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Hudson Industrial Development Agency (City of), The Hudson Community Development and Planning Agency, and Anthony Concra - Ruling, August 24 1998

Ruling, August 24 1998

STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the Matter of

the Alleged Violations of Navigation Law Article 12 and Environmental Conservation Law Article 17
and Regulations Promulgated Thereunder,

- by -

The City of Hudson Industrial Development Agency,
The Hudson Community Development and Planning Agency,
and Anthony Concra

Respondents

Rulings

Motions to Dismiss,
Request to file Interrogatories,
Motions for Protective Order

Case No. R4-1960-97-03

Spill No. 92-10709

Proceedings

The New York State Department of Environmental Conservation ("NYSDEC") Region 4 Staff ("Staff") commenced an administrative enforcement proceeding against respondents City of Hudson Industrial Development Agency ("CHIDA"), the Hudson Community Development and Planning Agency ("HCDPA") and Anthony Concra ("Mr. Concra") alleging violations of Navigation Law ("NL") Article 12, and Environmental Conservation Law ("ECL") Article 17.

Staff alleges that property located at 25 Railroad Avenue, Hudson, New York (the "property" or "site") is contaminated with petroleum; that Mr. Concra had title to the property; that CHIDA thereafter took title to the property and leased it back to Mr. Concra while knowing of the contamination; that Mr. Concra thereafter constructed a building on the property while knowing of the contamination; that HCDPA signed a stipulation with NYSDEC agreeing to investigate and remediate the contamination; and that none of the respondents have remediated the site in spite of Staff's repeated demands that they do so. Staff seeks that the respondents be ordered to remediate the property and that each pay a $20,000 penalty.

Staff has not filed statement of readiness to proceed to hearing. Staff requests leave to serve interrogatories pursuant to 6 NYCRR §622.7(b)(2), alleging that the proceeding will be expedited because the interrogatories would establish what was known about the condition of the property, when, and by whom, enabling Staff to more fully develop the factual situation and focus attention during the litigation.

Respondents claim that petroleum storage tanks were removed from the site under NYSDEC supervision before any of the respondents' involvement with the site. They argue that any contamination was caused by persons or things not under their control. Respondents move to dismiss this matter on various grounds discussed below including lack of jurisdiction and failure to state a cause of action. They oppose Staff's request to serve interrogatories and request a protective order, claiming that Staff's document demands are irrelevant and overly burdensome.

Discussion

Motions to Dismiss

In its responding papers, Staff withdrew its ECL claims against the respondents, admitting that it did not have a sufficient case. Thus, only claims under the NL need to be addressed.

"Discharge" under the NL

Respondents argue they are not "dischargers" under the NL because the complaint does not allege a NL "discharge" (no allegation that petroleum entered the state's waters). Staff counters that proof that petroleum has in fact entered the ground water is not required and that prior decisions indicate that discharges to soils constitute "discharges" under the NL. Staff further argues that since the Complaint pleads a "discharge," it has stated a cause of action, but if this pleading is found to be insufficient, Staff reserves the right to correct the procedural defect.

There is no need to show that petroleum has actually entered the state's waters to sustain a NL violation. However, mere contamination of soils is not enough. To sustain the charges here, the NL definition of "discharge" requires an inference that the property's petroleum contamination might flow or drain into the waters of the state. Under NL §172 (8), "Discharge" means "any intentional or unintentional action or omission resulting in the releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of petroleum into the waters of the state or onto lands from which it might flow or drain into said waters, or into waters outside the jurisdiction of the state when damage may result to the lands, waters or natural resources within the jurisdiction of the state ..." [italics supplied]. Since this definition of "discharge" is clear and unambiguous, resort may not be had to other means of interpretation. McKinney's Statutes, §76. The words "might flow or drain into said waters" must be given effect. Id., §231. Mere "contamination" of land is not within the definition of "discharge" because where a statute expressly describes a particular act, thing or person to which it shall apply, an irrefutable inference must be drawn that what is omitted or not included was intended to be omitted or excluded (espressio unius est exclusio alterius. Id., §240.

In cases where petroleum has been spilled on land, the courts have not done away with the requirement that the petroleum be where it "might flow ... into the waters ..." Rather, they have given effect to it. Past NYSDEC decisions have relied on the Merrill and Domermuth Petroleum cases. Merrill Transport Co. v. State, 94 AD2d 39, 464 NYS2d 249 (3rd Dept. 1983), leave app. den. 60 NY2d 555, 467 NYS2d 249, involved a collision between a tractor trailer transporting oil and another vehicle which resulted in the oil being discharged upon the highway. Domermuth Petroleum Equipment and Maintenance Corp. v. Herzog & Hopkins, Inc., 111 AD2d 957, 490 NYS2d 54 (3rd Dept. 1985), involved a ruptured fuel oil tank which discharged its contents into a homeowner's basement. In both of these cases, the courts found no need for specific proof that the petroleum could get into water because they were able to take "judicial notice" of "common knowledge" that the oil would seep through the ground to ground water.

This case, however, is not a tanker spill on a highway, nor is it a ruptured fuel oil tank in someone's basement. In this case, recently spilled liquid petroleum in large volumes does not exist. The facts in this case appear to suggest the presence of a residue of oil from a former spill or leak. What happens to petroleum residues in contaminated soil is not common knowledge of which "judicial notice" (which is discretionary with the fact finder) may be taken. Assuming that the petroleum residue in contaminated soil might reach water could lead to a decision that gets overturned for lack of substantial evidence. See Matter of George A. Robinson & Co., Inc. v. Marsh, 227 AD2d 953 (4th Dept.1996), annulling Commissioner's Decision and Order, March 2, 1994, Matter of Geo A. Robinson & Co, Inc. If Staff has institutional knowledge on the fate of petroleum residue in contaminated soil of which official notice could be taken, then §622.11(a)(5) applies (requiring notice to the respondents and an opportunity for them to be heard). Regardless, there must be something in the record ("official notice" or evidence) on this point that permits an inference to be drawn.

The fact that Staff did not specifically plead the elements of "discharge" does not require dismissal of the complaint. Staff does not have to present its evidence in the complaint. I have read the charges with the understanding that the statutory requirements for a "discharge" will be matters to be established on the record. It would be premature to dismiss the complaint now before Staff has even filed its statement of readiness.

Authority to direct "dischargers" to clean up;"dischargers" under the NL, CHIDA and public policy, HCDPA stipulation

Respondents argue NYSDEC has no authority to require them to remediate the site because they are not "dischargers." They claim this because they do not own the "system" causing the discharge, and because mere ownership of the property is not a sufficient basis for liability. They argue that CHIDA only had control of the property momentarily, and should not be held liable because of its functions as a matter of public policy. They claim that the HCDPA stipulation was signed without legal authority, and thus is not a basis for liability. Noting that liability has been placed on owners of tanks even though the discharge may have occurred before their ownership, Staff counters that it may proceed against any current owner of a petroleum contaminated site. Staff notes that HCDPA's commencement of work under the stipulation belies any claim that there was no legal authority to enter into it.

Persons who make a prohibited discharge of petroleum are required to contain the discharge by NL §176. Also under §176, NYSDEC may direct a discharger to promptly clean up and remove the discharge. Thus, if the respondents are "dischargers," NYSDEC has the authority to direct a clean up.

The courts have held that liability is based on conduct, not status as landowner. Drouin v Ridge Lumber, Inc., 209 AD2d 957, 958 (4th Dept.1994); Whitesell v Walchli, 654 NYS2d 541 (4th Dept.1997). In Drouin, a long-term tenant who installed and exclusively operated a leaking underground gasoline storage tank was held to be liable to the landowners for cleanup and removal costs. The court rejected the tenant's claim that the landowners, by virtue of their status as landowners, were "dischargers" precluded from pursuing statutory claims against the tenant. Drouin, 958. In Whitesell, the owner of a 4.4% interest as a nonoperator in the oil and gas lease on the land was held not to be liable for damages to a neighboring dairy herd because he did not control the operations conducted under the lease.

The courts have imposed liability on the person who owns the "system" (such as tanks, pipes, etc.) from which the discharge occurred (e.g., White v Regan, 171 AD2d 197, 199-200 (3rd Dept 1991) app den 79 NY2d 754 (1992), among several other cases). A person who becomes an owner after the discharge occurred or began is held strictly liable based on the person's own status as a discharger. The current owner has a remedy against the prior owner predicated upon the prior owner's status as a discharger. Id., 200. In reading the last three cases cited, it becomes clear that who is suing whom is a factor in the outcome. Although the tenant in Drouin was not able to claim as a defense to its own liability that the landowner was a "discharger," that same landowner (per White) would be liable as a "discharger" to any future landowners if the tenant is out of the picture and the discharged material remains on the property.

Here, noting the earlier removal of tanks from the site, the respondents essentially claim that they are not liable because they do not own the "system" (i.e., the tanks) from which the discharge occurred. The situation here is like that in White (where liability was found) except that the tanks have been removed. However, this difference is not significant. The continued presence of tanks or a "system" is not a requirement for imposing liability because the NL does not expressly make it a requirement. McKinney's Statutes, §240. There is no difference between owning tanks that are causing a discharge and owning the site that continues to be contaminated by a former discharge. In either case, the "owner" has the ability to take action to control and clean up the discharged oil, and will be liable if it fails to do so ("omission" can result in a discharge per NL §172(8)). The cases that appear to base liability on ownership of a "system" really base liability on the legal ability to enter the site to control the discharge. The inability to control operations was the basis for the court's dismissal in Whitesell. Essentially, persons are within the purview of the statute if they were in a position to halt the discharge, to effect an immediate cleanup or to prevent the discharge in the first place. State of New York v Montayne, et al., 199 AD2d 674, 675 (3rd Dept., 1993).

CHIDA's and Mr. Concra's liability for a cleanup will depend on their ability to clean up the discharge. At this point without knowing more, holding title and holding a lease seem to prima facie establish these rights. Whether or not public policy requires absolving CHIDA of any liability because it is an industrial development agency is more of a legislative than an adjudicative determination. Administratively, weight may be given to any precedent for doing this, however, such precedent has yet to be set forth. HCDPA's alleged status as a "discharger" has been premised on its signed stipulation which, by its terms, is "enforceable as" and "equivalent to" a directive pursuant to NL §176. Since HCDPA accepted the stipulation, it presumably has the capability to carry out its terms. Whether or not the HCDPA's Executive Director had the legal authority to sign the document is, at this point, more appropriately determined at a later point in this proceeding, subject to review in a court of law, since it involves legal issues beyond the implementation of the NL or ECL.

Authority to impose civil penalties pursuant to NL §192; "court of competent jurisdiction"

Respondents argue that NYSDEC lacks legal authority to impose civil penalties pursuant to NL §192 because the section speaks only of persons being liable for same in a "court of competent jurisdiction." Staff, essentially, says NYSDEC administrative proceedings are such a court.

While NL §192 provides that violators will be liable "in a court of competent jurisdiction," this must be read and construed with NL §200 "Collection of Penalties" to determine the legislative intent. McKinney's Statutes, 97. NL §200 paragraph (1) provides that an action to recover any penalty "imposed under the provisions of this chapter ... may be brought in any court of competent jurisdiction in this state on order of the commissioner and in the name of the people of the state of New York." (italics supplied). This makes it clear that the Commissioner may assess the penalty. In the event it is not paid, the Commissioner may proceed to court to recover it. This is similar to ECL §71-1929 (3) which states that its penalties shall be recoverable "in an action brought by the Attorney General." The "Practice Commentary" following that section states that "it is clear that the penalty may also be assessed by the Commissioner in the first instance."

Res judicata, estoppel, laches, statute of limitations

Respondents point to the removal of tanks from the site, done under NYSDEC supervision at a time prior to respondents' involvement, and NYSDEC's failure to take any action on the site until after respondents' transactions and construction of a building on the site, to claim that this proceeding should be barred by res judicata, estoppel and laches. They also argue that the CPLR §214 3-year statute of limitations bars this action. Staff argues that there is no prior litigation or special relationship that would make res judicata or estoppel appropriate, that governmental entities enforcing public rights may not be barred by laches, and that the statute of limitations does not apply here. Staff is correct.

No prior adjudication was alleged to have taken place thus res judicata does not apply. Estoppel may be applied against a governmental agency only in truly exceptional cases, e.g., to avoid a manifest injustice. 1555 Boston Road Corp. v Financial Administrator of the City of New York, 61 AD2d 187 (2nd Dept.'78). However, estoppel is an equitable remedy that can never be used to prevent the State from enforcing its laws or an agency from carrying out its duties (City of New York vs NYSDEC, 89 AD2d 274, 276 (3rd Dept.'82)), even when the results are harsh (see Parkview Associates v City of New York, 71 NY2d 274, 282 (1988)). Similarly, the equitable doctrine of laches may not be interposed as a defense against the state for the same reasons (see Cortlandt Nursing Home v. Axelrod, 66 NY2d 169, at 177 (n.2) (1985)). Thus, NYSDEC cannot be prevented from enforcing the NL here. Of course, whether or not NYSDEC's actions/inactions warrant consideration in calculating a penalty can be addressed later if liability is found. (See Landmark Colony at Oyster Bay v Board of Supervisors of the County of Nassau, 113 AD2d 741 case 8 (2nd Dept.1985)).

There is no question that the CPLR §214 statute of limitations applies in "civil judicial proceedings" (CPLR §101) and probably would be binding on a NYSDEC action to recover a penalty in court. Whether the statute's "clock" starts running at the time of an oil spill, the time it is discovered, or the time the Commissioner determines what penalty is appropriate to seek does not need to be decided, however, for two reasons. First, the CPLR applies to "civil judicial proceedings" (CPLR §101), not administrative proceedings. United States Power Squadrons v State Human Rights Appeal Board, 84 AD2d 318, 325; 445 NYS2d 565 (2nd Dept.1981), aff'd, 59 NY2d 401, 465 NYS2d 871 (1983). Second, the duty to clean up the discharge is a continuing duty, meaning the clock is continually being reset. Thus, CPLR §214 would not warrant a dismissal here.

Necessary Parties

Alleging that they did not cause or contribute to the site's contamination, respondents request dismissal for failure to join necessary parties pursuant to CPLR §3211. Staff counters, essentially, that their case against respondents would afford it complete relief making any other parties unnecessary.

Respondents' request must be rejected for three reasons. Again, the CPLR does not apply to administrative proceedings. United States Power Squadrons, above. In the recent repromulgation of the NYSDEC Enforcement Hearing Regulations (6 NYCRR Part 622, effective January, 1994) an earlier provision which expressly permitted dismissal for non-joinder of necessary parties was removed, indicating the agency's intent that such dismissal not be done. Finally, assuming that §3211 may be applied, under the Staff's theory of the case which premises liability on respondents' actions and/or omissions, the respondents have not shown that any other parties are "necessary" to this proceeding. Essentially, it would be irrelevant to the issue of respondents' liability whether or not other un-named parties may have caused or contributed to the contamination of the property. To the extent that the latter may have happened, such may be relevant to the appropriateness of a particular penalty. However, the joinder of these other potential parties is not necessary to consider that information. See Matter of Chichester and Wohl, ALJ Ruling, February 12, 1998.

Availability of Spill Conservation Fund to Respondents

If respondents are found liable, respondents request an order that they be reimbursed from the Spill Compensation Fund pursuant to NL §176(7)(c). Staff says that because of their responsibility, there would be no basis for this relief.

This request was embedded in the motions to dismiss but is not part of them. NYSDEC's jurisdiction to "order" reimbursement at the time liability is found is not clear. The fund exists within the Department of Audit and Control (NL §179), not NYSDEC, and is administered by an administrator appointed by the state comptroller (NL §181), not the commissioner. Section 176(7)(c) provides for reimbursement "[u]pon determination by the fund that the person is not responsible for the discharge..." (italics supplied). NYSDEC's role appears to be a "certification of claims" to the administrator of the costs once they are actually incurred under NL §176 (see §§180(5), 186(1)(a)).

Interrogatories

Since "dischargers" are "strictly liable" under the NL without regard to fault (NL §181), what was known about the condition of the property, when, and by whom are irrelevant questions except when considering who should do the cleanup and/or appropriate penalties if and when the strict liability under the statute is established. Since the existence of a "discharge" is not clear at this point, this proceeding will focus on that, the need for a cleanup, and the statutory liability for same first, and consider who should do the cleanup and/or penalties only after the foregoing have been established. Staff's request to serve interrogatories to determine who knew what and when will be denied for now, because it will not expedite the proceeding (6 NYCRR §622.7(b)(2)). The denial will be without prejudice to Staff renewing same once liability has been established.

Protective Orders

Respondents CHIDA/HCDPA seek a protective order striking all of Staff's "documents" demand (apparently excluding "witnesses and statements" and "evidence to be offered") stated in the May 6, 1998, Notice to Produce. They claim that none of the documents demanded are relevant to or likely to lead to production of admissible evidence relating to Staff's allegations in its complaint. Respondent Mr. Concra objects to all of Staff's demands, notes that he filed a motion to dismiss in lieu of an answer (which answer may obviate the need for the demands), and wants the demands redrawn following his answer.

It is noted that the Part 622 hearing procedures do not have a provision like CPLR §3211(f) under which a motion to dismiss would extend the time to answer. Unless extended by Staff or the ALJ, an answer is required to be filed within 20 days of service of the complaint per §622.4(a) except when a motion for a more definite statement has been made (subparagraph (e)). There is nothing to indicate that Mr. Concra was prevented from filing an answer. To allow a failure to answer to be used as a shield to a discovery request would delay the sharpening of issues that is the objective of both answers and discovery. The failure to file an answer does not justify a protective order.

The scope of discovery is broad. Per §622.7(a), the scope of discovery must be as broad as that provided under Article 31 of the CPLR. CPLR §3101(a) provides that there shall be full disclosure of all matter material and necessary in the prosecution or defense of an action, regardless of the burden of proof. "Material and necessary" has been held to require disclosure of any facts bearing on the controversy which will assist in the preparation for trial. Allen v. Crowell-Collier Publishing Co., 21 NY2d 403, 406; 288 NYS2d 449, 235 NE2d 430 (1968). The material demanded does not need to qualify as evidence; questions of admissibility are left for the trial. Rather, materials to be disclosed extend to anything that may lead to such evidence. See West v. Aetna Casualty and Surety Co., 49 Misc.2d 28, 29; 266 NYS2d 600, 602 (Sup.Ct., Onondaga County, 1965), mod'd 28 AD2d 745, 280 NYS2d 795 (3rd Dept.1967) and Johnson v. N.Y.C. Health and Hospitals Corp., 49 AD2d 234, 374 NYS2d 343 (2nd Dept.1975). Therefore, since 622 embraces the CPLR standard for disclosure, all evidence relevant to the case and all information reasonably calculated to lead to relevant evidence is discoverable.

CHIDA and HCDPA's objections are conclusory and unpersuasive. For example, they do not explain why minutes of meetings at which the property was discussed (Staff's demands (b) and (c)) would not be reasonably calculated to lead to relevant evidence. Respondents' objections would shield from discovery any documents related to their defenses. This is contrary to the broad scope of discovery intended by the CPLR.

Rulings

  1. Respondents' motions for dismissal are denied.
  2. Staff's motion for leave to serve interrogatories is denied, without prejudice to renew same after a finding of liability.
  3. Respondents' motions for protective orders are denied.
  4. Any other requested relief not expressly disposed of here is denied.

_____________/s/_____________
Frank Montecalvo
Administrative Law Judge

Dated: August 24, 1998

Albany, NY

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