New Jersey Superior Court Appellate Division Rules DEP Has Authority to Seek Damages for "Loss of Use" of Natural Resources under Spill Act

June 13, 2007
by BRUCE KATCHER, JOHN GULLACE and NICOLE MOSHANG
MGKF Special Alert

In a case of first impression under the New Jersey Spill Compensation and Control Act ("Spill Act"), a three judge panel of the New Jersey Superior Court, Appellate Division, issued a unanimous opinion in N.J. Dept. of Envtl. Prot. v. Exxon Mobil Corp., No. A-6588-05T5 (N.J. Super. Ct. App. Div. June 6, 2007), finding the New Jersey Department of Environmental Protection's ("DEP's") natural resource damages ("NRDs") claim for loss of use damages is "consistent with the Spill Act's express terms, is harmonious with legislative intent, and is in keeping with legislative directives articulated in the Act's recent amendments." The Appellate Division's decision reverses the May 26, 2006 opinion of the Law Division, which held that the Spill Act did not allow DEP to collect "loss of use" NRDs from Exxon Mobil. The issue was first raised before the Law Division in response to DEP's motion for partial summary judgment, wherein DEP claimed Exxon Mobil was strictly liable under the Spill Act for NRDs associated with the release of various petroleum products at refineries in Linden and Bayonne and thus DEP was entitled to judgment on that issue as a matter of law. Exxon Mobil filed a cross-motion for summary judgment on the ground that the Spill Act only provides for the recovery of "cleanup and removal costs," which, according to Exxon Mobil, meant the costs incurred to prevent or mitigate damages—not compensation for the restoration or loss of use of the natural resources. The Appellate Division's rejection of that argument is likely to encourage DEP's efforts to recover loss of use damages for contaminated groundwater and other natural resource injuries.

Before the Appellate Division, DEP argued that the Spill Act allows recovery of NRDs as "cleanup and removal costs" because the latter includes "restoration and replacement" of the affected natural resources and that "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)." Id. at 5. According to DEP, "loss of use" is a means of measuring the reduction of services provided by an affected natural resource and determining its replacement value, and as such is a component of NRDs recoverable under the Spill Act. Accepting DEP's arguments, the Appellate Division found support for DEP's position in the text of the Spill Act and a clear legislative recognition of DEP's authority to seek compensation for the loss of the benefits natural resources provide. The Appellate Division also deemed "it significant that the Legislature amended the Spill Act after DEP's adoption of the Policy Directive [DEP's 2003 Policy Directive setting forth its NRD initiative], with changes that obviously reflect not only the Legislature's awareness of the agency's natural resource damages initiative, but as well that body's approval of DEP's interpretation of its regulatory powers under the Spill Act." Id. at 32-33.

While it remains to be seen whether Exxon Mobil will seek further review of this issue by the New Jersey Supreme Court, for the time being, the Appellate Division's decision removes the cloud of uncertainty regarding DEP's authority to seek "loss of use" damages. Because so many of DEP's pending and threatened NRD claims involve the recovery of damages for groundwater contamination which are predicated primarily on a "loss of use" theory, the decision clears the way for DEP to continue its NRD initiative for these groundwater NRD claims on the eve of the expiration of the statute of limitations for NRD claims—set to expire on June 30, 2007, for many sites. Notably, the decision does not speak to the validity of DEP's theory for calculating the loss of use value for contaminated groundwater that is not in use, which is likely to continue to be challenged in other pending and future cases.

If you would like additional information concerning the Exxon Mobil case or the topic of NRDs, please contact Nicole Moshang (nmoshang@mgkflaw.com), Bruce Katcher (bkatcher@mgkflaw.com) or John Gullace (jgullace@mgkflaw.com).