New Jersey Enacts Environmental Enforcement Enhancement Act.

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April 2008 Authors: John F. Spinello +1.973.848.4061 john.spinello@klgates.com Mary Kenny +1.973.848.4042 mary.kenny@klgates.com Dawn Monsen +1.973.848.4148 dawn.monsen@klgates.

companies, leading FORTUNE 100 and FTSE 100 global corporations and public sector entities. For more information, please visit www.klgates.com. New Jersey Enacts Environmental Enforcement Enhancement Act.

1 April 2008 Authors: John F. Spinello Mary Kenny Dawn Monsen K&L Gates comprises approximately 1,500 lawyers in 24 offices located in North America, Europe and Asia, and represents capital markets participants, entrepreneurs, growth and middle market companies, leading FORTUNE 100 and FTSE 100 global corporations and public sector entities. For more information, please visit New Jersey Enacts Environmental Enforcement Enhancement Act. On January 4, 2008, Governor Corzine signed into law the Environmental Enforcement Enhancement Act (the Act ), giving the New Jersey Department of Environmental Protection ( NJDEP ) sweeping new enforcement authority under ten environmental statutes. As further described below, the Act substantially increases the maximum civil penalties NJDEP may seek, authorizes NJDEP to commence administrative enforcement proceedings and assess administrative penalties, establishes third degree crimes for certain violations, allows NJDEP to recover legal costs and natural resource damages, and record deed notices for certain alleged violations. This new authority will have the most pronounced effect in the NJDEP s enforcement of the land use and water resource programs, and may affect pending, as well as new cases commenced by the NJDEP. The Act revises the enforcement provisions of the following statutes: Coastal Area Facility Review Act, N.J.S.A. 13:19-1 et seq.; Waterfront Development Act, N.J.S.A. 12:5-3 et seq.; Flood Hazard Area Control Act, N.J.S.A. 58:16A-50 et seq.; Freshwater Wetlands Protection Act, N.J.S.A. 13:9B-1 et seq.; Wetlands Act of 1970, N.J.S.A. 13:9A-1 et seq.; Safe Dam Act, N.J.S.A. 58:4-1 et seq.; Water Supply Management Act, N.J.S.A. 58:1A-1 et seq.; Safe Drinking Water Act, N.J.S.A 58:12A-1 et seq.; Pesticide Control Act of 1971, N.J.S.A. 13:1F-1 et seq.; and Endangered and Nongame Species Conservation Act, N.J.S.A. 23:2A-1 et seq. The Act also amends NJDEP s enabling statute, N.J.S.A. 13:1D-9, to clarify its authority to inspect facilities, collect samples and copy documents to determine compliance with environmental laws, regulations, permits and orders. Background and Purpose of Act The enforcement provisions of many of these statutes had not been revised by the Legislature in decades. As a result, the NJDEP s authority to enforce these laws was limited relative to statutes enacted or amended more recently. For example, the Freshwater Wetlands Protection Act ( FWPA ), adopted in 1987, authorized maximum civil penalties of $10,000 per day for each violation, and the Coastal Area Facilities Review Act ( CAFRA ), substantially revised in 1993, set maximum civil penalties at $25,000 for each violation, but was silent with respect to cumulative penalties for continuing violations. In contrast, the Coastal Wetlands Protection Act, adopted in 1970, permitted civil penalties of up to $1,000, which must be recovered in a civil proceeding in Superior Court, a somewhat more cumbersome legal

2 process compared with the administrative proceedings authorized by CAFRA and the FWPA. Similarly, the Waterfront Development Act permits civil penalties of up to $1,000 per violation and $100 for each additional day the violation continues. The NJDEP concluded these and other limitations on its enforcement authority were hampering its ability to ensure compliance with these statutes; NJDEP believed some scofflaws were ignoring Orders it issued to remedy violations because the limited sanctions available failed to provide an adequate deterrent to noncompliance or foster the timely resolution of violations. In May 2007, bills were introduced in the Senate and Assembly at the NJDEP s request to substantially revise the ten statutes referenced above by providing NJDEP with sweeping new authority to impose a stronger and wider range of sanctions for noncompliance. The version of the bill initially introduced would have authorized civil penalties of up to $50,000 per day, criminalized negligent conduct, such as the unintentional filing of incorrect information with the NJDEP, and allowed other excessive sanctions that could not be justified. Many of these excessive provisions were eventually removed or revised by the Legislature at the urging of a coalition led by the NJ Business and Industry Association ( NJBIA ). Key Provisions of the Act Maximum Civil Penalties Increased. The Act increases the maximum civil penalty under all ten statutes to $25,000 per day for each violation. As noted above, for some statutes this is a 2500% increase. See Table 1 for further details. Table 1 Statute Previous Maximum Penalty As Amended by the Act Waterfront Development Act: $1,000, $100 for each day it continues $25,000 per violation, per day Pesticide Act: $3,000 per violation $25,000 per violation, per day Coastal Wetlands Act: $1,000 per violation $25,000 per violation, per day Freshwater Wetlands: $10,000 per violation $25,000 per violation, per day CAFRA: $25,000 per violation $25,000 per violation, per day Endangered Species Act: $5,000 per violation, per day $25,000 per violation, per day Water Supply Management Act: $5,000 per violation, per day $25,000 per violation, per day Dam Safety Act: $25,000 per violation, per day $25,000 per violation, per day Flood Hazard Act: $2,500 per violation, per day $25,000 per violation, per day Safe Drinking Water Act: $5000 per day for first offense $25,000 per violation, per day $10,000 per day for second offense $25,000 per day for third/subsequent offense April

3 Administrative Penalty Assessments Authorized. The Act also authorizes the NJDEP to assess civil administrative penalties. Previously, administrative penalty authority was not available under the following statutes: Flood Hazard Area Control Act, N.J.S.A. 58:16A-50 et seq.; Wetlands Act of 1970, N.J.S.A. 13:9A-1 et seq.; Water Supply Management Act, N.J.S.A. 58:1A-1 et seq.; Pesticide Control Act of 1971, N.J.S.A. 13:1F-1 et seq.; and Endangered and Nongame Species Conservation Act, N.J.S.A. 23:2A-1 et seq. This is significant because generally administrative penalties may only be contested in a hearing before an Administrative Law Judge, whose decision is reviewed by the NJDEP Commissioner; further, final decisions of the Commissioner may only be appealed to the Appellate Division of the Superior Court under a standard of review that is fairly deferential to the NJDEP. In addition, Deputy Attorneys General are required to represent the NJDEP in legal proceedings in Superior Court, including actions filed to compel compliance or to pay a penalty, but generally do not become involved in administrative penalty proceedings until after an action is commenced and an appeal is filed. As a result, NJDEP is likely to commence many more actions to enforce these statutes now that it no longer needs to engage the finite resources of the Attorney General s office to do so. Penalty Regulations to be Amended. The Act establishes broad statutory criteria governing the assessment of administrative penalties, and directs the NJDEP to amplify these criteria by adopting or amending existing regulations governing penalty assessments. The Act requires the amount of a civil administrative penalty assessment to fall within a range to be established by regulation based upon violations of a similar type, seriousness, duration and conduct. Significantly, prior to the adoption of such regulations, the Act authorizes NJDEP to assess a civil administrative penalty up to the new statutory maximum of $25,000 per day, exercising its discretion in the application of the broad statutory factors. In addition, the Act authorizes the NJDEP to recover the economic benefit realized by a defendant as a result of an alleged violation, separate and distinct from and therefore over and above the statutory maximum penalty amount of $25,000 per violation, per day. The NJBIA led coalition had sought the inclusion of additional statutory criteria to expressly recognize mitigating factors, such as an alleged violator s degree of cooperation in an investigation and efforts to correct a violation and promptly remedy any damage caused by a violation. However, the NJDEP argued, and the Legislature agreed, these factors are relevant, but are already contemplated by the criteria requiring conduct to be considered. In addition, the NJDEP argued it is difficult to properly consider and fully credit a defendant s conduct (e.g., good faith efforts to comply) leading up to an alleged violation and responding to a Notice of Violation or other action by the NJDEP because insufficient information about these circumstances is known by the NJDEP at the time a penalty is initially assessed. However, NJDEP advised the Legislature such mitigating factors are typically considered at later stages of an enforcement proceeding and either incorporated into a revised penalty assessment or reflected in a reduced penalty negotiated as part of a settlement agreement. Legal Costs and Natural Resource Damages. The Act authorizes the NJDEP to file a civil action in the Superior Court to recover damages to natural resources. Specifically, the Act provides the NJDEP may seek, [r]ecovery of compensatory damages for any loss or destruction of natural resources, including, but not limited to, wildlife, fish, aquatic life, habitat, plants, or historic or archeological resources It is uncertain whether NJDEP will employ this authority to seek the recovery of damages for the lost use of groundwater or other resources, as it has tried to do in recent and controversial cases commenced under similar provisions of the Spill Compensation and Control Act, N.J.S.A. 58: et seq. In legislative negotiations with the NJDEP prior to the passage of the Act, the NJDEP rejected requests to more precisely define the scope of damages contemplated by this provision and reserved its right to pursue damages for the lost use of natural resources in appropriate circumstances. These new provisions have the potential to spawn many new NRD enforcement cases. April

4 The NJBIA led coalition successfully argued that the undefined term public resources be replaced with the commonly recognized term natural resources. The NJBIA coalition argued that authorizing the NJDEP to recover damages for injury to public resources would have opened the door to enforcement claims for a wide range of alleged injuries that are not related to public health or natural resources, such as the failure to provide sufficient public access to tidal waters as required by new CAFRA regulations adopted in Moreover, the Act authorizes the NJDEP to seek in a civil action off-site restoration when it determines onsite restoration and/or money damages are insufficient. The off-site improvement of wetlands, creation of habitat for certain species and the enhancement of other natural resources is often negotiated as part of the settlement of an enforcement action for natural resource damages. However, the new authority to compel such off-site restoration is unprecedented and subject to potential abuse in its implementation. In addition, the Act authorizes NJDEP to bring a civil action to recover the reasonable costs incurred in conducting an investigation or inspection that led to the discovery of a violation. The NJBIA led coalition successfully argued this authority should be limited to the recovery of investigation costs and not include attorney fees. This position reflects the Appellate Division s interpretation of similar provisions authorizing the recovery of legal costs under the Water Pollution Control Act, N.J.S.A. 58:10A-1 et seq. NJDEP v. Standard Tank, 284 N.J. Super. 381 (App. Div. 1995). Deed Notices Authorized for Alleged Violations. For violations of certain statutes, the Act authorizes the NJDEP to compel a property owner to record a deed notice on the property where a violation is alleged to have occurred. The NJDEP already had this authority under the FWPA, and the Act extends this authority to the Flood Hazard Protection Act and the Dam Safety Act. Significantly, NJDEP may require the recording of such a notice based upon an unadjudicated allegation that may or may not later be proven. NJDEP argued this additional enforcement tool is necessary to ensure subsequent owners of property that is the subject of an alleged violation have notice of the NJDEP s claim and any site conditions that assertedly constitute a violation. This is important to protect subsequent property owners, according to NJDEP, because property subject to an alleged violation may be transferred before the alleged violation is adjudicated or otherwise resolved by the NJDEP. NJDEP also believes it will provide an incentive to resolve outstanding claims for alleged violations by making it more difficult to transfer property that is the subject of such a notice. The NJBIA led coalition successfully sought the inclusion of provisions requiring the NJDEP to promptly record a subsequent notice memorializing the resolution of any claims and remediation of any site conditions that were previously alleged to constitute a violation and reflected in a prior notice. Typically, such deed notices are not removed but instead must be superseded by recording a subsequent notice. Criminal Penalties Added. The Act establishes a third degree crime for the purposeful, knowing or reckless violation of an applicable statute, regulation, permit or order. In addition to possible imprisonment, the Act establishes monetary penalties of up to $50,000 per day for these crimes. Prior to the Act s passage, only the Dam Safety Act, the Safe Drinking Water Act, and the FWPA included criminal sanctions, and they provided only fourth degree crimes. Conclusion The passage of the Act will certainly result in the assessment of higher penalties for violations arising under these ten statutes. Also, as a result of the new authority to initiate administrative proceedings, we can expect a significant increase in the number of enforcement actions commenced by the NJDEP under the Flood Hazard, Coastal Wetlands, Water Supply, Pesticide Control and Endangered Species Acts. In addition, the NJDEP will be setting up new programs to enforce water allocation permits and endangered species regulations for which it has not historically had comprehensive enforcement authority or robust enforcement programs. The Division of Criminal Justice, Bureau of Environmental Crimes Prosecutions will likely open new investigations in 2008 under provisions of the Act creating third degree crimes for violations arising under the statutes amended by the Act. The Bureau is likely to focus its attention initially on fraudulent April

5 representations made to the NJDEP, particularly under the Safe Drinking Water Act involving fraudulent sampling, lab analysis, and reporting. Finally, there will be opportunities in 2008 and 2009 to participate in rulemaking proceedings for penalty regulations under these ten statutes, and NJDEP s use of new authority to seek natural resource damages and record deed notices for certain alleged violations will receive intense scrutiny. K&L Gates comprises multiple affiliated partnerships: a limited liability partnership with the full name Kirkpatrick & Lockhart Preston Gates Ellis LLP qualified in Delaware and maintaining offices throughout the U.S., in Berlin, and in Beijing (Kirkpatrick & Lockhart Preston Gates Ellis LLP Beijing Representative Office); a limited liability partnership (also named Kirkpatrick & Lockhart Preston Gates Ellis LLP) incorporated in England and maintaining our London office; a Taiwan general partnership (Kirkpatrick & Lockhart Preston Gates Ellis) which practices from our Taipei office; and a Hong Kong general partnership (Kirkpatrick & Lockhart Preston Gates Ellis, Solicitors) which practices from our Hong Kong office. K&L Gates maintains appropriate registrations in the jurisdictions in which its offices are located. A list of the partners in each entity is available for inspection at any K&L Gates office. This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Data Protection Act 1998 We may contact you from time to time with information on Kirkpatrick & Lockhart Preston Gates Ellis LLP seminars and with our regular newsletters, which may be of interest to you. We will not provide your details to any third parties. Please london@klgates.com if you would prefer not to receive this information Kirkpatrick & Lockhart Preston Gates Ellis LLP. All Rights Reserved. April

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