ESG investing is back in the news.  ESG investing evaluates a company’s or fund’s environmental, social and corporate governance performance when considering an investment in company stock or fund shares. Unlike years past, it is now conventional wisdom that companies and funds with strong ESG policies are good economic investments.  Those with weak or non-existent policies are not as prudent investments because they present a greater risk of facing events or publicity that will lower their investment value.  One would think the federal government would encourage such investing but this administration, siding with companies and funds that oppose ESG investing, does not.

On April 23, 2018, the United States Department of Labor issued a Field Assistance Bulletin (FAB) that backtracks on ESG investing by employee benefit plan managers by “clarifying” an Obama era Interpretive Bulletin (IB).  The IB stated “… that plan fiduciaries should appropriately consider factors that potentially influence risk and return.  Environmental, social and governance issues may have a direct relationship to the economic value of the plan’s investment.  In these instances, such issues are not merely collateral consideration … but are proper components of the fiduciary’s primary analysis of the economic merits of competing investment choices.”  The IB, in effect, supported plan managers who believed that ESG considerations are part of economically targeted investing.

The current administration has taken a different and potentially chilling approach to ESG investing.  “Fiduciaries must not too readily treat ESG factors as economically relevant to the particular investment choices at issue when making a decision.  It does not ineluctable follow from the fact that an investment promotes ESG factors, or that it arguably promotes positive general market trends or industry growth, that the investment is a prudent choice for retirement or other investors.”

Fund managers who consider ESG factors may feel this FAB creates confusion instead of clarifying the government’s position.  A fund manager must also consider how and when the government will second guess an ESG investment decision.  These uncertainties likely will require additional documentation supporting the fund manager’s decision.  Whether this FAB reduces ESG investing remains to be seen.

Can groundwater discharges violate the Clean Water Act and require NPDES permits?  Two federal court cases coming out of the 4th and 9th Circuits dealing with the applicability of the Clean Water Act (CWA) to groundwater are creating real concern over how expansive the court’s holdings and application of the Act can be.  The decisions were rendered by US Court of Appeals for the 4th Circuit in Upstate Forever v. Kinder Morgan Energy Partners LP and the 9th Circuit in Hawaii Wildlife Fund v. County of Maui.

In each case, the courts held that groundwater can be regulated under the CWA when it acts as a conduit through which pollutants from a spill of hazardous substances, septic waste or injection can be traced to protected surface waters.  While the burden of proof is significant, if a nexus can be established between the contaminant detected in the surface water and groundwater where the release originally occurred, then exposure to CWA fines is real and the need for a National Pollution Discharge Elimination System permit appears to be required.  The 4th Circuit’s holding is even broader than the 9th Circuit in that it applies to residual or historic contamination.  In other words, if released contamination ever reaches surface water protected by the CWA, then it doesn’t matter when the spill contaminants were first released to the environment.

In the 9th Circuit case, the County of Maui has already informed the court that it will seek Supreme Court review and for good reason.  If upheld, these rulings have far reaching implications for not only regulated industries, such as oil and gas, but also private home owners with septic systems and municipalities with leaking sewer pipes.  Here in NJ, where there is a robust state regulatory program requiring remediation of discharges to the environment, CWA regulation will add another regulatory scheme to be considered and may end up regulating septic tanks, which are common in New Jersey, and other systems designed to release materials below ground level.  Releases, both recent, as well as historic, could create a set of liabilities no private citizen even remotely considered.   Moreover, these decisions could cause the New Jersey Department of Environmental Protection to require re-investigation and re-assessment of sites that have been remediated pursuant to state law to determine if a previously unaddressed contaminant pathway between groundwater and surface water exists.

It remains to be seen how EPA will integrate these decisions, if they stand, into practice.  Once it does, the question will become how state delegated clean water programs will be affected.

In a recent unreported opinion, the Appellate Division affirmed a trial court’s decision imposing Spill Act liability on the sole shareholder of a dry cleaning business. (Morris Plains Holding VF, LLC v. Milano French Cleaners, Inc., Dkt. No. A-0604-16T1.) The case serves as a reminder that shareholder status does not protect individuals who are otherwise liable for contamination pursuant to the Spill Act.

The trial judge found that Milano French Cleaners operated for 25 years in a strip mall owned by the plaintiff. PCE was detected in the soil in 1999. After approximately 10 years of remediation the business went bankrupt. The landowner then assumed responsibility for the remediation and filed the subject action against the bankrupt corporation and its sole shareholder. The trial judge held both the sole shareholder and the corporation jointly liable for all remediation costs.

On appeal, the shareholder argued that imposing Spill Act liability on him improperly pierced the corporate veil. The Appellate Division disagreed, relying on NJDEP v. Dimant, 212 N.J. 153 (2002). As set forth in Dimant, to recover damages under the Spill Act, a plaintiff must establish a “reasonable nexus” between the discharge and the environmental damage, and a “reasonable link between the discharge, the putative discharger, and the contamination at the specifically damaged site.” Relying on the trial courts factual determinations, the appellate panel found a “reasonable nexus” because PCE contamination was found directly below dry cleaning machines with no other credible source in the area. In addition, the shareholder operated the dry cleaning equipment, was responsible for overseeing and handling the PCE used, and was responsible for ensuring legal and regulatory compliance of the corporation. Taken together, the record satisfied Dimant’s reasonable nexus standard and established individual liability.

Liability protection is clearly available to shareholders of close corporations in Spill Act actions. As recently as 2016 the appellate division remanded a decision imposing personal liability on shareholders for failure to conduct the fact intensive analysis necessary to pierce the corporate veil. See NJDEP v. Navillus Group, App. Div. Dkt. No. A-4726-13T3 (Jan. 14, 2016). However, in this case, given the nexus between the individual shareholder and the contamination, the appellate division refused to allow shareholder status to be used as a shield to individual liability. Rather, liability arose from a “reasonable link” between the discharger and the contamination, without regard for shareholder status.

A recent Court Decision by the United States Court of Appeals for the Second Circuit held there is no time limitation on OSHA’s ability to look back at prior citations in order to classify a new citation as a repeat citation and thereby seek a larger penalty. The issue in Triumph Construction Corporation v Secretary of Labor, 885 F.3d 95 (2018), was whether the three-year look back period used prior to 2015 or the subsequent five-year look back period applied to a repeat citation issued to Triumph in 2015 for a cave-in at an excavation site in lower Manhattan. To establish the repeat classification, OSHA had relied upon two prior citations issued in 2009 and 2011 to Triumph for violating the same excavation standard. Triumph contended to the Court that the Occupational Safety and Health Review Commission improperly upheld the contested repeat citation.

Triumph argued that prior to 2015, OSHA had used a three-year look back period to determine a repeat citation and that OSHA’s subsequent decision to use a five-year look back period in 2015 was an arbitrary one. These look back periods were included in OSHA’s Field Operations Manual effective at the time of the citations. The Second Circuit found that it did not matter whether a Manual prescribed a three-year or five-year look back period. It noted that neither the Occupational Safety and Health Act nor its implementing regulations impose time limits when determining if a citation is considered a repeat citation. The Court held that a time period set forth in a Manual “is only a guide” and does not bind the Commission to a specific look back period. As neither the Commission’s precedent nor the Manual limited OSHA to any look back period, the Commission did not abuse its discretion by relying on prior violations more than three years old in upholding the classification of the citations.

What this means is that OSHA is not restricted to any look back limitation when determining to classify a citation as a repeat citation. With OSHA substantially increasing its maximum penalties for willful or repeated citations to $130,000 (effective 1/2/18), employers should seriously consider contesting citations to which they have a good faith defense so that those citations do not later form a basis for a repeat citation.

It may be much harder to fill property in New Jersey.  In a recent decision, New Jersey Department of Environmental Protection v. Bleimaier, 2018 WL 1513152, (App. Div. 2018), the New Jersey Appellate Division in effect has held that the placement of more than five-yards of fill material always changes the existing topography and a permit is required.

In the case, a homeowner was issued an Administrative Order and Notice of Civil Administrative Penalty Assessment after the homeowner filled and graded their property, which fell within a delineated-flood-hazard-area, without a permit. The homeowner argued that a permit was not required because they were not altering the pre-existing topography and were merely remediating recent soil erosion.

The Department disagreed because the stated purpose of N.J.A.C. 7:13-2.4(a)(1) was to require a permit for “any topographic alteration, such as excavation, grading, or placement of fill.” Agreeing with the Department, the Appellate Division reasoned that if it were to accept the homeowner’s argument, a landowner could choose an arbitrary point in time and claim that they were restoring the topography to that particular point.

While the Appellate Division explains that the Department’s interpretation of the regulation was consistent with its stated purpose and in the public’s interest, the Department appears to be taking the position that the placement of more than five-yards of fill changes the pre-existing topography and, in effect, a permit is always required. The question becomes, was this the result the Department intended?

On Monday, the United States Environmental Protection Agency announced its intent to propose regulation that would weaken emission and fuel economy standards for cars and trucks manufactured in the United States.

These changes would roll back requirements established under the Obama Administration that, among other things, would force automakers to develop more electric vehicles and otherwise reduce transportation-related emissions. It also has been reported that the EPA may go so far as attacking a waiver previously granted to California that allowed California and other states to establish stricter emissions standards for motor vehicles so that only one reduced standard would apply nationwide.

The proposal is designed to reduce costs for U.S. automakers and reduce the price of vehicles for the consumer. While these certainly seem to be worthwhile goals, there are hidden costs to the proposal which must be considered and those hidden costs will particularly impact New Jersey.

For years, New Jersey has struggled to meet federal ambient air quality standards. This is because New Jersey is a “downwind” state and our air quality is significantly impacted by emissions in states to our south and west. The transportation sector is a major source of emissions in these “upwind” states that has an impact here. The existing EPA standards would help New Jersey achieve and maintain compliance with the federally mandated air quality requirements. If they are repealed or rolled back, New Jersey’s struggle could worsen yet again.

If that happens, New Jersey would be forced by federal law to take additional steps to meet the standards. This would mean tougher air permitting, a potential reduction in manufacturing or other development and other stringent and costly emissions reduction requirements imposed on New Jersey business and residents. These are among the reasons why the New Jersey Department of Environmental Protection has stated its opposition to the proposed changes.

There will certainly be controversy concerning the rule changes which will end up in court. But anyone who is concerned should participate in the comment process.

This blog post was originally published as an op-ed in ROI-NJ on April 4, 2018.

Over the past few months the intersection of religious principles and environmental protection has become a topic of public dialogue. Religious beliefs have also been invoked in recent cases seeking to block pipeline projects or protect endangered species. Even more recently, the press has reported on statements by EPA Administrator Scott Pruitt which suggest that religious freedom could now form the basis of challenging permit denials. Are we at the point where environmental lawyers need to study religion in order to represent their clients?

The recent public discourse about the intersection of environmental protection and religious principles started in 2015 when Pope Francis published his encyclical Laudato Si. The Pope explained that protection of the environment is part of God’s plan. In this context the Pope argued that it is important to address global warming because of its impact on the planet and disproportionate effect on the poor and disadvantaged.

EPA Administrator Pruitt is reported to have a different view. This is based upon a literal reading of the Book of Genesis. It says God has given humans dominion over the earth, and the belief that as a result humankind has the right to manage and cultivate the earth’s resources for its benefit. The New Republic explained these differing viewpoints in an article by Emily Atkin entitled “Scott Pruitt vs. The Pope” dated February 27, 2018.

The religious principles proffered by Pope Francis are reflected in legal theories advanced in a number of recent cases. For instance in Adorers of the Blood of Christ v. Federal Energy Regulatory Commission (EDPA, Case No 5:17-cv-03163 JLS) a religious order challenged FERC’s approval of a pipeline crossing the order’s property by asserting that the property is sacred to their beliefs and that the pipeline would contribute to global warming. Similarly, in Crowe Indian Tribe v. Zinke (D Mont. Case No. 9:17-cv-00089DLC-JCL) the plaintiffs challenged a regulation delisting the Yellowstone Grizzly Bear as an endangered species asserting the importance of that species to the practice of their religion. These cases assert claims under the Religious Freedom Restoration Act, 42 U.S.C. 2000bb. This statute prohibits the government from substantially burdening a person’s exercise of religion unless it furthers a compelling governmental interest and is the least restrictive means of furthering that interest. Another example is Standing Rock Sioux Tribe v. Army Corps of Engineers, 239 F.Supp. 3d 77 (D.D.C. 2017). In that decision, the Court rejected a request for an injunction seeking to block construction of a pipeline across a lake, finding that construction of the pipeline did not create a substantial burden on the plaintiffs’ exercise of their religious beliefs.

Looking at the legal theory in these cases and invoking the religious views attributed to EPA Administrator Pruitt, is it possible that someone could challenge the denial of a permit on the grounds that it imposes a substantial burden on their religious belief that natural resources are subject to human dominion and are there to be exploited? While case law to date would not seem to support such a theory, in 2018 it seems less far-fetched than in the past.

This blog post was originally published on the blog of the American College of Environmental Lawyers, in which Mr. Toft is a Fellow.

In a recent decision, Hawai’i Wildlife Fund v. County of Maui, the Ninth Circuit Court of Appeals held that a Clean Water Act (“CWA”) permit is required when pollution found in navigable waters is fairly traceable from point source discharges to groundwater.

The case involved Maui County’s discharges of treated sewage into four groundwater wells. That sewage seeps into the groundwater and, based on a tracer dye study, flows into the Pacific Ocean 84 days later and a half mile away from the wells. The Ninth Circuit held that the discharges require a CWA permit because (1) the wells were each a point source, (2) pollutants are fairly traceable from a point source to a navigable water, and (3) the pollutants reaching the navigable water are not de minimis.

The County primarily argued that indirect discharges do not require a CWA permit. The Court disagreed, relying on the plain language of the statute, which does not mention direct discharges, and Justice Scalia’s plurality opinion in Rapanos v. United States, 547 U.S. 715, 743 (2006), which favorably cites decisions requiring permits for other indirect discharges.

While the Ninth Circuit explains that its decision only imposes the same permit requirement the County would have faced had it constructed an outfall, future cases likely will be less clear. For now, operations discharging to groundwater should consider the likelihood of tracing non de minimis pollution to navigable waters when evaluating permit compliance.

In the latest chapter on the issue regarding public access to beaches and waterfronts, on February 5, 2018, the Senate Environment and Energy Committee passed a bill that attempts to codify public access requirements as it applies to NJDEP coastal permitting programs. S-1074 (1R) sponsored by Senators Smith and Bateman, requires that NJDEP issue any permits, approvals, administrative actions or consent decrees under the Coastal Area Facilities Review Act (CAFRA), the Wetlands Act of 1970 (Coastal Wetlands Act), the Flood Hazard Area Control Act or the Coast Zone Management Act consistent with the public trust doctrine. In sum, any party taking action pursuant to these coastal programs that provides for a change in the existing footprint of a structure, or a change in use of the property, must review the existing public access to tidal waters and adjacent shorelines and require that additional public access be provided.

If enacted, the bill would also amend the Municipal Land Use Law to require municipalities to include, as part of their master plan, a public access plan for tidal areas and adjacent shorelines. The bill would require a public access to inventory public access points and facilities (i.e. parking, boat ramps, etc.); assess the need for additional public access; include a statement of goals and administrative mechanisms to ensure that access will be permanently protected; and provide strategy and implementation schedule addressing forms of access necessary to satisfy the municipality’s need. These provisions would codify NJDEP’s prior efforts to provide for planning at the municipal level. After a significant stakeholder process, NJDEP adopted Public Access Rule amendments in 2012 providing for municipalities to adopt Municipal Public Access Plan as a mechanism to determine public access requirements. Those provisions were struck down by the Appellate Division in 2015 being considered beyond the scope of both the “public trust doctrine” and current law.

Notably, the bill provides certain exemptions for facilities that are subject to certain site security or safety situations. The excluded facilities include the following: (1) facilities required to submit a facilities security plan under the “Maritime Transportation Security Act of 2002;” (2) facilities required to develop and adhere to a transportation security plan for hazardous materials pursuant to the regulations adopted by the federal Pipeline and Hazardous Materials Safety Administration; (3) facilities required to participate in the US Department of Homeland Security’s Chemical Facility Anti-Terrorism Standards program; (4) facilities located at any airport, railroad yard or nuclear power facility; or (5) facilities requiring exclusion of the public for security reasons pursuant to rules issued by the New Jersey Office of Homeland Security and Preparedness.

After being referenced by the Senate Environment and Energy Committee, S-1074(1R) has been referred to the Senate Budget and Appropriations Committee.

As was done in the last legislative session, New Jersey Assemblyman Tim Eustace (District 38 – Bergen and Passaic Counties) has introduced Assembly Concurrent Resolution (No. 85) in the 2018 – 2019 legislative session to amend the state constitution. If approved by the New Jersey Assembly and Senate by a simple majority in two separate legislative sessions, or with a 60% majority in a single session (approval by the Governor is not required), it could lead to voter approval of a “Bill of Environmental Rights.” Here’s the proposed language:

(a) Every person has a right to a clean and healthy environment, including pure water, clean air and ecologically healthy habitats, and to the preservation of the natural, scenic, historic, and esthetic qualities of the environment. The State shall not infringe upon these rights, by action or inaction. (b) The State’s public natural resources, among them its waters, air, flora, fauna, climate, and public lands, are the common property of all the people, including both present and future generations. The State shall serve as trustee of these resources, and shall conserve and maintain them for the benefit of all people. (c) This paragraph and the rights stated herein are (1) self-executing, and (2) shall be in addition to any rights conferred by the public trust doctrine or common law.

The right to a “clean and healthy environment” would be enforceable in court in the same way as the rights of free speech and freedom of religion are enforced. However, the terms “clean and healthy environment,” “pure water, clean air and ecologically healthy habitats,” and “natural, scenic, historic, and esthetic qualities of the environment” are subject to interpretation. Likely, the State Supreme Court will be asked to define these terms and decide how rights provided by the amendment are enforced and protected.

New Jersey courts are not unacquainted with disputes over broad language in the state constitution. The constitutional phrase, “a thorough and efficient system of free public schools,” has been the subject of litigation since the 1970s. Will the New Jersey constitution be amended to include the environmental rights language found in the Assemblyman Eustace’s Resolution? Who knows – but if it is amended, there will be significant litigation over the Bill of Environmental Rights’ scope and reach.