N.J. Court Extends Reach of Spill Act For Loss Of Use Of Natural Resources

On June 6, 2007, the New Jersey Appellate Division held that a company may be strictly liable under the New Jersey Spill Compensation and Control Act (Spill Act), for damages for the loss of use of natural resources adversely affected by the entity's discharge of hazardous substances. (Dep't. of Envtl. Prot. v. Exxon Mobil Corp., A-6588-05T5, June 6, 2007). The court determined that the definition of "cleanup and removal costs" under the Spill Act is sufficiently broad to encompass Department of Environmental protection's power to assess damages caused to natural resources and to require compensation for their loss of use.

Exxon Mobil operated petroleum refineries and petrochemical plants in both Linden and Bayonne. During the course of its operation of these sites, Exxon Mobil allegedly discharged hazardous substances, including petroleum products. As a result of the discharge of such substances, DEP alleged, contamination existed beneath the two properties. Pursuant to two administrative consent orders entered in 1991, Exxon Mobil has been cleaning up both sites for the past 15 years. As part of this remediation, DEP sought to compel Exxon Mobil to institute projects for this restoration of natural resources at the two locations, which Exxon Mobil refused to undertake .

Consequently, DEP filed two complaints, one for each site, against Exxon Mobil, alleging Spill Act and common law claims of public nuisance and trespass, and for natural resource damages for the discharge of hazardous substances at the Linden and Bayonne sites. The DEP asserted claims for damages, including lost use arising from damages to natural resources caused by the discharge of hazardous substances.

The Law Division found that Exxon was strictly liable under the Spill Act for the costs of the physical restoration of natural resources damaged by its alleged discharges. However, the Law Division rejected the DEP's argument that a claim for "loss of use" may be brought under the Spill Act, refusing to "expand the definition of cleanup and removal costs under the Spill Act to include damages for the loss of use of natural resources." The lower court determined that there was no language in the Spill Act that would hold a discharger strictly liable for the loss of use of natural resources. Exxon did not appeal the Law Division's ruling on the costs of physical restoration of damaged natural resources, but the Appellate Division granted DEP's motion for leave to appeal on the sole issue as to whether an entity may be strictly liable under the Spill Act for damages for loss of use of natural resources.

The Appellate Division, citing Dep't of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 499 (1983), explained that the Spill Act did not alter substantive liability from the common law but established new remedies for activities recognized as tortious under prior statutes and the common law. DEP argued that one of the new remedies under the Spill Act was the State's right to recover for the "loss of use" of natural resources injured or destroyed by a discharge. The Appellate Division agreed, reasoning that the text of the statute provides for strict joint and several liability "for all cleanup and removal costs no matter by whom incurred." Citing N.J.S.A. 58:10-23.11(c)(2), the court emphasized that "cleanup and removal costs" include "taking of reasonable measures to prevent or mitigate damage to the public health, safety, or welfare?..." The court, therefore, determined that such "loss of use" damages were a component of costs of mitigating damage to public natural resources.

Exxon Mobil argued that because the only section of the Spill Act that imposes strict liability directly against polluters does not expressly mention "loss of use" damages, DEP was without authority to seek such relief and its removal costs are limited to costs incurred under the administrative consent orders. The court disagreed and held that the definition of "cleanup and removal costs" was sufficiently broad to encompass DEP's power to assess damages caused to natural resources and to require compensation for their loss of use.

The court held, therefore, that "'restoration and replacement' requires the return of natural resources to their pre-discharge condition and the replacement of natural resource 'services' lost in the interim." The court reasoned that if recoverable damages were limited to physical restoration, the amount of compensation would have no relation at all to the period of lost use. The result would be to fail to make the public whole for its loss and would further create a disincentive for polluters to undertake timely remedial action, and would consequently be inconsistent with the purpose and intent of the Spill Act.

The Exxon Mobil decision is significant in that it is a decision of first impression in which the Appellate Division expanded liability for damages under the Spill Act for natural resource damages ("NRD"). As DEP is currently vigorously pursing NRD claims, the Appellate Court's ruling is a significant victory for it. If the Appellate Division's decision is unchallenged or affirmed, companies must remain cognizant of the fact that if liable under the Spill Act, damages will be assessed based upon both physical restoration of the of the site in addition to compensation for the loss of use of natural resources. As a result, companies may be assessed significantly greater damages for Spill Act liability.

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Please feel free to contact Sheila Woolson in the firm's Newark office at 973/639-8268 or [email protected] if you have any questions or comments. Daniel R. Levy, an associate in the National Litigation Department, assisted in the preparation of this Alert.

This document has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult your attorneys in connection with any fact-specific situation under the applicable state or local laws that may impose additional obligations on your company.

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