Riker Danzig Environmental UPDATE September 2018

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Riker Danzig Environmental UPDATE September 2018
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Riker Danzig Environmental UPDATE September 2018
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There is a New Sheriff in Town – State Files Six New Environmental Enforcement Cases

Touting it as the “largest single-day environmental enforcement action in New Jersey in at least a decade,” the State on August 1, 2018 filed six lawsuits seeking to recover cleanup costs, three of which also seek recovery of natural resource damages (“NRD”). The dramatic announcement yesterday left no doubt that the Murphy Administration’s approach to environmental enforcement will be markedly different than the essentially non-existent enforcement under the Christie Administration. As the administration considers pursuing other cases, many parties involved with environmentally impaired property should be aware of the new enforcement initiative and renewed efforts to obtain NRD. These parties may not realize that they have potential liability for NRD even after active remediation is completed.

The message from the State industry is clear: “If you pollute our natural resources, we are going to make you pay.” The view held by the new administration is that companies have failed to act responsibly and as a result have endangered the environment and health of the citizens of New Jersey. Accordingly, the State will hold polluters responsible, which it is seeking to do through robust enforcement.

As noted above, of the six lawsuits filed, three include claims for NRD. According to the Attorney General, the State did not file a single NRD case during the Christie Administration. It will be interesting to see how the State will handle valuation of its NRD claims in these new cases, especially in the wake of the criticism it received in the recent settlement of its case against ExxonMobil. In that case, the State initially valued its claim at approximately $9 billion, but ultimately agreed to settle the lawsuit for approximately $225 million. Moreover, to date, the New Jersey Department of Environmental Protection (“NJDEP”) has not been successful in litigating NRD claims because it has not been able to appropriately support its valuation calculations. While NJDEP had committed to adopting regulations on how to value resources for damages calculations, it has not yet done so. Accordingly, NJDEP has been defending its calculations on an ad hoc basis and has not yet been able to establish that the value it seeks is commensurate with the loss or impairment of the injured resource.

Parties that are remediating sites need to be aware that NRD liability will not be resolved automatically through remediation. In fact, recent practice has been to reserve the ability of the State to seek NRD. The Response Action Outcome issued by a Licensed Site Remediation Professional expressly states that NRD liability is not resolved. Very few parties who are remediating their sites are thinking about resolving NRD, although it may be more efficient and economical to resolve NRD through restoration during remediation rather than waiting for the State to seek to recover compensatory NRD. Although remediation does not protect against NRD liability, potentially responsible parties are not without hope as there are a number of potential defenses to NRD claims that should be evaluated (including statute of limitations and valuation defenses).

All parties involved with environmentally impaired property, including owners, operators, developers, lenders and others remediating sites, need to be aware of the State’s new enforcement perspective as well as the renewed focus on NRD as these will likely play a role in resolving liability under the new administration.


NJDEP Adopts Amendments to Site Remediation Rules and Initiates New Program for Remediation of

"Heating Oil Tank Systems"

Contaminated site remediation projects in New Jersey are governed by an assemblage of rules and regulations that implement the State’s environmental statutes. On August 16, 2018, the NJDEP adopted amendments to a number of these rules. While the NJDEP has characterized the amendments as changes that will clarify the rules and further streamline the implementation of the site remediation program, there are a number of noteworthy revisions that modify existing remediation obligations and procedures. In addition, the NJDEP adopted new regulations that address discharges from a category of heating oil tanks identified collectively as “heating oil tank systems (“HOTS”).” Although the specific changes are numerous, below is a listing of the more significant rule changes. If you are involved in the investigation or remediation of a contaminated property, you should review the amendments to determine whether these changes affect your site.

Discharges of Petroleum and Other Hazardous Substances, N.J.A.C. 7:1E (the “Discharge Rules”)

The existing rules required “major facilities” (i.e., facilities that store a certain amount of hazardous substances) to address discharges in accordance with both the facility’s discharge cleanup and removal (“DCR”) plan and the Administrative Requirements for the Remediation of Contaminated Sites, N.J.A.C. 7:26C (“ARRCS”), which require the retention of a licensed site remediation professional (“LSRP”) to oversee the remediation. The NJDEP revised the Discharge Rules to give the facility the option to address the discharge either under the DCR plan or ARRCS. See N.J.A.C. 7:1E-5.7(a)2. The NJDEP, however, has reserved the right to order the facility to hire a Licensed Site Remediation Professional (“LSRP”) to conduct the remediation in the event the DCR plan is not sufficient to address the discharge.

New Jersey Pollutant Discharge Elimination System Rules, N.J.A.C. 7:14A (the “NJPDES Rules”)

Under the NJPDES Rules, certain discharges to groundwater that result from site remediation activities (e.g., discharges associated with sampling or to implement remediation) are authorized under a permit-by-rule, and therefore, do not require an individual permit. The NJDEP revised the NJPDES Rules to more clearly list the activities that are eligible for a permit-by-rule and identify the process for obtaining the NJDEP’s written approval for such a discharge. See N.J.A.C. 7:14A-7.5(a). The NJDEP also has added a requirement that dischargers stop any negative impacts caused by the discharge to groundwater and remediate those impacts in accordance with the applicable site remediation requirements. See N.J.A.C. 7: 14A-7.5(f).

Underground Storage Tank Rules, N.J.A.C. 7: 14B (the “UST Rules”)

The NJDEP revised the UST Rules to clarify that even if the site investigation of a suspected discharge from a UST demonstrates that no further action is required, an LSRP must still issue a response action outcome (“RAO”) to close the UST case. See N.J.A.C. 7:14B-7.2(c).

Industrial Site Recovery Act Rules, N.J.A.C. 7:26B (the “ISRA Rules”)

Administrative Requirements for the Remediation of Contaminated Sites, N.J.A.C. 7:26C (“ARRCS”)

1. The rules clarify that (1) the NJDEP does not need to be notified via the WARNDEP Hotline if the only discharge is historic fill, and (2) owners or operators of USTs only need to notify the NJDEP via the Hotline if a discharge is confirmed, not when a discharge is merely suspected. See N.J.A.C. 7:26C-1.7 (c) and (d).

2. The timing for providing public notice has been changed to 14 days prior to commencing field activities associated with the remedial investigation (as opposed to the remedial action) and proof of public notice must be submitted to the NJDEP within 14 days after providing public notice (as opposed to being required to provide the proof with the next remedial phase report). See N.J.A.C. 7:26C-1.7(g) and (h).

1. The revised rules clarify that any person may establish FA on behalf of a responsible party; the rules previously only mentioned RFS. See N.J.A.C. 7:26C-5.2(i).

2. The trustee of a remediation trust fund cannot be the PRCR. See N.J.A.C. 7:26C-5.4(a)1.

3. A self-guarantee may be supported with financials audited in compliance with International Standards on Audits. See N.J.A.C. 7:26C-5.8(a)4.

4. If an engineering control is no longer needed at a site, the FA will not be released by the NJDEP until a RAP modification or termination is issued by the NJDEP. See N.J.A.C. 7:26C-5.11(e)2.

1. The addition of an “indeterminate” CEA and “virtual RAP” for historically applied pesticides (“HAP”), giving HAP the same treatment as historic fill when it impacts groundwater. See N.J.A.C. 7:26C-7.3(h).

2. Changes to the Model Deed Notice to clarify that temporary disturbances to an engineering control do not require notice to the NJDEP or a modification to the RAP and that permanent alteration, improvement or disturbance of an engineering control is subject to a new process that requires (1) termination of the existing deed notice, (2) recording of a new deed notice and exhibits, (3) application for a RAP modification or termination, and (4) a remedial action report. See N.J.A.C. 7:26C Appendix B.

3. In the event of a subdivision of a site, a permittee now must within 30 days of municipal subdivision approval, request termination of the existing RAP and Deed Notice, record a new Deed Notice for each subdivided parcel and apply for a new RAP. See N.J.A.C. 7:26C-7.2(d). In addition, the NJDEP no longer requires a RAP modification when a municipality revises Block and Lot designations for a site or when the permittee changes its address, but the permittee is required to notify the NJDEP of these changes no later than the due date for the next remedial action protectiveness certification. See N.J.A.C. 7:26-7.7(a).

Technical Requirements for Site Remediation, N.J.A.C. 7:26E (the “Tech Regs.”)

Heating Oil Tank Systems Rules, N.J.A.C. 7:26F (“HOTS Rules”)

The NJDEP has adopted new regulations to address the closure and remediation of discharges from HOTS. HOTS include “residential aboveground heating oil tank systems,” “small aboveground non-residential heating oil tank systems” and “unregulated heating oil tank systems,” which are underground storage tank systems that are not otherwise regulated under the UST Rules. Since the majority of HOTS are owned by homeowners, the NJDEP thought it helpful to consolidate the rules relating to closure and discharges from these systems in one location. Owners or operators of HOTS may use a certified subsurface evaluator or an LSRP to address discharges (which must be hired within two business days after discovery of a discharge), and upon completion of any required remediation, the NJDEP will issue a No Further Action Letter (“NFA”). One particularly unique aspect of this new program is that under certain circumstances it allows residual soil contamination to remain at a residential property under a HOTS Deed Notice (which is different than a traditional Deed Notice) and does not require a RAP. A residential owner also may have the option of dealing with residual soil contamination by utilizing a “small quantity exemption” that allows the residential owner to leave less than 15 cubic yards of residual contamination under a residential building when excavation or treatment is impeded or impracticable. Notably, however, recording a HOTS Deed Notice or using a “small quantity exemption” memorializes the existence of the contamination, which could affect the value of the property.

Conclusion

Given the breadth of these amendments, anyone conducting or overseeing an investigation or remediation at a contaminated site should review these changes. In addition, more changes are on the horizon as stakeholders have been engaged with the NJDEP and Senator Bob Smith, Chairman of the Senate Environment and Energy Committee, to identify additional changes to improve the site remediation program, under an initiative commonly referred to as SRRA 2.0. Our environmental attorneys are engaged in this stakeholder process and can keep you informed of the latest developments in the SRRA 2.0 discussions.


The ExxonMobil NRD Settlement: Beyond the Headlines

The litigation between the State of New Jersey and ExxonMobil over natural resource damages allegedly caused by former Exxon oil refineries in Bayonne and Linden appears to have come to a close earlier this year when the New Jersey Supreme Court rejected petitions filed by third parties challenging the State’s settlement of its claims against Exxon. In particular, the State’s decision to settle after trial for $225 million—where the State had previously claimed damages of $8.9 billion—led to several challenges to the settlement. Although the public attention surrounding the settlement focused on the large sums at stake and the attendant political controversy, the Appellate Division’s February decision approving the settlement, NJDEP v. ExxonMobil Corp., 453 N.J. Super. 272 (App. Div. 2018), set important precedents in New Jersey environmental law that will outlast the current controversy. First, the Appellate Division found that one of the objectors lacked standing to challenge the settlement, a rare result in a state that has allowed liberal access to the courts to redress environmental grievances. Second, the Appellate Division also issued the first binding legal precedent in New Jersey setting forth a standard for courts to evaluate and either approve or reject the State’s settlement of claims under the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq. (the “Spill Act”).

New Jersey courts rarely reject challenges to the State’s actions as an environmental regulator on the basis that the challenger, usually an environmental group, lacks a sufficient stake in the controversy, a legal concept referred to as “standing.” This liberal view of standing in New Jersey is in contrast to the restrictive approach of the federal courts, which has increasingly denied access to the federal courts to those challenging government actions. ExxonMobil, however, is a rare case where New Jersey courts held that a challenger lacked such access.

Among the parties challenging the ExxonMobil settlement were environmental groups, such as the Sierra Club and the Delaware Riverkeeper Network, and former New Jersey State Senator Raymond Lesniak. The Court held that the environmental groups had standing to challenge the settlement, but that Senator Lesniak did not. In a brief discussion, the Court concluded that Senator Lesniak did not have a sufficient “personal or pecuniary interest or property right adversely affected” by the allegedly inadequate settlement, but that the environmental groups had standing based on “their broad representation of citizen interests throughout this state.” The justification for the disparate treatment is unclear. Senator Lesniak represented the legislative district that includes the Linden refinery for decades and he lives in Elizabeth, near the Linden refinery, which would seem to qualify as the “slight additional private interest” that confers standing in cases of great public interest. The somewhat cryptic discussion of standing in ExxonMobil awaits development in future cases that could more clearly elucidate a standard for determining whether challengers have standing. It seems clear based on ExxonMobil, however, that environmental groups with a broad-based, geographically dispersed membership are more likely than an individual or a small group of people from a discrete geographical area to have standing in future similar cases.

The ExxonMobil decision also made new law for New Jersey on the substantive issue of whether the court should have upheld the terms of the settlement the State entered into with ExxonMobil. Perhaps not surprisingly, the Law Division and then Appellate Division in ExxonMobil adopted the same standard that federal courts long have used to evaluate CERCLA consent decrees: whether the proposed settlement is fair, reasonable, consistent with the goals of the statute, and in the public interest. Although the State had advocated unsuccessfully before the trial court for an even more deferential standard that would uphold its settlements absent clear and convincing evidence of fraud, federal trial courts usually have deferred to the agency defending the settlement and approved contested settlements under the standard the Supreme Court adopted. For example, the Law Division in ExxonMobil detailed the numerous litigation risks the State faced to conclude that the settlement amount was reasonable; although objectors criticized the amount as “pennies on the dollar” for the State’s claimed damages, these litigation uncertainties meant that the State might have recovered far less than $225 million if the litigation had continued. These settlements become even more difficult to reverse on appeal, as they are “encased in a double layer of swaddling” because of the deference given to both the agency’s expertise and the evaluation of the trial court, whose decision will be upheld unless it abused its discretion.

Court review of a State settlement of Spill Act litigation is less likely to recur in the context of environmental groups’ objections to the settlement, as these cases typically do not attract the public scrutiny given to the case against ExxonMobil. Rather, ExxonMobil’s standard for reviewing settlements will be important in cases where the State brings claims against multiple defendants for contributing to the same environmental harm. This is because the Spill Act provides contribution protection to settling defendants, which may leave the jointly and severally liable non-settling defendants to bear more than their proportionate share of the liability. Thus, in the more typical situation, other defendants, rather than members of the public, challenge the settlement on the basis that the settling party will bear an unfairly low share of the cost of remediation or natural resource damages. The ExxonMobil standard could make it rather difficult for non-settling parties to overturn future settlements that they believe are too low.

The legal principles the courts applied in approving the ExxonMobil settlement will likely outlast today’s headlines. This decision may make it more difficult for objectors to challenge the State’s actions as an environmental regulator, and will provide the standard for evaluating the State’s settlement of complex Spill Act litigation. 


Storm Water Runoff Courses Into an Expanding Gap in CGL Insurance Policies

New case law suggests that environmental policies may be needed to fill widening gaps in the primary insurance held by most businesses (i.e., Commercial General Liability (“CGL”) policies). CGL policies typically contain a “pollution exclusion” that excludes coverage for losses relating to “pollutants,” and the definition of pollutants in standard CGL policies is extremely broad. In fact, a federal court of appeals recently held that storm water runoff qualifies as a pollutant, and, thus, no coverage exists under a CGL policy for damage relating to such runoff. While certain jurisdictions, including New Jersey, may interpret this exclusion more narrowly, businesses should carefully consider their insurance portfolios to ensure they have appropriate coverage for their operations.

As noted, the United States Court of Appeals for the Eleventh Circuit determined a few months ago that storm water is subject to the pollution exclusion contained in CGL policies. Centro Dev. Corp. v. Central Mutual Ins. Co., 720 Fed. Appx. 1004 (11th Cir. 2018). The pollution exclusion at issue defined pollutant as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, soot, fumes, acids, alkalis, chemicals and waste.” In reaching its decision, the Eleventh Circuit referred to a prior decision in which it found that storm water qualified as a pollutant under the exact same language. The circuit court also considered that, under the Clean Water Act “[w]hen rain water flows from a site where land disturbing activities have been conducted, such as grading and clearing,” it qualifies as a pollutant. Hughey v. JMS Dev. Corp., 78 F.3d 1523, 1525 n.1 (11th Cir. 1996). As a result, the CGL policy did not provide coverage for the damage from the storm water runoff.

While many courts across the country are likely to reach a similar conclusion, see, e.g., Devcon Int’l Corp. v. Reliance Ins. Co., 609 F.3d 214 (3d Cir. 2010) (finding that CGL policy excluded coverage relating to dust and fumes from a construction site), it is not clear whether more policy-holder friendly jurisdictions would reach the same result. For instance, the Supreme Court of New Jersey, which generally tends to be more protective of policy holders than other jurisdictions, has interpreted the pollution exclusion considered by the Eleventh Circuit as applying only to “injury or property damage arising from activity commonly thought of as traditional environmental pollution,” that is, those hazards that were historically thought of as “environmental catastrophe(s) related to intentional industrial pollution.” Nav-Its Inc. v. Selective Ins. Co., 183 N.J. 110, 124 (2005). Storm water runoff would not seem to be related to “intentional industrial pollution,” but there have been few cases applying this standard in New Jersey. In one recent case, the District Court of New Jersey applying New Jersey law determined after extended motion practice that a CGL policy did not provide coverage for cleanup of accumulated construction debris. Castoro & Co. v. Hartford Accident and Indem. Co., 2018 WL 3217409 (D.N.J. March 16, 2018). The accumulation of construction debris similarly does not seem tantamount to intentional industrial pollution, so New Jersey may, at least in this instance, be expanding the breadth of the pollution exclusion.

Nonetheless, these cases, and many others on this same topic, highlight a gap in CGL policies. Environmental insurance policies, e.g., Pollution Legal Liability policies, have traditionally been purchased in more limited instances when there are substantial environmental risks at play, but such policies may provide a broader range of coverages that apply to more every day risks, such as in the examples note above. In fact, Pollution Legal Liability policies often provide express coverage for “pollution conditions,” and this term generally is defined to include those items excluded as pollutants in a CGL policy. Businesses should carefully consider their insurance portfolios to determine whether their operations may trigger the pollution exclusion in their CGL policy such that additional environmental coverage is worthwhile.


EPA Proposes Shift in Clean Energy Policy

States are going to have a greater role in setting energy policy under the United States Environmental Protection Agency’s (“EPA”) proposed Affordable Clean Energy (“ACE”) Rule. EPA proposed the ACE Rule to replace the Obama Administration’s Clean Power Plan (“CPP”), which never took effect due to legal challenges. Unlike the CPP, where the EPA set standards and requirements for state plans, the newly proposed ACE Rule tasks the states with a larger role in pursuing clean power and addressing pollution from existing coal power plants, invoking mixed emotions from various sectors of the community.

Under the CPP, the prior policy, the EPA was intimately involved in regulating the energy sector and reshaping the grid and energy markets. The proposed ACE Rule reduces EPA’s command and control role and allows the states to set standards based on EPA guidelines. The Rule also provides states additional time and flexibility in developing energy efficiency plans and furnishes a list of technologies that states can use to establish performance standards rather than strict emission standards.

Critics of shifting energy policy from the EPA to the states argue that the states will be more vulnerable to the interests of fossil fuel groups, which could weaken standards and emission controls. Moreover, some believe offering existing technologies as performance standards instead of setting emission reductions will result in fewer advancements in new energy technologies.

Unlike the CPP that required the phase-out of coal fired power plants, the proposed ACE Rule would keep such plants operating but require them to become more efficient. It also promotes investments in clean coal plants. Although plans to increase efficiency at coal plants may lead to reductions in greenhouse gas emissions, it could result in increases in traditional pollutants, like soot. The EPA does not refute this potential outcome, but argues that such increases in pollutants can be addressed in other ways.

Moreover, as part of the proposed ACE Rule, the EPA is proposing to change the New Source Review (“NSR”) Permitting Program, which requires a permit when there is a “major modification” at a power plant. Coal power plant owners have argued that they have not pursued efficiency measures in fear of triggering the need for an NSR permit. The proposed change to the NSR permit program would allow plants to use hourly emission rate increases, instead of existing annual emission rate increases, to determine whether an NSR permit is needed. Arguably, this will allow the installation of efficiency projects without triggering the NSR permit requirements. Opponents of this change assert it provides a loophole that allows existing coal power plants to avoid installing potentially costly emission control equipment, even though many do not meet current emission standards and would not be required to do so without the NSR permit requirement. Even with these changes, it still may be difficult to determine when an NSR permit is necessary.

The EPA claims that the proposed ACE Rule will lead to more affordable energy bills, be less expensive than the CPP and obtain the same results as the CPP. Others disagree. It is anticipated that the proposed ACE Rule will be challenged in court, like the CPP. As such, it may continue to be some time before there is an implementable clean energy plan from the EPA.


Regulatory Update

New Jersey Continues to Pursue Policy of Environmental Justice

Governor Murphy’s administration previously issued Executive Order No. 23 (the “Order”) to require New Jersey agencies to consider the principle of environmental justice in implementing their responsibilities, and we are still waiting to see how it will impact New Jersey residents and businesses.

According to the Order, environmental justice seeks to address the disproportionately high impact of pollution and climate change on predominantly low-income communities and communities of color, and strives to ensure that all residents, regardless of their race, color, ethnicity or religion are able to live in pollution-free communities and participate in decisions affecting their community, homes, transportation and health. In order to accomplish the goals of environmental justice, the Order tasks the NJDEP with developing guidance that would allow other State agencies to incorporate the principle of environmental justice into their actions and decisions. Since the issuance of the Order on April 20, 2018, the NJDEP has collaborated with other State agencies and public and private stakeholders to begin to prepare the required guidance. It is anticipated that a draft will be available for review and comment in October 2018, and that a final guidance document will follow in January 2019.

It is not yet clear how the guidance will impact site remediation projects, but the principle of environmental justice suggests that its intersection with contaminated sites might lead to enhanced community involvement or more unrestricted cleanups in certain areas.

For additional information, please visit www.nj.gov/dep/ej.


New Jersey Legislative Update

Recently Enacted Environmental Laws

P.L. 2018, c.85: (S2646) Appropriates funds to NJDEP for environmental infrastructure projects for FY2019.

Recently Introduced Environmental Bills

AR33/AR251: Urges EPA to accelerate cleanup of 17-mile Lower Passaic River portion of Diamond Alkali Superfund site. Status: Introduced; Referred to Assembly Environment and Solid Waste Committee.

ACR85/SCR134: Proposed constitutional amendment to make State trustee of public natural resources and guarantee to the people other environmental rights. Status: Introduced; Referred to Assembly Agriculture and Natural Resources Committee.

AR168/SR85: Supports designation of Atlantic City as international center on global warming and climate change. Status: Introduced; Referred to Assembly Environment and Solid Waste Committee.

A2892/A2403: Provides purchasing preference to local and environmentally responsible businesses in awarding of State contracts. Status: Introduced; Referred to Assembly State and Local Government Committee.

A4092: Authorizes performance of supplemental environmental project to replace portion of monetary penalities for environmental violations in certain circumstances. Status: Introduced; Referred to Assembly Environment and Solid Waste Committee.