Environmental Law Blog

A Tale of Two Tests: Conflict Brewing on Corporate Owner and Officer Personal Liability Under the Spill Act

January 17, 2019

Like its federal counterpart CERCLA, the New Jersey Spill Compensation and Control Act (“Spill Act”) imposes strict liability for environmental cleanup costs. But on whom? The legal test used to answer that question has drastic consequences on the potential personal liability of corporate owners and officers. Though New Jersey courts have relied upon the more stringent “veil piercing” test, a recent decision of the Appellate Division departed therefrom, opting to utilize a test that makes it substantially easier to tag corporate owners and officers with personal Spill Act liability. That departure was likely incorrect.  The conflict may ultimately require the Supreme Court of New Jersey to weigh in.

Since the decision of the U.S. Court of Appeals for the Third Circuit in Witco Corp v. Beekhuis, 38 F.3d 682, 692 (3d Cir. 1994), corporate owners and officers in New Jersey have faced potential personal liability as “operators” under CERCLA, notwithstanding the corporate form. Personal liability is a function of the corporate owner or officer’s participation in the conduct resulting in a release of a hazardous substance. As distinguished from potential CERCLA “operator” liability, the Appellate Division’s decision in State, Department of Environmental Protection v. Arky’s Auto Sales, 224 N.J. Super. 200, 207 (App. Div. 1988), requires there be grounds to “pierce the corporate veil” before personal liability can be imposed on a corporate owner or officer under the Spill Act.  The Arky’s Auto decision rejected the imposition of personal liability on the two shareholders and officers of a junkyard business because they “were acting for the corporation, not for themselves individually” and there was no evidence supporting that the company’s “corporate veil should be pierced,” which requires that a plaintiff first show fraud or injustice.  Several federal district courts recognize the Spill Act veil piercing requirement. Veil-piercing, in fact, has been a staple of Spill Act liability analysis since State, Department of Environmental Protection v. Ventron Corp., 94 N.J. 473, 500-02 (1983).  However, a recent decision of the Appellate Division discarded the traditional Spill Act veil-piercing requirement, replacing it with something closely resembling the Witco “operator” liability analysis for CERCLA liability. 

In Morris Plains Holding VF, LLC v. Milano French Cleaners, Inc., A-604-16, 2018 WL 1882956, at *2 (N.J. Super. Ct. App. Div.), certif. denied, 236 N.J. 109 (2018),a panel of the Appellate Division affirmed the trial court’s imposition of Spill Act liability on the sole shareholder of a dry-cleaning business operating as a corporation.  Rejecting the shareholder’s contention that there were no grounds to pierce the corporation’s veil, the panel instead focused on the fact that he was “everything” to the business: it’s only shareholder, its operator, the person responsible for overseeing and handling the chemical that contaminated the site, and the person in charge of compliance with legal regulatory obligations. Finding this sufficient, the panel held that the Spill Act’s language imposing liability on persons “in any way responsible” for a release evidenced the Legislature’s intent to impose expansive liability “without regard for corporate veils and the like.”  The statutory language, the panel believed, did not contemplate that a “shareholder of a close corporation could contaminate property, put his corporation in bankruptcy, and walk away from the problem.”  Notably, the Supreme Court denied certification.

The Milano analysis is also inconsistent with the Appellate Division’s decision only two years prior in New Jersey Department of Environmental Protection v. Navillus Group, A-4726-13, 2015 WL 9700541, at *8-9 (N.J. Super. Ct. App. Div. Jan. 14, 2016), wherein the panel assessed corporate owner and officer liability using a veil-piercing analysis.  Reversing the trial court’s imposition of Spill Act liability on the corporation’s owner and officer, the panel utilized a veil piercing analysis. The plaintiff had not adduced sufficient evidence on summary judgment to demonstrate the appropriateness of veil piercing, which is to be utilized to avoid a perpetration of fraud, a crime, evade the law, or where an individual is abusing the corporate form as an alter ego.

The veil piercing test is both more consistent with precedent and with the language of the Spill Act itself. Veil piercing is endorsed by the published Arky’s Auto case directly concerning personal liability of a corporate owner or officer.  But other analogous precedent is also instructive on this issue.  In Allen v. V and A Brothers, Inc., 208 N.J. 114, 130-33 (2011), the Supreme Court addressed the potential for personal liability of corporate owners and employees under the strict liability New Jersey Consumer Fraud Act (“CFA”).  The Court emphasized that the statute’s definition of “person” refers not only to a natural person, but also “include[es] individuals who are acting through or on behalf of corporations and other business entities,” i.e. “any agent, employees, salesman, partner, officer, director, member, stockholder, associate, [or] trustee . . . thereof.” This “breadth” and “expansive sweep of the definition” of the term lent strong support to imposition of direct personal liability under the CFA.  Veil piercing was unnecessary to impose personal liability. 

The Spill Act, however, stands in marked contrast.  While it holds “any person” strictly liable for their discharge of a hazardous substance or if they are in any way responsible therefor, N.J.S.A. 58:10-23.11g(c)(1), and also strictly liable for contribution, N.J.S.A. 58:10-23.11f(a)(2)(a), the Spill Act defines “person” only as “public or private corporations, companies, associations, societies, firms, partnerships, joint stock companies, individuals, the United States, the State of New Jersey and any of its political subdivisions or agents.” N.J.S.A. 58:10-23.11b.  Thus, unlike the CFA, the Spill Act conspicuously omits any reference to individuals acting on the behalf of corporate entities.  This difference lends further credence to the conclusion that Arky’s Auto veil piercing, rather than Witco/Milano “operator” liability is appropriate to determine the potential personal liability of a corporate owner or officer.

The ostensible unsettled nature of the law governing the personal liability of corporate owners and officers likely means that the Supreme Court will ultimately have to intercede.  In the meantime, it is paramount in Spill Act litigation to develop and be armed with the facts ready to prosecute or defend a Spill Act claim utilizing both legal tests—perhaps with an eye to review by the high court.  This is particularly true given that the standard for owner/officer liability under CERCLA is settled and is invariably involved in a Spill Act case.

The firm’s Environmental Law Department welcomes any opportunity to assist you with your environmental counseling and litigation needs

Attorney: Brian Block
Related Practice: Environmental Law
Category: Environmental Liability, Environmental Remediation, Environmental Litigation