Supp. 2d at 573.

Under this standard, Judge Orlofsky went on to find, New West could not claim the protection of the discovery rule. Unlike some sellers, Westinghouse had not hidden evidence of environmental contamination, and the recitation in New West’s own complaint of Westinghouse’s use on the site of various hazardous substances showed that the existence of potential environmental hazards was “no secret.” Id. at 576. Specific evidence in the record also pointed to New West’s awareness of such environmental hazards before 1988. First, as Judge Walls had found in New West I, New West had discovered drums on the site in 1985. Moreover, the 1987 consultants’ reports prepared for the potential buyer, copies of which were provided to New West, pointed to specific environmental concerns. Finally, the deposition testimony of the New West employee in charge of the site made clear that the latest date when New West had notice of environmental problems at the site was late 1987. New West waited more than six years after that time to file its lawsuit. Thus, its claims were time-barred.

New West II highlights the dangers of a “head in the sand” approach to environmental liabilities. Landowners and other holders of potential environmental claims should not assume that they can wait until their own investigation is complete before the limitations periods on their claims begin to run. Information from other sources, even if it does not include detailed sampling results, can constitute sufficient notice of environmental problems. Finally, under Judge Orlofsky’s reasoning, even if the information itself does not confirm the actual existence of environmental contamination, but merely hints at the possibility, it can put the plaintiff on a kind of “inquiry notice” that imposes on the plaintiff a duty to investigate further. Where a seller fraudulently misrepresents the condition of the property, however, either by failing to disclose material facts (“We manufactured widgets” with no mention of spills that occurred) or by affirmatively misrepresenting the truth (“We had no spills” when in fact spills occurred), a landowner would have a strong argument that the discovery rule should continue to toll the statute of limitations until additional facts come to light.