CSG Law Alert: Sole Shareholder Spill Act Liability Affirmed
In a recent unreported opinion, the Appellate Division affirmed a trial court’s decision imposing Spill Act liability on the sole shareholder of a dry cleaning business. (Morris Plains Holding VF, LLC v. Milano French Cleaners, Inc., Dkt. No. A-0604-16T1.) The case serves as a reminder that shareholder status does not protect individuals who are otherwise liable for contamination pursuant to the Spill Act.
The trial judge found that Milano French Cleaners operated for 25 years in a strip mall owned by the plaintiff. PCE was detected in the soil in 1999. After approximately 10 years of remediation the business went bankrupt. The landowner then assumed responsibility for the remediation and filed the subject action against the bankrupt corporation and its sole shareholder. The trial judge held both the sole shareholder and the corporation jointly liable for all remediation costs.
On appeal, the shareholder argued that imposing Spill Act liability on him improperly pierced the corporate veil. The Appellate Division disagreed, relying on NJDEP v. Dimant, 212 N.J. 153 (2002). As set forth in Dimant, to recover damages under the Spill Act, a plaintiff must establish a “reasonable nexus” between the discharge and the environmental damage, and a “reasonable link between the discharge, the putative discharger, and the contamination at the specifically damaged site.” Relying on the trial courts factual determinations, the appellate panel found a “reasonable nexus” because PCE contamination was found directly below dry cleaning machines with no other credible source in the area. In addition, the shareholder operated the dry cleaning equipment, was responsible for overseeing and handling the PCE used, and was responsible for ensuring legal and regulatory compliance of the corporation. Taken together, the record satisfied Dimant’s reasonable nexus standard and established individual liability.
Liability protection is clearly available to shareholders of close corporations in Spill Act actions. As recently as 2016 the appellate division remanded a decision imposing personal liability on shareholders for failure to conduct the fact intensive analysis necessary to pierce the corporate veil. See NJDEP v. Navillus Group, App. Div. Dkt. No. A-4726-13T3 (Jan. 14, 2016). However, in this case, given the nexus between the individual shareholder and the contamination, the appellate division refused to allow shareholder status to be used as a shield to individual liability. Rather, liability arose from a “reasonable link” between the discharger and the contamination, without regard for shareholder status.
Related Attorneys
