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Daggett Oil Co - Ruling 2, March 20, 1996

Ruling 2 March 20, 1996

STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the Matter of

the Alleged Violations of Article 23 of
the New York State Environmental Conservation Law and Parts 551 and 555 of Title 6 of
the Official Compilation of Codes, Rules and Regulations of the State of New York,

- by -

DAGGETT OIL COMPANY,
HOGAN ENERGY, INC.
WILLIAM F. HOGAN, and
LESLIE T. GROVER,

Respondents

RULINGS ON MOTIONS TO DISMISS AND TO AMEND COMPLAINT

DEC No. D9-B113-94-12

Summary

The motion of respondent, William F. Hogan, dated December 22, 1995 seeks a dismissal of this enforcement proceeding or alternatively a summary order in his favor on the grounds that it fails to state a cause of action because the applicable statute provides only for operator rather than owner responsibility, is untimely and, as a matter of law, respondent Hogan has had no responsibility related to the subject wells since 1986. The motion is denied on the grounds that the Department Staff has met the requirements of pleading pursuant to 6 NYCRR 622.3.

Part 550 provides for owner responsibility with respect to violations alleged by Staff and it is not within the province of the administrative hearing process to determine whether the agency has exceeded its authority in promulgating these regulations. With respect to the claim of delay, the respondent has failed to set forth any circumstances indicating that he has been prejudiced by any delays in these proceedings. Finally, because the applicable regulations require an owner to maintain financial surety for plugging of wells until a transferee has provided acceptable surety to the Department, I cannot find that as a matter of law, the respondent Hogan is entitled to a summary decision in his favor. 6 NYCRR 551.4(c).

The motion of Staff to amend its complaint to add two causes of action relating to failure to provide annual production reports and abandonment and restoration is granted on the grounds that the proposed complaint conforms to the factual contentions previously put forth by the Department and does not prejudice the respondent. The amended complaint also adds a cause of action relating to alleged violations of 555.1 - failure to plug. I grant this amendment for the same reason. However, I note the substantial increase in the proposed penalty and remind Staff that DEC counsel will have to present proof of its propriety pursuant to ALJ O'Connell's ruling of February 6, 1995.

Proceedings

The Staff commenced this enforcement proceeding in December 1994 with the service of a Notice of Motion for Order Without Hearing and supporting papers. The respondent William F. Hogan (Hogan) moved to dismiss the proceedings on or about December 22, 1995. On February 6, 1996, Administrative Law Judge Daniel P. O'Connell denied the Staff's motion and by memorandum he set a schedule for the exchange and filing of the Staff's response to Hogan's motion, the Staff's motion to amend its complaint and respondent's response to that motion. Based upon agreement between Staff (represented by Joseph M. Kowalczyk, Esq.) and Mr. Hogan (represented by G. William Gunner, Esq.), the Staff filed its papers with this office on February 13, 1996. On February 27, 1996, Mr. Gunner filed the respondent's reply to Staff's amended complaint and on March 18, 1996, Staff filed its reply. In addition, on March 8, 1996, Staff filed a letter brief to supplement its memorandum of law in opposition to the motion to dismiss based upon the Commissioner's recent decision in Matter of Manor Maintenance Corp., et al (February 12, 1996).

Rulings

Respondent Hogan's Motion To Dismiss

Failure to State a Cause of Action

Respondent Hogan claims that the Department's allegations rest on provisions of Parts 551 and 555 that impose obligations on owners and that these requirements go beyond the scope of liability the Legislature set forth in Environmental Conservation Law (ECL) 23-0305(8)(e). ECL 23-0305(8)(e) authorizes the Department to plug an abandoned well when an owner or operator refuses to perform this obligation. While the law sets forth that the financial responsibility for plugging shall be at the expense of the owner or operator, it also provides that the primary responsibility for plugging and for maintenance of financial surety is with the operator. Based upon this statutory language, respondent Hogan argues that the regulation providing for owner liability is ultra vires.

In James R. Lee, et al (December 12, 1989), the Commissioner addressed the owner's obligation to provide financial security for the plugging of abandoned oil and gas wells set forth in 6 NYCRR 551.3. Based upon a review of the legislative and regulatory history, former Commissioner Jorling decided that the regulation mandates owner and operator responsibility for provision of adequate financial security. The Commissioner concluded that the Department's determination to promulgate this regulation was based upon adequate statutory authority and was a final decision of the agency. Thus, the administrative hearing is not the appropriate forum to raise a challenge to the agency's authority to promulgate the regulation. Accordingly, I deny respondent Hogan's motion to dismiss the complaint on the basis that it fails to state a cause of action.

Failure to Prosecute, Delay and Statute of Limitations

The respondent Hogan alleges that because he transferred his rights to the oil wells in question in 1986, this proceeding should be dismissed because the Department has failed to prosecute in a timely fashion, Staff has delayed unreasonably and the matter is barred by the statute of limitations.

Because this is an administrative proceeding, CPLR 3216, which sets forth the procedures to dismiss an action on the ground of failure to prosecute, is not applicable. Moreover, even if this provision was applicable to this proceeding, as noted by Staff, CPLR 3216 requires that the party seeking such relief make a written demand for the resumption of prosecution on the adverse party. Since respondent Hogan has not presented proof of service of such demand, he has not met the requirements for dismissal on this ground.

There is no statute of limitations that is applicable to administrative proceedings and this is not a criminal matter subject to speedy trial provisions. See, Commissioner's Order, Breeze Hill Farm (July 21, 1993). However, the State Administrative Procedures Act (SAPA) 301(1) provides that "[in] an adjudicatory proceeding, all parties shall be afforded an opportunity for a hearing within a reasonable time." While the statute does not define that time period, the Court of Appeals has set forth criteria to determine what constitutes a reasonable period in each case. Cortlandt Nursing Home v. Axelrod, 66 NY2d 169 (1985).

In Cortlandt, the court examined the reasonableness of the administrative delay based upon the period that had passed from the date the hearing was requested and the date the hearing was conducted. In this case, because the respondents did not request a hearing, the reasonableness of the delay would be based upon the period that transpired from the date Staff discovered the alleged violations until its action to enforce the regulations. See, Manor Maintenance Corp., et al, Rulings of the ALJ (March 25, 1992). The Staff's pleadings do not specify when the Department first became aware of respondent Hogan's failure to comply with the regulations. While respondent Hogan reiterates his alleged disassociation from the wells in 1986, based upon the provisions in 6 NYCRR 551.4(c) which require the maintenance of financial security by an owner, the alleged violations may be ongoing. And, in his affidavit of February 12, 1996, Mr. Arieda does speak to attempts by Staff in earlier years to obtain compliance, indicating an earlier response by Staff. In this affidavit, Mr. Arieda describes the Department's improved compliance system of 1993 that enabled staff to obtain information about additional wells on the Daggett lease that were not being reported.

In any event, in addition to an assessment of the period of alleged delay, the Cortlandt decision sets forth that the reasonableness of the delay should be based upon (1) the nature of the private interest allegedly compromised by delay; (2) the actual prejudice to the private party; (3) the causal connection between the conduct of the parties and the delay; and (4) the underlying public policy advanced by government regulation. 66 NY2d 169 at 178. Other than to claim that the respondent Hogan is elderly and to state that in 1986 he transferred his interest in the wells to another entity, this respondent failed to set forth any facts that would demonstrate the substantial prejudice that Cortlandt requires in order to find unreasonable delay. Thus, I cannot dismiss the Staff's case against Mr. Hogan based upon an unsupported claim of unreasonable delay.

Summary Decision

Respondent Hogan argues that even if the regulations were applicable to him as an owner, he is entitled to summary judgment because the deed he has provided shows a transfer of ownership in 1986 to Hogan Energy, Inc. Without making any determination on the deed or the role of respondent Hogan in Hogan Energy, Inc., because the regulations require the owner to maintain proper financial surety until a subsequent owner has filed financial security to the Department or the well has been plugged and abandoned to the satisfaction of DEC, there is no basis to grant summary judgment. See, 6 NYCRR 551.4(c); Lee Oil v. Jorling, 190 AD2d 1072 (4th Dep't 1993).

Staff's Cross Motion To Amend Complaint

By notice of cross motion dated February 9, 1996, Department Staff moved to amend its complaint. Section 622.5(b) of 6 NYCRR provides that in accordance with the CPLR, a party may amend its pleading prior to the final decision of the commissioner by permission of the ALJ and absent prejudice to the ability of the other party to respond. As noted by the Staff in its brief, the courts have held that leave to amend should be granted freely.

The Staff has filed a proposed amended complaint that adds a cause of action based upon Mr. Arieda's affidavit dated December 9, 1994 in which he alleged that the respondents did not submit annual production reports for 1987-1992 as required by 551.2. In addition, the Staff has added causes of action regarding violations of 6 NYCRR 555.1 and 555.4 which concern abandonment without notice, permit, plugging and surface restoration. According to Staff, these causes of action relates to wells that were identified by the respondents in annual production reports as no longer active yet which have not been the subject of a request for a plugging permit. Both of these alleged violations relate to matters previously raised by the Staff in its original pleadings. Thus, I do not believe that the respondents are in any way prejudiced by these amendments.

Counsel for respondents Daggett Oil Company, Hogan Energy, Inc., and William F. Hogan submitted an attorney's affidavit in opposition to Staff's motion to amend the complaint dated March 1, 1996. In this document, respondents allege that the original complaint was too vague and therefore should be dismissed. As the Staff has cured deficiencies in its amended complaint, dismissal is not warranted. Respondent's claim that amendment at this time would be unjust because a year has gone by since the service of the original complaint. However, the affidavit fails to set forth any facts that would demonstrate the prejudice that would befall the respondents by granting this amendment. Respondents' suggestion that the Staff file a new complaint would only extend the delay and add unnecessary work.

Respondents allege that the amended complaint is still defective with respect to certain allegations. However, the pleading only has to be a simple statement; other matters may be developed at hearing. With respect to respondents' explanation of the history of the subject wells and the roles of the respective individual parties, these matters are more properly brought forth in a hearing by an appropriate witness under oath. Similarly, factual defenses regarding the applicability of the regulations should be developed at hearing. As to the penalty provision relied upon by Staff, the amended complaint cites to the previous version of this law as well as the current version and thus, would be applicable to violations occurring from August 27, 1981 until the effective date of the amended law. In its reply affirmation dated March 15,1996, staff identify the regulations at issue and note the previous versions that were in effect in 1966, 1972 and 1985.

Staff also seeks to raise the penalty amount it requested from $150,000 to $500,000 with $200,000 suspended in the event all abandoned wells are properly plugged within two years of the effective date of the order. Based upon the liberal provisions in the CPLR and the applicable regulations regarding amendment of pleadings and the Staff's inclusion of additional alleged violations, I will permit this amendment. However, as noted above, Staff must present the basis for this penalty pursuant to the 1990 civil penalty policy.

Conclusion and Further Proceedings

The respondent Hogan's motion to dismiss the complaint is denied and the Staff's motion to amend is granted. Based upon statements by counsel in the reply affirmation of staff (9), I must clarify that the amended complaint of the staff constitutes the only complaint, at this time, upon which this enforcement proceeding is based.

The respondents shall submit answers to the amended complaint by no later than twenty days from receipt of this ruling. Any discovery by the parties must be complete within ninety days from receipt of this ruling. By no later than July 1, 1996, the Staff shall file its statement of readiness for adjudicatory hearing with this office.

_____________/s/_____________
Helene G. Goldberger
Administrative Law Judge

Dated: Albany, New York
March 20, 1996

To: Leslie T. Grover
7763 Jordan Hill Road
Bolivar, NY 14715

G. William Gunner, Esq.
Embser and Woltag, P.C.
164 North Main Street
Wellsville, NY 14895

Joseph M. Kowalczyk, Esq.
NYS Department of Environmental Conservation
50 Wolf Road
Albany, NY 12233-5500

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