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:

• Some Say NJ Had Little Choice but to Settle With Exxon

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)