Industry Fights Back Over N.J.'s Anti-Pollution Push

The business community has gone to court over New Jersey's plan to squeeze up to $1 billion out of polluters for the loss of natural resources. Six trade associations say the process used in 4,000 claims is unfair and illegal in its "clandestine approach," and call state incentives to settle early a "shakedown." Business lawyers also say the hiring of a special outside counsel to prosecute claims on a contingency fee basis is unethical.

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The business community went to court Feb. 2 over New Jersey’s plan to squeeze up to $1 billion out of polluters for the loss of natural resources such as rivers and wildlife. Six trade associations, including those representing the chemical and petroleum industries, said in a suit in Mercer County that the process used in 4,000 claims is unfair and illegal in its “clandestine approach.” Moreover, the suit naming Department of Environmental Protection Commissioner Bradley Campbell calls state incentives to settle early a “shakedown.” Finally, the business lawyers say the hiring of a special outside counsel to prosecute claims on a contingency fee basis is unethical because it amounts to a public lawyer having a stake in “lining his pockets” by pushing for maximum fines. New Jersey’s prosecution of natural resources damages claims is the most aggressive nationwide, say industry opponents. Campbell calls the suit “flawed and largely frivolous,” arguing that the industries lost a challenge in state court in 1998, and were rebuffed in 2001 when lawmakers amended regulations and gave the DEP several more years to pursue natural resource damage claims. The 61-page complaint makes two main charges. The first is that the DEP created its formula for calculating the damages and liability in secret rather than follow required rule-making methodology that ensures due process and fairness to the companies. The second is that the contingency contract given to celebrated toxic-tort plaintiffs’ lawyer Alan Kanner of New Orleans is illegal and unethical because Kanner’s personal incentives to collect as much as possible makes it impossible for him to be neutral. The suit, filed by Steven Picco, of counsel with Princeton’s Reed Smith, also challenges the carrot-and-stick approach used by Campbell and Kanner. Under that approach, polluters that come forward voluntarily and settle early will have damages assessed under a formula created in the mid-1990s. Damages will be assessed under a new, “more robust” formula, as Campbell calls it, for companies that refuse to settle. That scenario is forcing corporations to pay the “voluntary amount” because “financial constraints prohibit the risk of challenging these arbitrary standards …” according to the suit. Picco calls the two-tiered plan a “governmental shakedown” and notes that the new formula means companies will pay five to 10 times more. The associations are seeking a writ of mandamus compelling the DEP to follow the Administrative Procedures Act, which requires a specific rule-making process and permits regulated companies and the public to comment. The plaintiffs are also seeking to disqualify Kanner, a veteran of the Three Mile Island and Love Canal cases, alleging that he has displayed an appearance of impropriety in violation of New Jersey court and American Bar Association ethical strictures. Kanner says he will respond in court. PASSAIC RIVER CLEANUP Campbell reached out for Kanner in early 2002, shortly after joining the McGreevey administration. At that time, he had begun to map out his program to make polluters pay for natural resource damages even if they already had spent millions cleaning up the sites. His plan was bolstered by the Legislature’s 2001 extension of the statute of limitations on moving against the companies under the regulations stemming from the Spill Compensation and Control Act, among other laws. The two had worked together in the 1990s when Campbell was regional commissioner of the federal Environmental Protection Agency and Kanner was helping the Clinton administration develop a natural resource damages program. In 2002, Kanner and a consultant reviewed the existing formula developed during the Whitman administration but concluded it “was not robust enough,” according to the trade associations’ suit. By November 2002, the DEP had collected more than $8 million in natural resource damage settlements. Then, last September, Campbell issued a directive covering 18 sites and 66 companies in the lower Passaic River, from Paterson to Newark Bay. The companies include Diamond Alkali Co., Atlantic Richfield Co., Getty Petroleum and Monsanto Co. Campbell said then that the river was “a prime example of resource degradation at its worst.” Lobbyists and corporate lawyers have been howling and hinting of a suit since. Last September’s DEP directive was followed by letters to the companies giving them 10 days to decide whether to negotiate or litigate. That forced the issue, according to the suit. Picco — along with lawyers from Newark’s Gibbons, Del Deo, Dolan, Griffinger & Vecchione and Somerville’s Norris, McLaughlin & Marcus — represent the state Chamber of Commerce, the Chemistry Council of New Jersey, the New Jersey Fuel Merchants Association, the New Jersey Business and Industry Association, the American Petroleum Institute, and the New Jersey Society for Environmental, Economic Development. The trade organizations argue that the state’s Administrative Procedures Act was violated because the formulation of the old and new assessment plans constitutes rule-making, yet no rules were promulgated. Picco argues in the suit that the DEP cites no rule, regulation, statute or case law permitting it to set a method for the quantification of groundwater harm. Campbell counters that courts have long recognized the right of state agencies to develop ways to collect fines from lawbreakers, saying it’s a matter of enforcement discretion. As for the enhanced leverage of the new formula, Picco says it differs from the old one in three key ways. It allows the state to seek compensation for damages more than 30 years old, it uses measurement methods that widen the underground contamination plume and it permits the state to take inflation into account when assessing money damages. In many instances, though, the DEP plan calls for the companies to compensate the state by restoring natural resources, such as repairing an aquifer or restocking a stream. As for the association’s “shakedown” charge over the use of two standards, Campbell says, “It’s well-settled in culture and in practice that compromising on claims is allowed when parties are willing to settle.” On the question of Kanner’s contingency contract, the suit says the arrangement “taints” his impartiality and neutrality, therefore violating the American Bar Association’s Code of Professional Responsibility, Canon 7-14. It also violates the state Supreme Court’s Advisory Committee on Professional Ethics Opinion 233, barring a practice that invites doubt or distrust of the court system’s integrity. Picco’s suit adds that Kanner’s contract includes no checks and balances to prevent him from “lining his pockets.” And Picco cites several state and federal cases that block certain contingency arrangements. In essence, Kanner is as “an arm of the attorney general” who hired him and that is tantamount to being a public attorney who has to meet a high standard of neutrality, the suit says. Campbell scoffs at that notion, saying the attorney general’s office has total control over Kanner, who cannot sue, sign a settlement, or create a new formula or strategy without approval from Attorney General Peter Harvey. Campbell also points to a 2000 Appellate Division case, New Jersey Site Remediation v. New Jersey DEP, A-5272-97T3, which rejected an industry challenge to the pursuit of natural resource damage compensation. The commissioner also argues that the industry pushed for revisions before the Legislature in 2001 when the statute of limitations was extended. “Their lobbyists were denied then, as they were in court in 1998,” the Site Remediation case that went to the appeals court in 2000. But Picco counters that his clients have never disputed the state’s right to pursue its natural resource damages program, only the DEP’s process. In an interview, he said: “We are not arguing that they don’t have a right to do it, but only how they did it, which we think is unconscionable.”

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