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In a decision that will help New Jersey extract more money from polluters, an appeals court said the state Department of Environmental Protection may recover for loss of use of contaminated resources, not just for the cost of site cleanups. The June 6 ruling, in a case against Exxon Mobil Corp., makes polluters strictly liable for loss-of-use damages, based on a broad interpretation of the state Spill Act, N.J.S.A. 58:10-23.11 to -23.24. The chemical industry and the state Chamber of Commerce had hoped the panel would affirm a Union County judge’s ruling that the statute holds industries strictly liable for restoration costs only. But the Appellate Division reversed in what it called a case of first impression, NJDEP v. Exxon Mobil Corp. The appeals court, led by Judge Anthony Parrillo, said recovery for loss of use damages is “consistent with the Spill Act’s express terms, is harmonious with legislative intent, and is in keeping with legislative directives articulated in the act’s recent amendments.” Loss of use is a means of measuring the reduction of services that a polluted natural resource had provided and establishing a value for its replacement. The ruling “recognizes not only the state’s authority under the Spill Act to require polluters to clean up and restore properties they’ve contaminated, but to seek compensation on behalf of New Jersey’s citizens for natural resources lost to pollution,” First Assistant Attorney General Anne Milgram said afterwards. The case centered on the cleanup at Exxon’s 98-year-old Bayonne and Bayway, N.J., petrochemical facilities familiar to drivers passing by on the New Jersey Turnpike. In 1991 consent orders, the company agreed to remediate soil and groundwater pollution, and cleanup operations have been underway since then. But the company also has been included in the DEP’s natural resource damage (NRD) initiative, begun in 2002, to recover the cost of resource loss. Many companies have settled such NRD cases, but Exxon did not and was sued by the state, setting up a test of whether the Spill Act applied. Union County Superior Court Judge Ross Anzaldi agreed with the DEP that Exxon was liable for “primary restoration” costs � cleanup and removal of pollutants. But he said nothing in the Spill Act holds a discharger strictly liable for loss of use of natural resources. Parrillo, joined by Judges Steven Lefelt and Paulette Sapp-Peterson, disagreed, saying the Spill Act is broad enough to go beyond cleanup and removal costs. If there was any doubt about legislative intent, amendments in 2005 that exempted nonpolluters from natural resource damage recoveries showed that such recoveries were intended for polluters. “Obviously, the Legislature would not have had to afford nonpolluters such liability protection unless the Legislature found them to be otherwise liable for natural resource damage under the act,” the court said. The ruling remands the case, presumably for a calculation of the damages. The lawyer for Exxon, Theodore Wells Jr. of Paul Weiss Rifkind Wharton & Garrison, did not return a call and Exxon spokeswoman Prem Nair said only that the decision is under review. Environmental lawyers outside the case say they expect an appeal, but their evaluation of the decision’s import varies. Richard Hluchan of Ballard Spahr Andrews & Ingersoll called it “much ado about nothing.” It merely reflects the courts’ traditional deference to the DEP’s broad interpretation of statutes, he said. “I don’t think there is any lawyer in the state who understands environmental law who thought the DEP was going to lose this case,” he said. The decision went the other way in the trial court only because “the judge must have had a bad day,” he said. “There was no question that natural resources damages were going to be included under the Spill Act,” he said. Not that it’s right, he added. First, he said valuation of “loss of use” is amorphous. Second, “all this is a way for the state to extort more money out of industry. First they want their pound of flesh for the cleanup and then they want a few more pounds of flesh.” Gary Donner at Robertson Freilich Bruno & Cohen said “It’s going to embolden the state to seek these damages from parties and I think there’s going to be another push by the state to file these claims.” Dennis Krumholz of Riker Danzig Scherer Hyland & Perretti said that since the DEP began seeking payments for loss of use under the NDR program, it has agreed to settle its claims under a “friendly formula” for calculating the losses. The formula is not published in regulations but it is widely known among lawyers in the cases, he said. In 2004, DEP Commissioner Bradley Campbell said that DEP-regulated companies that decline to settle and end up in litigation with the state will be subject to what he called a “robust formula.” Since then, the state has denied it has actually calculated what a robust formula might be. “No matter what the formula, the costs are going to be large,” Krumholz said. Steven Picco, at Reed Smith, said the ruling will be worth tens of millions of dollars to the state if it stands. Still to be determined, and perhaps litigated, is the reasonableness of the calculations of the damages and whether the DEP’s scientific assumptions about the value are reasonable, he said. Picco was counsel to an industry group that sued the DEP in 2004 to stop the NDP program – litigation that called the early settlement process a shakedown and complained that the damage formulas were illegal because they were created in secret. The suit also alleged that contingency contracts with outside counsel representing the DEP were unethical because they gave attorneys incentives to collect as much as possible, regardless of the merits of the cases. Picco said on Wednesday that case settled, with the state being allowed to continue use of outside counsel while curbing excesses caused by zeal. Two of those contingency lawyers were the winning co-counsel in the June 6 ruling, Alan Kanner of Kanner & Whitely of New Orleans and Bruce Nagel of Nagel Rice in Roseland. “This is an important victory for our environment and the people of New Jersey,” said DEP Commissioner Lisa Jackson. “The appellate court’s decision removes all doubt that responsible parties must compensate the public for the value, use and benefits lost because of injuries to the natural resources that rightfully belong to the people.” This article originally appeared in the New Jersey Law Journal , a publication of ALM.

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