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New Jersey Dep't of Environmental Protection v. Exxon Mobil Corp.

June 6, 2007


On appeal from the Superior Court of New Jersey, Law Division, Union County, L-3026-04 consolidated with L-4415-04 from the Law Division, Hudson County.

The opinion of the court was delivered by: Parrillo, J.A.D.



Argued April 25, 2007

Before Judges Lefelt, Parrillo and Sapp-Peterson.

At issue is whether an entity may be strictly liable under the New Jersey Spill Compensation and Control Act (Spill Act), N.J.S.A. 58:10-23.11 to -23.24, for damages for the loss of use of natural resources adversely affected by its discharge of hazardous substances, a question of first impression in this State. On leave granted, the New Jersey Department of Environmental Protection (DEP) and the Administrator of the New Jersey Spill Compensation Fund appeal from the May 26, 2006 order of the Law Division dismissing on summary judgment the State's statutory claim against defendant Exxon Mobil Corporation (Exxon Mobil or defendant) to recover such natural resource damages. For reasons that follow, we reverse and remand.

By way of background, at all relevant times Exxon Mobil operated petroleum refineries and petrochemical plants in both Linden and Bayonne. The Linden facility commenced operation as early as 1909 on 1300 acres (the Bayway site) and consisted of a refinery, two chemical plants, tank fields, and a distribution station. A waterfront area borders on the Arthur Kill. Two streams on the site join to form Morses Creek. Two tank fields on the site drain to the Rahway River. Land use in the vicinity of the site is residential, commercial, and industrial.

The Bayonne site originally consisted of 640 acres, but as of the late 1960s, was reduced to 288 acres including 250 acres of land and 38 riparian waterfront acres. The site is surrounded by heavy and light industry, interconnected by a transportation network of roadways, railroads, and the navigable waters of the Kill Van Kull and Upper New York Bay. Platty Kill Creek is located to the west of the site, the Upper New York Bay to the north, and the Kill Van Kull to the south.

During much of the period between 1909 and 1972, the Bayonne and Bayway refineries were interconnected by pipeline and operated as a single, integrated refinery and petrochemical facility, generally known as the "New Jersey Works" up until 1954, and thereafter the "Jersey Works". According to Exxon Mobil, the United States government controlled production activities at the New Jersey Works during World War II, resulting in increased production and greater quantities of wastes that needed disposal.

It is undisputed that during the course of its ownership and operation of these two sites, Exxon Mobil discharged hazardous substances, including petroleum products, into the natural resources of the State, and as a result extensive contamination exists beneath these properties, for which defendant acknowledges it is jointly and severally liable under the Spill Act. Consequently, in November 1991, Exxon Mobil entered into two administrative consent orders (ACOs) with DEP, in which it agreed to remediate the Bayway and Bayonne sites. The ACOS included provisions that contaminants had been detected in some portions of the soils and groundwater on and under each of the sites, and that Exxon Mobil had undertaken investigation, cleanup, and remediation operations on those sites under the direction and control of DEP. Significant for present purposes, each of the ACOs recognized that the DEP's site remediation program did not preclude the State from seeking further relief for damages to natural resources:

This Administrative Consent Order shall not be construed to affect or waive the claims of federal or State natural resource trustees against any party for damages for injury to, destruction of, or loss of natural resources.

Correspondingly, Exxon Mobil acknowledged further that: the police power of the State extends to the protection and conservation of natural resources which are not the private property of any person or entity; admits that by a longstanding legal fiction this proposition is sometimes inexactly expressed by saying that the State is the owner of natural resources for the benefit of its people; admits that DEP has certain regulatory authority with respect to natural resources within the State provided by law.

Apparently, cleanup processes underway at the two sites pursuant to the ACOs for the past fifteen years continue to date.

As part of its oversight of remediation of contaminated sites, DEP promulgated Technical Rules, (N.J.A.C. 7:26E-1.1 to -8.7) and Oversight Regulations that together provide the means, methods and requirements for parties to investigate and remediate contaminated sites in order to qualify for and obtain a "no further action" determination from DEP for such remediation. It has been DEP's longstanding position that "remediation" is just one of the processes involved in the cleanup of refinery sites and removal of contaminants thereon. According to DEP, remediation involves the cleanup of contaminants to "risk-based" levels, whereas "restoration" and "replacement" requires return of the natural resource to its pre-discharge condition (primary restoration) and replacement of the natural resource "services and values" lost in the interim between contamination and cleanup completion (compensatory restoration). The latter include both "human use" and "ecological" services, which encompass water uses such as for drinking and irrigation, and recreation such as swimming, fishing, boating, bird watching, or nature viewing. Thus, as one component of "natural resource damages" (NRD), DEP includes recovery for the residual injury that remains once the remedial cleanup process is completed, that is for the "loss of use" of the affected natural resource caused by the polluter's wrong. In other words, "loss of use" is a means of measuring the reduction of services provided by a polluted natural resource and establishing a value for its replacement.

As DEP noted in its responses to comments on the initial promulgation of the Technical Rules back in 1993, "restoration of natural resources is an important component in any remediation effort and the Department has the authority [under the Spill Act] to require it as appropriate." 25 N.J.R. 2281, 2289 (June 7, 1993) (response to comment 56). Upon readoption of the Technical Rules in May 1997, changes included: (i) addition of "natural resource damages" to the list of components contained in the definition of "remedial action costs" at N.J.A.C. 7:26E-1.8; (ii) definition of "injury", at N.J.A.C. 7:26E-1.8, as "any adverse change or impact of a discharge on a natural resource or impairment of a natural resource service, whether direct or indirect, long term or short term, and includes the partial or complete destruction or loss of the natural resource"; (iii) definition of "damages", at N.J.A.C. 7:26E-1.8, as "the amount of money the natural resource trustees, identified pursuant to 42 U.S.C. §§ 9601 et seq., have determined is necessary to restore, rehabilitate, replace or otherwise compensate for the injury to natural resources as a result of a discharge." DEP published the following comment with the readoption of the Technical Rules:

In New Jersey, the Commissioner of the Department of Environmental Protection is the designated trustee charged with the duty of administering and protecting the State's natural resources. The Department's Office of Natural Resource Damages represents the Commissioner in this capacity and coordinates with the other trustees.

In keeping with its status as trustee for the public of the State's natural resources, the Department is concerned about those sites where discharges of hazardous substances impact or may potentially impact natural resources. Also of concern is remedial actions which, through their implementation, injure natural resources (such as dewatering a wetland through ground water extraction for treatment, or loss of functional habitat for roadway construction). The Department is authorized to seek compensation for such natural resource damages through legal means or cooperative settlement, with the objective of restoring the injured or lost resources. The Department's Office of Natural Resource Damages works closely with the various remediation programs to evaluate contaminated sites for natural resource damage claims. The Department encourages the person responsible for conducting the remediation to consult with and coordinate with the Office of Natural Resource Damages in assessing and estimating natural resource injuries and damages. Much of the information collected in the baseline ecological evaluation and follow-up ecological risk assessment efforts can be used in determining the injury to natural resources and consequently, the damage. Integrating natural resource damage issues into the site remediation program ensures collection of data that is useful for both the cleanup programs and trustees, promotes a remedy selection process that is cognizant of minimizing further potential injuries while creating opportunities for building restoration into the final remedy.

[29 N.J.R. 2278(b), 2392-93 (May 19, 1997) (response to comment 900).]

Consistent therewith, DEP instituted a natural resource damage (NRD) initiative in 2002, memorialized in the agency's Policy Directive 2003-07 of September 2003. See Bradley M. Campbell, Commissioner, New Jersey Department of Environmental Protection, Policy Directive 2003-07 (Sept. 24, 2003) (last visited May 17, 2007). This directive stated that responsible parties might alleviate the effects on the public of the loss of use of natural resources by providing "substitute resources or resource services," which could be "both in-kind and out-of-kind." As to groundwater resources, the Policy Directive's suggestions included "acquisition of aquifer recharge areas, water re-use or recycling projects, infrastructure improvements to control stormwater or improve recharge, reforestation efforts to improve infiltration and water retention, or any other measure that enhances the water resource base . . . ." For lost recreational uses, the Policy Directive recommended "enhancements to public access, creation of or improvements to state or local parks, or the provision of other alternate recreational opportunities."*fn1

With particular reference to Exxon Mobil, DEP's review and investigation identified "some preliminary restoration work on natural resources" that was recommended for the Bayway and Bayonne sites. On the former, one natural resource involved was the Morses Creek, which traverses the site and ultimately discharges into the Arthur Kill waterway. Morses Creek was historically used as a discharge trench for the refinery's waste water, and also received contamination from other facility operations and discharges. The creek's sediments were highly contaminated and the vegetation on its banks were severely diminished, if not destroyed. A dam at the creek's mouth, and "[b]ulkheading and rip-rap of the creek's banks" had precluded daily tidal influences to the creek's flood plain and associated marshes. According to John Sacco, Director of DEP's Office of Natural Resource Restoration, removing the dam and hardened creek banks would restore tidal flow to many of the former floodplain areas, which would be "essential to reestablishing former salt marshes". Creek dredging, with appropriate air emission controls, "would remove free product and ...

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