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New Jersey Appellate Division Upholds Historic NRD Settlement; Environmental Groups Appeal

On February 12, 2018, the Appellate Division of the Superior Court of New Jersey held that environmental groups had standing to challenge on appeal the trial court’s ruling accepting DEP’s $225 million settlement with Exxon Mobil for Natural Resource Damages (“NRD”), which include compensation for the injury and destruction of natural resources and the public’s loss of the use and enjoyment of those resources under New Jersey’s Spill Compensation and Control Act (“Spill Act”). See New Jersey Dep’t of Envtl. Prot. v. Exxon Mobil Corp., No. A-0668-15T1, 2018 WL 823001 (N.J. Super. Ct. App. Div. Feb. 12, 2018). The appellate court ultimately upheld the settlement, notably the largest NRD settlement in New Jersey’s history, finding that it was a reasonable compromise and was in the public interest.  Two weeks later, however, the environmental groups whom the Court found had standing to appeal, including the New Jersey Sierra Club and the Delaware Riverkeeper filed a Petition for Certification, requesting that the New Jersey Supreme Court review the decision. 

The settlement was the result of lengthy litigation and negotiations between Exxon and DEP dating back to the early 1990’s. In 1991, DEP entered into two administrative consent orders (“ACO”) with Exxon, requiring Exxon to remediate sites it owned and operated at the Bayway Refinery in Linden and the Bayonne Facility, and to pay a civil penalty. Per the terms of these two ACO’s, DEP reserved the right to recover additional NRDs from Exxon in the future.

Thereafter, in August of 2004, DEP filed two complaints against Exxon asserting claims under the Spill Act, and common law theories of nuisance and trespass, seeking NRDs for contamination at both the Bayway and Bayonne sites. Then, in 2006, on a motion for summary judgment, the trial court found that Exxon was strictly liable for NRDs and restoration costs under the Spill Act, which was upheld by the appellate division in an earlier appeal. Judge Michael J. Hogan presided over a sixty-day bench trial of the matter, during which the parties each presented expert witness testimony on the amount of alleged natural resource damages that occurred at both sites. DEP’s experts opined that the total NRDs were $8.9 billion, while Exxon’s experts estimated NRDs to be between $1.4 and $3 million. Before the trial court reached a decision in the trial, however, the parties reached a settlement, in the form of a consent judgment.

Under the terms of the proposed consent judgment, Exxon agreed to pay $225 million to the state treasurer, which money the state agreed to place in a segregated account within the Hazardous Discharge Site Cleanup Fund until the consent judgment became final. The state also agreed to the following: to release Exxon from all future NRD claims based on the discharge of contaminants onto the soil and sediments of the Bayway and Bayonne sites; to dismiss Exxon from surface water NRD claims at these sites, without prejudice; and to release Exxon for all NRD claims at over 1,000 Exxon retail gas stations and 16 other facilities located in New Jersey, excluding stations and facilities where MTBE had been discharged. Notably, nothing in the proposed consent judgment was intended to alter, suspend, or otherwise impact Exxon’s obligations to remediate the Bayway or Bayonne sites under the 1991 ACOs.

In accordance with applicable notice provisions in the Spill Act, DEP published the proposed consent judgment and received over 15,000 comments, mostly objections, including comments from State Senator and resident of the Bayway section of Elizabeth, Raymond J. Lesniak (“Lesniak”) and several environmental groups including the New Jersey Sierra Club, Clean Water Action, Environment New Jersey, and the Delaware Riverkeeper Network (collectively, “environmental groups”). While DEP was still evaluating the comments received, Lesniak and the environmental groups moved to intervene in the lawsuit. Judge Hogan denied the motions to intervene, but he allowed the proposed intervenors to appear as amicus curiae to file briefs and present argument challenging DEP’s motion to approve the settlement. In a decision issued in August of 2015, Judge Hogan approved the consent judgment, finding the settlement to be a fair and reasonable compromise given the substantial litigation risks that DEP faced at trial and could face on appeal, and that the settlement was in the public interest. See New Jersey Dep’t of Environmental Protection v. Exxon Mobil Corp., 2015 WL 10015127 (N.J.Super.L.). In response, the environmental groups and Lesniak renewed their request to intervene in the litigation, claiming that intervention was appropriate and necessary to give the proposed intervenors the right to appeal the trial court’s approval of the consent judgment. Judge Hogan denied the motion after determining, inter alia, that the parties did not have standing to bring their own claim for NRDs against Exxon under the Spill Act and/or through the Environmental Rights Act (“ERA”), since they could not show a lack of action on the part of DEP to give rise to an ERA claim.

On appeal, the Appellants argued that Judge Hogan erred in determining that standing was a prerequisite to intervening in the lawsuit, and even if it was, they had established standing to both intervene at trial and to challenge his approval of the consent judgment on appeal. The appellate court first considered whether establishing standing is a prerequisite to intervention at trial, and if so, whether Appellants in fact had standing. After reviewing the mandatory and permissive court rules on intervention, the appellate court determined that under the plain language of the rules, intervention is not appropriate unless the proposed intervening party can assert its own “claim or defense.” Notably, the appellate court recognized that none of the cases presented for its consideration directly held that a putative intervenor must establish standing in order to intervene under the mandatory and/or permissive intervention rules, but nevertheless, found that when considering whether a third party may become directly involved in pending litigation, courts have repeatedly used the phrase “standing to intervene” as the conceptual equivalent to “standing.”

Because DEP is entitled to bring direct claims for cleanup and natural resource damages under the Spill Act, but private parties are limited to claims for contribution for such costs/damages incurred, the appellate court affirmed Judge Hogan’s decision that the appellants did not have standing to bring a claim for NRDs in the underlying litigation and thus did not have standing to intervene in the action. As to the ERA claim, the appellate court again agreed with Judge Hogan’s determination that the appellants had not established inaction and/or inadequate action on the part of DEP to give rise to an ERA claim. The appellate court further explained that because the remedy for ERA claims is limited to injunctive or other equitable relief to compel compliance with a rule, or to assess civil penalties for the violation as provided by law, the ERA does not provide a private party the right to bring an action to recover NRDs under the Spill Act. Lastly, the appellate court stated that even if the trial court erred in deciding that standing is required to intervene at trial, any error in denying standing was not prejudicial and did not bring about an unjust result because appellants were given an opportunity to file amicus briefs and make argument as amici. The court reasoned that appellants essentially were permitted to assert their claims as if they had intervened, and thus their arguments were sufficiently considered.

The appellate court next looked to Judge Hogan’s conclusion that appellants could not intervene to preserve a right to appeal. The appellate court easily determined that the trial court lacked authority to decide whether an appeal is cognizable, and thus considered de novo whether appellants may challenge the merits of Judge Hogan’s approval of the settlement before the appellate court, even though they did not have standing to pursue the claims made in the lawsuit. In considering whether a non-party may file an appeal challenging a judgment approving a settlement agreement, the appellate court considered cases where parties sought intervention to appeal settlements, and recognized that where an intervenor-appellant had sufficient personal or pecuniary interest or a property right adversely affected by the underlying determination, they may have standing to challenge the judgement on appeal, even if they did not participate in the prior proceeding. Nevertheless, the appellate court determined that Lesniak did not have sufficient personal or pecuniary interest or property right adversely affected by Judge Hogan’s approval of the settlement. To the contrary, the appellate court did find that the environmental groups had standing to appeal, based on their representation of citizen’s interests throughout the state. Indeed, because DEP is required to publish its decision to settle litigation under the Spill Act, the appellate court concluded that the Legislature did not intend to immunize DEP from any and all challenges to their settlement discretion.

Finding that the environmental groups had standing to challenge the trial court’s decision approving the consent judgment, the appellate court next evaluated whether the settlement was “fair and reasonable,” and/or exceeded DEP’s legal authority. The appellate court deferred to Judge Hogan’s fact-finding and review of the evidence, which it described as appropriate, and agreed with his findings that the consent judgment was fair, reasonable, consistent with the Spill Act’s goals, and in the public interest.

The appellate court’s decision is significant because it decided what no New Jersey case had previously determined, which is that standing is a prerequisite to intervening in a lawsuit for any reason, including challenging a proposed settlement. The case is also significant because it clarifies that non-parties to litigation may be entitled to challenge a trial court’s decision through an appeal in cases of great public interest, such as when it is likely that no one can or likely will assert the public’s opposing interests. 

As noted in the opening paragraph to this blog post, the grant of standing on appeal continues to have ramification in this case, as, on March 1, 2018, the environmental groups filed a Petition seeking New Jersey Supreme Court review.