In August, the Supreme Court of New Jersey upheld the New Jersey Department of Environmental Protection’s (“NJDEP” or the “Department”) interpretation of a Highlands Act exemption for public utility construction projects in its decision in In the Matter of Proposed Construction of Compressor Station (CS327).  The Supreme Court’s decision permitted a $100 million expansion of a Tennessee Gas interstate natural gas pipeline to proceed in the Highlands and overruled the contrary statutory interpretation of the Appellate Division, which last year had overturned DEP’s decision to approve the Tennessee Gas project.  In the Matter of Proposed Construction of Compressor Station (CS327), 476 N.J. Super. 556 (App. Div. 2023).

Compressor Station presented an opportunity for the Court to weigh in on a legal issue that captured the public’s attention earlier this summer following the decision of the U.S. Supreme Court in Loper Bright Enterprises v. Raimondo:  how federal courts should review administrative agencies’ interpretations of statutes.  Loper Bright notoriously overruled the longstanding doctrine of Chevron deference and generated a burst of intense public interest in this arcane but important topic because of the Court’s perceived attack on the foundations of the administrative state.  Under Chevron, federal reviewing courts were required to uphold agencies’ reasonable interpretations of ambiguous statutes they administered.  Loper Bright jettisoned this deferential standard of review, directed reviewing courts to use their “independent judgment” in interpreting statutes, and held that federal courts “may not defer to an agency interpretation of the law simply because a statute is ambiguous.”

New Jersey courts are not bound by Loper Bright when reviewing state agency actions under the state Administrative Procedure Act because the decision rested on the language of the federal Administrative Procedure Act.  The Appellate Division’s decision in Compressor Station teed up for our Supreme Court the question of whether New Jersey courts will follow a deferential, Chevron-like approach to reviewing agency action or the more recent skeptical view expressed in Loper Bright.  The New Jersey Supreme Court, however, did not reach this issue in rendering its decision, and it remains to be seen what, if any, impact Loper Bright will have on the review of agency action by New Jersey state courts.

The controversy in Compressor Station arose from NJDEP’s issuance of a Highlands Applicability Determination (“HAD”) to Tennessee Gas for its proposed new compressor station to be constructed on the site of an abandoned quarry in the Highlands Area along the right-of-way of Tennessee Gas’ existing pipeline.  Tennessee Gas contended, and the Department agreed, that the project qualified for “Exemption 11” under the Highlands Act and thus was not required to undergo further review under the Act.  Exemption 11 exempts from Highlands review

the routine maintenance and operations, rehabilitation, preservation, reconstruction, repair, or upgrade of public utility lines, rights of way, or systems, by a public utility, provided that the activity is consistent with the goals and purposes of this act.

N.J.S.A. 13:20-28(a)(11).  NJDEP found that the proposed compressor station qualified as an “upgrade” of a public utility.  The Department also relied on the Highlands Council’s determination that the project is consistent with the goals and purposes of the Highlands Act because it would be constructed on the historically disturbed former quarry property that is not connected to critical wildlife habitat areas.

Food and Water Watch, an environmental nonprofit group opposed to the use of fossil fuels, appealed NJDEP’s HAD to the Appellate Division.  It argued that NJDEP erred because Exemption 11 only applies to routine upgrades of public utilities and the Department had not determined whether the substantial proposed compressor station project is “routine.”  Thus, the Appellate Division and ultimately the Supreme Court were called upon to determine whether the word “routine” in the Exemption 11 statute modifies only “maintenance and operations,” as NJDEP and Tennessee Gas argued in support of the HAD, or whether it modifies every activity in the list, including “upgrade,” as Food and Water Watch contended.  The two courts reached starkly different conclusions.

The Appellate Division held that “routine” modifies “upgrade” and reversed NJDEP’s HAD.  The court found that the statutory language of Exemption 11 is ambiguous.  Having found ambiguity, the court then “turn[ed] to extrinsic aids to effectuate the legislative intent in light of the language used and the objects sought to be achieved.”  Although the Appellate Division preferred the challenger’s textual analysis, it declined to give determinative weight to “the Legislature’s choice of a comma over a semicolon.”  Rather, the court focused on two principles: (1) that exceptions to a comprehensive statutory scheme should be strictly construed, and (2) that courts should effectuate “the legislative plan … in full light of [the statute’s] history, purpose, and context.”  In the view of the Appellate Division, each of these favored the challenger’s interpretation of the statute.   Applying the first factor, the court favored the narrower interpretation of the exemption to apply only to “routine” upgrades, not all upgrades.  The purpose of the Highlands Act to preserve natural resources and restrict development, especially in the more strictly controlled “preservation area” in which the proposed project was to  be located, also led the Appellate Division to narrowly construe Exemption 11 so that a public utility upgrade must be routine to be exempt.

The Appellate Division’s approach to interpreting an ambiguous statute in Compressor Station was quite different than the approach a federal court would have followed under Chevron.  (Loper Bright had not yet overruled Chevron at the time the Appellate Division decided the case in 2023.)  That is, Chevron required courts to defer to an agency’s interpretation of an ambiguous statute; the Appellate Division’s review of NJDEP’s interpretation was decidedly undeferential, however, as the court wielded its interpretation of the purpose of the Highlands Act to reject  the Department’s reading of the ambiguous statute.  Indeed, the Appellate Division’s purposive method of statutory interpretation likely would lead it to reject any ambiguous agency interpretation that is insufficiently “anti-development” based on its expressed principles of statutory construction and the important preservation goal of the Act.

The Supreme Court’s unanimous opinion reversed the Appellate Division but without affirming or rejecting the lower court’s approach to reviewing agency construction of ambiguous statutes.  That is, the Supreme Court held that Exemption 11 is not ambiguous and that NJDEP’s interpretation was correct:  “routine” does not modify “upgrade” or any other term in the list except “maintenance and operations.”  The Court distinguished “maintenance and operations” from the other listed activities in Exemption 11—“rehabilitation, preservation, reconstruction, repair, or upgrade”—because maintenance and operations are activities undertaken on a periodic or routine basis, whereas the other activities, such as reconstructions or upgrades, would be conducted on an as needed basis in response to some external event triggering a need for reconstruction or an upgrade.  Thus, the Supreme Court believed it would be a misnomer to describe an upgrade as “routine,” and it held that the Appellate Division’s construction of the statute was wrong.

After Compressor Station, the effect of Loper Bright on state-level judicial review of New Jersey state agency administrative action remains unsettled.  The New Jersey Supreme Court in August did cite Loper Bright somewhat favorably in a footnote in Board of Education v. M.N., but it also noted that the decision of the U.S. Supreme Court “is not binding on this Court.”  The Court’s holding in that case  --   that New Jersey courts are not required to defer to state agency interpretations of federal regulations  --  provides some indication that the Court is not inclined to require deference to agencies, but this footnote discussion hardly is determinative.  Loper Bright has not caused a sea change in how courts of other states approach judicial review of state agency interpretation of statutes in the limited number of cases that have cited Loper Bright since June.  Appeals courts in Vermont and the District of Columbia reserved judgment on the effect of Loper Bright on their state and district laws, respectively; Indiana’s intermediate appellate court held that it was still bound by state supreme court precedent applying Chevron-type review, but noted that new state legislation effective in July 2024 overruled that state supreme court precedent for new cases filed after that date; appellate judges in Georgia and Louisiana issued ideologically-motivated concurrences urging their states to adopt Loper Bright’s no-deference framework, but these lone concurrences did not become law; and a Wisconsin appeals court noted that that state’s supreme court had overruled a state-level Chevron-like precedent even before Loper Bright was decided.

New Jersey courts may continue to follow their own path, like these other state courts, even if our courts eventually acknowledge the change in federal law wrought by Loper Bright.  Our Supreme Court only infrequently cited Chevron over the years despite that decision’s vast influence in federal courts.  Nonetheless, numerous New Jersey decisions, reviewing state agency determinations on a wide variety of subjects over many years, have articulated the same principle as Chevron, namely, that it is appropriate for reviewing courts to defer to an agency’s interpretation of a statute the agency is charged with enforcing.  The Appellate Division in Compressor Station acknowledged this authority, but it nonetheless did not defer to NJDEP’s interpretation because it considered that interpretation to be contrary to the Legislature’s intent in adopting Exemption 11.   Undertaking to divine legislative intent from the broad purposes of a statute gives the reviewing court greater leeway to reject an agency’s interpretation than it would have had if it had followed the strict Chevron framework.  Though it reversed the result reached by the Appellate Division, the Supreme Court’s decision in Compressor Station did not reject this non-deferential analytical approach.

Ultimately, New Jersey agency decisions will be upheld if the agency can convince  reviewing courts that its reading of the statute at issue is the most plausible.  The Supreme Court’s characterization of Exemption 11 as completely unambiguous is difficult to accept.  The Appellate Division’s interpretation, supported by several canons of statutory construction and a credible gloss on the legislature’s intention, was at least plausible.  It seems that NJDEP prevailed in Compressor Station because it convinced the Supreme Court that its interpretation was the better one, not necessarily the only one.  However, when it is presented with a dispute over the meaning of a statute that could only be characterized as ambiguous, the New Jersey Supreme Court may have to decide whether our courts still should use the principle of deference to agencies as a permissible “tie-breaker” to uphold agencies’ decisions.

For more information, please contact the author, Michael Kettler, at mkettler@riker.com, or any attorney in our Environmental Practice Group.