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Bombshell: Bungling By DEP Led To Exxon Deal

NJ Law Journal nails the history of DEP’s failure to adopt NRD regulations

Expose’ likely to give political cover to Gov. Christie, but will it lead to reforms?

A March 23, 2003, letter from deputy attorney general Richard Engel to Picco said the DEP “has long planned to promulgate regulations to improve the current Natural Resource Damage program” and “is currently developing its regulatory proposals, and plans to file one or more rule proposals prior to Aug. 1, 2005.

The “forthcoming rules clearly will afford the NJ SEED plaintiffs an administrative forum, subject to judicial review, in which to present policy and legal arguments presented in or related to the pending litigation,” Engel said in the letter.  ~~~~   NJ Law Journal

[Updates below]

The NJ Law Journal has a bombshell story today, which finally gets to the heart of the matter on the Exxon NRD deal.

Mary Pat Gallagher at the Law Journal lays out a story we have been warning about for a decade, see:

The $225 million pollution settlement between New Jersey and Exxon Mobil Corp. has been criticized as inadequate, given the state’s $8.9 billion damages claim, but some lawyers and environmentalists have questioned whether the state’s valuation of the case would have withstood judicial scrutiny.

The settlement, for a century of pollution at Exxon’s Bayway and Bayonne refinery sites, has been attacked as a deal that would pay less than three cents on the dollar for natural resource damage that had been pegged by the state’s experts at $8.9 billion, in the context of a case where liability was already decided and a ruling on a dollar figure, after months of trial, was imminent.

But some lawyers and environmental advocates said the state’s failure to adopt a methodology for calculating damages for harm to natural resources through the formal rule-making process—as it committed to do more than a decade ago when it settled another suit—weakened its negotiating position and led to a lower settlement in not just the Exxon case but in other natural resource damage suits it has brought.

The Law Journal story echoes exactly what we said about the DEP’s failure to adopt regulations, way back in 2007:

Trenton — In a stunning legal setback, the State of New Jersey cannot recover damages from polluters in what may be thousands of contaminated groundwater cases, according to Public Employees for Environmental Responsibility (PEER). The problem stems from the state’s failure to adopt regulations governing how to calculate “natural resources damages” (NRD) for polluted drinking water.[…]

This regulatory train wreck was completely preventable,” stated New Jersey PEER Director Bill Wolfe, a former DEP analyst, pointing to repeated acknowledgements by state officials of the need to act:

  • In 2002 “Vulnerability Assessments,” DEP estimated that as many as 4,600 cases may require NRD litigation which would necessitate both rule making and extending the statute of limitations. This data prompted former DEP Commissioner Bradley Campbell to say he was “astounded to find on taking office in [2002] that the [DEP] had not pursued, or left unsettled, thousands of cases against polluters responsible for a wide range of damages to New Jersey’s natural resources,” pledging to put the program “back on track”;
  • In a 2004 settlement agreement of the case New Jersey Society of Environmental & Economic Development (SEED) v. Campbell (N.J. Super. Law Div., Mercer County) DEP legally committed to propose formal natural resource damage regulations; and
  • At a May 24, 2005 seminar at Rutgers’ Cook College, John Sacco, Chief of DEP’s Office of Natural Resource Restoration pledged that natural resource damage regulations will “hopefully” be proposed in fall 2005. But since then, there has been no apparent activity to move rules forward.

“The corporations who had the most at stake stalled the NRD program during the Whitman administration but failed to kill it outright. Now, through inaction, the Corzine administration has provided polluters precisely the relief they sought,” Wolfe added. “Those officials responsible for these policies and blocking these regulations should be identified and drummed out of public service.”

But the Law Journal adds damning new facts I was not aware of, including a letter from Deputy Attorney General Rick Engel regarding a legal settlement agreement with plaintiffs in the SEED case:

The plaintiffs asked the court to compel the DEP commissioner “to promulgate and adopt the method of quantifying [the] alleged legal obligation to compensate the state for groundwater NRD in accordance with the provision of the New Jersey Administrative Procedures Act.”

The case settled soon after, with the state agreeing to adopt formal rules.

“We were going to win that case,” Picco said. “We started to talk and they said, ‘We’ll come out with rules.'”

A March 23, 2003, letter from deputy attorney general Richard Engel to Picco said the DEP “has long planned to promulgate regulations to improve the current Natural Resource Damage program” and “is currently developing its regulatory proposals, and plans to file one or more rule proposals prior to Aug. 1, 2005.”

The “forthcoming rules clearly will afford the NJ SEED plaintiffs an administrative forum, subject to judicial review, in which to present policy and legal arguments presented in or related to the pending litigation,” Engel said in the letter.

But the rule making never occurred, according to Picco.

“It’s never been done despite repeated requests to do it,” Picco said. “We followed up until it became clear that their inability to come up with rules was costing them in court.”

The state has never won a natural resource damage case in court, Picco said.

Ouch! We expect that phones are ringing in the AG’s and DEP Commissioner’s Office.

I’ve locked horns before with the SEED attorney Steve Picco – in our victory over the Mercer County incinerator – and know him as a good man and competent lawyer.

But it pains me to agree with him, in part:

Picco said the lack of rules governing natural resource damage calculation may have impacted the state’s decision to enter into the Bayway/Bayonne settlement with Exxon.

“I’ve got to believe that in addition to whatever budget or political pressure was involved, they have got to be a little nervous about their record,” Picco said. “The law is clear that they have the right to charge NRD but they have never been able to come up with a judicially approvable methodology.”

Picco said he believes the state “would have had to be concerned about how it would justify the number”—referring to the $8.9 billion damage figure—and that concern would serve as “an incentive to settlement.”

But that agreement is only partial, because Picco doesn’t tell the complete truth about what was really going on in the DEP NRD program. Picco represents polluters who don’t want to pay for the damage to natural resources caused by their pollution. He has no interest in DEP adopting and enforcing strong NRD regulations.

I capture that dynamic with this quote:

Wolfe said the lack of valuation rules leaves the state vulnerable to challenges on the amount of damages.

The state “knows it has a weak legal hand,” making it reluctant to push too hard and more willing to settle, Wolfe said.

Exxon’s lawyers are “sharp enough to know this” and to assume the state knows it is legally vulnerable, Wolfe said.

“There’s this wink and a nod going on where the DEP is saying, ‘We won’t squeeze you too hard if you just come to the table and settle,'” Wolfe said.

It’s been “a quiet little dance for 10 years,” with the state knowing it can’t get more than pennies on the dollar”, Wolfe said.

What is left unsaid in the Law Journal story but which I have alluded to is another ugly set of facts and incentives.

While Picco’s clients have no interest in an aggressive DEP NRD program, surely – you would think – NJ conservation groups do.

But you would be wrong.

Many NJ conservation groups were involved in and were funded by the DEP NRD program (see this Report @ page 14), which includes a $1 million NRD settlement revenues awarded to the NY/NJ Baykeeper, and – GET THIS! – favorably touts a close relationship with Gov. Christie’s former US Attorney’s Office: (@ page 17)

CRI administered $1 million in funding for an oyster restoration project in the Raritan Bay which was provided under a civil settlement with Chevron U.S.A., Inc. and the New Jersey Department of Law and Public Safety. The settlement arose from a February 2006 oil spill in the Arthur Kill, the strait separating Staten Island from New Jersey.

From 2007 – 2014, this funding was used on NY/NJ Baykeeper’s Oyster Restoration in the Raritan Estuary Initiative. It funded the first stages of restoring oysters to the Raritan Bay including research and experiments that have shown that oysters can be restored to this area. Through their work in New York City and New Jersey, Baykeeper is showing that oysters can play a fundamental role helping filter pollutants and restore ecosystem function to the Raritan Bay and Hudson River Estuary.

These types of civil settlements are quite common at the Federal level. Realizing this, CRI met with the US Attorney’s office in 2007 after they announced a big settlement in New Jersey that was to be awarded to NFWF, which, in-turn, was going to grant it to other non-profit conservation organizations in New Jersey. We met with the US Attorney in order to determine whether or not a local non-profit could play the role that NFWF typically plays in administering these funds. The US Attorney’s office could not provide an answer to us and it still remains unclear whether NFWF has a monopoly on this type of federal funding. 

[Seeing how conservation groups benefitted from settlements, NOW do you understand why those same conservation groups who make up the Keep It Green Coalition didn’t want hundreds of millions of NRD and other DEP settlement revenues dedicated to the Open Spasce Fund? They had the inside track with DEP and wanted to continue to have exclusive access to that money for themselves!  If those revenues went to the Open Space fund, they would lose the inside track and exclusive access and the money would be used for other purposes to benefit historic preservation, parks, and farmland – not just their pet restoration projects.]

Conservation groups were aware of the DEP’s lack of rules, were aware of the fact that DEP pledged to adopt rules in the 2004 SEED settlement, and knew that this failure created  legal vulnerabilities that led to settlements for 3 cents on the dollar.

Conservation groups knew that corporations were not being held fully accountable and that the public interest was being betrayed.

But, they said nothing and did nothing to strengthen the DEP NRD program because that would have required a big fight with powerful polluters – a fight they have no stomach for.

Instead of working to strengthen and fix the DEP’s NRD program, they were content with receiving 2 pennies if the pitiful 3 cents on the dollar collected by DEP.

And that is a scandal, my friends.

[Update #1: I missed this story on the March 19, 2015 Assembly Judiciary hearing by Law360NJ Lawmakers Scrutinize $225M Exxon Deal

McKeon said it was his understanding that the state had presented a strong case on damages, though Bill Wolfe, director of the New Jersey Chapter of Public Employees for Environmental Responsibility, said during the hearing that there have been overarching weaknesses in the state’s natural resource program that may have hurt its footing.

“Some of the legal and technical vulnerabilities could have been remedied had the state adopted regulations that adopted methodologies to quantify and calculate things like lost use and functional value, and they’ve refused to do so,” Wolfe said. “I think it’s a terrible settlement, I think it’s a terrible deal, but there are valid arguments that could strengthen the program … This pennies on the dollar claim is a structural problem of that program.”

 [Update #2 –  DEP is spinning this lame excuse:

Asked why valuation rules never materialized, DEP spokesman Bob Considine said, “It’s difficult to comment on the aims of prior administrations and why a formal rule-making process was not established.”

Problem is, Gov. Christie’s own DEP Transition Report recommended that NRD regulations be adopted:

With respect to the State’s efforts to seek compensation for damages to natural resources (NRD), we recommend that NRD efforts fall under the jurisdiction of the Site Remediation Program, and that rules be adopted to provide transparency, certainty and consistency in the assessment of those damages. 

DEP owns this one. They can’t run, they can’t hide. ~~~ end update]

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