There has been a lot in the news recently about the proposed settlement between ExxonMobil and the state of New Jersey about natural resource damage around historic sites that had been home to two Standard Oil refineries. I’ve asked Jack Balagia, ExxonMobil’s general counsel, to provide some information on the proposed settlement, which appears below. In a follow-up post, I will examine the cleanup itself, which has been ongoing for nearly a quarter century and is not part of the lawsuit. ~Ken
To most people, $225 million is a lot of money. But from all the news reports and editorials criticizing the ExxonMobil settlement with New Jersey over natural resources at the Bayway and Bayonne refineries, you wouldn’t know it.
According to the critics, ExxonMobil is settling for 3 cents on the dollar, to quote The New York Times, since the state claimed $8.9 billion in damages for loss of public use of natural resources around the facilities.
Yet none of the critics offers any discussion about the origin of the $8.9 billion claim for damages, nor do they explain how it was calculated. Let me try to shed some light on that now.
The Stratus Report
That eye-popping damage claim derives from a report state officials commissioned from Stratus Consulting after New Jersey launched its case against ExxonMobil in 2004. Stratus is the same firm that prepared the discredited damage report in the notorious litigation between a group of Ecuadorian plaintiffs and Chevron that has been the subject of much publicity these past several years.
Stratus’s report in our case has no scientific or economic foundation, nor does the $8.9 billion number it generated.
Among the problems with the Stratus report is that Stratus calculated damages going back to the 1870s, a full century before passage of the New Jersey law that is the basis for the State’s claims. Even federal law does not permit damages to be assessed for periods prior to 1980. And more remarkably, to make their number even larger, the Stratus calculation also assumed that damages will continue for another hundred years into the future.
The Stratus report also failed to establish any injury to any natural resource at the refinery sites that was actually caused by discharges of hazardous substances. This is a critical omission. Stratus instead assumed – inaccurately – that any detectable level of contamination results in complete injury using thresholds even lower, in many instances, than background levels of contamination found throughout New Jersey and the rest of the country.
In addition, the Stratus report failed to take into account that most of the land at the sites is not on public property, but on lawfully developed private property, and that the majority of both sites had no natural resources at all because they were occupied by buildings, roads and other facilities permitted by the state and necessary to operate the refineries.
Out of Thin Air
And that is how a claim for $8.9 billion materializes out of thin air.
I’ll note that on the two other occasions in which state officials had advanced claims based on a similar natural resources damages methodology, the New Jersey courts rejected them. And the other expert used by the state in this case estimated damages to be almost $8 billion lower than the Stratus estimate, much closer to the $550 million number the New York Times reported that the administration of Governor Jon Corzine was willing to accept to settle the lawsuit years ago.
So if the $8.9 billion figure has no merit, why did earlier administrations in New Jersey make that claim after filing the lawsuit?
Well, unfortunately, it is not uncommon for people to file lawsuits and claim huge amounts of money in order to force a settlement, and in this case it resulted in the largest environmental settlement in New Jersey history.
But no one should delude themselves into thinking that the state’s $8.9 billion damage claim was anything more than a high-stakes negotiating tactic, devoid of any scientific or economic legitimacy.