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Bath Petroleum Storage, Inc. and EIL Petroleum, Inc. - Ruling, July 26, 2002

Ruling, July 26, 2002

STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the matter of

the alleged violation(s) of the New York State Environmental Conservation Law (ECL)
Articles 3, 17 and 23, Title 6 of the Official Compilation of Codes, Rules, and Regulations
of the State of New York (NYCRR), and permits issued pursuant to
Environmental Conservation Law Article 17, Title 8 and Article 23,
Title 13; and the application to renew, modify, and transfer SPDES Permit NY 000-4279;
and the application for ECL Article 23 modification permit;

- by -

BATH PETROLEUM STORAGE, INC.,
and
E.I.L. PETROLEUM, INC.

RULING OF THE ADMINISTRATIVE LAW JUDGE
ON MOTION TO CONSOLIDATE PERMIT AND ENFORCEMENT ACTIONS

DEC Case No: R8-1088-97-01
DEC Project No. 8-4624-00008
ECL Article 23-1301 Permit Hearing

Introduction

The Applicant, Bath Petroleum Storage, Inc. ("BPSI") has applied to the New York State Department of Environmental Conservation (the "Department" or "DEC") for a modification permit(1) pursuant to Article 23, Title 13 of the Environmental Conservation Law ("ECL") for the proposed expansion of its existing underground storage caverns in Bath, New York (the "Facility"). E.I.L. Petroleum, Inc. ("EIL") is a corporation engaged in the international and domestic bulk purchase and sale of liquefied petroleum gases ("LPG"). BPSI, a wholly-owned subsidiary of EIL, operates the Facility. BPSI and EIL are referred to hereafter collectively as the "Applicants."

By letter dated December 6, 1996, BPSI filed a permit application, pursuant to ECL Article 23, together with an application by Consolidated Natural Gas Transmission ("CNGT"), seeking a modification permit for an increase in LPG storage capacity, and a new underground gas storage permit for storage of natural gas in existing caverns, as well as caverns to be developed. In 1996, BPSI had entered into a lease agreement with CNGT to convert part of the Facility from LPG to natural gas storage. The application sought approval from the Department "for the conversion of the following existing grandfathered or permitted storage caverns/wells from LPG to natural gas - well #s 1, 3, 5, 6, 7, 9, 10, 11, 12 and 14." Applicants' Response to Department Staff's Motion, Exhibit A, at p. 3.(2) BPSI also requested approval from the Department for its plan to drill new wells (numbered 15 through 18) and to develop corresponding caverns for the storage of LPG. Finally, BPSI sought approval of its plan to enlarge both its existing and proposed caverns to two hundred feet in diameter.

In January of 1998, CNGT terminated the lease agreement with BPSI. BPSI requested that the Department continue processing the Article 23 permit application, with BPSI as the sole applicant. By letter dated June 9, 1998, Department Staff denied the application for a permit modification authorizing the expansion of caverns 1 through 7. According to Department Staff, the denial was a result of BPSI's "failure to provide essential information in response to the Department's requests," including baseline sonar surveys(3) of the caverns.(4) In addition, Department Staff stated that BPSI had failed to specify the proposed final volume of each cavern, and had not provided a cavern development plan. The letter advised BPSI of its right to a hearing on the denial of its application, and, on July 2, 1998, BPSI requested a hearing.

Following a stay as a result of the related litigation in federal court,(5) BPSI and Department Staff advised the Office of Hearings that they were ready to proceed to hearing, and the legislative public hearing and issues conference were scheduled for January 22, 2002. Pursuant to Section 624.3 of Title 6 of the Official Compilation of Codes, Rules and Regulations of the State of New York ("6 NYCRR"),(6) notice of the proceedings was published in the December 19, 2001 edition of the Department's Environmental Notice Bulletin. Notice was also published on December 25, 2001 in The Leader, and on December 30, 2001 in the Steuben Courier-Advocate, all newspapers having a general circulation in the affected area.

On January 11, 2002, Department Staff filed this motion, seeking consolidation, pursuant to the provisions of 6 NYCRR Sections 622.6(c), 622.10(e), and 624.8(e), of (1) the Article 23 permit proceeding; (2) proceedings with respect to BPSI's application to renew and transfer a SPDES permit; and (3) Department Staff's pending enforcement action against BPSI and EIL. Those permit and enforcement proceedings, as well as related State and federal litigation in this matter, are summarized below. Staff's motion also sought a stay of the upcoming legislative public hearing and issues conference. During a conference call among the parties on January 16, 2002, Administrative Law Judge ("ALJ") Maria E. Villa ruled that the proceedings would go forward as scheduled.

The legislative public hearing convened on January 22, 2002, at the Department's Region 8 sub-office in Bath, New York. Following presentations by counsel for the Applicants and counsel for Staff, James Heffner, the Bath Town Supervisor, made a brief statement concerning recent newspaper articles in connection with the project. The New York Propane Gas Association ("NYPGA") filed a timely petition for amicus status, and during the legislative hearing, Richard Brescia, of the NYPGA, spoke in support of the application.(7) The issues conference record was opened on January 22, 2002, but due to the filing of the motion under consideration in this ruling, only preliminary matters were addressed that day.

Counsel for the Applicants opposed Department Staff's motion. Department Staff sought leave to file a sur-reply, and leave was granted. On June 28, 2002, a conference call was held among the participants to clarify the submissions on the motion, as well as the status of discovery in the enforcement action. For the reasons set forth below, the motion is granted in part, and denied in part.

Factual Background

The Facility consists of underground storage caverns in a large salt formation underlying BPSI's 100-acre property. Liquid petroleum gas is shipped to the Facility by truck or rail and pumped into the underground caverns for storage. To remove the gas from storage, brine is pumped into a cavern to displace the liquid petroleum gas. When gas is pumped into a cavern, the brine is displaced, and is stored in two surface ponds. Excess brine is discharged into the Cohocton River pursuant to a State Pollutant Discharge Elimination System ("SPDES") permit issued by the Department.(8)

Caverns 1 through 6 were developed between 1953 and 1959, prior to BPSI's ownership. While the activities associated with caverns 1 through 6 were exempt from permitting requirements ("grandfathered"), pursuant to ECL Section 23-1301(3), the Applicants must obtain a permit for any expansion. Cavern 7 operates pursuant to permits issued by the Department to BPSI. These seven caverns are the subject of the pending application for a modification permit pursuant to ECL Article 23 to increase the Facility's storage capacity.

The Facility holds permits issued in 1998 by the United States Environmental Protection Agency ("EPA") pursuant to the federal Underground Injection Program ("UIC"). BPSI's ECL Article 23 application also sought approvals from the Department to expand the existing and proposed caverns to two hundred feet in diameter, the maximum limit established in the federal UIC permits. Applicants' Response to Department Staff's Motion, Exhibit B, p. 43, Part II, ¶ B.2 ("Operations/Injection Formation").

At the legislative public hearing, counsel for the Applicants provided information concerning the geological formation of the caverns, which are situated in a salt layer that begins approximately 2900 feet below the earth's surface. Issues Conference Transcript (hereinafter "IC Tr. at p. ") at pp. 7-8. A layer of helderberg limestone lies above the salt layer. IC Tr. at p. 8. The salt layer is three hundred to four hundred feet thick. Id. The Facility's caverns, most of which are cylindrical in shape, lie within this salt formation. IC Tr. at p. 9.

Wells drilled through the earth's surface to the salt layer allow access to the caverns. Applicants' Response to Staff's Motion, Exh. R., Verified Complaint at ¶ 13. Fresh water is pumped through the well into the salt layer, and the caverns are formed as the salt is solutioned by the water. Id. The salt water (brine) created by the solutioning process is pumped from the caverns through tubing in the well and stored in above-ground ponds. Id. According to the Applicants, the wells expand at a rate of one to two percent each year. IC Tr. at p. 10.

In 1991, BPSI submitted an application to the Department for permission to expand the Facility's storage capacity by drilling seven additional wells. Pursuant to the State Environmental Quality Review Act ("SEQRA"), the Department issued a negative declaration, and granted BPSI permits, pursuant to ECL Article 23, to drill six of the seven proposed wells into the caverns.

In 1995, BPSI sought permission from the Department to drill a replacement well to create a new cavern and increase the Facility's storage capacity. Department Staff determined that a modification permit would be required for such expansion, and ultimately, a declaratory ruling issued consistent with Department Staff's position. Matter of Bath Petroleum Storage, Inc., DEC 23-08 (May 2, 1996). BPSI commenced an action pursuant to Civil Practice Law and Rules ("CPLR") Article 78 to annul the declaratory ruling. The trial court dismissed the petition, holding that the Department correctly found that BPSI was required to obtain a modification permit. On appeal, the trial court's determination was affirmed. Matter of Bath Petroleum Storage, Inc. v. NYSDEC, 244 A.D.2d 624, 625 (3rd Dept. 1997), leave to app. denied, 668 N.Y.S.2d 561 (1998).

Procedural Background

By this motion, Department Staff seek to consolidate:

  1. a pending enforcement action;
  2. proceedings with respect to Department's Staff's denial of the Applicants' SPDES permit renewal and transfer application; and
  3. proceedings with respect to Department Staff's denial of the Applicants' modification permit application, pursuant to Article 23, to expand the LPG storage capacity of caverns 1 through 7. A summary of the complex procedural history of the enforcement and SPDES permit actions, as well as the related litigation in State and federal court, is set forth below.

Enforcement Action

Presently pending before the Office of Hearings is Department Staff's enforcement action against BPSI and EIL. Department Staff's complaint, filed in March of 1997, asserts violations of ECL Articles 3 and 17, including alleged violations of the Applicants' discharge permit limitations, as well as the contravention of water quality standards as a result of that discharge to the Cohocton River. The complaint included other allegations of SPDES permit violations related to changes to the Facility's discharge and operations, and to the Applicants' alleged failure to use a laboratory certified by the New York State Department of Health for sample analysis.

By motion dated August 10, 1998, Department Staff moved to amend the Complaint to include additional SPDES violations and to add ten more causes of action that related to alleged violations of ECL Article 23, including allegations of unpermitted expansion of the Facility's underground storage caverns. The amended complaint's prayer for relief sought revocation of the Facility's Article 23 permit. The Applicants opposed Department Staff's motion. In a ruling dated August 31, 1998 (Matter of E.I.L. Petroleum, et al., 1998 WL 1759901), ALJ Daniel P. O'Connell granted the motion, and by letter dated September 25, 1998, Department Staff served a copy of the Amended Complaint and civil penalty calculation.

In a ruling dated December 21, 1998, ALJ O'Connell denied, without prejudice, the Applicants' motion to dismiss. The ruling also addressed the Applicants' affirmative defenses, and set a briefing schedule to address a question of subject matter jurisdiction. Matter of E.I.L. Petroleum, et al., 1998 WL 1759900. Specifically, the ALJ's ruling stated that a dispute between the parties with respect to preemption, by EPA and the Federal Energy Regulatory Commission ("FERC"), of the Department's authority to regulate certain storage caverns at the Facility, raised a threshold question of subject matter jurisdiction. Id.

By letter dated December 30, 1998, the Commissioner granted Department Staff leave to appeal the ALJ's ruling concerning the question of subject matter jurisdiction. The Applicants filed a timely reply, and an Interim Decision issued on February 17, 1999 (Matter of E.I.L. Petroleum, et al., 1999 WL 33283813). In that decision, the Deputy Commissioner stated that the doctrine of subject matter jurisdiction is not equivalent to preemption, and that "[t]he Department clearly has subject matter jurisdiction." Id. The Interim Decision went on to observe that factual development of the record should be of assistance in resolving the preemption dispute, and determined that any briefing of the preemption issue should occur after the close of the record. Id.

On March 5, 1999, the Applicants moved for a stay of the enforcement action, pending a decision from the United States District Court, Northern District of New York, concerning the Applicants' federal lawsuit. See Bath Petroleum Storage, Inc., et al. v. Sovas, et al., 78 F. Supp.2d 67 (N.D.N.Y. 2000), on reconsideration, 136 F. Supp.2d 52 (N.D.N.Y. 2001). In that action, the Applicants argued, among other things, that the allegations in Department Staff's amended complaint with respect to cavern expansion were preempted by EPA's regulation of underground injection control of brine pursuant to the federal Safe Drinking Water Act ("SDWA"), 42 U.S.C. Section 300, et seq.

ALJ Helene G. Goldberger, who had been assigned the case due to ALJ O'Connell's schedule, denied the request for a stay. Matter of E.I.L. Petroleum, Inc., 1999 WL 33250497 (April 30, 1999). The Applicants appealed that ruling, and moved for the ALJ's refusal, inasmuch as ALJ Goldberger had presided over an earlier SPDES permit modification proceeding for the Facility.(9) The ALJ denied that motion. Matter of E.I.L. Petroleum, Inc., 1999 WL 33250496 (May 26, 1999). On appeal, the Commissioner affirmed the ALJ's rulings. Matter of E.I.L. Petroleum, Inc., et al., 1999 WL 33283709 (October 8, 1999).

In November of 1999, the Applicants moved for summary judgment. Department Staff cross-moved for an order without hearing, and to amend the complaint to add Robert Weinberg, the president of BPSI and the president, director and principal shareholder of E.I.L., as an individual defendant. As part of that motion, Department Staff sought revocation of the Article 23 permit. ALJ Goldberger issued a ruling, denying the Applicants' motion for summary judgment and Department Staff's motion for order without hearing, but granting Department Staff's motion to amend the complaint.(10) Matter of E.I.L. Petroleum, Inc., et al., 2000 WL 33340964 (March 27, 2000). Both parties were denied leave to appeal. Department Staff have not yet scheduled a pre-hearing conference (see 6 NYCRR § 622.8), nor has a statement of readiness been filed, pursuant to 6 NYCRR Section 622.9.

SPDES Permit Renewal and Transfer Application

BPSI and EIL have also applied to the Department to renew and transfer a SPDES permit for the Facility. On December 8, 1999, Department Staff denied BPSI's request, based upon BPSI's alleged failure to provide information requested by Department Staff. Following an issues conference on July 10, 2000, ALJ P. Nicholas Garlick ruled that there were no adjudicable issues, and that a hearing on the denial was not warranted. Matter of Bath Petroleum Storage, Inc., ALJ Ruling, 2000 WL 1207725 (August 4, 2000). That ruling was appealed, and in a decision dated November 6, 2000, Deputy Commissioner Carl Johnson upheld ALJ Garlick's findings. Matter of Bath Petroleum Storage, Inc., Interim Decision, 2000 WL 1697729 (Nov. 6, 2000).

BPSI commenced an Article 78 proceeding in Supreme Court, Livingston County, to vacate and annul the Department's denial. In a decision dated August 27, 2001, and Order dated September 21, 2001, the Hon. Raymond E. Cornelius vacated and annulled Department Staff's December 8, 1999 denial, and vacated the Deputy Commissioner's Interim Decision in its entirety as arbitrary and capricious. Bath Petroleum Storage Inc., et al. v. New York State Dep't. of Environmental Conservation, et al., Index No. 1215-2000 (Sup. Ct., Livingston Cty., 2001). The decision deemed the SPDES application complete. Id., at p. 21. The court reasoned that "the statutory and regulatory definitions of a 'complete' application envision that information may need to be supplemented during the review process, and that an application should be deemed complete if it is sufficient for purpose [sic] of commencing review of the application." Id., citing ECL § 70-0105(2); 6 NYCRR § 621.1(d). Judge Cornelius held that the Department's failure to afford BPSI an adjudicatory hearing was error, and directed that an issues conference and adjudicatory hearing be conducted by another ALJ. Id., at p.23.

A Notice of Appeal has been filed by the New York State Attorney General; consequently, the order to hold a hearing is stayed pursuant to CPLR Section 5519(a). In the interim, pursuant to the terms of Judge Cornelius' Order, the Facility's SPDES permit remains in effect pursuant to the "safe harbor" provision of Section 401(2) of the State Administrative Procedure Act ("SAPA"), which allows a permit applicant that files a timely and sufficient renewal application to continue in operation pending a determination on its application, even if the permit to be renewed expires in the interim. Accordingly, the Facility has resumed discharging wastewater.

Federal Action (Northern District of New York)

As noted above, the Applicants filed suit in federal court in 1998, asserting five federal causes of action and two pendent state law claims against the State, the Department, and certain Department employees in their individual and official capacities. Specifically, the Applicants sought declaratory relief, on preemption grounds, from the State's imposition of various construction modification requirements. BPSI alleges that the Department's attempted regulation of the Facility's operations and the caverns' size and configuration are preempted by federal law, inasmuch as the State has not sought delegation of the federal UIC program, which is administered in New York by EPA. The Applicants also sought damages, and injunctive relief against two of the individual defendants, for violations of the Applicants' due process rights.

The Applicants' pendent State law claims alleged that the defendants violated SAPA because the defendants sought to compel the Applicants to comply with certain directives, despite the fact that the Department had not developed a regulatory impact statement. In addition, the Applicants alleged that the defendants violated the Applicants' State constitutional due process rights. On January 10, 2000, the federal district court dismissed the action, on the grounds that CNGT's withdrawal from the natural gas project rendered the matter unripe for judicial review. Bath Petroleum Storage, Inc., et al. v. Sovas, et al., 78 F. Supp.2d 67 (N.D.N.Y. 2000). The Applicants moved for reconsideration, and by Memorandum Decision and Order dated March 21, 2001, the court granted the motion and reinstated the federal preemption claims. The court declined to exercise supplemental jurisdiction over the two pendent state law claims, reasoning that those causes of action raised "a novel or complex issue of State law" (citing 28 U.S.C. Section 1367(c)(1)). Bath Petroleum Storage, Inc., et al. v. Sovas, et al., 136 F. Supp.2d 52, 62-63 (N.D.N.Y. 2001). The claims were dismissed without prejudice to re-file in State court. 136 F. Supp.2d at 63.

The Department moved to dismiss the remaining two claims for lack of subject matter jurisdiction. By Decision and Order dated February 27, 2002, the court denied the motion to dismiss, and reserved judgment on the Applicants' motion to amend their complaint, pending receipt of a proposed amended complaint. Bath Petroleum Storage, Inc., et al. v. Sovas, et al., 98-CV-347 (LEK/RFT),F. Supp.2d (February 27, 2002).

State Court Declaratory Judgment Action (Nassau County Supreme Court)

As noted above, the federal court declined to consider the Applicants' causes of action based upon SAPA and the State constitution. At the ALJ's request, at the opening of the issues conference record on January 22, 2002, the Applicants provided a status report with respect to a subsequent action filed in State court.

In September of 2001, the Applicants filed suit in Nassau County Supreme Court, seeking a declaratory judgment with respect to the SAPA and State constitutional causes of action. IC Tr. at p. 31. The Applicants' Verified Complaint, included as Exhibit R to the Applicants' Response to the Department's Motion, alleges that there is no authority, either by statute or regulation, for the Department's requirement that sonar surveys of the Facility's caverns be provided by BPSI before the Department will act on the Applicants' Article 23 permit application. Verified Complaint, at ¶ 32. By their complaint, the Applicants "seek a declaration that the imposition by DEC of a rule of general applicability that has not been subjected to the processes outlined in SAPA, Article 2, is ultra vires and unconstitutional" and further, seek an order enjoining the Department from imposing the requirement pending compliance with SAPA. Id. at ¶ 55. The Applicants allege that they are entitled to prospective injunctive relief, barring the Department from requiring sonar surveys of the caverns before evaluating the permit applications, and compelling the Department to process those applications "based solely upon existing codified regulations." Id. at ¶ 63.

At the hearing on January 22, 2002, counsel for the Applicant advised that the Department had filed a motion to dismiss, and that oral argument was heard on that motion during the week of January 14, 2002. IC Tr. at p. 34-36. On July 2, 2002, Judge Peter B. Skelos issued a ruling on the motion, dismissing the complaint without prejudice. Bath Petroleum Storage, Inc., et al. v. Field, et al., Index No. 14527/01, slip op. (Sup. Ct., Nassau Cty., July 2, 2002). The court declined to convert the declaratory judgment action into an Article 78 proceeding, as the Department requested, noting that [a]n Article 78 proceeding is the proper vehicle to determine whether a statue or regulation has been applied in an unconstitutional manner, but it is not the proper vehicle to test the constitutionality of legislative enactments." Id. at p. 2 (citations omitted). The court reasoned that, because "there is potential for an administrative solution," the Applicants' request for declaratory and injunctive relief was not yet ripe. Id. at p. 4.

Merits of the Motion to Consolidate

Motion Procedures

Consolidation of enforcement proceedings is governed by 6 NYCRR Section 622.10(e)(1), which provides that

In proceedings which involve common questions of fact, the Chief ALJ upon the ALJ's own initiative or upon motion of any party, may order a consolidation of proceedings or a joint hearing of any or all issues.

On this motion, Department Staff cite to this provision, as well as 6 NYCRR Section 624.8(e), which provides that "[a] project may require submission of applications for more than one permit . . . and public hearings may be required for more than one purpose. Whenever practicable, all such hearings will be consolidated into a single public hearing." Department Staff also requested a stay of the Article 23 modification permit hearing until the motion for consolidation was decided, based upon the ALJ's authority to "take any measures necessary for maintaining order and the efficient conduct of the hearing," pursuant to 6 NYCRR Section 624.8(b)(1)(xv).

Positions of the Parties

Department Staff's motion argues for consolidation of both the SPDES renewal and Article 23 permit proceedings, as well as the enforcement action. Department Staff contend that all of the pending proceedings share a common set of facts, asserting that "[t]he information that the Department requires encompasses both the ECL Article 17 and Article 23 permitted operations." Staff's Motion at ¶ 12. For this reason, Department Staff maintain that consolidation "would be a prudent use of administrative resources since all of the proceedings involve the same set of facts and the same respondents." Id.

Department Staff assert further that the Applicants' record of compliance is central to both the SPDES renewal and the Article 23 permit proceedings, and that "there are significant and substantial violations that must be addressed" before the permits can be considered. Staff's Motion at ¶ 14. According to Department Staff, "documents provided by BPSI evince a significant expansion of cavern storage capacities over the years." Staff's Motion at ¶¶ 9, 14, and 11. Department Staff take the position that the expansion of operations was unauthorized, and required modification of the SPDES and Article 23 permits. Staff's Motion at ¶ 13. Department Staff argue that such unpermitted expansion poses risks to public safety, and a threat to the natural resources of the State, pointing out that there has been an explosion at the Facility, "likely due" to the alleged expansion. Staff's Motion at ¶¶ 11 and 13.

According to Department Staff, consolidation of all of these proceedings would result in greater efficiency. Department Staff argue that repetitive discovery is likely to occur, and would be burdensome given the extensive documentation in these cases. Staff's Motion at ¶ 17. Further, Department Staff maintain that the enforcement and permitting actions involve the same technical and environmental issues. Id. Department Staff acknowledge that the degree of prejudice to the Applicants is the linchpin of the decision as to whether consolidation should be ordered, and argues that consolidation will not result in any prejudice, inasmuch as the Facility is still operating. Staff's Motion at ¶¶ 15 and 18.

The Applicants oppose the motion, asserting that, given the procedural posture of the three proceedings, consolidation is not appropriate. Specifically, with respect to the enforcement action, the Applicants maintain that the allegations in Department Staff's complaint concerning "a violation of ECL Article 23 and a permit issued thereto are subject to constitutional challenge via BPSI's preemption argument." As a result, according to the Applicants, BPSI "would be authorized to bring a declaratory judgment action immediately upon DEC's moving forward with the enforcement action . . . [o]bviously, a stay of the enforcement proceeding would be appropriate in these circumstances." Applicants' Response, at p. 7, fn. 9. The Applicants argue further that consolidation will result in undue delay, and point out that Department Staff indicated a readiness to proceed with the Article 23 legislative hearing and issues conference up until ten days before that hearing was scheduled to take place.

In their sur-reply, Department Staff take issue with the Applicants' contention that the motion failed to demonstrate that there are facts common to all of these proceedings. Department Staff maintain that "a central factual dispute that underlies each of the proceedings is the Department Staff's assertion that the Respondents have unlawfully expanded their LPG storage caverns." Staff's Sur-Reply at ¶ 4. According to Department Staff, without documentation of cavern integrity and configuration, the Department cannot issue an Article 23 permit for expansion, nor can Department Staff properly evaluate the SPDES permit renewal application without an understanding of the effect that the alleged unlawful cavern expansion has had on the Facility's discharge. Department Staff state further that "in light of the extent of the unlawful expansion alleged, the Department must pursue enforcement proceedings against the Respondents." Id. Department Staff also cite to several administrative cases for the proposition that enforcement and permit proceedings have often been consolidated.(11)

Department Staff argue further that the Applicants have not established that they will suffer undue prejudice if the motion is granted, and dispute the Applicants' assertion that the appropriate decisional standard on the motion for a stay is that applied in considering a motion for a preliminary injunction. Nevertheless, as noted above, Department Staff only sought a stay of the Article 23 proceeding until a decision on this motion issued. Thus, there is no need to consider this point further,and the discussion below will address only the motion for consolidation.

Discussion and Ruling

Consolidation of proceedings is a matter committed to the discretion of the Chief Administrative Law Judge. Department Staff's assertion that consolidation is appropriate, given the facts common to all three proceedings and the possibility of duplicative discovery, is unpersuasive in light of Department Staff's contention, in the motion, that "[b]efore the permitting matters can be decided, there are significant and substantial violations that must be addressed." Department Staff's Motion, at ¶ 14. It appears that from Department Staff's perspective, the enforcement matter should be resolved before the permit process proceeds, which is at variance with Department Staff's motion to consolidate. Further, as noted above, the lower court's determination as to the Department's handling of the Article 17 SPDES permit renewal is subject to a stay pending the outcome of the State's appeal to the Appellate Division, Fourth Department. At this point, therefore, it is not possible to join the SPDES permit renewal proceedings with the Article 23 permit hearing and the enforcement action.

Given the complex and unique procedural history of this matter, Staff's argument that the enforcement action should be resolved before the Article 23 permit process moves forward should not prevail. Department Staff has expressed an intent "to bring this matter to hearing as expeditiously as possible once all of the violations have been alleged." Affidavit of Dominic Cordisco, Esq. in Support of Cross-Motion for Summary Order, sworn to December 8, 1999. Department Staff's enforcement action has remained dormant, however, since ALJ Goldberger's March 2000 ruling denying both parties' motions for summary relief, but granting Department Staff's motion to amend the complaint to add Robert Weinberg as an individual defendant.

Moreover, resolution of the enforcement action will not be a simple matter. In her March 2000 ruling, ALJ Goldberger denied Department Staff's cross-motion, finding that issues of fact precluded granting the relief requested by Department Staff, including those claims based upon Department Staff's allegations relating to violations of the Article 23 permit. Matter of E.I.L. Petroleum, Inc. et al., 2000 WL 33340964, *7 (Mar. 27, 2000) ("What needs to be determined in this forum is whether the respondents have violated the terms of the permit and whether they have modified the older caverns, resulting in an increase in storage that required a permit"). In addition, during the June 28, 2002 conference call, counsel for Department Staff in the enforcement matter indicated that only limited discovery has taken place in the enforcement action to date. In view of the above, proceeding with the enforcement action before considering the Article 23 permit application could unfairly delay timely completion of the permit review process.(12)

Nevertheless, in both the enforcement context, and in this motion, Department Staff have raised the issue of the Applicants' record of compliance, which is an appropriate inquiry in connection with a permit application. Matter of Waste Mgmt. of N.Y., LLC, Interim Decision, 2000 WL 33354685, *4 (May 15, 2000) (citations omitted); Olsen v. Town Bd. of Saugerties, 161 A.D.2d 1077, 1078 (3rd Dep't 1990) (licensing authority authorized to consider applicant's suitability with reference to ability to comply with applicable regulations). Further review of the permit application without consideration of these allegations could result in an incomplete record, allowing the grant of a permit, or the development of permit conditions, that might not be sufficiently protective of the State's natural resources, or of public health and safety. In this case, the Department's enforcement action is relevant in considering the Applicants' entitlement to the permit sought.

Despite the Applicants' contention on this motion that its record of compliance should not be considered, because it was not raised in Department Staff's letter denying the permit, the Article 23 permit hearing should not proceed without development of a factual record with respect to the alleged violations, as articulated in ALJ Goldberger's March, 2000 ruling. Accordingly, the causes of action in Department Staff's amended complaint may be heard in the context of the Article 23 permit hearing, as part of a record of compliance issue. Department Staff would bear the burden of going forward with respect to that issue. Thus, both the Article 23 and the SPDES violations would be considered.

Such an approach is not without precedent. In Matter of Dickson and Sons, Inc., 1992 WL 177438, *1 (Interim Decision, June 29, 1992), the applicant objected to consideration of its compliance history, arguing that, "in the narrow context of its applications to construct and operate a sludge stabilization tank, the instances of alleged environmental violations raised by [intervenors] do not warrant adjudication, since they do not pertain to the stabilization operation." Commissioner Jorling rejected this argument, reasoning that "[t]he broader issue is whether and under what conditions the Applicant should be permitted to conduct the entire operation." Id. As in Dickson, the Applicants' compliance history should be taken into account in considering whether, and under what conditions, the Applicants should receive the Article 23 modification permit they seek.

Since the Article 23 hearing process contemplated only a limited factual inquiry with respect to the technical, rather than the legal, aspects of Department Staff's request for sonar surveys in connection with BPSI's application for a modification permit, that issue may be addressed as well, in the context of a permit hearing. Pursuant to 6 NYCRR Section 624.4(c)(1)(i), "an issue is adjudicable if it relates to a dispute between the department staff and the applicant over a substantial term or condition of the draft permit." Here, the Applicants have objected to Department Staff's position that sonar surveys of the caverns must be performed prior to grant of a permit. Thus, an adjudicable issue is raised. Consistent with 6 NYCRR Section 624.9(b), the applicant has the burden of proof in demonstrating that they are entitled to a modification permit.

This circumscribed inquiry should obviate the Applicants' concerns with respect to their pending preemption claim.(13) Moreover, this approach will be consistent with the Deputy Commissioner's ruling in the enforcement action, which concluded that arguments pertaining to preemption should only be considered at the conclusion of the fact-finding process. Matter of E.I.L. Petroleum, et al., Ruling of the Deputy Commissioner, 1999 WL 33283813, at *2 ("The question of preemption is and continues to be a bone of contention between Staff and Respondent in this and related cases. Factual development of the record should be of assistance in resolving that issue.") The process set forth in this ruling will also remedy Department Staff's concerns with respect to duplicative discovery, particularly if the parties create a document repository, and develop an index of documents relevant to the Article 23 proceeding and the enforcement action.

The court's ruling on the Department's motion to dismiss in the Nassau County action underscores the need for further factual development in this matter. As noted above, the court concluded that the Applicant's SAPA and State constitutional claims were not yet ripe for review, inasmuch as "an administrative hearing is concededly available to review the [permit] denial at issue and provide for development of a proper record." Bath Petroleum Storage, Inc., et al. v. Bradley Field, et al., Index No. 14537/01, slip op. at 3 (Sup. Ct., Nassau Cty., July 2, 2002).

Conclusion

The motion to consolidate the two permit proceedings, and the enforcement matter, is granted in part and denied in part. Pursuant to the attached order, a pre-hearing conference will be convened.

/s/
By: Maria E. Villa
administrative Law Judge

Dated: July 26, 2002
Albany, New York

I concur with the ALJ's conclusion, set forth above. The motion for consolidation is granted in part, and denied in part.

/s/
Daniel E. Louis
Chief Administrative Law Judge

TO: Richard A. Sherman, Esq.
Assistant Counsel
Division of Environmental Enforcement, 14th Floor
NYS Department of Environmental Conservation
625 Broadway
Albany, New York 12233-5500

John Privitera, Esq.
William S. Hurst, Esq.
McNamee, Lochner, Titus & Williams, P.C.
75 State Street
P.O. Box 459
Albany, New York 12201-0459

Lisa Perla Schwartz, Esq.
New York State Department of Environmental Conservation
Region 8
6274 East Avon-Lima Road
Avon, New York 14414

Arlene J. Lotters, Esq.
Mineral Resources Program Attorney
Division of Legal Affairs
New York State Department of Environmental Conservation
625 Broadway, Fourteenth Floor
Albany, New York 12233-1500

Jerry William Boykin, Esq.
W. Michael Holm, Esq.
Womble, Carlyle, Sandridge & Rice
6862 Elm Street, Seventh Floor
McLean, Virginia 22101

Richard Brescia
New York Propane Gas Association
New York Capitol Consultants
120 Washington Avenue
Albany, New York 12210

STATE OF NEW YORK: DEPARTMENT OF ENVIRONMENTAL CONSERVATION
In the matter of

the alleged violation(s) of the New York State Environmental Conservation Law (ECL)
Articles 3, 17 and 23, Title 6 of the Official Compilation of Codes, Rules, and Regulations
of the State of New York (NYCRR), and permits issued pursuant to Environmental Conservation Law
Article 17, Title 8 and Article 23, Title 13;
and the application for ECL Article 23 modification permit;

by

BATH PETROLEUM STORAGE, INC.,
and
E.I.L. PETROLEUM, INC.

SCHEDULING ORDER

DEC Case No: R8-1088-97-01
-and-
ECL Article 23-1301 Permit Hearing

The above-captioned permit and enforcement matters were consolidated in a ruling dated July 26, 2002 (the "Ruling").

  • On or before August 12, 2002, the participants will advise the Administrative Law Judge ("ALJ") as to dates available for a pre-hearing conference in this matter. At the conference, we will discuss: (1) the pending petition for amicus status by the New York Propane Gas Association; (2) a discovery plan; (3) a hearing schedule; and (4) any other preliminary matters. To ensure an accurate record, all participants will appear in person. The Applicants are requested to make arrangements for a court reporter.
  • The participants are also requested to advise the ALJ as to whether it would be preferable for the conference, and any further proceedings, to take place in Albany, and, if so, to suggest an appropriate venue.

/s/
Maria E. Villa
Administrative Law Judge

Dated: July 26, 2002
Albany, New York

TO: Richard A. Sherman, Esq.
Assistant Counsel
Division of Environmental Enforcement, 14th Floor
NYS Department of Environmental Conservation
625 Broadway
Albany, New York 12233-5500

John Privitera, Esq.
William S. Hurst, Esq.
McNamee, Lochner, Titus & Williams, P.C.
75 State Street
P.O. Box 459
Albany, New York 12201-0459

Lisa Perla Schwartz, Esq.
New York State Department of Environmental Conservation
Region 8
6274 East Avon-Lima Road
Avon, New York 14414

Arlene J. Lotters, Esq.
Mineral Resources Program Attorney
Division of Legal Affairs
New York State Department of Environmental Conservation
625 Broadway, Fourteenth Floor
Albany, New York 12233-1500

Jerry William Boykin, Esq.
W. Michael Holm, Esq.
Womble, Carlyle, Sandridge & Rice
6862 Elm Street, Seventh Floor
McLean, Virginia 22101

Richard Brescia
New York Propane Gas Association
New York Capitol Consultants
120 Washington Avenue
Albany, New York 12210

1. A modification permit is a permit required to modify the storage capacity of an existing underground storage reservoir. See ECL Section 23-1301(5)(b). This provision was the subject of a declaratory ruling (Matter of Bath Petroleum Storage, Inc., DEC 23-08 (May 2, 1996)), which is discussed further below.

2. According to page 3 of the application cover letter, "[o]f these wells, well #s 1, 3, 5, 6 and 7 have been drilled and solutioned. Well #s 9 and 12 have been drilled and partially solutioned. Well #s 10 and 11 have been drilled but not solutioned. Well # 14 has not been drilled or solutioned."

3. A sonar survey uses sound waves, reflecting off the interior cavern structure, to map the cavern dimensions. According to Department Staff, the survey "measures the physical void space in the salt created by the caverns. . . . The sonar survey would also measure roof span of the cavern and reveal possible irregularities which could impact the ability of the cavern to contain product." January 22, 2002 Legislative Hearing Transcript, at pp. 24-25.

4. The denial letter stated that the application to expand caverns 9 and 13, and for new caverns 14 through 18, was not complete. These caverns are not included in the Applicants' request for a hearing on the Article 23 permit.

5. See Bath Petroleum Storage, Inc., et al. v. Sovas, et al., 78 F. Supp.2d 67 (N.D.N.Y. 2000); on reconsideration, Bath Petroleum Storage, Inc., et al. v. Sovas, et al., 136 F. Supp.2d 52, 62-63 (N.D.N.Y. 2001). The federal action is discussed in more detail infra.

6. With respect to the applicable regulations, at the issues conference, counsel for Department Staff indicated that the provisions of 6 NYCRR Part 621 are not applicable to Article 23 permits such as the modification permit sought by the Applicants in this case. Issues Conference transcript (hereinafter "IC Tr. at p. ") at pp. 27-28. Nevertheless, according to counsel, "by practice and by application and by consistency with a standardized process for handling permit applications," the Department utilizes the provisions of the Uniform Procedures Act as a guide in processing those permit applications. IC Tr. at p. 28-29. Pursuant to 6 NYCRR Section 621.6(c), Part 624 governs public comment procedures for projects subject to public adjudicatory hearing. Pursuant to 6 NYCRR Section 621.7(g), the public adjudicatory hearing is to be held in accordance with the provisions of Part 624. There appears to be no dispute that Part 624 would be used as guidance in this Article 23 permit hearing process.

7. To obtain amicus status, a petitioner must file an acceptable petition pursuant to 6 NYCRR Sections 624.5(b)(1) and (3); identify a legal or policy issue which needs to be resolved by the hearing; and have sufficient interest in the resolution of such issue and through expertise, special knowledge or unique perspective contribute materially to the record on such issue. 6 NYCRR Section 624.5(d)(2). At this point, due to the preliminary nature of the proceedings held to date, it is appropriate to reserve decision as to any grant of amicus status to the NYPGA.

8. The Department first issued a SPDES permit for the Facility in 1975, to Mobil Corporation, the owner at that time. In 1983, BPSI purchased the Facility, and the SPDES permit was transferred to BPSI. In 1984, and again in 1989, the Department renewed the SPDES permit for respective, five-year periods.

9. In that permit proceeding, Department Staff sought to modify the Facility's SPDES permit to require (1) a change in administrative class from a non-significant industrial discharger to a significant minor industrial discharger, which would require submission of monthly discharge monitoring reports; (2) the submission of daily discharge results calculated using a mass balance formula, and (3) the use of a certified laboratory for all testing analyses. The Applicants objected to the modifications, with the exception of the use of a certified laboratory for analysis. After a lengthy hearing process, then-Deputy Commissioner Crotty ruled in favor of the Department, and the permit was modified accordingly. The SPDES permit modification rulings and decisions are as follows: Matter of Bath Petroleum Storage, Inc., Deputy Commissioner's Decision and ALJ's Hearing Report, 1998 WL 799679 (Aug. 8, 1998); ALJ Ruling on Motions to Quash Subpoena, 1998 WL 1780957 (Jan. 9, 1998); Interim Decision, 1997 WL 154630 (Mar. 26, 1997); and ALJ Ruling, 1997 WL 33135543 (Feb. 25, 1997). The Applicants' appeal of the Decision was dismissed as moot. Matter of Bath Petroleum Storage, Inc., 272 A.D.2d 746 (3rd Dept. 2000), leave to appeal denied, 95 N.Y.2d 768 (2000).

10. During the June 28, 2002 conference call, counsel for Department Staff in the enforcement action advised that the amended complaint, adding Robert Weinberg as an additional defendant, has not yet been served.

11. Matter of Danny Fortune & Co., Inc., Ruling on Motion to Consolidate, 1999 WL 1697614 (Nov. 23, 1999); Matter of Statewide Recycling Center of N.Y., Inc., Default Order, 1998 WL 158726 (Jan. 27, 1998); Matter of Mt. Hope Asphalt Corp., Decision and Order, 1995 WL 582478 (Sept. 7, 1995); Matter of A-1 Compaction Corp., Inc., Decision and Order, 1994 WL 326619 (Jun. 22, 1994).

12. Department Staff are not without other recourse. Section 621.3(f) of 6 NYCRR provides, in pertinent part, that [p]rocessing and review of an application may be suspended with written notice to the applicant if an enforcement action has been or is commenced against the applicant for alleged violations of law related to the activity for which the permit is sought or for alleged violations of the ECL related to the facility or site. Such suspension of processing and review may remain in effect pending final resolution of the enforcement action. Prior administrative decisions provide that "once Staff have referred the action to the Office of Hearings and Mediation Services, Staff's authority to invoke 6 NYCRR Section 621.3(f) is subject to motion practice . . .." (Matter of Danny Fortune & Co., Inc., ALJ's Ruling on Motion to Consolidate, 1999 WL 1697614 (Nov. 23, 1999)). Although Department Staff sought revocation of the permit in Staff's cross-motion for summary order, it has not moved to suspend the processing of the permit applications in the wake of the denial of that cross-motion.

13. As noted above, the Nassau County Supreme Court has dismissed without prejudice the Applicants' complaint that alleges violations of SAPA and the State Constitution.

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