1. www.klng.com Presented by: William H. Hyatt, Jr. Kirkpatrick & Lockhart Nicholson Graham LLP One Newark Center Newark, New Jersey 07102 973.848.4045 whyatt@klng.com Natural Resource Damages A Background Overview

2. 2 What are natural resources? What are natural resource injuries? What are natural resource damages? The other half of Superfund; the ugly sister in the closet

3. 3 The Federal Program CERCLA OPA CWA

4. 4 CERCLA Natural Resources “Natural resources” are defined as “land, fish, wildlife, biota, air, water, ground water, drinking water supplies, and other such resources belonging to, managed by, held in trust by, appertaining to, or otherwise controlled by the United States…, any State or local government, any foreign government, [or] any Indian tribe…” CERCLA § 101(16)

5. 5 CERCLA NRD Natural resource damages are the “monetization” of injury to Natural Resources Natural resource damages are compensation for “injury to, destruction of, or loss of natural resources, including the reasonable costs of assessing such injury…” CERCLA §§ 101(6); 107(a)(4)(C) Include cost of restoration to “baseline condition” or replacement (“primary damages”) PLUS compensation for the interim loss of the use of the resource from the time of injury to the time of restoration or replacement, PLUS the reasonable cost of assessing the injury

6. 6 CERCLA NRD Liability “Covered persons” liable for “damages for injury to, destruction of, or loss of natural resources, including the reasonable costs of assessing such injury, destruction or loss resulting from such a release [of hazardous substances]” CERCLA §§ 107(a)(4)(C); 107(f) “Covered persons” include current and past owners and operators of facilities where hazardous substances have been released

7. 7 Why is NRD a Late Bloomer? Cleanup program looks forward: Protecting human health and the environment from present and future threats NRD program looks backward: Restore or compensate for damage that has already occurred NRD can be the residual damages after cleanup has been completed.

8. 8 The Bottom Line You’ve cleaned up and you think you’re done Not so fast You may have a problem

9. 9 Who Asserts Claims for NRD? Federal Trustees for Natural Resources Secretary of Agriculture Secretary of Commerce (NOAA) Secretary of Defense Secretary of Energy Secretary of Interior (F&WS) State Trustees Designated by governors Tribal Trustees Designated by Tribal Chairman (could be Secretary of Interior at request of Tribe)

10. 10 Differences Between Cleanup and NRD Programs EPA is NOT a Natural Resource Trustee EPA’s authority is limited to notification and coordination obligations NCP requires an Ecological Risk Assessment (“ERA”) as part of RI/FS EPA guidance requires coordination with Trustees during ERA process

11. 11 Federal Trustee Responsibilities Responsibilities include: Assessment of the extent of injury to natural resources; and Restoration of natural resources injured or services lost due to release of hazardous substances Recovery of NRD from “covered persons” Trustees discharge responsibilities by: Conducting the assessment and/or restoration using public funds, then Suing in court to obtain compensation from “covered persons” for the injury and the costs of assessment and restoration planning, and using proceeds to restore or replace injured natural resources, or Negotiating with “covered persons” to obtain PRP- financed or PRP-conducted assessment and restoration

12. 12 Natural Resource Damage Assessment Under CERCLA CERCLA § 301(c) directs that regulations be promulgated (1) to specify standard procedures for simplified assessments (Type A Assessments), and (2) to provide the best available procedures to determine such damages, considering both direct and indirect injury, destruction or loss, and to take into consideration such factors as replacement value, use value, and ability of the ecosystem or resource to recover from the injury (Type B Assessments) DOI final regulations found at 43 C.F.R. Part 11, subparts D and E (2002)

13. 13 Assessment Complications Multiple trustees may be involved at single facility; Risk of infighting DOI regulations are not mandatory; however, assessments performed in accordance with the regulations are entitled to a “rebuttable presumption” of accuracy Assessments can be nightmares: Expensive and time consuming

14. 14 Tortured History of the DOI NRD Regulations Ohio v. United States Department of Interior, 880 F.2d 432 (D.C. Cir. 1989) Struck down August, 1986 DOI regulations No hierarchy for damage assessment techniques Contingent valuation techniques OK Final regulations for Type B assessments issued in March, 1994 Eliminate hierarchy for use of damage assessment techniques Little guidance on the use of contingent valuation Due to be republished in 2003; hasn’t happened!

15. 15 Damages Can Be Daunting Primary restoration may involve purchasing property, fish, animals, planting trees Lost use damages may be astronomical

16. 16 How Can You Avoid NRD Liability? Possible CERCLA Defenses to NRD Claims CERCLA § 107(b) defenses Act of God Act of War Limited Third Party Defense The Statute of Limitations The Innocent Landowner Defense The Adjacent Landowner Defense Causation Divisibility Baseline

17. 17 State Programs: The New Jersey Experience

18. 18 The Spill Compensation and Control Act, N.J.S.A. 58:10-23.11

19. 19 Major Difference Between NRD Under CERCLA AND NRD Under the Spill Act DEP is also the trustee for State natural resources; EPA is not the trustee for Federal natural resources Petroleum a “hazardous substance” under the Spill Act; excluded under CERCLA DEP has broad power to issue administrative “directives” Ever extending Statute of Limitations Technical Requirements for Site Remediation mandate comprehensive ecological evaluation

20. 20 New Jersey Adopts an Aggressive NRD Program 9,000 sites identified; 3,000 to be subject of claims Outside counsel retained to sue on a contingent fee basis Outside counsel allowed to pick and choose which ones to bring Large number of suits filed Law still developing

21. 21 Possible Defenses to State NRD Suits Statutory liability defenses Preemption Statute of Limitations Causation Divisibility Baseline

22. 22 Conclusion: The New Jersey program may be coming to a theater near you; make sure you are protected