winter2007

n e w y o r k p e n n s y l v a n i a c a l i f o r n i a w a s h i n g t o n , d c n e w j e r s e y d e l a w a r e

ne w j e r s e y l a wI S S U E S & T R E N D S I N

Recent Court Rulings Undermine DEP’sStrategy to Seek Damages from Corporationsfor “Loss of Use” of Natural Resources B y J o h n M . A r m s t r o n g

After many responsible corporate citizens inNew Jersey entered into AdministrativeConsent Orders or Memoranda of Agreementwith the New Jersey Department ofEnvironmental Protection (“DEP”) toremediate groundwater contamination causedby past industrial practices at properties theyown in New Jersey, DEP is nonethelessaggressively pursuing a strategy to collect fromthese cooperating parties significant damagesfor “loss of use” of natural resources.However, two recent judicial decisions havethrown DEP’s “loss of use” theory intoquestion.

The following is an analysis of DEP’sargument for “loss of use” damages and thetwo recent judicial decisions, and a discussionof what to do if you are or your client is facedwith natural resource damage (“NRD”) claimsby DEP for loss of use of natural resources dueto groundwater contamination.

Background

In 2003,DEP started an aggressive initiative attemptingto recover NRDs previously caused by the discharge ofhazardous substances in New Jersey. DEP claimed thatit had identified more than 4,000 sites where NewJersey’s natural resources (typically groundwater) hadbeen damaged,and it planned to seek recovery fromthose parties allegedly responsible for causing thatcontamination. In order to more efficiently implementthis program,executive orders were issued allowingDEP to hire outside counsel on a contingent-fee basis toassist in pursuing these claims.

In many of these groundwater contamination cases, thepotentially responsible party (“PRP”) had alreadycleaned up the contamination. In many other cases, thePRP had entered into an Administrative Consent Order

in this issue

2 N e w J e r s e y ’s “ P a i d F a m i l y L e a v e ” B i l l

3 T h i r d C i r c u i t : H i r i n g U n q u a l i f i e d

E m p l o y e e E x p a n d s E x p o s u r e t o

D i s c r i m i n a t i o n L a w s u i t s

(cont inued on page 4 )

New Jersey’s “Paid Family Leave” Bill

By Michael J. Wietrzychowski

On February 5, 2007, New Jersey’s Senate LaborCommittee voted to approve a bill that providesup to 12 weeks of paid temporary disabilitybenefits to workers per year to care for a newlyborn or adopted child, or a seriously ill familymember. If it becomes law, employees qualifyingfor leave would receive two-thirds of their usualwage subject to a yearly cap – similar to whatemployees receive through New Jersey’stemporary disability program.

What The Bill Is and Is Not

Reference to the bill as “Paid Family Leave” is not quiteaccurate,as it is substantively different than current federaland state family leave laws. Under the federal Family andMedical Leave Act (“FMLA”), covered employers arerequired to provide 12 weeks of leave to qualifyingemployees for certain medical or family situations,mustmaintain benefits, and are required to reinstate employeesto their former or equivalent positions. Similarly,under theNew Jersey Family Leave Act (“NJFLA”), covered employersare required to do the same for certain family situations. Inits present form, this bill does not extend either the federalor state leave laws to all New Jersey employers, regardlessof their size. Literally read,employers are not obligated tohold an employee’s job open under the bill. Rather,anemployer is free to replace the employee – provided that theemployer is not violating some other law or contract (more

on this below). The bill does extend New Jersey’s currenttemporary disability coverage to employees that“participate” in the care for a family member with “aserious health condition” for up to 12 weeks,or decide tobe with a child for up to 12 weeks during the first 12months after the child’s birth or adoption. In the bill’scurrent state, temporary disability benefits would befunded by employees,not employers,by raising payrolltaxes approximately 0.1 percent,with an income cap lock-stepped with the cap under the Social Security Act.

Employer Caveat

Business groups in New Jersey have opposed this type oflegislation for many reasons, including the potential forabuse, incentive for employees to take leave,and aslippery slope towards full medical and family leave withjob preservation. Also,employers argue that this willultimately be an additional cost similar to theadministrative costs that employers incur under NewJersey’s temporary disability program. Furthermore,although the bill is silent on job preservation,employersmust still address the issue under New Jersey’s anti-discrimination and anti-retaliation laws,as well asemployers’ own internal policies. The bottom line is thatalthough “paid family leave” is not yet the law,employersshould begin to look internally and prepare for the potentialworkplace and legal consequences if enacted.t

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Third Circuit: Hiring Unqualif iedEmployee Expands Exposure toDiscrimination LawsuitsB y J e r r y L . Ta n e n b a u m

The Third Circuit recently clarified thatemployers in New Jersey, Pennsylvania, andDelaware can no longer rely on an applicant’sfailure to meet posted job qualifications as a basisto bar a discriminatory hiring action under TitleVII of the Civil Rights Act of 1964 if the personwho receives the position also failed to meet theposted criteria. The Court explained, inScheidemantle v. Slippery Rock University (No.05-3850; Dec. 19, 2006), that an applicant whoclaims she was denied a position due to illegaldiscrimination can survive summary judgmenteven if she does not meet the posted jobqualifications so long as she is at least as qualifiedas the person actually hired.

In most circumstances in which there is no direct evidenceof unlawful discrimination,an employer can obtainsummary judgment if the plaintiff is unable to produceevidence that: (a) she is a member of a protected class; (b)she is qualified for the job for which she applied; and (c)someone outside of the protected class was treated morefavorably. The “qualified for the job”prong is generallydetermined by comparing the “objective” job requirementsas posted by the employer against the skills or experience ofthe applicant. However, the Third Circuit has now madeclear that this standard of measurement based upon postedjob requirements does not apply if the person who is hiredfor the job also does not meet the posted job qualifications.

In Scheidemantle, a female job applicant did not meet therequired years of experience set forth in two job postings.Unable to find anyone who did meet those qualifications,the employer hired two males who also did not possess theposted requirements. The District Court entered summaryjudgment in favor of the employer because of the plaintiff’sadmitted failure to meet the objective requirements of thejob.

The Third Circuit reversed,holding that the employerlowered the “objective qualifications” for the job when ithired individuals with lesser experience and skills.Therefore, it would be these lesser skill sets that nowestablished the job qualifications. Because there wereissues of material fact as to whether the plaintiff met orexceeded those standards, the employer was not entitledto summary judgment.

Employers must now understand that job qualificationswill, for purposes of alleged discrimination actions,bedetermined by the actual qualifications of the person whois hired, rather than the posted job qualifications, if the skillsets of the hired employee are below those posted by theemployer. An employer cannot lower the requirements infavor of one employee and not for another employee of aprotected class,and then use the original higher statedrequirements as a legal bar against a potentialdiscrimination claim.t

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or Memorandum of Agreement with DEP and was in theprocess of cleaning up the contamination at its own expense.Despite the fact that these many sites had been or would beremediated without any out-of-pocket expenses from theState or a third party,DEP took the position that these PRPswere liable for the “loss of use”of the groundwater allegedlycontaminated by that PRP from the time when the dischargeoccurred until the groundwater remediation was completed.DEP even developed a settlement formula whereby it wouldallegedly calculate the horizontal size of the plume ofcontamination in the groundwater, and the length of time ittook a PRP to remediate that contamination from the time thedischarge first occurred in order to determine the cash value ofthe loss of use of that natural resource.

Through April 2004,DEP used its groundwater settlementformula in an attempt to informally settle with as many PRPs aspossible. DEP threatened that once this settlement periodended, it would take a much more aggressive position withthose PRPs who did not settle. While DEP had some success inreaching settlements with PRPs during this period,many PRPsdid not reach settlement with DEP (although some entered intotolling agreements with DEP).

On May 20,2004,DEP filed the first ten of many lawsuits itplanned to file in order to seek the recovery of NRDs frompotential PRPs. Since that time,DEP and its designatedoutside counsel have filed a steady stream of NRD claimsagainst numerous PRPs in New Jersey. These cases are nowbeginning to progress through the judicial system in NewJersey and other jurisdictions.

In 2006,we saw the judiciary’s initial reaction to DEP’sarguments for its “loss of use”NRD claims. The initialresponse has been a setback for DEP’s initiative.

DEP’s Legal Rationale

Although DEP, in its initial press releases and on its web page,

lists numerous statutes as the authority for it to pursue its NRD

initiative, the statutory basis relied upon by DEP when pursuing

( “Loss of Use” Damages . . . c o n t i n u e d f r o m p a g e 1 ) the “loss of use”of an NRD claim,when the resource at

issue is groundwater, is the Spill Compensation and Control

Act (“Spill Act”),N.J.S.A. 58:10-23.11a,et seq. The only

two other theories pursued in the complaints actually filed

are for public nuisance and trespass. Both of these

common law theories are based upon the Public Trust

Doctrine.

There are several advantages for DEP to pursue its claimunder the Spill Act. For instance, in order for a PRP to beliable,DEP need only show that the PRP was “in any wayresponsible” for the discharge of a hazardous substance.That term has been liberally construed by the courts.Moreover, liability is joint and several,without regard to fault,and DEP contends it is entitled to attorney’s fees and costsof suit under the Spill Act. The Spill Act has been one ofDEP’s primary enforcement tools in compelling parties toremediate sites in New Jersey for more than 30 years.

However,many in the regulated community have takenissue with DEP’s reliance upon the Spill Act when seeking torecover for the “loss of use”of natural resources from PRPs.DEP usually contends in its complaints that it is entitled torecover for the “loss of use”of natural resources,as well asits attorney’s fees and costs,based upon N.J.S.A. 58:10-23.11gc(1) and N.J.S.A. 58:10-23.11u,et seq.

The problem with DEP’s argument is that the plain languageof these provisions of the Spill Act does not allow for a “lossof use”claim. N.J.S.A.58:10-23.11gc(1) states:

[A]ny person who has discharged a hazardoussubstance, or is in any way responsible for anyhazardous substance, shall be strictly liable, jointlyand severally, without regard to fault, for allcleanup and removal costs no matter by whomincurred.

(emphasis added).

In short, the liability provision cited by DEP to entitle it tocollect for the “loss of use”of natural resources does not

( cont inued on page 5 )

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provide for such a remedy. It only allows DEP to collect for“cleanup and removal costs.” The term “cleanup andremoval costs” is specifically defined under the Spill Act.N.J.S.A. 58:10-23.11b defines “cleanup and removalcosts”as:

[A]ll direct costs associated with a discharge andthose indirect costs that may be imposed by [DEP]pursuant to section 1 of P.L.2002,c.37 associatedwith a discharge, incurred by the State or itspolitical subdivisions or their agents or any personwith written approval from [DEP] in the: (1)removal or attempted removal of hazardoussubstances, or (2) taking of reasonable measuresto prevent or mitigate damage to the public health,safety, or welfare, including but not limited to,public and private property,…and other naturalresources…

(emphasis added.)

In other words,nowhere does the “cleanup and removalcosts”definition provide for DEP to collect damages for the“loss of use”of natural resources. Instead, it defines“cleanup and removal costs”only to include taking thosereasonable measures to prevent or mitigate damages tonatural resources.

Similarly,DEP’s reliance on N.J.S.A. 58:10-23.11ua andN.J.S.A. 58:10-23.11ub is misplaced. Those provisionsallow DEP to bring an action in Superior Court, for theunreimbursed “costs of any investigation,cleanup orremoval, and for the reasonable costs of preparing andsuccessfully litigating an action… [and] the cost ofrestoration and replacement,where practicable,ofany natural resource damaged or destroyed by adischarge.”N.J.S.A.58:10-23.11ub(2),(4) (emphasisadded).

In other words, this provision,as well, only allows for DEPto be reimbursed for costs incurred in restoring orreplacing NRDs. Nowhere does it provide for DEP to bereimbursed for the “loss of use”of natural resourcesduring the period in which those resources are beingrestored.

In response to this argument,DEP is taking the positionthat the term “restoration”contained within the Spill Act,which is not defined,should be liberally construed.Moreover, it points out that DEP’s Office of NaturalResources (“ONR”) takes the position that it is entitled torecover for “loss of use”damages under the Spill Act, andbecause the term is not defined,ONR’s interpretation,asthe lead state agency, should be given deference.Accordingly,DEP reasons that the term “restoration”contained in the Spill Act, should be interpreted broadly toinclude damages for the “loss of use”of natural resources.

Recent Case Law Undermines DEP’s Theory

On May 26,2006,DEP’s “loss of use” theory under theSpill Act failed its first judicial test. In New JerseyDepartment of Environmental Protection andAdministrator,Spill Compensation Fund v.Exxon MobilCorporation,Docket No.UNN-L-3026-04,Judge Anzaldiof Union County held that DEP was not entitled to pursue aclaim for the “loss of use”of natural resources under theSpill Act. Judge Anzaldi pointed out that the Legislaturehad amended the Spill Act many times over the years.Citing the statutory language from the Spill Act in detail, hewent on to observe:

The fact that the legislature has repeatedlyamended the Spill Act and has not inserted aprovision providing for damages for the “loss ofuse”,or even the “loss of”,natural resources leadsthe court to find that such damages are notrecoverable under the Spill Act.

Without any legislative or appellate directive, thecourt will not expand the definition of cleanup andremoval costs under the Spill Act to includedamages for the loss of use of natural resources.Moreover, the court finds no other language in theSpill Act that would hold a discharger strictly liablefor the loss of use of natural resources.

(Slip.Op.at 8-9).

( “Loss of Use” Damages . . . c o n t i n u e d f r o m p a g e 4 )

(cont inued on page 6 )

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third party. Many of the sites where groundwater iscontaminated in New Jersey are in areas where allneighboring properties have alternative sources of water.For instance,many sites are in industrial or urban areaswhere all of the neighboring properties were connected topublic water sources many years ago.

In short, even if DEP can pursue its “loss of use” theory, itmay have difficulty showing actual damages at many of thesites where the natural resource at issue is groundwater, ifthe reasoning of the General Electric Court is followed inNew Jersey.

The Take Away

There are still many unanswered questions about howsuccessful DEP and its designated outside counsel will bein pursuing this NRD initiative. For instance,DEP may beable to obtain a reversal of the Exxon Mobil decision onappeal. Moreover,DEP may be able to successfully pursueits “loss of use”damages claim through its common lawtheories of public nuisance and trespass. Finally,NewJersey courts may not be willing to follow the reasoning ofthe Tenth Circuit in General Electric.

Therefore,despite these early judicial setbacks for DEP, ifDEP brings a claim against you or your client for the “loss ofuse”of natural resources, it may still make sense to try tonegotiate a settlement,especially if the amount of moneyat issue is not too substantial. Litigating an NRD case canbe very expert-intensive and expensive. However,even ifyou decide to pursue settlement, these early decisions canbe used as a negotiating tool with DEP,and before anymediator, in order to try to limit the dollar amount of anysettlement. Finally, if you have a case where the exposureis significant enough, these decisions place you in astronger position now to try to build upon them and defeatDEP’s NRD “loss of use”claim through litigation.t

On October 31,2006,DEP received another potential blowto its “loss of use” theory with respect to an NRD claim. InState of New Mexico v.General Electric Company,407 F.3d1223 (10th Cir. 2006), the Tenth Circuit affirmed thedismissal of an NRD claim for “loss of use” of groundwateragainst General Electric by New Mexico. As in many of thecases that DEP is pursuing in New Jersey,New Mexico wasseeking the recovery of NRDs caused to groundwater byGeneral Electric, even though General Electric was in theprocess of remediating the groundwater contamination.

After noting that New Mexico’s NRD statute expresslyallowed for the recovery of damages for the loss of use of anatural resource, the Tenth Circuit acknowledged thatunder certain circumstances New Mexico could recoverfor such damages. However, it further reasoned that inorder to bring such a claim,New Mexico must show thatthere was in fact an actual injury due to the loss of use ofthe groundwater from the time the groundwater wasdamaged until the remediation was completed. Inultimately rejecting New Mexico’s NRD claim for loss of useof groundwater in the General Electric case, the TenthCircuit observed that the local potential users of thegroundwater had previously found alternative sources tosatisfy their water needs. The General Electric Court wenton to explain,“if a contaminated natural resource such asgroundwater can be replaced in a timely manner pendingrestoration,we have difficulty envisioning any significantloss-of-use damage.” Id. at 1257.

If New Jersey courts follow the reasoning of the TenthCircuit, a theoretical loss of use of groundwater,while agroundwater plume is being remediated by a PRP,will notnecessarily be a sufficient basis for DEP to collectdamages. There must be evidence of actual damage to a

( “Loss of Use” Damages . . . c o n t i n u e d f r o m p a g e 5 )

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JOHN M. ARMSTRONG is co-chair of the Firm’senvironmental practice group and managingpartner of the Cherry Hill office.Active as a trialand appellate litigator throughout his career,hefocuses on all aspects of environmental litigation,with emphasis on toxic tort litigation,CERCLA andNew Jersey’s Spill Act.He is also experienced inhandling personal injury and commerciallitigation.Before joining the Firm,Mr.Armstrongwas a deputy attorney general for the state of NewJersey,where he represented the New JerseyDepartment of Environmental Protection.

MICHAEL J. WIETRZYCHOWSKI has extensiveexperience with all types of labor and employmentmatters, representing corporations and selectprofessionals and executives before variousfederal, state, local, and administrative tribunals.Mr.Wietrzychowski also has extensive experiencewith environmental, land use,and commerciallitigation matters.He has served as City Solicitorfor the City of Burlington,Co-Solicitor for theMount Laurel Board of Education,and holds amaster’s degree in Geology.

JERRY L. TANENBAUM practices general civillitigation,with an emphasis on employmentdiscrimination, intellectual property, contract andeducation law.He has represented individuals andbusinesses in matters related to restrictivecovenants,employment,fiduciary duties,intellectualproperty, securities fraud,products liability,premises liability, defamation and libel, surety,environmental liability, and environmentalinsurance coverage. His education law practicefocuses on litigation and consultation regardingchildren with special learning needs and otherdisabilities.

About the Authors ...AnnouncementsOn January 31,2007, Michael J.Wietrzychowski

was reappointed as a director of the Burlington County

Chamber of Commerce,a 400-plus member

organization comprised of businesses,non-profit

organizations and government entities who work

together to improve the economic viability of southern

New Jersey.Mr.Wietrzychowski also serves as the Labor

and Employment Committee Liaison to the Board of

Directors of the Chamber.

On March 4,2007, Jerry L.Tanenbaum will be a

presenter at the annual conference of the Council of

Parent Attorneys and Advocates (COPAA).Mr.

Tanenbaum will be speaking on the topic:“Combating

Bullying and Harassment of Children with Disabilities.”

This presentation will explore the rights of students with

disabilities, in particular with regard to school-related

bullying and harassment.The presenters will discuss the

use of IDEA,Section 1983,Section 504 and state laws to

safeguard the educational environment for students with

disabilities.

On March 31,2007,Mr.Tanenbaum will be a presenter

at the Statewide Parent Advocacy Network’s annual

conference,“Powerful Tools for Building Bridges to Our

Children’s Futures.” Mr.Tanenbaum’s workshop,

entitled “Bullying: The Problem,The Law,and Specific

Concern for Children with Special Needs”will explore the

scope and repercussions of school-related bullying; the

history and current status of legal rights and obligations

of students and school personnel; particularized issues

for IEP/Section 504 Plan students; and effective and

ineffective school responses to this pervasive problem.

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