New Jersey Appellate Division Upholds $225 Million NJDEP Settlement With Exxon Mobil for Natural Resource Damages

In 2004, the New Jersey Department of Environmental Protection (NJDEP) sued Exxon Mobil Corporation under the Spill Act to recover natural resource damages (NRDs) for the Bayway refinery in Linden and another facility in Bayonne. Fourteen years later, New Jersey’s Appellate Division has upheld a consent judgment, entered by Judge Michael J. Hogan after a sixty-day bench trial, that settled NJDEP’s claims at the Bayway and Bayonne sites as well as 16 other Exxon facilities (including a terminal in Paulsboro) and over 1,000 retail gas stations, in exchange for a record payment of $225 million.

In addition to the validity of the consent judgment itself, the case presented a number of important procedural questions regarding the ability of the non-party appellants – here, State Senator Raymond Lesniak and several environmental organizations – to participate in the litigation and to appeal from the trial court’s entry of the consent judgment. First, the Court upheld the trial court’s refusal to permit Senator Lesniak and the environmental groups to intervene in the case (either as of right or permissively) to argue against the settlement, holding for the first time in a reported decision that a putative intervenor must have standing, and that even under New Jersey’s “liberal view,” both Senator Lesniak and the environmental groups lacked standing for purposes of intervention because only NJDEP may sue to recover NRDs, and the Environmental Rights Act did not provide standing for private parties to do so. In any event, the Court noted, the appellants were not prejudiced because Judge Hogan gave them everything they sought via intervention – the ability to argue against the proposed consent judgment – by allowing them to file briefs and make argument as amici curiae.

Even though they were unable to intervene in the trial court, and even if, as the Appellate Division found, the appeal was not from a final agency action (reviewable as of right) but rather from the judicial act of entering the consent judgment, could the appellants nevertheless challenge the merits of Judge Hogan’s decision before the appellate court? No, said the Appellate Division, as to Senator Lesniak, because he lacked a sufficient “personal or pecuniary interest or property right adversely affected by the judgment.” But the environmental groups could file an appeal, “based on their broad representation of citizen interests throughout this state,” even though they were not parties to the trial, because in prior cases involving administrative proceedings the Court had not “preconditioned the right to appeal upon participation in the prior proceeding.” The Court here cited the Legislature’s decision in 2005 to amend the Spill Act to require publication, prior to entry, of all judicially approved settlements in the New Jersey Register (in addition to specific written notice to all other parties that might bear responsibility for some of the pollution) as evidence that the Legislature could not have intended to insulate NJDEP from all challenges to its decision to settle Spill Act claims.

At long last, the Court reached the substantive issues presented by the appeal: did Judge Hogan err in entering the consent judgment, and what standard of review applies to his decision? The settlement, said the Court, must be “fair and reasonable,” i.e., it must adequately protect the interests of the persons on whose behalf the action was brought, and it must not exceed the legal authority of the public entity. The Court also approved of Judge Hogan’s use (in the absence of controlling New Jersey cases) of the standard used by federal courts in reviewing settlements under the Comprehensive Environmental Responsibility, Compensation, and Liability Act, “the federal analogue to the Spill Act”: the settlement must be fair, reasonable, and consistent with the statute’s goals (and must be in the public interest).

With respect to the standard of review that it should apply, the Appellate Division quoting from a federal decision, noting that Judge Hogan’s decision was “encased in a double layer of swaddling” – first, the deference he owed to NJDEP’s decision to settle and the law’s policy to encourage settlement, and second, the deference afforded the trial court by the appellate court under an abuse-of-discretion standard. Also circumscribing the Appellate Division’s review was the fact that unlike the vast majority of environmental settlements, the consent judgment between NJDEP and Exxon Mobil came after a lengthy trial in Judge Hogan’s courtroom, resulting in a massive record that could inform his assessment of the parties’ positions and of the reasonableness of the settlement.

Under this doubly deferential standard of review, the Appellate Division found no reason to second-guess Judge Hogan’s decision. According to the Court, he had done his homework, reviewing the history of the case, examining expert damage estimates, and reviewing trial testimony, and like his ultimate decision about the settlement, his fact-finding and review of the evidence were entitled to deference. On the aspect of the consent judgment that drew the most public attention – the lack of any limit on the redirection of the settlement proceeds away from environmental purposes and to the general fund – the Court concluded that while seeking to ensure that such settlements are used to benefit the environment is “a laudable goal,” it could find “no authority prohibiting the transfer of the settlement proceeds or limiting their use, nor any authority that permits this court to wade into the budgetary waters.” (A constitutional amendment approved by the voters in 2017 prospectively addresses these concerns.)

Exxon Mobil makes significant pronouncements in the law governing intervention, standing, and appeals from settlements made by public entities. It will be remembered, however, as the decision that approved the most controversial and bitterly contested settlement in the history of New Jersey environmental litigation. It sets forth a standard for reviewing such settlements, but courts applying that standard in future cases are unlikely to have the benefit of the extensive trial record that underpinned Judge Hogan’s, and the Appellate Division’s, decisions.

Paul M. Hauge is Counsel in the Gibbons Environmental Department.
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