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A draft settlement is not an executable agreement for parties seeking to settle Natural Resource Damage liability under the Spill Act

The Appellate Division recently handed down its decision in Cumberland Farms, Inc. v. New Jersey Department of Environmental Protection, et al., holding that no enforceable settlement existed between the two parties with respect to Natural Resource Damage (“NRD”) claims associated with fifty-four sites.

Under the Spill Act, the New Jersey Department of Environmental Protection (“DEP”) may seek damages against a responsible party for the loss of use of natural resources adversely affected by the party’s discharge of hazardous substances. In September 2003, the DEP published Policy Directive 2003-07, which encouraged responsible parties to voluntarily settle their potential NRD liability. On December 31, 2003, Cumberland Farms, Inc. (“CFI”) indicated its intention to pursue settlement.

The process of reaching a settlement is an iterative one, involving extensive negotiation between the DEP and the responsible party. The Office of Natural Resources Restoration (“ONNR”) is responsible for establishing the key terms of the agreement. Once established, ONNR staff must obtain authority from their respective management team to finalize the settlement.

In addition, N.J.S.A. 58:10-23.11e2, effective April 12, 2006, required public notice of a possible settlement at least 30 days prior to its agreement.  On December 2, 2015, the Legislature increased the thirty-day requirement to sixty days. Even prior to this law, however, the DEP included provisions requiring public notice and comment in its settlement agreements. These provisions allowed DEP to withdraw from the settlement if public comments indicated that the settlement was “inappropriate, improper, or inadequate.”

Fifty-four sites were the subject of this appeal. On June 14, 2007, CFI emailed ONNR, stating that CFI authorized property to go towards a conservation trust in order to reach a settlement. On June 20, 2007, ONRR replied that it was satisfied with the proposal and sent a draft settlement for CFI’s review. The draft settlement included blank spaces, strikeouts, and “redlines.”

CFI did not provide a response to the June 20, 2007 email. Moreover, CFI remained largely silent for several years. Sometime in 2012, the DEP added CFI as a defendant to a Methyl Tertiary Butyl Ether (“MTBE”) law suit, wherein the fifty-four sites at issue in this appeal were included.

On June 20, 2013, six years after ONRR sent CFI the draft settlement agreement for the fifty-four sites, CFI filed a complaint seeking to enforce the alleged final settlement. CFI asserted that the DEP breached the parties’ agreement by including the sites in the MTBE litigation and sought specific performance of the settlement. CFI also argued that the DEP was estopped from denying the existence of an enforceable contract because CFI partially performed its obligations by purchasing property for a conservation trust. Finally, CFI also claimed that the DEP breached the implied covenant of good faith and fair dealing by failing to consummate the settlement and perform its obligations thereunder.

The trial judge rejected CFI’s claim, finding no valid settlement agreement between CFI and DEP and dismissing CFI’s breach of contract, specific performance, and declaratory judgment claims. The trial judge also rejected CFI’s promissory estoppel argument, finding that CFI had not completed its stated plan of buying all of the acreage necessary to move forward. However, the trial judge entered judgment in CFI’s favor on its breach of the implied covenant of good faith and fair dealing claim, finding that the DEP needed to resume negotiations.

On appeal, CFI argued that the trial judge erred in concluding there was no enforceable settlement agreement. CFI asserted that it made an offer to settle in its June 14, 2007 letter and ONRR’s June 20, 2007 letter constituted an acceptance of that offer.

The Appellate Division affirmed the trial judge’s finding that there was no enforceable settlement agreement. A settlement is a contract and that acceptance must be “absolute” and “unequivocally shown.” Applying these principles in this case, the court found that the DEP made no such indication. The record established that the DEP was negotiating via the iterative process. Both parties knew that the ONRR did not have authority to enter into a binding settlement. In addition, the agreement was clearly in draft form.

The Appellate Division pointed to two more factors supporting the trial court’s decision: (1) the language in the draft agreement expressly stating that the settlement would not be effective until executed by both parties; and (2) the public notice requirements of N.J.S.A. 58:10-23.11e2 had not been met. It is clear that DEP may withdraw from a settlement agreement, rendering it unenforceable, upon receiving negative public comments.

The Appellate Division affirmed the trial judge’s rejection of CFI’s promissory estoppel argument. The necessary element of promissory estoppel, a “clear and definite promise” by DEP to enter the settlement, did not exist for the foregoing reasons.

Finally, the Appellate Division reversed the portion of the trial judge’s order finding that the DEP breached the implied covenant of good faith and fair dealing. In the absence of a contract, there can be no breach of an implied covenant of good faith and fair dealing.

The attorneys at Lieberman Blecher & Sinkevich are experienced at handling all facets of Spill Act litigation, and we welcome the opportunity to discuss how we may help you or your business navigate these issues.

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