Past NRD Cases Highlight Vulnerability of Future Claims

The New Jersey Department of Environmental Protection (“NJDEP”) filed three lawsuits seeking Natural Resource Damages (“NRD”) in August 2018.  In these lawsuits, which are NJDEP’s first in eight years, NJDEP is seeking damages for injury to groundwater, sediments, surface water, wetlands and biota.  Given the amount of time that has passed since the last NRD case was filed by the State, a review of where we left off may be helpful to understand the hurdles NJDEP will continue to face with respect to NRD and the defenses that potentially responsible parties may assert when presented with an NRD claim.

As an initial matter, an NRD claim can consist of both restoration and compensatory damages.  Restoration costs are those incurred to restore, rehabilitate, or replace a damaged resource.  Compensatory damages include the value of the services lost during the time it takes to restore or replace the damaged resource.  With respect to any NRD claim, restoration and compensatory damages must be reasonably calculated.  At the federal level, there are regulations setting forth an assessment process for calculating NRD; but NJDEP never has promulgated similar rules, although encouraged to do so by New Jersey courts.  In the past, the lack of regulations to calculate NRD has impaired NJDEP’s ability to recover NRD and may continue to do so into the future.

Although NJDEP has not adopted regulations to calculate NRD, with respect to its earlier NRD claims, NJDEP did develop a formula to calculate damages for injury to groundwater.  The formula was used primarily as a basis for settlement discussions with potentially responsible parties.  In NJDEP v. Exxon, Mer-L-2933-02 (Law Div. Aug. 24, 2007), when NJDEP attempted to use the formula in litigation, the court rejected it.  The court held that because NJDEP did not adopt rules setting forth how to calculate NRD, it was required to prove each element of any calculation used to determine its damages.  After reviewing NJDEP’s groundwater formula,  the court found that the formula did not support NJDEP’s claimed damages.  This case, however, did not prompt NJDEP to promulgate NRD rules and, as such, NJDEP will continue to face challenges on each aspect of its NRD calculation. 

In two subsequent cases, NJDEP attempted to recover restoration costs from potentially responsible parties that were remediating the sites at issue.  In NJDEP v. Essex, 2012 WL 913042 (N.J. Sup. Ct., App. Div., March 20, 2012), and NJDEP v. Union Carbide Corp., Mid-L-5632-07 (N.J. Sup. Ct., Law Div., March 29, 2011), NJDEP was seeking to have the potentially responsible parties conduct additional remedial work at a substantial cost to the parties in order to expedite the remediation.  The courts in both cases found that NJDEP could not justify the additional costs because the parties already were cleaning up the sites.  The courts stated that in order for NJDEP to recover NRD in these cases it must demonstrate that there is a threat to human health, flora or fauna that is not being addressed by the remediation.  NJDEP could not meet this burden in either case.  The holdings in Essex and Union Carbide provide potential arguments to combat NRD restoration claims at sites that are being remediated.   

Conversely, the court in NJDEP v. Amerada Hess Corp., 323 F.R.D. 213 (D.N.J. 2017), allowed NJDEP to recover NRD at a site that was being remediated.  The court distinguished Essex and Union Carbide by explaining that the remediation in Essex and Union Carbide would reduce the contaminants of concern to their practical quantitation level, which would result in the contamination being at its lowest quantifiable limit, essentially restoring the site to pre-discharge conditions.  In Amerada Hess, however, the court found that the remediation would not reduce the contamination to the lowest measurable level, and therefore, NJDEP could require additional remediation to address NRD. As evidenced by the Amerada Hess case, the contaminant of concern at the site and the limits reached by the remediation may drive whether NJDEP can recover NRD for restoration.

NJDEP also has faced difficulties when seeking compensatory damages  In fact, in Essex, NJDEP wanted Essex to purchase and preserve land to compensate for the damaged groundwater at the Essex site.  The court found that requiring Essex to purchase this land would result in a windfall to NJDEP because its preservation would protect not only groundwater, the damaged resource, but also flora and fauna found on the newly acquired property.  Further, in other cases involving compensatory damage claims, NJDEP was unable to support its damages with expert testimony.  Given that there are no regulations on how to calculate compensatory damages, which is difficult to do, potentially responsible parties may be able to defeat claims for such damages by providing proper challenges to the NJDEP’s compensatory approaches or experts.

As briefly described above, a look back at earlier cases and claims by NJDEP involving NRD may assist potentially responsible parties in formulating defenses to new NRD claims.  Until NJDEP promulgates regulations regarding NRD, and possibly even after, NRD calculations and claims will remain vulnerable to challenge.

For more information, please contact the author Laurie J. Sands at lsands@riker.com or any attorney in our Environmental Practice Group.