Essex Chemical Successfully Challenges NJDEP's Natural Resource Damage Suit

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The New Jersey Appellate Division sides with Essex Chemical Corporation, a subsidiary of DOW Chemical, in a suit filed by the NJDEP in its effort to obtain both restoration and compensatory natural resource damages (“NRDs”) pursuant to the Spill Compensation and Control Act (“Spill Act”).  The Court held that Essex Chemical did not need to pay $8 million sought by the NJDEP under the Spill Act. 

In NJDEP v. Essex Chemical Corp., A-0367-10, the Court held that the NJDEP failed to prove by a preponderance of evidence that Essex Chemical’s cleanup plan was inadequate.  The NJDEP’s NRD claims against Essex Chemical stemmed from the discharge of hazardous substances on property that Essex Chemical previously owned and operated as a paper products preparation facility located in South Brunswick, New Jersey.  Essex Chemical was remediating the Property with the oversight of the NJDEP.  The lower court dismissed both of NJDEP’s NRD claims.  The NJDEP subsequently appealed the decision, which was the subject to the recent Appellate Division case.

Primary Restoration Damages

The NJDEP sought $5.7 million in Restoration NRDs to implement an alternative groundwater remedy at the Property, which, it was claimed, would remediate the groundwater in ten years.  The trial court found that the NJDEP did not establish that they were entitled to damages to restore the Property to pre-discharge conditions in that expedited timeframe.  The trial court evaluated several factors including cost and public harm in deciding that the NJDEP’s arguments were lacking.  In this case, the Appellate Division indicated that the NJDEP, which maintained the burden of proof on the issue of damages, had to establish by a preponderance of the evidence that its expedited remediation plan should be implemented rather than Essex Chemical’s plan of in-situ remediation.  The trial court and the Appellate Division both held that the NJDEP did not show the need to restore the Property to pre-discharge conditions within ten years, especially when the NJDEP did not show that contamination remaining on-site was causing harm to any sensitive receptors or pose any threat to the public health, safety or welfare.  The Appellate Division pointed to the fact that Essex Chemical had spent over $5 million in remediating the groundwater with the NJDEP’s oversight.  The pace at which Essex Chemical was performing the remediation was reasonable and the proposed remediation plan was already approved by the NJDEP.  
 
Compensatory Resource Damages

Further, the NJDEP sought over $2 million in Compensatory NRDs for alleged loss of use of NRD services, which in this case was groundwater.  The Appellate Division affirmed the trial court’s dismissal of the claim.  The Court found that they were not required to provide NJDEP’s experts any special deference where the expert’s opinions were based on economic factors in lieu of environmental factors.  Further, and more importantly, the Appellate Division agreed with the trial court’s finding that an award of compensatory NRDs was not warranted based on the expert testimony that the NJDEP presented.  The NJDEP failed to establish why they used the Resource Equivalency Analysis (“REA”) methodology to calculate NJDEP’s loss of use of groundwater for the NRD claim.  The REA determines how much restoration would be needed to offset the nature resource injury.  Using the REA, NJDEP’s expert calculated how much groundwater was allegedly injured by contamination at the Property, and then proposed a certain amount of acreage to be purchased for future protection and re-charge of groundwater.  The assessed value of the acreage to be purchased was the monetary amount of compensatory NRDs sought by the NJDEP.  The trial court noted that the REA is ordinarily used where NJDEP is calculating the injury to wildlife, where it is impossible to quantify lost services or use.  There was no instance presented at trial, where the REA was used to value loss of use for groundwater.  As such, the Appellate Division affirmed that the application of the REA analysis to this case was flawed and unconvincing. 

Even assuming that the application of the REA was accepted, the Appellate Division noted that the expert’s analysis would have potentially provided NJDEP with a windfall because there was no adjustment for the different types and quality of services provided by the undeveloped land that would have been acquired.  For example, the Appellate Division discussed the fact that, in addition to groundwater protection, open space provides for public recreation and suitable habitat for wildlife.  The Court found the expert’s analysis unfairly imposed on Essex Chemical costs that were in no way related to the injury resulting from the contamination.  Further in developing comparables used in the REA, NJDEP failed to utilize industrial properties such as the Property in question nor did it take into consideration zoning, location, utilities, tax rates and aesthetics, all of which effect the price of land.  The Court found that the damages were not indicative or equivalent to the loss. 

Conclusion

This case is good news for those challenging NRDs, as it puts a significant dent in NJDEP’s basis for calculating NRDs.  It is unclear whether the NJDEP will challenge this ruling and appeal to the New Jersey Supreme Court.  However, given the time and money spent in developing and defending the REA methodology, an appeal is likely.