Riker Danzig Environmental UPDATE December 2018
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.
Lessons From NJDEP's Recent Enforcement Actions
The State of New Jersey ratcheted up its environmental enforcement activities earlier this year with the filing of six lawsuits seeking to recover environmental damages, as we previously reported in There Is A New Sheriff In Town – State Files Six New Environmental Enforcement Cases. While we wait for these lawsuits to move forward, one question remains: If “there is a lesson in everything,” as a wise man once said, what lessons are to be learned from the filing of these suits? The obvious lesson, and the one touted by the State, is: “If you pollute [New Jersey’s] natural resources, [the State is] going to make you pay.” However, further reflection suggests that there are other lessons to be learned.
Lesson #1: New Jersey Will Broadly Distribute its Remediation Resources
While we do not know for certain how the NJDEP chose the six sites involved in its recent lawsuits, it seems that the State made a conscious effort to select sites that are spread across New Jersey. One of the sites is situated in Atlantic County, two are situated in Middlesex County, two are situated in Essex County, and one is situated in Warren County. As Attorney General Grewal said at his press conference on the filing of the recent suits: “The truth is that environmental pollution affects us all, North and South, rural and urban, rich and poor.” This statement and the geographic distribution of the enforcement actions suggest that the State intends to clean up sites across New Jersey, and allocate its limited financial resources, without focusing on any specific region.
Lesson #2: New Jersey Prioritizes Sensitive Receptors
It also seems that the State focused its enforcement efforts on sites that impact sensitive receptors. At least four of the six new actions involve a sensitive resource or population. One action involves a former manufacturing facility in the Ironbound District of Newark, on which residential homes were subsequently built; a second involves another former manufacturing facility in the Ironbound, where a school was recently built; a third involves the former site of a manufactured gas plant near the Beach Thorofare waterway in Atlantic City; and a fourth involves a former petroleum refinery located on the Arthur Kill. While the NJDEP has long focused its publicly funded remediation efforts on the protection of receptors, these lawsuits suggests that the State will also use the threat of future litigation as a tool to promote remediation that protects sensitive resources and populations. Further, given that the State plans to file additional lawsuits, sites that impact sensitive receptors may be the next to receive a complaint.
Lesson #3: New Jersey May Impose Liability on an “Interim Owner”
In one of the recent lawsuits involving a former gas station in Fords, the State seeks to impose responsibility for historical contamination on an interim owner because it knew or should have known of contamination when it acquired the property and, therefore, did not qualify as an “innocent purchaser,” which is statutorily exempt from environmental liability. As discussed in another article, The Impending Expansion of Interim Owner Environmental Liability, New Jersey courts previously seem to agreed that an interim owner (i.e., an entity that purchased property after it was contaminated, did not cause or contribute to the contamination, and has since sold the property to a new owner) is exempt from liability for pre-existing contamination. See, e.g., White Oak Funding, Inc. v. Winning, 341 N.J. Super. 294, 300-01 (App. Div.), certif. denied 170 N.J. 209 (2001). In the recent lawsuit, the State does not allege that the interim owner caused or contributed to the contamination, but it does allege that the interim owner was unjustly enriched by the remediation of the property with public funds during the time it owned the property. If the State is successful in imposing liability on an interim owner because of its failure to qualify as an innocent purchaser, this will represent a significant expansion of liability under the New Jersey Spill Compensation and Control Act.
The regulated community will continue to look for lessons in the State’s ongoing environmental enforcement activities, and there are likely to be many lessons in the coming months, whether as a result of the progress of the above litigation or new lawsuits brought under Governor Phil Murphy’s aggressive environmental enforcement policy.
NJ Appellate Division Finds NJDEP Policy and Guidance Unenforceable
New Jersey courts will prevent regulators from enforcing requirements through guidance that have not been formally adopted through appropriate rulemaking. Just recently, the Appellate Division of the New Jersey Superior Court determined that the NJDEP wrongfully imposed penalties on a radon testing company for failing to comply with certain agency policies and guidance that had not been promulgated through the rulemaking process prescribed by the Administrative Procedure Act (“APA”). NJDEP v. Radiation Data Inc., Docket No. A-1777-17T3 (N.J. Super. Ct., App. Div. Nov. 2, 2018). This decision follows a line of cases, starting with the New Jersey Supreme Court’s seminal decision in Metromedia, Inc. v. Dir. Division of Taxation, 97 N.J. 313 (1984), wherein the courts set standards for when state administrative agencies are required to engage in formal rulemaking, which includes public notice and comment procedures, before imposing new requirements on the regulated community.
Radon is a colorless, odorless, radioactive gas that derives from the natural breakdown of uranium in soils and is recognized as the second leading cause of lung cancer in humans. Radon tests are often conducted in connection with real estate transactions, commonly as part of the home inspection process. Radiation Data Inc. (“RDI”), the defendant in this case, is the largest radon testing business in the State and has processed more than one million radon tests since its inception in 1987. The NJDEP Radon Section, which administers the State’s radon program, requires companies that test for and mitigate radon to be appropriately licensed and to use or employ certified measurement and mitigation professionals. Between 2009 and 2014, the NJDEP levied several penalties against RDI for alleged violations of the radon program’s rules.
A number of the violations alleged against RDI were related to radon tests performed by technicians that were “affiliated” with RDI, but were either self-employed or worked for home inspection businesses. RDI argued that it should not be held accountable for the actions of affiliate technicians that it does not employ, pay or control, particularly because the NJDEP had not formally adopted rules establishing and clarifying that the testing companies would be vicariously liable for the actions or noncompliance of affiliates. Additional violations alleged by NJDEP were related to RDI’s failure to comply with an agency “Guidance Document” that set forth certain, essentially mandatory requirements for quality assurance and control plans. Again, RDI argued that the requirements of the guidance were not enforceable because the Department had not engaged in formal rulemaking.
In Metromedia, the New Jersey Supreme Court set forth several factors that guide the analysis of whether formal rulemaking for a regulatory requirement is necessary, including for example, whether the requirement “prescribes a legal standard or directive that is not otherwise expressly provided by or clearly and obviously inferable from the enabling statute.” 97 N.J. at 331. Here, in Radiation Data, the Appellate Division found that the policies and guidance that the NJDEP was seeking to enforce met the Metromediatest and, therefore, agreed with RDI that the imposition of penalties was improper. The court found that the Radon Section’s “affiliate” policy is not expressed or readily inferable from the existing statutes or rules. With respect to the Guidance Document, the court found that it contained mandatory language and added regulatory requirements not found in the rules. The court “urged” the NJDEP to engage in prospective rulemaking to clarify its requirements consistent with the APA.
The use of substantive guidance in regulatory practice and by the NJDEP is rampant. The Radiation Data case demonstrates that the courts will require state regulators to adhere to the APA and will not enforce penalties for violations of regulatory requirements that were not appropriately promulgated. In light of Radiation Data, and the pervasive use of guidance in environmental programs, the regulated community should be reminded that NJDEP guidance and internal policies may not have the force of law, especially if they include requirements that should have been adopted through formal rulemaking in accordance with Metromedia and the APA.
New Jersey Takes the Lead in Setting Drinking Water Standard for PFNA
The New Jersey Department of Environmental Protection (“NJDEP”) continues to take action on emerging contaminants, and, as of September 4th, adopted a maximum contaminant level (“MCL”) for perflourononanoic acid (“PFNA”) in drinking water. PFNA is not regulated at the federal level, and New Jersey is the first state to set an enforceable standard for PFNA in drinking water. The new MCL is 0.013 micrograms per liter, that is, 13 parts per trillion, an extraordinarily low level. MCLs for other substances are measured in the parts per billion, so, for example, the new MCL for PFNA is nearly one hundred times lower than the MCL for benzene, which is one part per billion. If water systems detect the presence of this previously unregulated chemical above the very low new MCL, they will be required to implement new treatment—at the steep cost of $500,000 to $1 million per million gallons of water treated per NJDEP’s estimate—or find alternate water supplies. In addition, testing water supplies for PFNA on a statewide basis, as compared to earlier sporadic efforts to detect PFNA, could unearth previously unknown sources of PFNA contamination that would have to be remediated under New Jersey’s site remediation program.
PFNA is one member of a class of chemicals called per- and polyflouroalkyl substances (“PFAS”) that have been used in numerous industrial applications and in consumer products for decades, but that have come under increasing regulatory scrutiny in recent years. PFNA in particular was used in the manufacture of high-performance plastics. PFAS resist natural degradation when released into the environment and remain in the body after being consumed; studies also have linked certain PFAS to various health risks, including cancer. Because of these health risks and the persistence of PFNA in the environment, earlier this year NJDEP listed PFNA as a “hazardous substance” under its regulations promulgating the Spill Compensation and Control Act. PFNA in groundwater now must be remediated when its concentration exceeds 13 parts per trillion as a consequence of the hazardous substance listing.
Under NJDEP’s new MCL rule, water systems will need to start testing for PFNA as soon as the first quarter of 2019. Smaller water systems must test for PFNA first. The PFNA testing requirement is triggered in 2019 for public water systems that use groundwater as their source and that serve less than 10,000 people, as well as water systems that do not serve the general public in their homes, such as a water system supplying a commercial building. For water systems using surface water or larger water systems using groundwater, the requirement is not triggered until 2020.
Because PFNA was not listed as a hazardous substance until this year, parties remediating contaminated sites typically have not investigated for PFNA. Parties responsible for PFNA found in drinking water will be exposed to claims not only for the costs of treating drinking water found to be contaminated, but also will be required to remediate the source of PFNA contamination, whether that source is a site already subject to remediation for other hazardous substances or a site that heretofore was not known to be contaminated. NJDEP optimistically predicted that the new PFNA testing regime would not disclose water systems impacted by PFNA beyond the thirteen water systems now known to be impacted based on earlier, piecemeal testing efforts. Several commenters on the proposed rule doubted NJDEP’s assessment before the MCL was adopted and predicted that currently unknown contamination will be discovered.
The immediate consequence of New Jersey’s first-in-the-nation MCL for PFNA is to impose new testing requirements and, potentially, costly treatment obligations on water systems. In the long term, testing drinking water for PFNA may uncover contamination that has long remained hidden. NJDEP also can be expected to establish MCLs for other PFAS compounds in the future if current trends continue.
Governor Murphy Joins Wind and Solar Energy Coalition
Governor Phil Murphy is now the newest member of the Governors’ Wind & Solar Energy Coalition (the “Coalition”), which is a bipartisan group of the nation’s governors who are dedicated to the development of wind and solar energy resources. Montana Governor and Chairman of the Coalition, Steve Bullock, praised Governor Murphy upon his entrance into the Coalition: “It’s an honor to have Governor Murphy as a Coalition member. Governor Murphy already has an extraordinary record of accomplishment. Within weeks of taking office, he took action to develop New Jersey’s vast offshore wind energy resources — steps that will provide decades of economic development and emissions free energy to the Garden State.” Governor Bullock’s remarks acknowledge that Governor Murphy has pledged to achieve 3,300MW of offshore wind generation by 2030. The expansion of the off-shore wind sector is expected to create thousands of jobs, generating hundreds of millions of dollars in wages in areas such as research and development, manufacturing, engineering and marine construction.
For more information please visit www.nj.gov.
New Jersey May Soon Provide New Tax Credits and Loans for Brownfields Redevelopment
To accomplish his vision for a stronger and fairer economy in New Jersey, Governor Phil Murphy released a report in October 2018 introducing a newly proposed economic plan. Among other things, the plan calls for a reimagining of New Jersey’s Brownfields Program, which has provided grants and loans for the remediation and redevelopment of the brownfields within the state. The newly proposed Brownfields Program is expected to include tax credits and loans available through the New Jersey Economic Development Authority, and is intended to be a more robust investment program, paying particular attention to a more timely remediation of the contaminated sites involved. The plan also relies on the Federal Opportunity Zone Program to attract private investment into distressed neighborhoods, which often include brownfields, through preferential tax treatment for investors. Implementation of Governor Murphy’s plan will require legislative action.
For more information, please visit www.nj.gov.
New Jersey Legislative Update
Recently Enacted Environmental Laws
P.L. 2018, c.137: (S2921) Corrects project list in P.L2018., C.85, which appropriates funds to NJDEP for environmental infrastructure projects.
Recently Introduced Environmental Bills
A4417/S3013: Revises 2050 limit on statewide greenhouse gas emissions. Status: Introduced; Referred to Assembly Environment and Solid Waste Committee. Reported out of Assembly Committee, passed second reading.
S2476/A494: Amends law to limit NJDEP’s direct oversight of remediation of portion of contaminated site under certain circumstances. Status: Introduced to Senate Environment and Energy Committee. Reported from Senate Budget and Appropriations Committee with Amendments, second reading.