• Long-Awaited Decision on Natural Resource Damages
  • November 27, 2006 | Author: James A. Bruen
  • Law Firm: Farella Braun + Martel LLP - San Francisco Office
  • On October 31, the United States Court of Appeals for the Tenth Circuit issued it long-awaited decision on natural resource damages in State of New Mexico et al. v. General Electric Company et al. ____F.3d____(10th Cir. No. 04-2191). The decision affirmed the entry of summary judgment in favor of GE and its co-defendants in the United States District Court for the District of New Mexico (Judge Bruce Jenkins sitting by designation) and dismissed for want of jurisdiction the State's claims for monetary damages arising from the alleged inadequacy of GE's groundwater remediation system.  More importantly, it created an important precedent for industry in the nationwide battle with aggressive State Attorneys General who have attempted to convert alleged natural resource damages claims into vehicles for augmenting their general treasuries.  Under the Tenth Circuit's ruling, natural resource damages may be sought only for monies that will be used to restore, replace or acquire equivalent resources, cannot be premised on alleged inadequacies of ongoing EPA-approved remediations, and must be tied squarely to actual losses of services from the injured resource. 

    The New Mexico litigation began October 1, 1999, with the filing of two lawsuits by the State of New Mexico and the State of New Mexico ex rel. its Attorney General:  a CERCLA natural resource damages action in federal court and a parallel action based on state tort and statutory claims in state court.  All of the State's claims were based on the theory that an ongoing groundwater remediation program approved by EPA and the State's own environmental regulators was in fact inadequate and that the State was entitled to billions of dollars for the permanent loss of use.

    GE successfully removed the state action to federal court and the state thereafter filed a consolidated complaint joining the two actions.  For the next five years, GE and its co-defendants filed over 50 motions to compel the state to clarify its legal claims, narrow the scope of the factual and legal issues in dispute, and, finally, set the stage for motions for summary judgment. Judge Jenkins reserved most rulings on pretrial motions until the lengthy pre-trial conference - which began in November 2002 and continued in segments over the next year-and-one-half. After conducting an eight-day Daubert hearing to consider challenges to the State of New Mexico's economist, hydrogeologists and engineering expert, the District Court entered three successive orders for partial and then complete summary judgment to dispose of the case.

    The District Court held that the State's sole legal interest was as trustee for the groundwater to ensure that water was available for appropriation.  The court held that the State had failed to demonstrate any injury to this interest, holding that groundwater in the Middle Rio Grande Basin of New Mexico was fully appropriated and that the contamination had not resulted in any loss of drinking water services from the basin.  The court found that GE was successfully remediating the allegedly injured natural resource (groundwater), and that the State had not established any contamination that was outside the scope of the GE remediation system.  Further, the District Court rejected the testimony of the State's expert witnesses because their opinions, inter alia, did not "fit" (a) the State's limited legal interest in making groundwater available for appropriation, (b) the evidence (or lack thereof) of any injury to groundwater services, (c) the dynamic nature of the ongoing remediation, and (d) the State's legal burdens in pursuing its "loss of use" theory.  

    On appeal, the Tenth Circuit affirmed in part and dismissed in part, holding that:

    a.  CERCLA requires that all natural resource damages recovered by the state must be used solely to restore, replace or acquire resources and could not be used for any other purposes.  CERCLA preempts state law claims that would permit use of such recoveries for other purposes.  Under this ruling, no state may use natural resource damages - whether recovered under federal or state law - for general purposes or to pay contingency fees.

    b.  Natural resource damages must be based on an actual injury to the state's legal interest.  Where groundwater is concerned, unless there has been an actual reduction in the volume of water available for use, no claim for loss of use damages is available. 

    c.  Where parties are engaged in an EPA-approved remedy under CERCLA, CERCLA Section 113 bars a court from considering any claims for natural resource damages that are predicated on the injury that is being addressed by the remedy, until the remedy has been completed.  In the case of groundwater, this will often mean that NRD claims are barred for decades and will insure that industry is not faced with the prospect of paying twice for the same groundwater resource.

    GE was represented in District Court by a six-firm trial team led by Farella Braun + Martel lawyers Jim Bruen and Peter Modlin, and including senior attorneys from the Washington, D.C. firm of Spriggs & Hollingsworth, the Santa Fe, New Mexico office of Holland & Hart, the Denver, Colorado firm of Davis, Graham & Stubbs, the Corpus Christi office of Canales & Simonson and the Boston office of Ropes & Gray.  On appeal, GE was represented by Spriggs & Hollingsworth attorneys Don Fowler and Eric Lasker in consultation with Farella Braun + Martel and other members of the trial team. On appeal ACF Industries was represented by McKenna Long & Aldridge LLP.