july 2007

N.J. Appellate Division Decision Restores Loss Of Use As Criterion To Assess NRD Liability

BACKGROUND

The Superior Court of New Jersey Appellate Division recently reversed an important trial court ruling by concluding that NJDEP has the authority to assess natural resources damages (NRDs) based upon the “loss of use” of those resources. In doing so, the Appellate Division has restored NJDEP’s ability to utilize the concept of “loss of use” as its basis for assessing NRD liability for groundwater contamination.

Under New Jersey’s Spill Compensation and Control Act (Spill Act), a party who is liable for the cleanup of contamination is also liable for damages to the State for any injury to natural resources caused by the contamination. This “loss of use” encompasses both human uses (drinking, irrigation, and recreation) and natural resource functions such as soil preservation, mitigation of droughts and floods, and erosion protection.

Parties responsible under the Spill Act must resolve NRD liability by restoring the natural resource or reaching a monetary settlement with the State as a condition to receiving a No Further Action letter from NJDEP.

NJDEP V. EXXON MOBIL

In August 2004, NJDEP filed two complaints against Exxon Mobil for NRDs relating to contamination at two of the company’s oil refining and petrochemical facilities. NJDEP asserted claims for damages for the cost of restoring damaged waterways, floodplains, and wetlands, and for the cost of the loss of use of these natural resources.

While conceding that the Spill Act imposes strict liability for cleanup costs that include the physical restoration of natural resources, Exxon Mobil argued that the law does not impose liability for the loss of use of natural resources. The trial court held that damages for loss of use are not recoverable costs under the Spill Act and dismissed NJDEP’s claim for these damages.

The Appellate Division reversed the trial court decision and upheld the loss of use criterion for assessing NRD liability, noting that the Spill Act vests broad authority with NJDEP. The court reasoned that an expansive reading of the definition of “cleanup and removal costs” is necessary to accomplish the Spill Act’s goals and that other provisions of the Spill Act reinforce NJDEP’s inclusive interpretation. The Appellate Division also noted that this conclusion is supported by subsequent amendments to the statute.

WHAT YOU SHOULD KNOW

NJDEP continues to include loss of use when calculating NRDs. Parties responsible for cleanup costs at contaminated sites will be liable for the value of natural resources lost during the period of time between contamination and the completion of cleanup. We will monitor the progress of any future litigation concerning this matter.

If you have any questions concerning these issues, please contact Jay A. Jaffe or Julia C. Rinne.