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By Martin Bricketto
Law360, Jersey City (March 06, 2015, 8:32 PM ET) — New Jersey’s decision to settle an $8.9 billion suit against ExxonMobil Corp. over refinery pollution for $225 million could imply its case on damages was much weaker than it appeared, given the unlikelihood of the state backing a wildly lopsided deal that the court would reject, some attorneys say.
The gap between the earlier, multi-billion dollar claim for natural resource damages and the proposed settlement — which Gov. Chris Christie’s administration formally announced Thursday — leaves unanswered questions in a 11 year-old case over hazardous discharges from refinery sites in Linden and Bayonne, New Jersey that impacted 1,500 acres of wetlands and other sensitive areas.
Exxon’s liability had already been established, and a judge’s decision on damages was pending following a 66 day trial last year. “What doesn’t seem to ring true is when the state appears to have put on a case for $9 billion and settled it for $225 million. Which one was the wrong assessment?” said Edward Lloyd of Columbia Law School’s Environmental Law Clinic. “They grossly misjudged this case either at the $9 billion end or the $225 million, and it’s a fair question to say, ‘Which is it?’”
According to court records, the state was seeking $2.6 billion in restoration costs, plus another $6.3 billion in compensatory damages for loss of use of the natural resource. However, those numbers — calculated in 2006 — would have required adjustment for inflation, the state said in a brief filed in November.
If politics weren’t involved, the state must have been leery of the judge’s findings on natural resource damages, according to Steven Picco, chair of Saul Ewing LLP’s energy, environment and utilities practice.
While the settlement amount is surprising, the state has long had a problem with establishing a credible formula for placing a value on the destruction and loss of natural resources, which has sunk other cases and may have been a serious consideration for the administration in the present dispute, according to Picco.
“They can talk about wetlands impact and all the rest, but you have to quantify it, and if you can’t quantify it, it’s a crapshoot, and if you have a crapshoot with these kinds of stakes, both sides are going to try to get out of it because they won’t want to run the risk either way,” Picco said.
Environmentalists, lawmakers and others have argued the deal grossly undervalues the damages at issue, but the administration has stressed that it’s the single largest environmental settlement with a corporate defendant in the state’s history. A catastrophic judgment for the state could have set a dangerous precedent, according to Fox Rothschild LLP partner David Restaino.
“It doesn’t send a message that ‘You can beat us, why pay?’” Restaino said about the proposed settlement. “That’s a heck of a big number, and I don’t think it’s going to provide an incentive for other parties to litigate to the ends of the earth.”
Praising the state Senate Environment and Energy Committee’s plans on Monday to consider a resolution opposing the settlement, New Jersey Sierra Club Director Jeff Tittel suggested the deal sends a much different message.
“If you violate the environmental laws or destroy the environment, the Christie administration will give you a little slap on the wrist,” Tittel said in a statement. “If a company has a problem at one of their facilities, it would be cheaper for them to pollute the environment than to fix the problem. With this settlement, Gov. Christie is saying to polluters it is open season in New Jersey.”
However, the fact that the agreement still requires the approval of a judge who is not only intimately familiar with the case but also knee deep in the specific issue of damages could weigh against arguments that the Christie administration knowingly shortchanged the state’s position.
The judge could reject the settlement outright or effectively send the state and Exxon back to the drawing board if the payout runs counter to the goals of the state’s Spill Compensation and Control Act and doesn’t represent a fair amount for the lost use of the natural resources at issue, according to Steven L. Humphreys, who is special counsel with Kelley Drye & Warren LLP.
“Given the position at which the parties are at in the case, where literally the judge is almost ready to issue a ruling determining what damages are appropriate, it would boggle my mind that an attorney for the state would so undersell the state’s interest under those circumstances,” Humphreys said. “They would be taking a huge risk with the judge, because it would be so apparent on its face to the judge if it were significantly disproportionate to what the judge was ready to assess.”
It’s not just the raw numbers of the deal that have come under fire. Opponents have blasted the possibility of Christie using all but $50 million of the payout to balance the state’s budget and jumped on allegations that the governor’s office hijacked the litigation and settlement negotiations.
In a recent oped for The New York Times, former New Jersey Department of Environmental Protection Commissioner Bradley Campbell said onetime colleagues had told him that Christie’s chief counsel had “inserted himself into the case, elbowed aside the attorney general and career employees who had developed and prosecuted the litigation, and cut the deal favorable to Exxon.”
On Friday, state Sen. Ray Lesniak, D-Union, said the potentially outsize role of the governor’s office in the case could bolster his planned bid to intervene in the litigation with Senate President Steve Sweeney, D-Gloucester, though he acknowledges it’s a long shot that the court will grant the request. Lesniak has previously said that, if Campbell’s allegations are true, Acting Attorney General John J. Hoffman abdicated his responsibilities and should step down.
“I know if I were a judge, I’d say, ‘Where have you guys been all this time?’” Lesniak said. “Our response to that is going to be, ‘We thought the state was being capably represented by the attorney general’s office, and then we found out that, indeed, the attorney general’s office has not been independent of the governor’s office by their own admission, and therefore the state of New Jersey and the people need another party to represent their interests.”
The administration said Thursday: “The litigation and settlement negotiations, as with all such cases of this magnitude, were conducted by the state attorney general’s office working in coordination with the New Jersey Department of Environmental Protection and the governor’s office.” A spokesman for the attorney general declined further comment Friday.
The deck is stacked against anyone attempting to intervene at this stage, according to Stuart J. Lieberman of Lieberman Blecher & Sinkevich PC, who added that settlements are given enormous deference anyway.
“As long as both parties can give a reasonable, good faith basis that supports that settlement, the odds are overwhelming that it is going to be upheld,” Lieberman said. “This is not a popularity contest, and it is not a chance to exercise some kind of political domain. It is a judicial process in which settlements are always preferred.”
The settlement will be subject to a 30-day public comment period once notice is published in the state register on April 6. That will provide another path for challenging the deal, according to Lesniak, who said a commenter would have standing to contest any subsequent court decision with the state Appellate Division.
“Based on what I’ve seen of the damages claim, this settlement would be arbitrary and capricious,” Lesniak said.
–Additional reporting by Matt Fair. Editing by Kat Laskowski and Mark Lebetkin.
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