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EIL Petroleum, Inc. and Bath Petroleum - Ruling 5, March 27, 2000

Ruling 5, March 27, 2000

STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the Matter of Alleged Violations of the Environmental Conservation Law Articles 3, 17, and 23, Title 6 of the Official Compilation of Codes, Rules and Regulations of the State of New York and Permits issued pursuant to ECL Article 17, Title 8, and Article 23, Title 13

- by -

E.I.L. Petroleum, Inc.
and
Bath Petroleum Storage, Inc.,

Respondents.

RULING:

Motions of Respondents for Summary Judgment and
Staff's Motion to Amend and Cross-Motion for Order without Hearing

DEC No.: R8-1088-97-01

Proceedings

This proceeding was commenced by the staff of the New York State Department of Environmental Conservation (DEC or Department) by service of a notice of hearing and complaint dated March 17, 1997 on respondents EIL Petroleum, Inc. and Bath Petroleum Storage, Inc. The complaint alleges that the respondents have violated Articles 17 and 23 of the Environmental Conservation Law (ECL) and the related regulations by, inter alia, discharging in excess of the limitation in their State Pollutant Discharge Elimination System (SPDES) permit and by expanding their underground storage caverns without a permit. Staff amended the complaint on April 17, 1997. A number of motions have been made since that time including respondents' motions for a stay and to recuse Administrative Law Judge Helene G. Goldberger. In his ruling of October 8, 1999, Deputy Commissioner Johnson affirmed ALJ Goldberger's determinations to deny both of these motions. By notice of motion dated November 12, 1999, the respondents moved for summary judgment in this proceeding. Staff cross-moved to amend its complaint and for an order without hearing pursuant to § 622.12 of Title 6 of the New York Compilation of Codes, Rules and Regulations (NYCRR) by notice of motion dated December 8, 1999 and submitted its opposition to respondents' motion in papers dated December 20, 1999. Respondents submitted their reply on their motion in papers dated January 19, 2000 and their opposition to staff's motion on January 31, 2000. Staff submitted its reply in further support of its motion on March 3, 2000.

Respondents' Position on its Motion for Summary Judgment

Respondents assert two bases for issuance of summary judgment in their notice of motion supported by an affirmation by their counsel. The first basis is that the Department staff assert joint and several liability against EIL and Bath Petroleum Storage, Inc. (BPSI) for every cause of action cited in the complaint. Yet, respondents argue, EIL holds the SPDES permit and BPSI holds the Article 23 permit. Respondents provide that merely by virtue of EIL's relationship to BPSI, the parent and the subsidiary cannot be held liable for the alleged violations of the other. Nor can Robert V.H. Weinberg, simply by his role as the sole shareholder, be held accountable according to the respondents.

The second ground for respondents' motion has to do with the second and third causes of action concerning alleged violations of the SPDES permit. Respondents argue that there was no requirement that the mass balance formula be utilized in assessing the permittee's compliance with the SPDES permit and therefore, they have not violated the ECL by not using this methodology. Rather, the respondents assert that because they have adhered to the permit limitations with respect to chloride and total dissolved solids (TDS) and have sampled the Cohocton River 200 feet downstream of the discharge as required by the permit, they have been in complete compliance with its terms. In support of these claims, the respondents cite to the testimony of the regional water engineer, Thomas W. Pearson, given subject to cross-examination at the SPDES permit modification hearing on January 14, 1998. In this portion of his testimony, Mr. Pearson provided that the sampling was done 200 feet downstream of the discharge and that it indicated compliance with the permit conditions. He also testified that had the sampling been done at an alternate location, a different result likely would have been found. In their reply, respondents concede that with respect to the five days in 1997 when staff performed in-stream sampling, the allegations may remain pending.

Staff's Position on Respondents' Motion for Summary Judgment

In response to respondents' motion, the staff has submitted two affirmations of counsel. Staff argues that respondents are seeking a dismissal of the proceeding insofar as they argue that the staff has named the wrong entities responsible for the Article 17 and 23 violations respectively. Accordingly, the staff maintains because the respondents have already moved to dismiss and were denied this relief, they should not be given a second opportunity. Staff argues that in addition to the prior motion to dismiss, respondents had an opportunity to raise this claim in their opposition to staff's motion to amend the complaint. Further, staff posits that respondents have submitted inadequate support for their motion including only portions of documents such as the Article 17 and Article 23 permits and the negative declaration relating to the latter permit.

With respect to the merits of respondents' claims on the inadequacy of the complaint, the staff provide that BPSI and EIL are solely owned by Robert V.H. Weinberg and they act in tandem to operate the Bath facility. Staff contend that even if EIL is the permittee, that does not mean that BPSI has not operated the facility as well. Staff interprets the Albany County Supreme Court's decision to dismiss BPSI's Article 78 proceeding against the Department (on its decision in the SPDES permit modification matter) for failure to bring the proceeding in the name of the real party in interest, i.e., EIL, as meaning that BPSI could not challenge the permit modification alone. Staff further points out that BPSI is a wholly owned subsidiary of EIL and thus, EIL had knowledge of and is potentially responsible for the alleged violations. The staff notes that BPSI and EIL share counsel in this proceeding and have consistently submitted joint motions and pleadings. And, finally, staff alleges that even if BPSI could not be held liable for EIL's SPDES permit violations, it could still be found responsible for other violations cited under Article 17.

Regarding respondents' arguments concerning the Article 17 allegations, staff maintains that there are substantive issues of fact that require adjudication. Concerning the second and third causes of action, staff argues that violations of the permit can be shown by analytical data from actual in-stream sampling in addition to the use of the mass balance formula. Staff provides that the mass balance formula is an analytical method and its use does not alter the conditions of the permit or the requirement that respondents adhere to them. Staff points to the December 21, 1998 ruling of ALJ O'Connell in which he declined to dismiss these two causes of action on the basis of respondents' position that the mass balance formula was not formerly a condition of respondents' SPDES permit. The ALJ noted that according to the staff, "the basis for the alleged violations are the laboratory analysis of samples taken from the receiving waters." And the staff does not agree with respondents' position that if the sampling done 200 feet below the discharge results in levels in accord with the permit requirements, the permit has not been violated.

With respect to Mr. Pearson's testimony, staff argues that he was addressing the sampling location and not the "representative nature or adequacy of the facility-provided in-stream data for 1992-1996 . . ." Rather, staff claims that Pearson testified that the sampling location was not adequate because mixing no longer occurred by the sampling point. Staff explains further that the respondents were responsible for this inadequacy because they had moved the discharge point more toward the center of the stream while continuing to sample from the shore.

Staff's Position on its Cross-Motions to Amend and for Order without Hearing

The staff seeks to amend its complaint a second time by adding Robert V.H. Weinberg individually as a respondent. The grounds for staff's motion are that through review of the documents that respondents have submitted to the Department and based upon the interactions Mr. Weinberg has had with the Department, staff has determined that Mr. Weinberg is the sole owner of both of the respondents and exerts direct control over them. Staff argues that because the case is not ready for hearing and because Mr. Weinberg has had notice of all the allegations and proceedings thus far, there is no prejudice to him or the other parties by adding him as a respondent.

Staff has also cross-moved for order without hearing with respect to the ninth through fourteenth causes of action in the amended complaint. Staff claims that respondents have expanded caverns one through six without a permit in violation of ECL §§ 23-1301(1) and 71-1305(2). Staff disputes that the 1992 permit allowed such expansion and contends that this permit was instead for the development of seven new caverns. Staff argues that it bases its allegations on information provided to the Department by the respondents and therefore, there is no material dispute with these alleged facts. Staff makes similar claims with respect to the fifteenth and sixteenth causes of action. Staff provides that while respondents were authorized by DEC to drill, solution, and maintain cavern number seven for the underground storage of liquid petroleum gas (LPG), they have exceeded the permitted capacity for this cavern in violation of ECL §§ 23-1301(1), 23-1301(5)(b), and 71-1305(2).

In support of these claims, staff has submitted an affirmation of attorney Cordisco, and affidavits of Randall Nemecek of the Division of Mineral Resources and Bradley J. Field, the Director of the Department's Bureau of Oil and Gas Regulation.(1) Mr. Field refers to correspondence and other records obtained from Mr. Weinberg indicating an expansion of the facilities and an unpermitted use of fresh water injection. Mr. Field prepared a table based on information received from BPSI that he states demonstrates the history of cavern growth indicating rapid growth over the last decade. The staff disputes the calculations of cavern capacity presented by Mr. Weinberg in the respondents' reply to staff's cross-motion by characterizing them as without basis. Staff argues that even the 1% increase alleged by respondents was not permitted. In addition, staff maintains that there has not been sufficient study regarding cavern size and that it has no information on this.

Mr. Field contends further that these expansions are not consistent with industry standards of cavern integrity and safety. Staff argues also that these alleged expansions may result in dangerous conditions such as subsidence, the release of brine and petroleum into the environment, and even fire and explosions. Mr. Field points to a fire in July 1995 that occurred in the process of drilling well number 2A as evidence of uncontrolled expansion. The staff disputes respondents' claims that the Department staff was in any way responsible for this occurrence. In addition, while admitting the existence of a consent order regarding these events, the staff indicates that this agreement was very limited in its scope and did not address all of the staff's potential concerns. Mr. Field also complains of the respondents' failure to keep the Department informed with respect to the status of certain wells and to provide information requested by Department staff.

In the reply affirmation submitted by Mr. Cordisco, in further support of the staff's motion, he argues that respondents' claims on vagueness of the regulatory scheme cannot be addressed in this forum. In addition, attorney Cordisco maintains that a modification is tantamount to an expansion and that interpretation has already been affirmed by the Appellate Division in Bath Petroleum Storage Inc. v. DEC, Index No. 5426-96 (Alb. Co. Sup. Ct. 1997), 244 AD2d 624 (3d Dep't 1997), lv to app den, 91 NY2d 806 (1998). Mr. Cordisco argues that the respondents did not address the alleged illegal expansion of cavern number seven and therefore have conceded summary judgment on the fifteenth and sixteenth causes of action. The staff disputes the respondents' claim that the statute of limitations bars these claims and argues that their proposed amendment is not prejudicial in any way.

Respondents' Position on Staff's Cross-Motions

In opposition to staff's cross-motion for order without hearing, respondents have submitted the affirmation of their attorney John Privitera as well as affidavits of Mr. Weinberg, Matthew Slezak, the superintendent and Vice-President of BPSI, Michael Slezak, a retired engineer who was formerly employed in the Tully Brine Field, and Dr. Gabriel Fernandez, a geotechnical engineer. In his affirmation, Mr. Privitera stresses that the Department's mineral program provided for loose and vague requirements that cannot now serve as the basis to penalize the respondents. He argues that there are factual issues as to whether the alleged modifications were permitted by the Department which cannot be determined in a summary manner. He points to the Department's 1992 permitting of BPSI's request to increase storage capacity that allowed for incidental and undefined increases in capacity.

For the first time, in the attorney's affirmation, the respondents claim that there is a statute of limitations bar to the staff's claims under Article 23 pursuant to CPLR § 214(2). Mr. Privitera asserts that DEC cannot obtain penalties for any alleged illegal expansions dating back before March 14, 1994, three years prior to the date of the original complaint in this proceeding. And, again, the respondents raise in this affirmation their claim put forward in their motion for summary judgment regarding staff's identification of EIL and BPSI as being both responsible for the alleged violations of Article 23. The respondents claim that EIL had no direct involvement in the operation of this facility and thus, cannot be held responsible for any alleged violations.

Contained also in Mr. Privitera's affirmation is the respondents' claim that the staff has cited ECL § 23-1301(1) incorrectly as the authority for alleging that the respondents have illegally expanded caverns 1-7 and 9. Citing Declaratory Ruling 23-08, respondents argue here that ECL § 23-1301(1) pertains only to new caverns and that caverns 1-6 fall under the exempt provision of ECL § 23-1301(3), while caverns 7 and 9 were specifically permitted by the Department in 1992 from their initial creation. Accordingly, respondents are seeking a dismissal of the ninth through thirteenth causes of action.

With respect to staff's factual claims regarding illegal expansion, in their affidavits, Mr. Weinberg and Mr. Matthew Slezak contest these allegations as set forth in the affidavit of Bradley J. Field, DEC's Director of the Bureau of Oil and Gas Regulation in the Division of Mineral Resources. Mr. Weinberg contends that "each well . . . has been controlled by valves, pressure controls and injection pumping controls since 1983" when BPSI purchased the facility. He also states that the company has made estimates of cavern capacity every year and has submitted this information to DEC. In these affidavits submitted by the respondents, the affiants provide that the caverns have no structural defects and Dr. Fernandez states that the cavern expansion conducted by the company has not compromised the structural integrity of the caverns. Dr. Fernandez also states that the changes in the volume capacity of the caverns cited to by DEC staff do not correlate with structural integrity.

With respect to the incident referred to by DEC staff concerning cavern 2, Mr. Weinberg describes the precautions that BPSI staff took in working on cavern 2A and also provides that this matter was resolved in a consent order with DEC and therefore, should not be an issue in these proceedings. Regarding the use of fresh water to displace brine, respondents maintain that DEC was always aware of these processes and that there has been minimal expansion of the caverns. Mr. Weinberg also provides that BPSI has given DEC all the information it possesses regarding the caverns' dimensions and contends that the caverns are well maintained and cannot be compared with the operations in the Tully Brine Fields. The affidavit of Michael Slezak, a retired superintendent of the Tully Brine Field, supports this latter proposition.

With respect to a September 1999 subpoena duces tecum that is referred to by Mr. Field in his affidavit as another example of the respondents' failure to respond to the Department staff's requests for information, respondents contend that this subpoena was withdrawn as a result of discussions among the parties and their counsel.

DISCUSSION

Respondents' Motion for Summary Judgment

Section 622.12 of 6 NYCRR provides for an order without hearing when upon all the papers and proof filed, the cause of action or defense is established sufficiently to warrant granting summary judgment under the CPLR in favor of any party. And, "summary judgment is appropriate when no genuine, triable issue of material fact exists between the parties and the movant is entitled to judgment as a matter of law." In the Matter of Frank Perotta, 1996 WL 172282 (Commissioner's Decision and Ruling 1/10/96). The regulation also provides that, "[t]he motion must be denied with respect to particular causes of action if any party shows the existence of substantive disputes of fact sufficient to require a hearing . . ."

Section 3212(b) of the CPLR provides that a motion for summary judgment shall be granted, ". . . if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party. Except as provided in subdivision (c) of this rule the motion shall be denied if any party shall show facts sufficient to require a trial of any issue of fact."

Concerning the respondents' claim regarding the inclusion of both EIL and BPSI as respondents with respect to all the allegations in the complaint, summary judgment is not appropriate. Respondents are seeking to have the complaint dismissed based upon a defective pleading. I agree with staff that respondents had at least two prior opportunities to raise this argument. Regardless, there are questions raised by the amended complaint concerning the involvement of both parties that have not been conclusively answered in the affirmations of counsel for either party. Staff has described BPSI as an entity that has had full involvement in the operation of the facility. Thus, while EIL may be the named entity on the SPDES permit, for the purposes of this proceeding, BPSI's role also must be examined. And, because no party disputes EIL's role as the parent of BPSI, its actions regarding the alleged cavern expansion are also relevant. Based upon the submissions of the parties on this issue, I do not find a basis to dismiss the complaint.

Respondents cite ECL § 23-0101(11) and 6 NYCRR § 550.3(ab) that contain definitions of owner and operator. They claim that based upon the definition of owner, there can be only one. However, there is no reason to make that conclusion based upon these definitions. The staff will have to demonstrate at the hearing that BPSI, EIL, and Mr. Weinberg were directly involved either as owners or operators in order to find liability against each of them respectively on any of the charges. In the event that they fail to do so for one or all of the named respondents, the determination will have to reflect those circumstances.

As for respondents' motion for summary judgment as to the second and third causes of action based upon their claim that the prior record indicates they have complied with the permit requirements and cannot be responsible for the application of the mass balance formula, I do not find for respondents. The staff has made it clear that it does not seek to penalize the respondents for not using this formula prior to its requirement as a permit condition. However, staff maintains that it did use this formula, as well as in-stream sampling and data provided by the Elmira Water Board to determine that the respondents violated the permit's discharge limits. With respect to Mr. Pearson's quoted testimony by the respondents, staff argues that the engineer was testifying with respect to the sampling point and not to the adequacy of the respondents' sampling data. Staff alleges that the respondents, by moving the discharge pipe, affected the sampling point's effectiveness.

The issue is not whether respondents used one method of analysis - the mass balance formula. Rather, as indicated by Ms. Schwartz's affirmation, there is a dispute about whether respondents were in compliance with the SPDES permit requirements. While the respondents submitted one portion of Mr. Pearson's prior testimony concerning in-stream sampling, the staff submitted additional portions that indicate a disagreement over the propriety of respondents' sampling procedures. Thus, because there are issues of fact, it would not be appropriate to grant summary judgment.

Staff's Motion to Amend the Complaint

Section 622.5(b) of 6 NYCRR allows for a party to amend its complaint at any time prior to the final decision of the commissioner by permission of the ALJ or the commissioner absent prejudice to the other party. The staff seeks to add Robert V.H. Weinberg as a respondent based upon his alleged involvement in the alleged activities that are the subject of these proceedings. The Department staff takes the position that Mr. Weinberg has directly managed the activities at the Bath facility and therefore, is potentially liable for the alleged violations set forth in the complaint. The staff will have to prove this involvement at the hearing; however, I do not see what prejudice there is to the respondents in amending the complaint as Mr. Weinberg has had notice of the proceedings thus far and as staff notes, the hearing has not commenced. Accordingly, I am granting staff's motion to amend the complaint.

Staff's Motion for Order without Hearing

Based upon the obvious degree of dispute between the staff and the respondents concerning essentially all of the factual allegations in the amended complaint, I find no basis to grant the staff's motion for order without hearing. Mr. Field makes many assertions regarding cavern expansion, cavern instability, and the respondents' failure to submit adequate information to the Department concerning their operations. The respondents have submitted affidavits of BPSI's president, vice-president and superintendent as well as that of a geotechnical engineer and a former engineer at the Tully Brine Fields that dispute Mr. Field's allegations. Under these circumstances, the standards for summary judgment are not met.

Staff interprets respondents' arguments denying unpermitted expansion to mean that the 1992 permit allowed also for expansion of the older caverns. What I understand respondents' claim to be on this issue is that the 1992 letter permitting expansion allowed for certain incidental expansion and gradual increases in cavern size due to use of fresh water to wash piping. While I do not see how this permit addresses storage capacity in the older caverns, in my August 17, 1998 hearing report on the permit modification, I found that the engineering report submitted to DEC by Mobil (the former owner of the facility) indicated that fresh water was used to flush piping and well tubing each day and to flush a well. So, it is apparent that staff knew the facility used a certain amount of fresh water in the facility that would affect cavern size. Perhaps this is what Mr. Field refers to when he speaks to de minimis cavern growth. 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. That is basically a factual dispute. Attorney Cordisco states in his reply affirmation that the reply Field affidavit sets forth "the misstatements and miscalculations in the respondents' affidavits and affirmation." However, rather than grant the staff's summary order on this basis, I must find that this battle of competing facts on cavern size and other issues is exactly what should be heard at a hearing. It would not be appropriate to decide, on the basis of the papers submitted, who is correct on these factual assertions.

Staff maintains that respondents' claims concerning vagueness of the regulatory scheme should not be heard in this forum citing a number of opinions that hold an administrative proceeding will not address constitutional issues. I agree with this tenet; however, it is not entirely clear that what the respondents are claiming involves constitutional issues. Rather, there are a number of claims such as the staff should have been aware of the respondents' actions or that what was permitted in the 1992 permit should have been allowed with respect to the existing caverns. As the facts are revealed at hearing, it will be clearer as to how and if these arguments are relevant, have substance, and whether they can be addressed in this forum.

With respect to the respondents' claim that the amended complaint should be dismissed in part due to a three year statute of limitations, CPLR § 214 does not apply to the amended complaint. The CPLR does not govern this hearing and does not apply to administrative proceedings because they are not "civil judicial proceedings" within the meaning of CPLR 101. United States Power Squadrons v. State Human Rights Appeal Board, 84 AD2d 318 (2d Dep't 1981), aff'd, 59 NY 2d 401 (1983). See also, In the Matter of Alleged Violations by Morell, et al (ALJ Rulings, May 13, 1992); In the Matter of Alleged Violations by Town of Southold (ALJ Rulings, 3/17/93).

As for respondents' request that causes of action nine through thirteen of the amended complaint be dismissed, I do not find it appropriate.(2) Respondents argue that ECL § 23-1301(1) pertains only to new caverns. However the statute and the declaratory ruling cited by the respondents, In the Matter of the Application of Bath Petroleum Storage, Declaratory Ruling DEC 23-08 (May 2, 1996), do not lend themselves to this conclusion. Rather, the declaratory ruling provides that modifications of pre-existing caverns are subject to the permitting and fee requirements, and this ruling has been upheld by the Supreme Court and Appellate Division. Bath Petroleum Storage Inc. v. DEC, Index No. 5426-96 (Alb. Co. Sup. Ct. 1997), 244 AD2d 624 (3d Dep't 1997), lv to app den, 91 NY2d 806 (1998). Respondents argue that only § 23-1301(5)(b), which provides for an application fee of five thousand dollars, applies. This section of the law pertains to fees; ECL § 23-1301(5)(a) states that the application fee for a new cavern is ten thousand dollars. Clearly then, this section of the law is meant to legislate the permitting fee but it does not supplant ECL § 23-1301(1) which is the general permitting provision. Thus, while caverns 1-6 may fall under the grandfathering provision of ECL § 23-1301(3), as found by the Third Department to the extent that they are modified, they are also governed by ECL §§ 23-1301(1) and (5)(b) - requiring both a permit and payment of a fee.

As for cavern 7, respondents state that this cavern was specifically permitted by the Department in 1992 from its initial creation.(3) The Department staff does not dispute that respondents had a permit to develop this cavern. The issue set forth in the amended complaint is whether the respondents adhered to the terms of this permit or whether they have exceeded its terms. With regard to staff's claim that respondents have conceded staff's assertions as to cavern 7, I find it to be without merit.

CONCLUSION

I deny respondents' motion for summary judgment. I also deny staff's motion for order without hearing and grant its motion to amend the complaint. I direct staff to coordinate a conference call with the respondents' counsel and this office within the next two weeks to discuss discovery, a hearing date, and other germane matters.

/s/
By: Helene G. Goldberger
Administrative Law Judge

Dated: Albany, New York
March 27, 2000

TO: John J. Privitera, Esq.
McNamee, Lochner, Titus & Williams, P.C
. 75 State Street
P.O. Box 459
Albany, NY 12201-0459

Jerry William Boykin, Esq.
W. Michael Holm, Esq.
The Jefferson Law Firm, PLC
6862 Elm Street, Seventh Floor
Alexandria, VA 22101

Dominic R. Cordisco, Esq.
NYSDEC
50 Wolf Road
Albany, NY 12233-5500

Lisa Perla Schwartz, Esq.
NYSDEC
6274 East Avon-Lima Road
Avon, NY 14414

1. With a cover letter dated March 10, 2000, the respondents submitted an undated motion to strike the affidavits Bradley J. Field based upon their assertions that he has misrepresented his credentials therein. I informed Mssrs. Privitera and Cordisco by e-mail that I declined to accept further submissions on these cross-motions. As respondents' claims are better suited for cross-examination at a hearing, I have determined that they will be heard at that time.

2. Although Mr. Privitera's affirmation refers to counts nine through thirteen, the causes of action pertaining to caverns one through seven are nine through eighteen, with nine through sixteen specifically addressing the alleged illegal expansions of these caverns.

3. The attorney's affirmation also speaks to cavern number nine with respect to this argument; however, I did not find anything in the amended complaint that specifically addresses the expansion of this cavern.

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