October 09, 2019

With the Resurgence of New Jersey’s Natural Resource Damages Initiative, Are Other States Soon to Follow?

Nicole R. Moshang and Maria C. Salvemini

Natural resource damages (NRDs) are typically not at the forefront of practitioners’ consideration when assessing potential environmental liability. A recent resurgence of an interest in NRD recovery, particularly in New Jersey, has made it evident that the threat of an NRD recovery action is not only real, but potentially very costly to defend.

NRDs compensate the public through trustees for injury to natural resources. At the federal level, certain environmental statutes such as the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and the Oil Pollution Act (OPA) authorize the United States, states, and Indian tribes to act on behalf of the public as Natural Resource Trustees. Pursuant to CERCLA and OPA, there are regulations in place for assessing and quantifying NRDs. A Natural Resource Trustee conducts a Natural Resource Damage Assessment (NRDA) to calculate the cost to restore an impacted natural resource. Consistent with the purpose of NRDs, the NRDA examines the services provided by the non-impacted resources and then compares that to the reduction in the resource’s services as a result of the contamination. 

Although states can seek NRDs pursuant to federal law, some states have their own statutes authorizing them to act as a trustee to recover NRDs on the public’s behalf. Despite the legislative means available to pursue NRD recovery, states infrequently bring NRD recovery actions under either federal or their state laws. But as concern over emerging contaminant impacts to groundwater grows, so too has state interest in NRD actions to compensate any impacts. New Jersey, for example, filed 10 NRD recovery actions in the past year alone, after nearly a decade of no NRD action in the state.

Recent litigation in New Jersey and New Hampshire also signals a potentially wider focus for NRD recovery actions beyond the traditional focus on the petroleum industry, including actions relating to per- and polyfluoroalkyl substances (PFAS) contamination. New Jersey filed two NRD lawsuits alleging PFAS contamination in March 2019 and an additional one two months later in May. In May 2019, the state of New Hampshire sued companies for statewide damage caused by PFAS, seeking in part to recover NRDs. Considering the expanding scope of NRD recovery claims, industries that were not considered a conventional NRD defendant a few years ago, may soon find themselves in the complicated world of NRD.

As states begin to take a greater interest in NRDs, and to the extent they are successful, it is reasonable to expect other states to soon follow suit. Because New Jersey is at the forefront of NRD recovery efforts at the state level, the subsequent discussion focuses on the Garden State’s NRD initiative to better understand the potential widespread implications if other states follow suit and adopt similar initiatives.

After a decade without a single NRD recovery action brought by the state, New Jersey recently revitalized its NRD recovery initiative, grasping the attention of practitioners and the regulated community. In August 2018, New Jersey’s attorney general announced the filing of three lawsuits, seeking NRDs—Pohatcong Valley Superfund, Port Reading refinery, and Deull Fuel Company—touting the move as a “New Day” in the state’s environmental enforcement and promising to bring additional NRD lawsuits. Following through on its promise, in December 2018, the state announced the filing of another NRD lawsuit, followed by five more in March 2019, and an additional one in May 2019. Thus, to date the state has brought 10 lawsuits seeking to recover NRDs in the past year.

More striking than the speed at which the state is bringing these lawsuits are the allegations upon which they are based. With each new complaint the state has become more brazen in the counts alleged and the scope of resources they claim have been impacted. In the three “original” lawsuits brought in August 2018, the state alleged violations of the New Jersey Spill Compensation and Control Act (Spill Act), Water Pollution Control Act (WPCA), and common law, and sought recovery for impacts to resources including groundwater, surface water, sediments, and wetlands. Some of the complaints filed in 2019, however, have gone beyond these claims to allege counts for tortious interference and strict products liability for defective design and failure to warn, which are unprecedented in an NRD recovery action. Additionally, some of the recent complaints seek NRDs for alleged impacts to resources like air and forests. The state is also demanding jury trials in all 10 complaints––a departure from their prior practice, even though there is no new state court precedent granting the state the right to a jury trial for NRD claims. The procedural history of the pending cases further evidences that they are not your “typical” NRD cases. Five of the NRD cases were removed to federal court, four of which were removed pursuant to the federal officer removal statute. Defendants in the fifth case, Gurbir S. Grewal, Attorney General of the State of New Jersey et al. v. 3M Co. et al., removed the matter to the District of New Jersey pursuant to the federal officer removal statute and the court’s original jurisdiction because the plaintiffs’ claims arose in part on a federal enclave. Subsequently, however, the U.S. Judicial Panel on Multidistrict Litigation transferred the case to the District of South Carolina because it was related to the aqueous film-forming foams product liability litigation.

Despite the state’s renewed interest, it seems likely that the New Jersey Department of Environmental Protection (NJDEP) will be confronted with many of the same or similar legal challenges it faced in pursuing its earlier NRD initiative launched in the early 2000s. Specifically, New Jersey has struggled to develop an objective standard for evaluating and calculating recoverable NRDs. Although the state previously developed a formula to calculate groundwater injury in connection with its first NRD initiative, it has been rejected by the courts and there are currently no regulations regarding how to calculate NRDs. An NRD Task Force comprised of NJDEP officials, industry representatives, NRD practitioners, and environmental advocacy groups was convened to develop suggestions on topics including how to value NRDs. The Task Force, however, has not publicly reported any recommendations on NRD valuation methods. Despite the absence of any adopted regulations or informal guidance based on stakeholder input for valuing NRDs, the state continues to pursue new NRD claims.

While it is too early in the pending NRD proceedings to know how NRD valuation issues will ultimately be addressed, there have been several early motions filed challenging the scope and viability of the state’s common law claims seeking NRD. These challenges have resulted in inconsistent rulings from the trial courts on the issue of whether the state can assert a claim for trespass over land that it does not own. In the New Jersey Dep’t of Envtl. Prot. et al. v. Hess Corp. et al., case (relating to the Port Reading refinery), the Superior Court granted defendants’ motion to dismiss with prejudice with respect to trespass, finding that the state did not have a claim because it lacked exclusive possession. See New Jersey Dep’t of Envtl. Prot. et al. v. Hess Corp, et al., MID-L-4579-18 (N.J. Super. Ct. Law Div. Dec. 21, 2018). The court in New Jersey Dep’t of Envtl. Prot. et al. v. Deull Fuel Co. et al., disagreed with the Hess decision and instead held that the public trust doctrine defeats the exclusive possession element of a trespass claim. New Jersey Dep’t of Envtl. Prot. et al. v. Deull Fuel Co. et al., No. ATL-L-1839-18 (N.J. Super. Ct. Law Div. Aug. 8, 2019). Accordingly, the Deull Fuel court declined to dismiss the trespass claim. The Hess and Deull Fuel courts, however, both dismissed the respective public nuisance claims to the extent the state sought to recover monetary relief as a remedy because the only available remedy was abatement. The state sought interlocutory appeal of the court’s decision in Hess, which defendants Hess and Buckeye opposed. Although the Appellate Division accepted the appeal, any finality on these issues is likely years away. While it is unclear how the court will rule, the decision will undoubtedly have a ripple effect on the other pending NRD cases.

New Jersey’s NRD enforcement initiative is just getting started and NRDs will undoubtedly be a factor in the state for the foreseeable future. Accordingly, the regulated community and practitioners should certainly be considering potential NRD impacts in their transactions and site remediation efforts. Because the state continues to expand the scope of counts alleged and natural resources impacted in lawsuits seeking NRDs, it is currently unclear just how much the state can recover and under what circumstances. Importantly, this revitalized focus toward NRD recovery may not be limited to the Garden State as other states watch closely to learn from New Jersey’s triumphs and failures to then shape or develop their own NRD initiatives as a means to combat concerns about emerging contaminant impacts to their own natural resources. 

Nicole R. Moshang and Maria C. Salvemini

Nicole R. Moshang is a partner at Manko, Gold, Katcher & Fox, located just outside of Philadelphia, where she represents clients in multiparty litigation, commercial disputes, enforcement proceedings, and settlements involving complex environmental issues.

Maria C. Salvemini
is an associate at Manko, Gold, Katcher & Fox, located just outside of Philadelphia, where she focuses her practice on environmental litigation and regulatory compliance matters.