Riker Danzig Environmental UPDATE December 2020
Does a Remediation Settlement with a State Protect Against Subsequent CERCLA Claims? Third Circuit Weighs In
If a potentially responsible party settles its environmental liability with the State of New Jersey, or another state, might it still face liability in the future for costs incurred by the federal government? According to the United States Court of Appeals for the Third Circuit, the answer may be “yes.” The Third Circuit’s ruling is particularly relevant to Superfund sites where state and federal governments often coordinate joint cleanups and each incur significant expenses. In light of this decision, potentially responsible parties should not assume that they can avoid liability for costs incurred by the federal government by settling with a state entity.
In New Jersey Department of Environmental Protection v. American Thermoplastics Corp. et al., the environmental costs at issue arose from the Combe Fill Landfill Superfund Site in Morris County, New Jersey, which was owned and operated by numerous entities for decades. In 1983, the United States Department of Environmental Protection (“USEPA”) designated the property a Superfund site and entered into a cooperative agreement with the New Jersey Department of Environmental Protection (“NJDEP”) to jointly clean up the property. The many potentially responsible parties included Carter Day Industries Inc. (“Carter Day”), which filed for bankruptcy in 1991. As part of the bankruptcy proceedings, Carter Day entered into a settlement agreement with NJDEP to address its liability to the State of New Jersey for remediation costs. The USEPA was not a party to that agreement.
In 1998, after incurring costs to investigate and remediate the site, USEPA and NJDEP each sued multiple responsible parties for reimbursement. Among the parties sued was Compaction Systems Corporation (“Compaction”), which previously was retained by one of Carter Day’s subsidiaries to conduct operations at the site. Following a settlement agreement with both NJDEP and USEPA in which Compaction agreed to pay certain remediation costs, it filed a third-party complaint against Carter Day for contribution under Section 113(f) of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). (Section 113(f) of CERCLA permits a private party that pays remediation costs, including remediation costs incurred by the federal government, to seek reimbursement from other private parties.) Compaction’s complaint sought reimbursement from Carter Day for remediation costs Compaction paid to the USEPA.
The District Court dismissed Compaction’s complaint and ruled in favor of Carter Day, reasoning that Carter Day’s 1991 settlement agreement with the NJDEP protected it from contribution claims pursuant to CERCLA arising from the same site. According to the District Court, CERCLA Section 113(f) protected a party from future contribution claims if that party already resolved its liability for a contaminated site with either the state or federal government.
Compaction appealed the District Court’s ruling to the United States Court of Appeals for the Third Circuit, which reversed the District Court’s holding and ruled that the prior settlement of liability to a state does not bar CERCLA contribution claims for costs the federal government incurred.
The primary question for the Circuit Court was whether the “matters addressed” in the state settlement agreement included Carter Day’s liability as to CERCLA contribution claims. The Third Circuit examined the language of CERCLA Section 113(f)(2), which states that “[a] person who has resolved its liability to the United States or a State in an administrative or judicially approved settlement shall not be liable for claims for contribution regarding matters addressed in the settlement.” CERCLA does not define the scope of “matter addressed” or explain whether the matters addressed in a state remediation settlement agreement would include liability for federal remediation expenses.
Ultimately, the Third Circuit read the “matters addressed” provision of CERCLA Section 113(f)(2) narrowly and looked to the language of the settlement agreement itself to determine that the parties did not intend for the agreement to include liability for costs incurred by the USEPA. According to the language of the settlement agreement, Carter Day was discharged from “all liabilities to NJDEP,” and the agreement made no mention of Carter Day’s liability for costs incurred by the USEPA. In addition, the Circuit Court looked to the reasonable expectations of the parties and found that it would be unreasonable for either Carter Day or NJDEP to have expected at the time of settlement that the agreement would apply to bar future CERCLA contribution claims for costs incurred by the USEPA.
Carter Day argued that a narrow reading of the scope of CERCLA section 113(f)(2) would deter responsible parties from entering into early remediation settlement agreements, which would be contrary to CERCLA’s goal of prompt cleanups. In response, the Circuit Court acknowledged that its narrow reading of “matters addressed” could affect future responsible parties’ incentives to settle, but it determined that concern was outweighed by the need for equitable distribution of cleanup costs. The Third Circuit explained that its interpretation of section 113(f)(2) would encourage responsible parties to settle with both of the relevant state and federal governments. The Court cautioned that reading this provision broadly would encourage responsible parties to rush to settle their liability with only the relevant state in order to avoid contributing to the typically more extensive costs incurred by the USEPA.
The Circuit Court ended its opinion by acknowledging that its decision aligned with CERCLA section 104, which makes clear that remedial costs incurred by the USEPA and individual states are distinct, and thus, are separate matters to be addressed. In light of the Circuit Court’s ruling, individuals and companies who entered into remediation settlement agreements with either a state or the federal government for sites involving cleanup efforts by both USEPA and state environmental agencies should be aware that they may face exposure for costs incurred by the non-settling governmental entity. Going forward, potentially responsible parties are cautioned to carefully consider the scope of the specific matters addressed in remediation settlement agreements.
A Preliminary Assessment of the Plague Year: How COVID May Interfere with Environmental Due Diligence and Liability Protections in New Jersey
The extraordinary events of 2020 have disturbed settled expectations in all areas of business and life, and the environmental field is no exception. One seemingly minor consequence of public health driven office closures—the difficulty of fulfilling public records requests while in-person government offices are shuttered—may have significant repercussions for the environmental liability faced by purchasers of real property in New Jersey. Under both State and federal law, prospective purchasers of real property may insulate themselves from liability associated with pre-existing contamination by conducting specified due diligence activities, including a search of public records concerning historic uses of the property. Before the pandemic, New Jersey has strictly applied the requirement that the buyer review public records before closing, whereas federal law already contemplates that a buyer might still maintain some protection from environmental liability even if it does not receive the requested government documents. Purchasers of property in New Jersey should be aware that, even if the customary due diligence otherwise is completed, acquiring property before receiving the public records could result in the loss of a defense to environmental liability under state law. However, there are a few options for purchasers that want to proceed with transactions during this time period while still limiting environmental risk.
Due Diligence and Liability Protection under New Jersey Law
A property owner has a defense to liability for pre-existing contamination under the Spill Compensation and Control Act (the “Spill Act”), N.J.S.A. 58:10-23.11 et seq., if it performed “all appropriate inquiry” into the previous ownership and uses of the property before acquiring it. New Jersey defines all appropriate inquiry as the performance of a preliminary assessment (“PA”) (consisting of a site inspection and review of paper records) and a site investigation (environmental sampling of the property) if the PA recommends such an investigation. The regulations of the New Jersey Department of Environmental Protection (“NJDEP”) require that a PA include a “diligent search” of all documents which the person performing the PA has a legal right to access and that are reasonably likely to contain information about a site. Accordingly, performing a PA customarily includes making Open Public Records Act (“OPRA”) requests to NJDEP and the municipality in which the property is located. As noted, office closures since the spring have interfered with state government response to OPRA requests. Although the state continued to provide newer records kept in electronic form, the inability to access archives of paper records created a backlog of requests that NJDEP has not yet fully resolved, despite significant efforts.
In our experience, NJDEP has strictly applied the requirement that a “diligent search” of public records be completed before acquisition of property. Where an owner acquired property without receiving documents in response to an OPRA request, NJDEP has taken the position that the owner is liable for contamination, as the required “all appropriate inquiry” was not completed.
Because of the pandemic, the Department has relaxed some of its regulations, such as timeframes for investigating and remediating contaminated sites, but there has been no indication yet that NJDEP will relieve a property owner of liability when an owner did not receive public records because of the office closures. Of course, it is possible that NJDEP or a court called on to interpret these provisions will conclude that a buyer conducted a “diligent search” where it requested documents from a government agency but the agency was unable to provide documents at all, or unable to provide them within a reasonable time. It also might be determined that the party performing a PA did not have a legal right to access documents that an agency was unable to provide within a reasonable time, as circumstances have thwarted the public’s usual right to access government documents. Despite these potential arguments, neither NJDEP nor a court may provide a more definitive interpretation of the applicable regulations for some time, whereas parties to pending or contemplated real estate transactions must determine now their tolerance for environmental risk.
Due Diligence and Liability Protection under Federal Law
In contrast to New Jersey law, the analogous defense to liability for purchasers of contaminated property that performed “all appropriate inquiries” in the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. 9601 et seq., contemplates that public records may not be available. Federal regulations define “all appropriate inquiries” as performing a Phase I Environmental Site Assessment (“Phase I”), a similar but not identical exercise to performing a PA under New Jersey law. Those regulations allow a Phase I report to be completed with “data gaps,” identified missing information that nonetheless may not foreclose a purchaser from relying on the completion of the Phase I as a defense to environmental liability.
Potential Responses to Public Record Limitations
Purchasers of property in New Jersey who performed pre-purchase environmental due diligence during this time while access to public documents remains limited may find that they have a defense to environmental liability under federal law, but not State law. Although waiting until all government documents can be produced is the safest course, that may not be a realistic option. Instead, prospective purchasers might seek some measure of protection through a few alternate methods.
- Seeking Documents from Other Sources. Missing documents might be obtained during this time period from the licensed site remediation professional (“LSRP”) if one has been retained for the site, but an LSRP only would be retained if the property was known to be contaminated, and a complete PA is not as valuable to a buyer when known contamination exists. Documents might also be obtained from other environmental professionals that are (or previously were) involved with the site, whether on behalf of seller or another entity, such as a prior purchaser or tenant. These other environmental professionals might have older documents that are otherwise only available from the NJDEP. In fact, legal counsel often maintain detailed records of the environmental reports and correspondence relating to a particular property. But again, these professionals are only likely to be involved with sites that are known to be contaminated and thus are not helpful in all circumstances.
- Conducting Additional Invasive Sampling. Prospective purchasers (or parties providing financing) also might insist more strongly on performing environmental sampling in light of the uncertainty surrounding the customary defense for prospective purchasers. While additional sampling is not a perfect replacement for the inability to obtain public documents under the legal requirements for “all appropriate inquiry,” more information about the environmental condition of the site certainly provides valuable information for the parties to evaluate environmental risk and could be another basis for a purchaser to assert that it conducted “all appropriate inquiry” required for a defense to Spill Act liability under New Jersey law, i.e., the site investigation that could be required following the PA.
- Enhancing Representations and Contractual Protections. Buyers might seek private contractual protections from sellers since the availability of statutory liability protections buyers typically rely on is uncertain. Representations regarding the condition of the property and indemnities for pre-existing conditions are of heightened importance during this period, as are environmental insurance policies. But, as was the case before COVID-19, sellers can be expected to push back on such contractual provisions.
Regardless of how the parties to a particular transaction choose to address this issue, buyers and sellers of New Jersey property should account for the possibility that a purchaser in 2020 may be unable to conduct the “all appropriate inquiry” required for a defense to Spill Act liability.
Prompt Action Required in New Jersey to Obtain Permit Extensions During COVID-19 Emergency
Update: The New Jersey Department of Environmental Protection (the “NJDEP”) published a notice in the New Jersey Register on September 8, 2020 regarding the NJDEP approvals extended by the Permit Extension Act. Anyone seeking to extend one of these approvals must register their approval with the NJDEP by October 8, 2020. Please refer to the notice for the specific approvals eligible for extension. Click here for the notice.
New Jersey has enacted legislation to extend the deadlines for a wide range of environmental and construction permits and approvals as a result of COVID-19. The Permit Extension Act of 2020 (P.L.2020, c.53) specifically suspends the running of the period of approval for permits and approvals in existence on March 9, 2020 for at least six months following the conclusion of the “COVID-19 extension period.” The COVID-19 extension period is defined as beginning on March 9, 2020 and lasting so long as the Governor’s public health emergency declaration in response to COVID-19 remains in effect.
The extension provided by the Act applies to a broad variety of State, county, and local approvals. For instance, the Act applies to State government approvals, including waterfront development permits, wetlands permits, development applications granted by the Pinelands Protection Act (unless such extension would violate federal law), permits issued pursuant to the Coastal Area Facility Review Act, and any municipal, county, or regional approval or permit granted under the general authority of State law. However, the Act does not extend the approval period for certain State approvals, such as permits for projects located within the preservation area of the Highlands Region—as defined by statutory law—or permits for projects issued pursuant to the Flood Hazard Area Control Act, unless construction has already begun on such projects.
State agencies are required by the legislation to place a notice in the New Jersey Register within 30 days of the Act’s effective date of July 1, 2020. This notice is to identify the types of permits that can be extended pursuant to the Act. The New Jersey Department of Transportation published the required notice on August 3rd, but no other agency has complied with the requirement yet. (A copy of the Department of Transportation’s notice can be found here.) Within 30 days of the publication of each notice, permits and approvals must be registered with the State in order to qualify for the Act’s extension. According to the Act, the State will publish on its website a list of the government approvals registered pursuant to the Act within 14 days of receipt of the registration.
In addition to extending permit approval periods, the Act also extends certain deadlines for Municipal Land Use Law development applications. For development applications awaiting either certification of completion or approval as of March 9, 2020, municipal agencies have 120 days from March 9, 2020 to make such determinations. For any development application submitted during the COVID-19 extension period, municipal agencies have the longer of either 120 days from March 9, 2020 or 60 days from submission of the application to grant or deny it.
Developers and property owners who possess government approvals are advised to review the New Jersey Register as soon as the relevant agency publishes its notice listing the approvals eligible for the extension. Once the notice has been published, permitees have 30 days to ensure that their eligible permits are registered with the appropriate department for purposes of receiving the extension.
New Jersey Moves Again to Include Environmental Justice in Permitting Process
Update: Governor Phil Murphy signed this legislation into law on September 18, 2020, and NJDEP began stakeholder meetings to discuss the implementing regulations earlier this fall. We expect that NJDEP will conduct a robust stakeholder process given the complex issues involved in implanting the legislation. Riker Danzig attorneys will be tracking this process closely.
New Jersey continues to focus on environmental justice as the Legislature advances proposed legislation that would require the New Jersey Department of Environmental Protection (the “NJDEP”) to consider impact on overburdened communities when reviewing certain permit applications. In fact, at the end of June the New Jersey Senate passed the proposed legislation, which is referred to as S232 and can be reviewed here. The proposed legislation now goes to the Assembly for further consideration and voting and, if it passes the Assembly as well, could be signed into law by Governor Phil Murphy later this summer. Similar legislation has been pending in New Jersey for more than a decade, as we reported last year in our prior blog post titled “Environmental Justice Initiatives Soon May Impact Permitting and Other Regulatory Actions”, but the current legislation seems slated for passage with the support of several legislators and Governor Phil Murphy.
How would the legislation incorporate environmental justice into the permitting process?
The key components of the proposed legislation are as follows.
- Preparation of an Environmental Justice Impact Statement. Applicants for certain permits would be required to prepare an “environmental justice impact statement.” This statement would need to “assess the potential environmental and public health stressors associated with the proposed new or expanded facility, . . . including any adverse environmental or public health stressors that cannot be avoided if the permit is granted, and the environmental or public health stressors already borne by the overburdened community as a result of existing conditions located in or affecting the overburdened community.”
- Public Notice and Hearing. Applicants would then be required to provide the environmental justice impact statement to the NJDEP and other governmental entities, which in turn would disseminate the statement to the public. Applicants also would need to organize and hold a public hearing in the overburdened community. A transcript of the hearing and a record of any comments received from the public would then be provided to the NJDEP.
- Consideration of Environmental Justice Impacts by NJDEP; Requirement to Deny Permit Based on Environmental Impact. After reviewing the environmental justice impact statement and the input from the public, the NJDEP would be required to deny a permit, or apply new conditions to the renewal of an existing permit, “upon a finding that approval of the permit . . . would, together with other environmental or public health stressors affecting the overburdened community, cause or contribute to adverse cumulative environmental or public health stressors in the overburdened community that are higher than those borne by other communities within the State, county, or other geographic unit of analysis as determined by the department pursuant to rule, regulation, or guidance.” The exact meaning and implementation of this requirement is not yet clear, but it seems to place a high bar on the expansion or construction of any facility that would negatively impact the environment in an overburdened community. It is particularly important to note that the legislation requires the NJDEP to consider the cumulative impact of the facility on the community. It also remains to be seen whether facilities can offset negative environmental impacts through modifications to the design and operation of subject facilities.
What facilities, permits and communities would be subject to the legislation?
The application of the proposed legislation is governed by the definitions of “facility,” “permit,” and “overburdened community.”
- Facility. The legislation defines “facility” as “any: (1) major source of air pollution; (2) resource recovery facility or incinerator; (3) sludge processing facility, combustor, or incinerator; (4) sewage treatment plant with a capacity of more than 50 million gallons per day; (5) transfer station or other solid waste facility, or recycling facility intending to receive at least 100 tons of recyclable material per day; (6) scrap metal facility; (7) landfill, including, but not limited to, a landfill that accepts ash, construction or demolition debris, or solid waste; or (8) medical waste incinerator.”
- Permit. It defines “permit” as “any individual permit, registration, or license” issued under numerous state laws, including . . . the Solid Waste Management Act, the New Jersey Statewide Mandatory Source Separation and Recycling Act, the Freshwater Wetlands Protection Act, P.L.1987, the Coastal Area Facility Review Act, the Highlands Water Protection and Planning Act, the Air Pollution Control Act, the Water Pollution Control Act, the Flood Hazard Area Control Act, and others. Notably, the definition includes only individual permits, which as the name suggests contain requirements specifically tailored to the individual facility. As a result, the definition does not include general permits or other standardized permits, which contain standard requirements and are available to facilities that meet certain pre-determined criteria. Additionally, the current definition does not reference permits issued under the Industrial Site Recovery Act, the Site Remediation Reform Act, or any other New Jersey statutes directly applicable to site remediation. This is a change from a prior version of the legislation, which included a specific reference to the Industrial Site Recovery Act, and limits the scope of “permit” significantly in a way that should be welcomed by the regulated community.
- Overburdened Community. Lastly, the legislation defines “overburdened community” as “any census block group . . . in which: (1) at least 35 percent of the households qualify as low-income households; (2) at least 40 percent of the residents identify as minority or as members of a State recognized tribal community; or (3) at least 40 percent of the households have limited English proficiency.” According to NJ Spotlight, “the bill’s definition of ‘overburdened communities,’ could apply to more than 300 municipalities and over 4 million residents.”
What is the status of the proposed legislation?
As noted above, the New Jersey Senate passed the proposed legislation on June 29, 2020. The legislation now has been referred to the Assembly, and is scheduled for a hearing on July 20th before the Assembly Environment and Solid Waste Committee. Interested parties should be able to observe and testify at the hearing through virtual means. It is possible that the Assembly could pass the proposed legislation later this summer, especially given the high profile support referenced above.
Attorneys at Riker Danzig will be tracking this legislation closely. If it becomes law, the operative provisions would go into effect after a period of six months. To put it mildly, it’s passage would be a victory for champions of environmental justice and would have a significant and lasting change on the regulated community and the permitting process in New Jersey.
NJDEP’s Common Law Natural Resource Damage Claims Are “Back in Business” Once Again as Defendants Now May Face Jury Trials
In August 2018, the New Jersey Department of Environmental Protection (“NJDEP”) declared that environmental enforcement was “back in business” and brought its first new litigation seeking natural resource damages (“NRD”) in ten years. Loyal readers of this blog will recall that we reported in 2019 on a trial court decision that dismissed the Department’s common law claims for NRD related to a former Hess oil refinery and terminal and discussed NJDEP’s pending appeal of the decision: “NJDEP’s Common Law Natural Resource Damage Claims Temporarily ‘Out of Business.’” On April 7, 2020, the Appellate Division reversed portions of that trial court decision, reinstating NJDEP’s claim for strict liability for abnormally dangerous activities and clarifying the Department’s ability to recover the cost of abating a public nuisance. However, the appellate court affirmed the dismissal of NJDEP’s trespass claim. As noted in our earlier article discussing this case, the survival of these common law claims gives the Department the ability, otherwise not available for NRD claims under the Spill Compensation and Control Act (“Spill Act”), to put its NRD claims before a jury and gives NJDEP a firmer basis to recover damages resulting from discharges that occurred before passage of the Spill Act in 1977.
In finding that operating an oil refinery is not an abnormally dangerous activity, the trial court relied on the decision in Biniek v. Exxon Mobil Corp., 358 N.J. Super. 587 (Law Div. 2002), which held that operating a gas station is not abnormally dangerous. The trial court also held that, even if operating a refinery was abnormally dangerous, the Spill Act “subsumed” common law claims for strict liability. The Appellate Division rejected both of these conclusions. First, it rejected the trial court’s analogy with a gas station as “totally inapposite.” “The extent of the operations [of the refinery], its proximity to sensitive waterways and environmental areas, and the danger of the pollutants allegedly used in Hess's operations that were discharged, albeit unintentionally,” satisfy the criteria for an abnormally dangerous activity set out in NJDEP v. Ventron Corp., 94 N.J. 473 (1983). The court did not explicitly hold that all oil refineries constitute an abnormally dangerous activity, so perhaps in a future case, a smaller refinery not located adjacent to sensitive waterways might fare better in resisting a similar claim.
Second, and of greater significance for New Jersey NRD defendants, the Appellate Division held that the Spill Act did not subsume common law claims for strict liability for abnormally dangerous activities. The court based this conclusion on the savings clause of the Spill Act that provides that the statute’s remedies “are in addition to those provided by existing statutory or common law,” N.J.S.A. 58:10-23.11v, and statements in earlier cases about the coexistence of Spill Act and common law remedies. This portion of the Hess decision is more significant for New Jersey NRD defendants than the other portion of the abnormally dangerous activities discussion, which focused narrowly on whether a particular oil refinery was abnormally dangerous. The case seems to foreclose any other defendants from arguing—as Hess successfully argued before the trial court—that common law strict liability claims cannot coexist with NJDEP’s Spill Act claims.
With respect to the public nuisance claim, the Appellate Division largely favored NJDEP’s position as well. The Appellate Division, like the trial court, held that the government cannot recover money damages in a claim for public nuisance, but can seek an injunction ordering the defendant to abate the nuisance. The appeals court emphasized, however, that the government can seek reimbursement for the costs of abatement and so it “restore[d] [NJDEP’s] ability to otherwise seek ‘monetary relief’ associated with any judgment ordering abatement of a public nuisance, if plaintiffs succeed on their claim.” Thus, NJDEP can recover the cost of restoring a damaged natural resource from an NRD defendant.
NJDEP could not convince the Appellate Division to reverse the dismissal of its trespass claim, however. A trespass occurs when the defendant invades land that is in the exclusive possession of another person. The appellate court agreed with the trial court that NJDEP cannot assert a trespass for damage to groundwater and surface water resources because the State of New Jersey’s public trust interest in its water resources is shared with all the people of the state; NJDEP lacks the requisite “exclusive” property interest.
After being stymied in the first trial court decision in its new NRD cases, NJDEP will be emboldened now that the Appellate Division has revived some of its common law claims. The appellate court’s rejection of the proposition that the Spill Act subsumed common law claims for strict liability for abnormally dangerous activities means it is now more likely that defendants in these often highly publicized cases will have to face a jury, which, it is generally understood, is more likely to find a defendant liable and to award higher damages. The Hess decision will strengthen NJDEP’s hand in its pursuit of NRD.
DOJ Policy Invalidates Special Environmental Projects in Settlements but Private Parties May Have Other Options
Recently, the Justice Department eliminated the use of supplemental environmental projects (“SEPs”) in United States Environmental Protection Agency (“USEPA”) settlements. SEPs, environmentally beneficial projects implemented by a regulated entity, are not required by law but have been used for years to allow an entity to lower its penalty for a violation of environmental law. Although the use of SEPs has been questioned in the past, the Justice Department now has determined that SEPs in settlements violate the Miscellaneous Receipts Act (“MRA”), 31 U.S.C. §3302, and can no longer be used. As a result, instead of implementing these beneficial projects, many violators simply will pay higher fines into the United States Treasury, with no guarantee that the penalty money will be used for environmental protection. However, by structuring the project to directly remedy the harm, which will be considered by the Justice Department as injunctive relief and not an SEP, there may be an avenue for violators to continue to include such projects in USEPA settlements.
The MRA requires that any federal official receiving funds on behalf of the federal government must deposit those funds directly into the Treasury. The Justice Department has determined that the use of SEPs in settlements diverts money designated for the Treasury to a third party in violation of the MRA. Also, according to the Justice Department, by trading monetary payments for projects not previously approved by Congress, SEPs allegedly allow government officials to make decisions regarding budgetary allocations, which they are not permitted to do.
SEPs not only provide environmentally beneficial projects for communities but they also generate “goodwill” for violators, making them favored by both the regulated community and environmentalists. SEPs include projects that reduce pollution impacts, preserve land, protect public health and promote renewable energy. For years, the Justice Department and the USEPA have claimed that SEPs do not trade penalties for projects because penalties are not assessed and owed until the settlement is final. Since the SEP is established before the settlement is finalized, no trade occurs and no money is diverted from the Treasury. But the Justice Department now has changed its position pointing to the fact that an SEP can reduce penalties by, in some cases, 80%.
In the past, the USEPA attempted to avoid conflict with the MRA by changing its policy to formulate SEPs so that they directly remedy the harm caused by the violation, which would be considered injunctive relief and not a separate third party project. This older USEPA policy, however, continued to consider the relationship between the SEP and a reduction in penalties and, thus, does not adequately resolve the conflict with the MRA.
Nevertheless, the Justice Department has acknowledged that a properly designed project, one that directly remedies the harm at issue and does not simply benefit third parties, may provide an avenue for allowing the use of environmentally beneficial projects in USEPA settlements as injunctive relief and not as an SEP. Therefore, the regulated community should not abandon the use of environmentally beneficial projects when settling with USEPA, but rather, should work with their attorneys and consultants to develop projects that may properly be characterized as injunctive relief. To avoid violating the MRA, however, such projects should not be tied to any reduction in monetary payments or penalties.
In response to the Justice Department’s decision, environmental activists may begin to push Congress to authorize the use of SEPs by statute. If Congress were to authorize USEPA to use projects when settling with a violator, this would circumvent the alleged issues in the MRA because Congress is permitted to direct money designated for the Treasury.
For now, USEPA is not permitted to include SEPs in settlements. Therefore, any party in the final stages of negotiations of a settlement that includes an SEP will have to renegotiate the settlement. It may be beneficial to determine whether the negotiated SEP can be modified so that it is remedying the harm caused by the violation; otherwise the SEP will be eliminated and the settling party will likely face a higher penalty.
NJDEP Proposes Significant Changes to Remediation Standards for Cleanup of Contaminated Sites
On April 6th, the New Jersey Department of Environmental Protection (“NJDEP”) proposed major revisions to the existing Remediation Standards codified at N.J.A.C. 7:26D that may impact current, future and even closed site remediation cases. While the amendments are extensive, below is a summary of the most significant changes:
- Addition and Deletion of Contaminants with Standards – The NJDEP has proposed to add standards for a number of contaminants and to remove others for which NJDEP has determined it did not have supportive toxicology information or that are rarely found in New Jersey. For example, the NJDEP has proposed new soil remediation standards for 15 contaminants that do not have existing standards, including extractable petroleum hydrocarbons (EPH) and 1, 4-dioxane, and removed standards for more than 10 others, including benzo(ghi)perylene and acrolein. Similar additions and deletions are proposed for standards related to certain other contaminant pathways and media.
- Changes in Standards for Existing Contaminants – The NJDEP also has proposed to increase or decrease the existing standards for numerous contaminants. For example, of the 113 contaminants for which there are existing nonresidential soil remediation standards for the ingestion-dermal exposure pathway, as compared to the existing standards, the proposed standards for 13 contaminants are more stringent, 3 are the same, and 90 are less stringent. Notably, the NJDEP has proposed to make standards for some contaminants more stringent by at least an order of magnitude, which would require a re-evaluation, and possibly additional remediation, of those contaminants at certain sites that have received a final remediation document (i.e. NFA or RAO).
- Codification of Impact to Groundwater (IGW) Soil Remediation Standards – Site-specific IGW soil remediation standards are currently established on a case-by-case basis in accordance with NJDEP guidance. The NJDEP has proposed to replace this protocol by codifying soil and soil leachate remediation standards for the migration to groundwater exposure pathway by using the levels contained in the guidance (subject to certain revisions) as the new IGW soil remediation standards.
- Changes to Direct Contact Soil Remediation Standards – The current residential and nonresidential direct contact soil remediation standards take into account both the ingestion-dermal human health criterion and the inhalation human health criterion and set the standard at the more stringent of the two. The proposed amendments would bifurcate the direct contact soil remediation standards into separate soil remediation standards for the ingestion-dermal exposure pathway and the inhalation exposure pathway, which will require remediating parties to individually take into account and address the standards for both of these pathways.
- Codification of Indoor Air Standards – Certain contaminants have the potential to volatilize, migrate through the subsurface as soil gas and infiltrate buildings, which can expose humans to harmful levels of indoor air contamination. Indoor air screening levels are currently set forth in the NJDEP’s vapor intrusion guidance. In order to improve enforceability, the NJDEP has proposed to codify the existing indoor air screening levels list as indoor air remediation standards, subject to a few revisions. Specifically, 1,4-dioxane and 1,2,4-trimethylbenzene will be added to the list and 7 contaminants will be removed because the NJDEP has determined that the methodology it used to establish screening levels for these particular contaminants is no longer valid.
- Expansion of Alternative Remediation Standards Process – While the current rules allow for remediating parties to establish site-specific alternative remediation standards for residential and non-residential soil exposures, the proposal expands the alternative remediation standards process to the soil and soil leachate migration to groundwater (which is the new term for IGW) and vapor intrusion exposure pathways. Accordingly, remediating parties would be able to use this process to establish standards that are less stringent than the default standards for these pathways as well.
- Amendments to Definition of “Residential” and “Nonresidential” – The NJDEP has proposed to amend the existing definitions for “residential use” and “non-residential use” that were used to derive numerical remediation standards based on certain exposure assumptions. The proposed new definitions of “residential” and “nonresidential” as they relate to the remediation standards are based solely on property use – “residential” refers to properties used for residences, private and public schools, charter schools and licensed childcare centers; “nonresidential” refers to properties used for commercial or industrial purposes. This change is intended to help remediating parties more easily identify which set of standards apply to a property.
Stakeholders have criticized the timing of the NJDEP’s rule proposal in the midst of the COVID-19 crisis, citing the difficulty in preparing and submitting public comments. In response, the NJDEP has extended the public comment period by an additional 60 days to August 5, 2020. The NJDEP also noted that if it holds a public hearing on the proposal (the timing of which is uncertain given the COVID-19 situation), it will extend the public comment period until after the hearing.
When the changes to the Remediation Standards are ultimately adopted, a phase-in period will apply to certain ongoing cases. Specifically, those remediating parties that have submitted a remedial action workplan or remedial action report prior to, or less than 6 months after, the operative date of the amendments, may remediate their site using the existing remediation standards. This phase-in period, however, does not apply to remediation of contaminants for which the standard has become more stringent by an order of magnitude as compared to the prior standard.
Given the magnitude of the proposed changes, remediating parties and other stakeholders should review this proposal closely to determine if and how it may impact their current site remediation cases as well as those cases and properties that have already received a final remediation document. Some remediating parties may want to speed up the timing of their investigation and/or remediation to take advantage of the phase-in period (for remediation standards that are proposed to become more stringent), while others may want to delay making final remedial design decisions if standards for certain contaminants at their sites will become less stringent or no longer regulated. In addition, parties conducting pre-purchase due diligence should consider how these changes may affect both legal and contractual liabilities and obligations, including any potential for re-opener issues at formerly remediated sites.
Our attorneys will be closely monitoring the public comment process and ultimate rule adoption to determine how to best assist our clients.
New Jersey Regulatory and Legislative Update
Governor Murphy’s Administration Called for Actions to Reduce Emissions
The NJDEP recently published a report to state lawmakers assessing New Jersey’s progress toward meeting the 2006 legislative mandate to reduce greenhouse gas emissions by 80% by the year 2050, and recommended the state take additional actions. The “80x50 Report” found that New Jersey has made progress toward the 2050 goal, with current emissions successfully reduced to 20% of 2006 levels. However, the Report estimates that, based on the current trajectory, emissions will be only 12% of 2006 levels by 2050. The Report’s recommendations to meet the 2050 goal include more development of zero-carbon energy sources, deployment of technology and policy initiatives to reduce emissions from waste management, and establishment of regulations to reduce certain short-lived climate pollutants. In addition to the 80x50 Report, the NJDEP is working on multiple policy initiatives that will likely aid the state in reaching the 2050 goal, including New Jersey’s recent Scientific Report on Climate Change and the Department’s multi-faceted regulatory reform initiative known as NJ Protecting Against Climate Threats (NJ PACT).
Recently Enacted Environmental Laws
P.L.2020, c.92 (A2212 / S232): Requires DEP to evaluate environmental and public health stressors of certain facilities on overburdened communities when reviewing certain permit applications.
Recently Introduced Environmental Bills
A4877 / S3162: Provides economic development incentives for remediating and redeveloping legacy landfills, brownfields, and contaminated sites. Status: introduced and referred to Assembly Environment and Solid Waste Committee (A4877); introduced and referred to Senate Economic Growth Committee (S3162).
A3142 / S2672: Revises certain licensure requirements to operate water supply and wastewater treatment systems. Status: introduced and referred to Assembly Regulated Professions Committee (A3142); introduced and referred to Senate Environment and Energy Committee (S2672).
A4196: Extends time frame for municipalities to adopt municipal stormwater plans and ordinances. Status: introduced and referred to Assembly Environment and Solid Waste Committee.