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N.J. seeks 'lost-use' damages

Polluting firms are told to pay for resources once usable, even if nobody wanted to use them.By Tom Avril, Inquirer Staff Writer Philadelphia Inquirer Apr. 11, 2004

When CBS Records was cranking out hit albums in the 1960s and 1970s, it dumped the nickel-laden wastewater from its Gloucester County factory on the ground and in lagoons.

The company cleaned up its act years ago, and its owners have spent at least $1.8 million to get rid of the mess.

But now, the state of New Jersey wants the record factory to face the music again.

The plant is one of dozens of New Jersey industrial sites, many of them cleaned up long ago, whose owners now are being asked to pay "natural resource damages."

In effect, the state wants the companies to pay back the public for however many years it was unable to use a particular natural resource, such as a lake or underground water supply.

The move has drawn howls from business groups - several of which have challenged the program in a lawsuit - and covetous glances from other states seeking to copy New Jersey's example.

The concept of compensating the public for "lost use" applies even to sites where the public was not using the contaminated resource or even planning to do so.

For example, at the former record factory in Pitman that is now owned by a subsidiary of Sony Corp. and is used to make compact discs, the tainted area of groundwater is a third of a mile from the nearest drinking-water well. Tests show that the remaining contamination is not moving.

"We've never had any high amounts of really anything," said Andrew Eisenhart, the borough's water and sewer superintendent, referring to the lack of contaminants in the well on Linden Avenue.

State officials would not say how much money they are seeking in the record-factory site or any other case, citing ongoing negotiations. In the one case settled to date, in November, three companies agreed to pay $17 million because of chromium contamination in Hudson and Essex Counties.

Sony officials said that handling any damages claim at the record factory is the responsibility of Viacom Inc., which bought CBS after CBS sold the record division to Sony.

"We don't believe that any additional claims are justified," Viacom spokesman Carl Folta said, "because the site has been cleaned up and the water in question has never been used for any purposes then or since."

Bradley Campbell, who launched the damage-recovery effort as commissioner of the state Department of Environmental Protection, said the state has the duty to protect natural resources on behalf of the public.

Even though some of the tainted groundwater is not actually in use, the potential was there until the pollution occurred, he said. Homebuilding and other economic activity may have been hampered as a result, he said.

"By enforcing the polluter-pays principle and seeking appropriate restoration, we can enhance New Jersey's economy as well as its environment," Campbell said.

Industry groups say quite the opposite, warning that starting a damage-recovery program is not a good way to attract businesses.

Steven Picco, a Princeton-based attorney who represents industry groups in the lawsuit, filed in state Superior Court in Mercer County, called the program unfair.

"If [a company] cleans it up before there's public demand for it, where's the harm?" Picco said. "It's really double jeopardy."

The lawsuit raises other issues. It contends that the formula for calculating the damages is invalid because it was not created through the regulatory process, with public hearings.

Business groups also object to the state's hiring of outside counsel to comb through thousands of old files, looking for cases.

Allan Kanner, a colorful, cowboy boots-wearing lawyer from New Orleans, gets a cut of any money he brings in. That arrangement compromises the state's neutrality, the lawsuit contends.

Not so, Campbell countered. All cases must be approved by him and by the state attorney general. Kanner is pursuing some cases, and the Attorney General's Office is pursuing others. The same legal theories and settlement guidelines will be used in both, Campbell said.

Using outside counsel made sense because it would be inefficient to add staff to the Attorney General's Office for a temporary job, he added.

New Jersey and other states have pursued natural-resource damages in the past in scattered cases, usually with big chemical spills.

But the state's systematic review of thousands of historic cases is virtually unheard of, said Bruce Katcher, a partner at Manko, Gold, Katcher and Fox, an environmental law firm with offices in Bala Cynwyd and Cherry Hill. Other states are taking an interest in the effort, but New Jersey is out in front. Pennsylvania officials said they have no plans to start a similar program.

Since September, New Jersey officials have mailed out several dozen "demand letters" across the state that invited polluters to negotiate settlements. Those who chose not to were told they could expect a lawsuit.

To date, the state has filed suit in just one case, against the owners of three gas stations at one intersection in Ewing Township, Mercer County. Settlement talks are ongoing in other cases, but the industry lawsuit appears to have slowed things down, Katcher said.

In the record-factory case, letters were sent in November to Sumner Redstone, Viacom's chief executive officer, and to Andrew Lack, who heads Sony Music Entertainment.

The water underneath the plant is tainted with nickel, a metal that was used in the record-making process. According to Department of Environmental Protection records, the owners removed more than 4,000 cubic yards of contaminated dirt in the mid-1990s and continues to operate monitoring wells to ensure that remaining contamination does not spread.

How much is the loss of groundwater worth? State officials came up with an initial formula that is based partly on local water rates. In cases that reach litigation, a tougher formula reviewed by environmental economists would be used and would result in much higher costs to companies, Campbell said.

David Robison, a La Salle University economics professor who studies environmental issues, said it would be tricky to figure out the worth of an asset that no one was using.

If Pitman residents had needed to purchase bottled water, for example, that cost would be a starting point. But there were no "avoidance costs" in this case and in many of the other cases, he said after reviewing program materials. David Pringle, campaign director for the nonprofit New Jersey Environmental Federation, countered that the program is vital to the well-being of the nation's most densely populated state.

"Polluters do not have an unfettered right to contaminate or destroy these resources, especially in a place like New Jersey where we literally live on top of and right next to our our drinking water," Pringle said. "We cannot afford to write off any potential source of water supply."

Contact staff writer Tom Avril at 215-854-2430 or


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