New Jersey Appellate Court Limits Measure of Damages for Contaminated Properties

On August 27, 2014, the Superior Court of New Jersey ruled in favor of Puritan Oil against a New Jersey property owner, finding that where the oil company had already taken steps to remedy contamination it caused on Plaintiff’s property, no further measure of damages was appropriate.  Favorito v. Puritan Oil Company, Superior Court of New Jersey, Appellate Division, Docket No. A-3426-12T1.

In 2005, Plaintiff Anthony Favorito purchased real estate as an investment from Defendant Jennifer Schwartz for $224,900.  Favorito was able to rent out the property for its fair market value.  Favorito later discovered that in 1988, underground gasoline storage tanks on a neighboring property had leaked causing hazardous substances to migrate into groundwater beneath Plaintiff’s property.  The neighboring tanks had been owned by Defendant Puritan Oil Company, Inc.  Plaintiff learned of the contamination in 2009 when he was contacted by Puritan’s agents, who advised him that wells needed to be installed on his property to periodically sample the ground water.

For its part, Puritan discovered the contamination in 1988 and began remedying its property.  It removed six underground storage tanks and all of the contaminated soil from its property and shut down the gas station.  Monitoring wells revealed that groundwater below Plaintiff’s property had been contaminated by petroleum and in 1996, two underground wells were installed on Plaintiff’s property which were removed in 1999.  The New Jersey Department of Environmental Protection also placed a portion of Plaintiff’s property within a Classification Exception Area (CEA) suspending the groundwater’s classified use while the area is remediated.

Municipal water is supplied to Favorito’s property and thus, groundwater contamination impacting onsite wells was not at issue.  Plaintiff sued Puritan Oil, Schwartz and the real estate agent and agency involved in the sale.  Plaintiff settled with all of the Defendants except Puritan Oil.  In his complaint, Plaintiff alleged that Puritan Oil violated the New Jersey Spill Compensation Control Act as well as committed a nuisance and trespass.  Plaintiff argued that he was entitled to the difference between what he paid for the property in 2005, and what the property was in fact worth at that time, given its contaminated condition, which an appraiser estimated to be $98,000.  Plaintiff did not state that he was seeking damages for the stigma that may be associated with the property after it is remedied or any other measure of damages.

The trial court granted Puritan Oil’s motion for summary judgment and found that Plaintiff’s damages were limited to either the cost of cleaning up the property or the difference between the fair market value of the property in its contaminated state, and in an uncontaminated one.  As Puritan was cleaning up the Property, Plaintiff was not entitled to the difference in value.

On appeal, Plaintiff reasserted his claims for nuisance and trespass and requested that the court award $126,900 in damages – the difference between what he paid for the property and what it was worth, as damages for having monitoring wells on his property and having a portion of the property in a CEA, which limits the use of groundwater and will require him to disclose this classification to potential buyers.  The appellate court refused to consider the claim for additional damages for the monitoring wells and CEA since they had not been raised at the lower court level, and affirmed the trial court’s finding that a party may receive the difference between the value of the land before and after the harm or at the party’s election, the cost of restoration, not both.  Since Plaintiff chose to have his property restored, he could not also seek another measure of damages.

Furthermore, the Appellate Court stressed that Favorito had never claimed that he had been deprived of any use of his property.  He had been able to rent out the premises for fair market value, was supplied with municipal water, and had not contended that he, or his tenants,  experienced any discomfort or annoyance as a result of the contamination.  Based on these findings, the Court granted Puritan Oil’s motion for summary judgment.

The Appellate Division’s decision in Favorito underscores the need for proper due diligence prior to purchase, as well as for litigants to carefully consider their options early in order to avoid unknowingly waiving potential claims.  In the present case, Favorito failed to engage in a thorough inquiry of the property’s use prior to purchase.  Once Favorito had taken title, in accepting Puritan’s offer to enter onto the property to install groundwater wells, Favorito was deemed by the court to have “elected” to have the property remediated and to have effectively waived his potential claim for damages based on diminution in value.