The United States District Court for the District of New Jersey recently held that an environmental consultant who prepares and files documents with the New Jersey Department of Environmental Protection ("DEP"), on behalf of an owner or operator of an industrial site, owes a duty to prospective purchasers who rely upon the documents when deciding to purchase the property. See Grand Street Artists v. General Electric Company, 1998 WL 549687 (D.N.J.). The decision was based, in part, upon the fact that the consultant was preparing and filing documents in connection with New Jersey’s Environmental Clean Up Responsibility Act ("ECRA"). However, the Court’s extension of traditional concepts of foreseeability and duty may have far reaching consequences for any professional preparing and filing documents concerning the environmental condition of a property.

Jenny Engineering Corp. ("Jenny"), was retained by Quality Tool & Die Co. ("Quality"), to provide technical assistance in complying with the ECRA obligations triggered by the cessation of operations at an industrial site. Jenny agreed to undertake the many investigation and reporting requirements necessary for ECRA compliance including: assessing the historical operations at the site by present and previous owners; conducting site reconnaissance and mapping to identify relevant activities at the site and potential areas of environmental concern; developing an environmental sampling and testing plan; interfacing with the DEP; and preparing the required ECRA submissions.

Jenny prepared and filed ECRA documents with the DEP that made clear that the information was submitted in connection with the cessation of operations, rather than for a prospective sale of the property. These ECRA submissions made no mention of the fact that mercury had been used in historical manufacturing activities at the site or that there was any mercury contamination present at the property. Subsequently, Quality terminated Jenny and hired another firm to complete the process and file its ECRA application for a Negative Declaration. The Negative Declaration application sought DEP approval for cessation of operations at the site rather than for sale to a potential buyer and was granted on that basis.

Thereafter, plaintiffs purchased the site in order to convert the property for residential use. Prior to the purchase, plaintiffs hired an environmental consultant to conduct a due diligence investigation. Plaintiffs’ consultant reviewed the ECRA case file and determined that the level of contamination reported in the ECRA documents was acceptable under the existing cleanup standards. Three years later, mercury contamination was discovered at the property, DEP rescinded its ECRA approval, and plaintiffs were forced to evacuate the site.

In the ensuing litigation, plaintiffs alleged that Jenny was negligent in that it filed "materially false and misleading" ECRA submissions that failed to identify the mercury contamination at the site. Plaintiffs contended that they reasonably relied upon those misleading ECRA submissions when deciding to purchase the property. Jenny argued that it did not owe a duty to prospective purchasers because it merely assisted Quality in complying with ECRA’s requirements for ceasing operations.

Initially, the Court noted that the issue of whether a duty exists is a question of fairness and policy that implicates many factors, the most important of which is the foreseeability of injury to others. The Court held that although that the ECRA submissions were filed to obtain approval of a cessation of operations rather than for a sale of the property, "Jenny should have known that its work would have been used by others interested in purchasing the premises." Id. at 9. Since the ECRA documents are public materials that are easily accessible to prospective purchasers, "it was foreseeable that a potential purchaser would look to the prior ECRA submissions in considering whether to enter into the transaction." Id. Therefore, the Court held that Jenny owed a duty of care to plaintiffs.

It is important to note that the question of whether Jenny will ultimately be found liable for negligence is governed by several other factors. Jenny was only obligated to perform the work required by its contract with Quality and to satisfy its professional responsibilities. Consequently, if Jenny’s actions were in conformance with the standards of care for environmental consultants and satisfied the requirements of its contract with Quality, any duty owed to plaintiffs would not have been breached. In addition, the issue of whether plaintiffs should have conducted a more comprehensive due diligence investigation, or voided the sale of the property pursuant to statute, raised questions concerning causation and damages.

The Grand Street case should raise concerns among owners and operators of industrial establishments, environmental consultants, insurers, lenders, real estate brokers and prospective purchasers. To avoid potential liability to third parties, any documents concerning the environmental condition of a site that are submitted to local, state and federal agencies, must be accurate and thorough. Owners, operators and consultants should include a statement that the information submitted is required by statute and is not intended to be relied upon by third-parties. Environmental consultants should insert similar appropriate disclaimers into any report prepared for a client regardless of whether the report will be filed with a public agency. Lastly, lenders and prospective purchasers must do more than simply review the submissions of others in conducting their own due diligence. Since statutes like CERCLA and the New Jersey Spill Compensation and Control Act may require substantial independent due diligence to avoid liability as an innocent purchaser, reliance on filings prepared by other parties may result in unexpected liabilities.