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For many years, natural resource damages claims represented a fairly insignificant part of the environmental law landscape nationally as well as here in New Jersey. When seeking damages for a contaminated site, the government’s primary priority has been remediation. However, more recently, the government has sought to collect damages for loss of natural resources, as well as funding for remediation.
Since Governor Murphy took office, his Department of Environmental Protection (“NJDEP”) has been very active in pursuing natural resource damages claims from parties who its alleges have harmed our natural resources. These claims may be quite financially significant and the litigation involving them can be very protracted.
Since the concept that underlies a natural resource damages claim can be foreign to many, we have set out to answer frequently asked questions regarding these claims with the hope that it will make it easier for the reader to understand what the government is referring to the next time it files a lawsuit asserting this kind of injury.
Question No. 1: What is a natural resource damages claim?
A natural resource damages (commonly referred to as “NRD”) claim is brought by the government against a polluter to compensate for loss of natural resources in a particular area. These natural resources can include soil, surface waters, ground waters, creeks, rivers and wetlands. NRD claims do not generally seek the cost of cleaning contamination that has been released at a particular location. Rather, they are designed to compensate the public for injury to natural resources.
For example, if a company discharges pollution into a river, a traditional lawsuit brought by the NJDEP might require remediation of the pollution that has entered the waterway. On the other hand, an NRD lawsuit might seek compensation for the loss of fishing that has occurred in the river as a result of the pollution, or the loss of aquatic vegetation or habitation as a result of the discharge. The cost of restoring or replacing the lost resource may also include, for example, the cost of re-creating a lost wetlands area, or the cost of cleaning up a public beach that was destroyed due to a petroleum release.
Question No. 2: What are some prominent examples of NRD lawsuits filed by the government?
Two of the best known examples include the same company: Exxon and Exxon Mobil Corp. By far, the most well known example of an NRD lawsuit at the federal level concerns the 1989 release of petroleum from the Exxon Valdez, an oil tanker, which crashed at Prince William Sound in Alaska. The accident caused the release of millions of gallons of oil and impacted thousands of square miles of ocean.
Exxon had spent several billion dollars addressing the mammoth petroleum spill. A civil action by the United States and the State of Alaska for environmental harms ended with a consent decree for Exxon to pay at least $900 million toward restoring natural resources. These lawsuits are identified under United States v. Exxon Corp., Case No. A91-082 and State of Alaska v. Exxon Corp., Case No. A91-083 in the United States District Court for the District of Alaska. Exxon paid another $300 million in voluntary settlements with fishermen, property owners, and other private parties.
Exxon was also hit with $2.5 billion in punitive damages under maritime common law claims. It unsuccessfully challenged this judgment in the Supreme Court, arguing that the Clean Water Act preempted, or overrode, maritime common law and foreclosed the availability of punitive damages thereunder. The Court disagreed, finding “it too hard to conclude that a statute expressly geared to protecting ‘water,’ ‘shorelines,’ and ‘natural resources’ was intended to eliminate… oil companies’ common law duties to refrain from injuring the bodies and livelihoods of private individuals.” Exxon Shipping Co. v. Baker, 554 U.S. 471, 488-89 (2008). However, the Court found the amount of the punitive damage judgment improper, because the penalty exceeded the compensatory damages. In applying a 1:1 ratio for punitive and compensatory damages, the Court bumped the punitive damages down to approximately $500 million. Consequently, the affected property owners only received a few thousand dollars each for the devastating loss to natural resources.
The second example of a well known NRD case is NJDEP v. Exxon Mobil Corp., 453 N.J. Super. 588 (Law. Div. 2012), which concerned the extent to which natural resource damages should be assessed for environmental contamination at two of the largest refineries that the company operated in New Jersey. What made the case particularly noteworthy was that when it was filed, the State asserted that it had billions of dollars worth of damages against Exxon Mobil. That number came back to haunt the State when it ultimately settled the case for only $225 million – a large amount, but almost nothing compared to the initial demand.
Ultimately, the New Jersey Supreme Court upheld that settlement agreement and in so doing, confirmed the standards, annunciated by the Law Division, by which natural resource damages settlements would be reviewed by courts going forward. That standard focuses on whether the NRD proposed settlement is fair, reasonable, consistent with the goals of the governing statute statute, and in the public interest. In this case, that governing statute was the New Jersey Spill Compensation and Control Act (“Spill Act”).
Furthermore, the Appellate Division subsequently found that two statewide public interest environmental organizations had standing to challenge the settlement between the NJDEP and the oil giant. NJDEP v. Exxon Mobil Corp, 453 N.J. Super. 272 (App. Div. 2018). However, a State Senator, whose district included the refineries, was found to lack standing because he could not satisfy the particularized harm requirement. In other words, while environmental groups had standing “based upon their broad representation of citizen interests throughout this state,” the Senator lacked sufficient personal interest in the appeal.
Interestingly, this case demonstrates the distinction between standing to bring an NRD lawsuit, which cannot be brought by private actors, and standing to challenge an NRD settlement, which can exist for private actors that demonstrate a sufficient interest in the outcome.
Question No. 3: Who can file a claim against a polluter for natural resource damages?
The answer to this is found in federal law, which provides that the federal government and Indian nations are natural resources trustees who hold in trust for the benefit of the general public. This means that members of the public as well as other local governments lack the authority to file a claim for natural resource damages. Rather, it is only these federal agencies (as well as States whose rights emanate from federal law) and Indian nations who may file these claims. As discussed above, private actors cannot bring NRD lawsuits.
Question No. 4: What may the trustees recover in an NRD lawsuit?
A trustee may recover damages for injury to the natural resources that are a consequence of either the discharge of a hazardous substances, or the residual loss of use of natural resources once contamination is remediated. In other words, trustees are seeking the value of the harm to the resources that have either been destroyed or injured because of the contamination release.
These damages can be assessed in a variety of ways. They can include damages occasioned by the acquisition of a resource that is equivalent to what has been destroyed. For example, if a discharge of a hazardous substance has destroyed acres of wetlands, in that case the cost of purchases upland to create replacement wetlands might form a basis for an NRD claim.
Damages can also be assessed to cover the value to the public for the loss of natural resources that were sustained as a result of the discharge. For example, fisherman may be entitled to the value of fish that have been lost due to a wholesale fish kill as an element of natural resource damages.
The cost of restoring a lost resource might also be compensable. For example, if a large tanker release results in the destruction of a recreational beach, the cost of restoring that beach to pre-discharge conditions could be viewed as a natural resource damage.
Question No. 5: How is NRD valued?
Not unexpectedly, this tends to be one of the most disputed aspects of a natural resource damages case. In general, damages sought by the government include the costs of primary restoration plus compensatory damages and the costs of assessment. This is still a relatively new area of law and real questions are raised concerning the methodologies employed for determining the value of lost resources, the costs of primary restoration and the extent to which compensatory damages are appropriate and reasonable together with the manner in which they are assessed.
These cases can run into the millions of dollars in terms of assessed values and many experts, including but not limited to environmental experts and economists, are called to assist the trier of fact in these litigations. For example, under NJDEP v. Exxon Mobil Corp. case, Docket No. A-0316-09T2 (App. Div. 2011) (associated with the case discussed above), the unpublished opinion describes a battle of experts, whereby the defendant’s expert argued that the site in question was used for industrial purposes and therefore there is no significant natural resource damage loss to begin with. On the other hand, the NJDEP’s experts opined that restoration of all habitat would cost $274,000 per acre, which multiplied by a 47-acre site, is vastly different from Exxon’s de minimis estimation. Because of this fact-sensitive debate, the Appellate Division in this case denied NJDEP’s application of interlocutory payment of natural resource damages.
Question No. 6: What is the authority for NRD liability?
Our national hazardous substance cleanup statute is the Comprehensive Environmental Response, Compensation, and Liability Act, commonly referred to as CERCLA. CERCLA provides for natural resource damages in addition to an obligation to remediate contaminated sites. Under CERCLA, a responsible party who is liable for site remediation is also liable for damages for injury, destruction or loss of natural resources that have been caused by the hazardous discharge release. The Clean Water Act (“CWA”) also identifies liability for natural resource damages.
In addition, the Oil Pollution Act (“OPA”) of 1990 establishes liability for natural resource damages resulting from the release of petroleum. This statute provides for the recovery of damages for the injury to, destruction or loss of use of natural resources. It also includes the reasonable costs of assessing damages. OPA was enacted in response to the Exxon Valdez spill discussed above.
Common law claims for natural resource damages may also be asserted, including trespass, nuisance and strict liability.
Question No. 7: Are NRD claims on the rise?
Certainly in New Jersey, we are seeing more of these cases. In one year, the Murphy administration filed many more NRD cases then had been filed during prior administrations. Furthermore, this pattern is not likely to end. There are a few reasons for this:
First, these lawsuits are becoming more routine. When the government commences litigation relating to a hazardous discharge release, we now anticipate that there will be an NRD component to the case.
Second, the public has become more aware of and concerned about environmental issues. For example, the public understands that climate change in part is a result of historic apathy toward air pollution, largely in relation to the fossil fuel industry. The government, as trustee to the public for natural resources, feels greater pressure to recover for the loss of natural resources due to public concern.
Question No. 8: Can NRD claims be asserted under statutory and common law?
In New Jersey, when the NJDEP files an NRD case, it does so under the State statute called the New Jersey Spill Compensation and Control Act (“Spill Act”), with authority delegated to the State under federal law. Claims for natural resource damages asserted by the NJDEP may be based not only on statute, but also upon common law, including theories of abnormally dangerous activity, trespass and nuisance. This was the holding in a case entitled NJDEP v. Hess Corporation, A-2893-18T2 (App. Div. 2020).
Hess unsuccessfully asserted that the State could only enforce statutory rights for natural resource damages. The Court held that the historic common law claims could also be pursued by the State but that they could not double recover. Additionally, the Court held that in instances where the State was not the only owner of the impacted natural resource, it could not pursue a trespass claim. However, this does not mean that the State can never rely on a trespass claim in a natural resource damages case, but only when it can demonstrate that it is the sole owner of the impacted resources.
Question No. 9: Can the State pursue punitive damages in a natural resource damages case?
The NJDEP takes the position that it is entitled to seek punitive damages in an environmental natural resources damages claim. Punitive damages are not designed to compensate a victim for tortious activity. Rather, they are designed to punish the wrongdoer and the extent to which punitive damages are appropriate, which is largely dependent on the nature of the alleged wrongful conduct as well as the financial wherewithal of the tortfeasor.
In late 2019, the NJDEP filed suit against Sherwin Williams Corporation, the large paint manufacturer, for polluting operations that occurred at multiple sites in South Jersey. It bears noting that one of the sites had coincidentally been the southern regional field office of the NJDEP. The claim was that Sherwin Williams ignored clean up orders and directives by the State for years until finally the case was referred to the United States EPA for prosecution after it was included on the federal Super Fund list.
The NJDEP filed a seven count complaint largely predicated on statutory violations as well as common law claims. The case also contained an assertion that the conduct by Sherwin-Williams was so egregious that punitive damages should be assessed. Though the site is being remediated under federal EPA supervision, the crux of the NJDEP lawsuit is natural resource damages, specifically the decades of natural resource loss to the public due to the acts of one large company.
Because NRD jurisprudence is relatively new, future litigation will enable us to better understand the extent to which these damages can be sought by the government, as well as the limitations.
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