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Liberty Oil Co. - Interim Decision and Order, July 14, 1997

Interim Decision and Order, July 14, 1997

STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION

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

LIBERTY OIL COMPANY
HOGAN ENERGY, INC.,
WILLIAM F. HOGAN, and
CARL H. ROBERTS,

Respondents.

INTERIM DECISION and ORDER

DEC No. D9-A113-94-12

WHEREAS:

  1. The Department Staff has moved for a summary order pursuant to 6 NYCRR 622.12 before Administrative Law Judge Helene G. Goldberger.
  2. The attached report and rulings by ALJ Goldberger are adopted as my Interim Decision in this matter concerning wells on the Burger, Ferrington and Nichols leases in the Town of Clarksville, Allegany County, New York (hereinafter "the Liberty leasehold").
  3. As stated in the report, there are no triable issues of fact relating to Respondents Liberty Oil Co., Hogan Energy Inc. and William F. Hogan's liability for failure to file organizational reports and to report termination of activities and to file a list of all wells that have not been plugged and abandoned pursuant to 6 NYCRR 551.1; for failure to file annual well reports for any of the years 1967-1981 and to file complete well reports for the years 1982-1994 pursuant to 6 NYCRR 551.2; for failure to file with the Department and keep in force financial security to secure proper plugging of wells pursuant to 6 NYCRR 551.4; for failure to plug and abandon wells in accordance with Part 555 in violation of 6 NYCRR 555.1; and for failure to resume operations or permanently plug wells pursuant to 6 NYCRR 555.3.
  4. As stated in the report, there are no triable issues of fact relating to Respondent Roberts' liability for failure to file timely organizational reports subsequent to transfer of rights in wells CR1, CR2, CR3, CR4 and CR5 (hereinafter "five wells") on the Liberty leasehold pursuant to 6 NYCRR 551.1 and for failure to post financial security regarding those five wells pursuant to Environmental Conservation Law (ECL) 23-0305(8)(e) and 6 NYCRR 551.4.
  5. There are triable issues of fact relating to Staff's claims against all the Respondents regarding their alleged failure to notify the Department prior to plugging of abandoned wells on the Liberty leasehold in accordance with 6 NYCRR 555.4.
  6. There are also triable issues of fact relating to Staff's claims regarding Respondent Roberts' alleged violations of 6 NYCRR 551.1 for failure to notify the Department within thirty days of cessation of activities and to report all wells have not been plugged and abandoned to the satisfaction of the Department; and 6 NYCRR 551.2 for failure to file well reports for wells on the Liberty leasehold in addition to the five wells this Respondent admits to having operated and 6 NYCRR 551.4 for failure to post financial security for wells other than the five wells.
  7. There are also triable issues of fact relating to Staff's claims regarding Respondent Roberts' alleged violations of 6 NYCRR 555.1 and 555.3 with respect to any wells on the Liberty leasehold.
  8. There are also triable issues of fact relating to the considerations that affect penalties and other relief which should be granted in this matter.
  9. The existence of triable issues of fact relating to certain causes of action or penalties does not bar the granting of a Summary Order. 6 NYCRR 622.12(d),(f).

NOW, THEREFORE, having considered this matter, it is ORDERED that:

  1. Respondents Liberty Oil Co., Hogan Energy Inc. and William F. Hogan are found to have violated 6 NYCRR 551.1 for failure to file organizational reports and to report termination of activities and to file a list of all wells that have not been plugged and abandoned; 6 NYCRR 551.2 for failure to file annual well reports for any of the years 1967-1981 and to file complete well reports for the years 1982-1994; 6 NYCRR 551.4 for failure to file with the Department and keep in force financial security to secure proper plugging of wells; 6 NYCRR 555.1 for failure to plug and abandon wells in accordance with Part 555; and 6 NYCRR 555.3 for failure to resume operations or permanently plug wells. Summary judgment is granted on these charges.
  2. Respondent Roberts is found to have violated 6 NYCRR 551.1 for failure to file timely organizational reports subsequent to transfer of rights in wells CR1, CR2, CR3, CR4 and CR5 on the Liberty leasehold and ECL 23-0305(8)(e) and 6 NYCRR 551.4 for failure to post financial security regarding these five wells. Summary judgment is granted on these charges.
  3. This proceeding is remanded to ALJ Goldberger to conduct an administrative enforcement hearing on (1) the allegations that Respondents violated 6 NYCRR 555.4 for failure to notify the Department prior to plugging of abandoned wells on the Liberty leasehold; (2) the allegations that Respondent Roberts violated 6 NYCRR 551.1 for failure to notify the Department within thirty days of cessation of activities and to report all wells have not been plugged and abandoned to the satisfaction of the Department; (3) the allegations that Respondent Roberts violated 6 NYCRR 551.2 and 551.4 for failure to file well reports (4) and post financial security for wells on the Liberty leasehold in addition to the five wells this Respondent admits to have operated; and (5) the allegations that Respondent Roberts violated 6 NYCRR 555.1 and 555.3 by temporarily or permanently abandoning wells on the Liberty leasehold without Department permission and without proper plugging; and (6) the appropriate civil penalty and/or other relief to be assessed Respondents for all violations found.

For the New York State Department of Environmental Conservation

/s/
By: David Sterman,
Deputy Commissioner
Dated: July 14, 1997
Albany, New York

TO: D. Bruce Cahilly, Esq.
12 East Second Street
Coudersport, PA 16915

G. William Gunner, Esq.
Embser & Woltag, P.C.
164 North Main Street
Wellsville, New York 14895-1152

Joseph M. Kowalczyk, Esq.
Minerals Compliance Counsel
New York State Department of Environmental Conservation
50 Wolf Road, Room 410A
Albany, New York 12233-5550

STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the Matter of Alleged Violations of Article 23 of the Environmental ALJ Rulings On Conservation Law of the State of Staff's Motion for New York and Parts 551 and 555 of Summary Order Title 6 of the Official Compilation of Codes, Rules and Regulations of the State of New York by

LIBERTY OIL COMPANY
HOGAN ENERGY, INC.,
WILLIAM F. HOGAN, and
CARL H. ROBERTS,

Respondents.

DEC No. D9-A113-94-12

Background

The Department staff commenced this enforcement proceeding by service of a notice of hearing and motion for order without hearing by personal service, on January 20, 1995, upon Liberty Oil Company (Liberty), Hogan Energy, Inc. (Hogan Energy) and William F. Hogan (Hogan), and upon Carl H. Roberts (Roberts), by certified mail on December 15, 1994. In this proceeding, the staff allege that the respondents have violated laws and regulations governing the use and control of oil wells pursuant to Article 23 of the Environmental Conservation Law (ECL) and Parts 551 and 555 of Title 6 of the New York Compilation of Codes, Rules and Regulation (6 NYCRR). After responses were filed, Administrative Law Judge (ALJ) William J. Dickerson denied the staff's motion. Subsequently, ALJ Dickerson retired from State service and ALJ Goldberger was assigned to this enforcement proceeding. In that capacity, I made several rulings on motions to dismiss, staff's motion to file an amended complaint, and staff's motion to compel discovery. In my ruling dated May 2, 1997, related to discovery issues, I determined that respondents Liberty, Hogan Energy and Hogan had failed substantially to comply with staff's proper requests for discovery and directed these respondents to cure their responses by May 14, 1997. In that ruling, I also determined that to the extent that these respondents failed to respond in full, they would be precluded from use of the material demanded at the hearing and the ALJ or the Commissioner could draw unfavorable inferences to their positions. 6 NYCRR 622.7(c)(3). In addition, because these respondents failed to respond to staff's request for the bases for their response to the allegations in the amended complaint, I have determined that such failure must be construed as an admission. Despite these admonitions, the respondents did not make additional efforts to comply with staff's discovery requests. In the May 2 ruling, I also denied respondent Roberts' motion to dismiss.

By notice of motion dated June 11, 1997, the staff moved for summary order pursuant to 6 NYCRR 622.12. Included with the staff's motion is an affirmation by its attorney, Joseph M. Kowalczyk, dated June 12, as well as an affidavit by Donald Drazan, Chief of the Technical Assistance Section, Bureau of Oil and Gas Regulation, Division of Mineral Resources of DEC dated June 12, and accompanying exhibits. Respondent Roberts submitted a reply dated June 25, 1997 through his attorney D. Bruce Cahilly with an accompanying exhibit. Respondents Liberty, Hogan Energy and Hogan submitted an undated affirmation by their counsel, G. William Gunner. Staff submitted a letter reply dated July 7, 1997 by its attorney, Mr. Kowalczyk.

Summary of Ruling

Based upon the facts set forth by staff in its motion for summary order, the lack of any meaningful response to the staff's motion for summary order by respondents Liberty, Hogan Energy and Hogan and the failure of these respondents to answer staff's discovery requests resulting in the admission of the allegations pursuant to 6 NYCRR 622.7, I find these respondents liable for the violations alleged in staff's complaint. With respect to respondent Roberts, I grant the staff's motion for summary order in part as to the first and third causes of action in the amended complaint but limited to the five wells that he has admitted to operating and for the period of his involvement (1982 - 1990) to the present.

However, with respect to the second, fourth, fifth and sixth causes of action and to the extent staff allege that respondent Roberts is liable for other wells associated with the Liberty lease or has illegally plugged any wells, a hearing must be held on those allegations based upon the opposing facts that have been put forward by the parties. The staff has decided to withdraw the allegation contained in the sixth cause of action concerning respondent Roberts' alleged illegal plugging as to two wells that he has admitted to plugging. Thus, there will be no hearing on that specific allegation. To the extent that staff seek a finding that Roberts is liable for other improper plugging on the Liberty lease, a hearing must be held on that issue. With respect to the penalties and remedies that staff seek to impose on the respondents, a hearing will be held to hear testimony and accept evidence on the appropriate relief.

Position of Staff

The Department staff has alleged that each respondent has been either the owner as defined in ECL 23-0101(11) and 6 NYCRR 550.3, or operator, as defined by 6 NYCRR 550.3, of numerous oil and gas wells in Allegany County (described herein as Liberty Oil leasehold or Liberty leasehold). ECL Article 23 and its implementing regulations contain requirements for owners and operators of these wells for filing of reports, keeping records of oil produced and sold, and procedures for concluding drilling activities. The staff has alleged that the respondents have violated: (1) 6 NYCRR 551.1 for failure to file reports showing new organizational information and for failure to notify the Department in writing within thirty calendar days of cessation of activities including a report of all wells that had not been plugged; identifying each by well identification number and production status and providing the name and complete mailing address of each unplugged well's new owner and date of transfer; (2) 6 NYCRR 551.2 for failure to submit annual well status and production reports for the years 1967-1981 and for failure to properly identify active or inactive wells in annual well reports submitted from 1982-1994; (3) 6 NYCRR 551.4 for failure to file and keep in force financial security payable to the Department to guarantee the performance of the respondents' well plugging and abandonment obligations for wells including 5 wells drilled in 1982 and 1983; (4) 6 NYCRR 555.1 for failure to plug wells and effect surface restoration; (5) 6 NYCRR 555.3 for abandoning wells for more than 90 days without Department permission; (6) 6 NYCRR 555.4 for permanently plugging and abandoning wells without giving notice.

The staff seeks an order that finds the respondents jointly and severally in violation of the above mentioned provisions of the law and regulations and directs the following:

  • to submit current organizational reports within 30 days of the order;
  • to submit required financial security in proper form no later than 30 days from the effective date of the order;
  • to search the property with DEC personnel to locate abandoned wells and map them within 60 days of the effective date of the order;
  • to properly plug and abandon all abandoned wells according to a schedule set by the Department;
  • to pay a penalty in the amount of $450,000, of which $200,000 will be suspended if all abandoned wells are property plugged within two years of the effective date of the order.

As part of the staff's motion papers, Donald J. Drazan has submitted an affidavit setting forth certain facts as follows. Since 1946, respondent Hogan has owned at least half of the mineral rights interest in the Nichols or Burger leases under his own name, d/b/a Liberty Oil Co., or as Hogan Energy, Inc. In 1982, Hogan executed as d/b/a Liberty Oil Company an oil and gas lease with Francis R. Root. In 1986, Hogan filed quit claim indentures that assigned the total interest in the mineral rights in the Nichols and Burger leases to respondent Hogan Energy.

Mr. Drazan reports that Department records show no registration or filing of any reports for the wells on the Liberty Oil leasehold prior to 1980 when staff became aware of the lease based upon a complaint of open holes by a tenant living on the property. Mr. Drazan states that despite notification, Hogan did nothing to work with the Department to address the conditions on the lease; he did not legally plug any wells nor did he obtain permission to reactivate wells or to drill more wells. In response to the Department's discovery requests connected with this proceeding, Hogan did supply a map of the Liberty oil lease in February 1997. This map indicates that the Liberty Oil leasehold includes Nichols, Burger and Ferrington leases together totaling approximately 275 surface acres. The map indicates 81 wells on the Nichol and Burger leases and 23 wells on the Ferrington lease, many of which are abandoned. The map is annexed to the Drazan affidavit as Exhibit 3.

Based in part upon a letter by Roberts regarding the Ferrington lease, annexed by respondents Liberty, Hogan Energy and Hogan to their attorney's affirmation in opposition to the Roberts' motion to dismiss dated April 3, 1997, staff concludes that Roberts controlled development and operation of the entire lease and not only five wells as he now contends.

The Department has on file an organizational report dated August 24, 1981 that is signed by respondent Roberts. In 1982 and 1983, respondent Roberts submitted a total of five applications for permits to drill, deepen or convert wells subject to ECL Article 23. Mr. Drazan states that Roberts listed himself as owner and described the lease as 275 acres. Because Roberts had a report on file and the financial security requirements were not in effect at that time, DEC granted the permits. In 1984, after regulations were promulgated requiring well owners to file an increased amount of financial security, the Department notified all owners of registered wells of the new requirements. The Department no longer maintains the list of people who were sent this notification. However, staff does have a Declaration of Active and Inactive Unplugged Oil, Gas and Solution Mining Wells Subject to Financial Security that Roberts signed as owner and filed with the Department dated December 19, 1984. This declaration, attached as Exhibit 2 to the Drazan affidavit, lists five wells requiring financial security of $12,500.

Roberts has also admitted that he plugged two improperly plugged and abandoned wells in connection with his drilling program -- for one he obtained a permit and for the other he did not due to emergency conditions. For the years 1982-1990, Roberts filed reports with the Department required under ECL 23-0305(8)(f) and 6 NYCRR 551.2 detailing the production of the drilled wells. Based upon this activity, the staff maintains that Roberts was in charge of the lease and operation of the producing wells. However, Roberts did not report any additional wells which were unplugged on the lease nor did he report the reactivation of an old well that was mentioned in correspondence to attorney William Gunner. Roberts did not file temporary abandonment/shut-in requests for any of the wells on either the Nichols or Burger leases.

By letter dated September 16, 1991, Sandra Kane of the DEC Division of Mineral Resources, wrote to Roberts regarding the need for the record of owner to file a Notice of Transfer form to the Department. The letter explains that the Department will not approve a transfer until the proposed owner files a completed organizational report form and submits adequate and acceptable financial security. Ms. Kane also stated that the wells would be inspected by regional staff and any deficiencies would have to be corrected prior to transfer approval. The letter also notifies respondent Roberts that he was in violation of Article 23 for failure to keep adequate financial security in force. In response to this letter, Roberts handwrote a note to the Department on the Kane letter stating that in 1990 the property was sold to Hogan Energy and that prior to this sale, he had not been notified of any security requirement. He also maintained that he had turned over all records to Hogan Energy as part of the sale but recalled that there were 40-50 inactive wells on the lease.

Mr. Drazan reports that on September 20, 1993, the Department received a completed application for transfer of well plugging responsibility for the five wells Roberts had drilled on the lease signed by both Hogan and Roberts. However, the form did not include a well that Roberts alleged to have reactivated nor did it contain a list of the abandoned wells on the leasehold. The staff also relies on a bill of sale dated May 14, 1990 from Roberts to Hogan Energy that includes the transfer of six rather than five pump jacks to conclude that Roberts controlled more than the five newer wells. The bill of sale is attached as Exhibit 5 to the Drazan affidavit.

In his affidavit, Mr. Drazan also states that annual well reports submitted by Hogan Energy and signed by Hogan for production years 1990-1996 (annexed as Exhibit 6 to the affidavit) list the five wells permitted by Roberts and five old wells assigned API identification numbers by the Department and no others. Attached also to Mr. Drazan's affidavit as Exhibit 7 are two letters dated April 7, 1992 and October 15, 1993 respectively, in which staff advised Hogan of his responsibilities on the Liberty Oil property to post financial security, submit annual reports, complete the well transfer form for the wells owned by Roberts and the need for an order on consent to resolve the violations on the leasehold.

The staff maintain that the transfer from Roberts to Hogan was never approved by the Department and therefore does not obviate Roberts' responsibilities regarding financial security, plugging and reporting responsibilities. And, as stated above, the staff posit that Roberts held a greater degree of control over the lease then he contends. Apart from the facts stated above that staff uses to support this position, they also state that the permit application, an order on consent, his profit and his actions to plug two wells during the drilling process support this view.

In his affidavit, Drazan also maintains that Hogan Energy is responsible for plugging of the abandoned wells based upon the transfer of interest from Hogan to Hogan Energy and the transfer and sale from Roberts to Hogan Energy. In addition, Hogan is the remaining principal of Liberty Oil and has represented himself to the Department as the controller of the lease except for the period when Roberts was involved.

In its papers, the staff also discusses the legislative purpose behind the current laws and regulations. The plugging of wells is key to prevention of the migration of oil and gas into fresh water aquifers and the surface that could result in the contamination of groundwater.

In its reply, staff makes some remarks concerning the conduct of Mr. Gunner in this proceeding. As this Department does not have jurisdiction over the professional misconduct of attorneys, I will not delve into this subject and suggest that the parties direct any suitable actions to the appropriate entity. See, In the Matter of Adirondack Park Agency, Christopher M. McGill and Randolph J. Stephens (ALJ Ruling, November 27, 1996).

Position of Liberty, Hogan Energy and Hogan

Respondents Liberty, Hogan Energy and Hogan complain that staff's motion was received by them on June 12 while the schedule to which the parties agreed provided that the motion be made by June 9, 1997. Based upon this delay, respondents argue that the staff's motion is untimely.

Mr. Gunner also argues that the staff's reference to numbered paragraphs in the interrogatories is confusing because the numbered paragraphs in the interrogatories furnished to the Office of Hearings differs from those furnished to the respondents.

Next, Mr. Gunner states that the staff's request for relief is contradictory because it refers to multiple respondents as owner or operator and because staff treats respondents as alter egos of one another.

Mr. Gunner also posits that because William F. Hogan conveyed his interest to Hogan Energy in 1986, he has no responsibility for compliance. Similarly, Mr. Gunner claims that respondents' transfer of their interests in 1982 to respondent Roberts is dispositive of any liability.

The remainder of Mr. Gunner's response consists of argument with respect to the manner in which staff has put forward its case and the failure to set forward certain allegations with more specificity and legal authority.

Position of Roberts

In response to staff's motion, respondent Roberts submitted a reply by his attorney dated June 25, 1997. In this reply and elsewhere, with respect to staff's abandonment claim, respondent Roberts admits that he had an operator/ownership interest in Liberty Oil wells CR1, CR2, CR3, CR4 and CR5 between June 1982 and May 1990. He claims that these wells were producing at the time he transferred his interest to Hogan Energy, Inc. and on this basis argues that he had no responsibility to plug the wells. Roberts claims that his interest was limited to the five wells during the time he was operating them and did not extend to the entire Liberty leasehold. In response to Mr. Drazan's position that the plugging of the two wells was indicative of his broader control over the leasehold, Roberts states that the wells were plugged in order to address concerns of contamination. He argues that such action does not provide a basis to conclude that he owned the lease or was in charge of its development.

With respect to staff's allegation regarding failure to file annual well reports, Roberts notes that the Department had the annual production reports that he submitted for the years 1982 - 1989 and there is no allegation that these reports were in any way deficient. Although the forms show Roberts as owner, he states that the regulations required him to report all the wells on the lease in addition to those in which he had an interest.

With regard to staff's claim that respondent failed to keep financial security in force, respondent argues that at the time of the issuance of the permits to drill the five wells, he was not required to post financial security. See, Drazan Aff. 12. Respondent Roberts states that the Department is guilty of laches for failure to notify him in a timely fashion of his obligation to post financial security. Roberts also points to a letter dated March 27, 1992, in which respondent Hogan acknowledged receipt of the transfer forms on behalf of Hogan Energy, as well as a letter by DEC affiant Richard Arieda dated April 7, 1992 directing Hogan Energy to submit financial security as support for his position that he was not the responsible party. In addition, he argues that he is not liable for any plugging or other responsibilities vis a vis the entire leasehold. And, he further claims that because the five wells he drilled are producing wells, any security responsibilities are moot.

Regarding plugging liability, respondent Roberts maintains that because the five wells he operated were producing at the time of transfer to Hogan Energy and he has had no interest in other wells, the Department's motion must be denied. Regarding staff's allegation as to abandonment of wells for more than 90 days without permission, respondent argues that the record thus far fails to establish that he had any responsibilities regarding any wells on the Liberty lease other than CR1, CR2, CR3, CR4 and CR5. And, since the Department has not alleged that the five wells Roberts drilled are abandoned, the motion must be denied. Respondent also renews his motion to dismiss regarding this fifth cause of action.

With respect to staff's sixth cause of action, plugging of wells without a permit, respondent states that the Department's allegations are based upon his response to interrogatory no. 66 regarding the plugging of two improperly plugged wells. Roberts claims that he had a permit to plug one well and the other was plugged in response to exigent circumstances. He further alleges that the non-permitted plugging was reported to DEC with a full explanation and should not be the subject of a twelve year old proceeding. Regarding this cause of action, respondent renews its motion to dismiss. Because the staff has determined to drop any allegations regarding the plugging of these two wells, there is no need to consider this further. See, staff's reply, p.2.

Findings of Fact Pursuant to 6 NYCRR 622.10(d)

  1. William F. Hogan is a natural person residing at 130 Plum Street, Bolivar, New York.
  2. Liberty Oil is registered as a New York State partnership engaged in activities regulated by ECL Article 23. An organizational report dated January 17, 1980 and signed by Hogan as part owner was filed with the Department after a request was made to do so. This report is attached as Exhibit A to the Department's Notice of Hearing dated December 9, 1994. Production reports annexed as Exhibit E to Department's Notice of Hearing dated December 9, 1994 and submitted to the Department by Roberts for the years 1982-1989 cite Liberty Oil Co. as the lease name. And certain oil reports submitted to DEC and annexed as Exhibit G to the Notice of Hearing identify Liberty Oil as the lease name for wells with account names of William F. Hogan and Hogan Energy, Inc., among others, for purchase years 1983-1993.
  3. Carl Roberts is a natural person residing at 2 Southeast Street, Coudersport, Pennsylvania who is registered as an individual engaged in activities regulated by ECL Article 23. An organizational report dated August 24, 1981 and signed by Roberts was attached as Exhibit D to the Department's Notice of Hearing dated December 9, 1994.
  4. Hogan Energy, Inc. is a New York State Corporation engaged in activities regulated by ECL Article 23. An organizational report dated September 14, 1993 and signed by Hogan lists Hogan as the sole director, sole officer and the only person authorized to sign submissions to the Department. That report was attached as Exhibit B to the Department's Notice of Hearing dated December 9, 1994. The organizational report indicates that Hogan is the only officer. The answers to the staff's interrogatories dated February 25, 1997 signed by William Gunner state that the Board of Directors for Hogan Energy includes William F. Hogan, Anne H. Barnes and John J. Hogan.
  5. A review of records by Department staff at the Allegany County Court House regarding property associated with the Liberty Oil lease revealed that the Nichols and Burger leases comprised the Liberty Oil lease. The results of this search is annexed as Exhibits H and I to staff's Notice of Hearing dated December 9, 1994. In addition, former staff attorney Carl Dworkin sent the complete maps portion of Exhibit H to all parties with a cover letter dated January 25, 1995. The Nichols and Burger leases comprise approximately 100 acres.
  6. On February 3, 1997, Hogan provided Department staff with a map of the Liberty Oil lease that indicates that the Ferrington lease is also included as part of the Liberty Oil lease. The map annexed as Exhibit 3 to the Drazan Aff. indicates 81 wells on the Nichol and Burger leases and 23 wells on the Ferrington lease. The map also indicates inactive wells on the Liberty Oil lease.
  7. Since 1946, respondent Hogan has owned at least one half the mineral rights interest in the Nichols or Burger leases, under his own name, d/b/a Liberty Oil Co. or as Hogan Energy.
  8. In 1986, Hogan filed quit claim indentures that assigned the total interest in the Nichols and Burger leases to Hogan Energy. Department staff research of Allegany County Court House records revealed that Hogan is the remaining principal of Liberty Oil. The two partners who formerly held a quarter interest in the mineral rights have died and the estates transferred the mineral rights to Hogan.
  9. The Department's records show no registration or filing of any reports for the wells on the Liberty leasehold prior to 1980. The Department staff became aware of the wells on the Liberty lease in 1980 based upon a complaint filed with DEC by the landlord and tenant associated with the surface property located near Route 305 and Jordan Hill Road in Allegany County.
  10. In response to a letter dated January 10, 1980 from Region 9 Department staff related to the complaint of open holes on the Liberty lease, Hogan stated that he would have a crew go out and check condition of wells to see what needed to be done. He provided an organizational form for Liberty Oil Co. at this time to DEC. Letter and note regarding Hogan's statements are annexed as Exhibit P to staff's December 9, 1994 Notice of Hearing.
  11. Since the time of the landowner and tenant complaint, respondents Liberty Oil, Hogan Energy and Hogan have not taken action to bring the inactive wells on the Liberty lease into compliance with the applicable regulations.
  12. In 1982 and 1983, Roberts submitted to the Department five applications for permits to drill, deepen or convert wells subject to Article 23 for the Liberty Lease. On the permit applications dated July 29, 1982 , October 28, 1982, August 8, 1983, and September 9, 1983, Roberts identified himself as owner and described the number of acres in the lease as 275. These applications are annexed to the Drazan affidavit as Exhibit 1.
  13. The Department issued permits to Roberts for these wells and copies of these permits are annexed as Exhibit 1 to the Drazan Aff.
  14. Roberts did not file financial security for these five wells in 1984 after the Department notified him of this requirement or since that time. Roberts filed with the Department a completed Declaration of Active and Inactive Unplugged Oil, Gas and Solution Mining Wells Subject to Financial Security in New York State dated December 19, 1984 and this form is annexed to the Drazan Aff. as Exhibit 2. The declaration signed by respondent Roberts lists five wells requiring financial security of $12,500.
  15. In Roberts' response to staff's interrogatories, he states that he plugged two improperly plugged and abandoned wells in connection with his drilling program. One of these wells was plugged with a permit while the other was not.
  16. For production years 1982-1989, Roberts filed reports with the Department as required by ECL 23-0305(8)(f) and 6 NYCRR 551.2. In these reports, respondent Roberts provided his name on the line requesting identification of owner.
  17. On September 20, 1993, the Department received a completed application for transfer of well plugging responsibility for the five wells Roberts drilled on the Liberty lease. The signatures of Hogan and Roberts appear on this form. The form does not include a well that Roberts is alleged to have reactivated on the leasehold nor is there a list of other wells that have been abandoned on the leasehold. This Request for Well Transfer is attached as Exhibit 4 to the Drazan Aff.
  18. The Department was also supplied with a bill of sale dated May 14, 1990 that transferred ownership of six pump jacks from Roberts to Hogan Energy.
  19. Annual well reports submitted by Hogan Energy and signed by Hogan, for calendar years 1990 - 1996 list the five wells permitted by Roberts and five old wells assigned API identification numbers by the Department. These reports did not list any inactive wells. The 1990, 1991 and 1992 reports are dated September 14, 1993 and were received by the Department on September 20, 1993. The well reports are annexed to the Drazan Aff. as Exhibit 6.
  20. In 1992 and 1993, the Department staff wrote to Hogan Energy regarding the actions needed in order for this entity to be in compliance. This correspondence is annexed as Exhibit 7 to the Drazan Aff.
  21. Department staff has calculated that Hogan Energy has received approximately $86,200 in royalty payments based on purchaser/taker records and the average price of oil for the years 1982-1995. In response to staff's interrogatory regarding the stock ownership in Hogan Energy, Hogan Energy replied through its counsel that Hogan owns 100% of the shares. See, Answer to Interrogatory No. 9, February 25, 1997.
  22. Department calculations on revenues recovered from the Liberty lease indicate that Roberts collected $181,539 as the working interest owner. Staff developed this figure based on purchaser/taker records and the average annual cost of oil for the period 1982-1990.
  23. The plugging of wells is key to prevention of the migration of oil and gas into fresh water aquifers and the surface that could result in the contamination of groundwater.

Discussion

Pursuant to 6 NYCRR 622.12(d), the Commissioner should grant a motion for order without hearing if, upon all the papers and proof filed, the cause of action (or defense) is established sufficiently to warrant granting summary judgment in favor of any party under the Civil Practice Law and Rules (CPLR). The Commissioner should deny the motion if the opposing parties show any issues of fact sufficient to require a hearing. The existence of a triable issue of fact does not prevent the granting of the entire motion but rather a hearing on the contested facts. 6 NYCRR 622.12(f).

In order to succeed on its motion for summary order, the staff must demonstrate that there is no material issue of fact outstanding and that the facts set forth in its affidavits and exhibits mandate judgment in its favor. On a motion for summary judgment, the courts will accept as true the opposing party's evidence and require a trial if such evidence counters the movant's. See, generally, CPLR 3212; McKinney's Consolidated Laws of New York, Practice Commentary C3212:16; C3212:17 (Siegel 1992); Edgar v. Jorling, ___ AD 2d ___, 639 NYS 2d 954 (2d Dep't 1996), lv to app den, 89 NY 2d 802 (1996).

Liability of Hogan, Hogan Energy and Liberty Oil

The answering papers of respondents Liberty Oil., Hogan Energy and Hogan to staff's motion for summary order do not provide any facts in response to the staff's affidavit and exhibits. Instead, counsel for these respondents responded with argument that cannot overcome the staff's presentation of facts supporting the allegations contained in the amended complaint. In responding to a motion for summary judgment, it is incumbent upon the opposing party to come forward with evidence sufficient to create a triable issue of fact. See, Zuckerman v. City of New York, 49 NY 2d 557, 563 (1980). However, by failing to present any facts in opposition to staff's affidavits and accompanying exhibits, respondents have failed to meet this burden. With respect to staff's sixth cause of action, despite respondents' failure to come forward with sufficient facts in their responsive papers, staff has not presented sufficient facts that any of the respondents violated 6 NYCRR 555.4 by plugging abandoned oil wells without permission to warrant summary judgment. Therefore, respondents are entitled to a hearing on this one claim.

In their answering papers, respondents claim that staff's motion is untimely because the papers were served several days after the date agreed to for the motion by all parties. Prior to the June 9 date for submission of the motion, Mr. Kowalczyk called my office to advise me of the need for a short extension. I granted the additional time and requested that he speak with the other respondents. While I have no knowledge of whether he reached counsel, respondents have not been prejudiced in any way by this short delay. Mr. Cahilly requested additional time for Mr. Roberts' response which I granted and had I received such a request from Mr. Gunner I would have done likewise. Therefore, I decline to consider staff's motion as untimely served.

Next, these respondents argue that the staff makes reference to numbered paragraphs of its interrogatories and their responses that do not correspond to the numbered paragraphs furnished to the respondents, creating confusion. In my ruling dated May 2, 1997, I noted that respondents' answers to the interrogatories contained different numbered paragraphs than the copy of the interrogatories supplied by staff. I understand from staff's papers in support of its motion to compel discovery that respondents left out interrogatories and failed to properly number them. In my May 2 ruling, I required the respondents to complete their responses to the interrogatories and to rectify their misnumbering of the responses to conform with staff's. However, the respondents did not comply with this ruling. Thus, if there is confusion related to references to interrogatories it is due to the action of the respondents in their failure to respond adequately to the staff's discovery requests. This however, is not a basis upon which to make a ruling on this motion.

Mr. Gunner then states that the staff's request for relief is contradictory because it refers to multiple respondents as owner or operator and because staff treats respondents as alter egos of one another. I would agree that relief will need to be tailored more specifically to correspond to each respondent based upon the findings of liability. To the degree however that Liberty, Hogan Energy and Hogan are alter egos of one another, staff will have the opportunity to present that evidence at the hearing concerning the remedy. And, to the extent that respondents have different liabilities, that too may be brought out at hearing in order to ascertain the correct relief. However, this ruling will only address liability of the respondents based upon staff's motion and thus, it is premature to address questions of relief.

Mr. Gunner posits that because William F. Hogan conveyed his interest to Hogan Energy in 1986 he has no responsibility for compliance. However, the staff's complaint alleges violations that predate Mr. Hogan's transfer. Mr. Drazan's affidavit sets forth Mr. Hogan's relationship to the leases from 1946 forward. In addition, based upon the security requirements contained in ECL 23-0305(8)(e), unless the transfer of well plugging responsibilities was approved by the Department and adequate security furnished, respondent Hogan maintains security and plugging responsibilities despite any conveyance. See also, Lee Oil Co., Inc. v. Jorling, 190 AD 2d 1072 (4th Dep't 1993); In the Matter of Francis Root Oil Co. (ALJ Supplementary Summary Report). Also, to the degree that staff can demonstrate at the hearing that respondent Hogan maintains control over the subject leases, the transfer to Hogan Energy will not shield him.

Similarly, Mr. Gunner's claim that respondents' transfer of their interests in 1982 to respondent Roberts is not determinative because Roberts maintained control for a limited period and then conveyed his interest to Hogan Energy.

The remainder of Mr. Gunner's response consists of general argument with respect to the manner in which staff has put forward its case and the failure to set forward certain allegations with more specificity and legal authority.

I grant, in part, the staff's motion for summary order against these respondents. To the extent that any facts are cited in attorney Gunner's papers in response to staff's motion, they do not contradict staff's claims. However, because staff has not presented sufficient evidence regarding its claims in its sixth cause of action (alleged violations of 6 NYCRR 555.4), the hearing must address this claim. Otherwise, respondents' vague assertions that there is no evidence that William F. Hogan had anything to do with the Liberty lease after 1986 do not defeat the staff's affidavit and exhibits. Rather, this material demonstrates Hogan's continuing interest in the lease and the failure to properly transfer his plugging responsibilities by conforming with the requirements of ECL 23-0305(8)(e).

As described above, the staff has shown, based upon the Drazan affidavit and exhibits, that these respondents have violated:

  1. 6 NYCRR 551.1 by failing to file organizational reports and by failure to notify the Department in writing within thirty calendar days of cessation or termination of activities and by failing to submit a list of all wells that have not been plugged and abandoned in accordance with Part 555;
  2. 6 NYCRR 551.2 by failing to submit an annual well status and production report or its successor form, annual well report, for the years 1967-1981 and by submitting insufficient annual well reports from 1982-1994;
  3. ECL 23-0305.8(e) and 6 NYCRR 551.4 by failing to post and keep in force financial security payable to the Department to guarantee the performance of the respondents' well plugging and abandonment obligations;
  4. 6 NYCRR 555.1 for abandoning wells without properly plugging them;
  5. 6 NYCRR 555.3 for abandoning wells for more than 90 days without specific permission from the Department and for failing to resume operation of these wells.

In response to staff's interrogatories, respondents refused to provide any factual basis for their denial of the allegations contained in the complaint. Thus, I found in my May 2, 1997 ruling that failure to respond properly to the interrogatories by May 14, 1997 could result in the Commissioner or myself drawing unfavorable inferences in accordance with 6 NYCRR 622.7(c)(3). In addition, I found that respondent Hogan Energy's response of "none" to staff's question regarding the basis for its denial of each and every allegation in the complaint constitutes an admission. I find now in comparing a copy of staff's interrogatories with the response that Hogan Energy submitted, omission of some of the numbered paragraphs of the amended complaint that staff cited. Moreover, Liberty failed to submit any response to the interrogatories and Hogan omitted the question and answer to staff's interrogatory regarding the basis for respondent's denial of each and every allegation contained in certain paragraphs of the complaint. Accordingly, this is an additional ground to grant a summary order based upon the admissions of respondents in discovery.

Although these respondents failed to respond to any of the factual allegations contained in the staff's papers in any meaningful manner, I decline to find that they violated 6 NYCRR 555.4 as the staff has not put forward any evidence that any of these respondents have improperly plugged wells. If staff wishes to pursue this claim, it will have to bring proof forward at the hearing.

Liability of Roberts

Respondent Roberts does not deny his involvement on the Liberty lease from 1982-1990 when he drilled five wells on the property and operated those wells. He obtained permits to drill the wells and he filed production reports with the Department. The controversy arises with respect to the extent of his involvement on the leasehold.

Based upon the differing factual demonstrations regarding the extent of Robert's ownership and control, staff's motion for summary order should be denied insofar as it seeks to hold Roberts liable for wells other than the five wells he has admitted to drilling. However, with respect to the first cause of action, respondent has not submitted any proof to counter the staff's claims that he failed to file reports on the five wells he operated, showing new organizational information within thirty calendar days from the change of ownership in violation of 6 NYCRR 551.1. Thus, summary judgment should be granted on this claim.

With respect to staff's claim that respondent did not submit a list of wells that had not been plugged and abandoned to the Department, summary judgment should be denied because staff has not shown there are no material facts in dispute with respect to the alleged abandonment of the five wells or Robert's responsibilities as to other wells on the leasehold. For example, Roberts claims that because the five wells he operated were producing upon transfer, he had no obligation to plug them or report them as abandoned. And, again, with respect to other wells on the lease, there are sufficient facts in contest that a hearing is required on whether Roberts was in control of those other wells. Hence, this claim should be subject to a hearing.

With respect to the second cause of action, staff's motion for summary order should be denied as the parties agree that Roberts submitted production reports for the five wells for the years 1982-1990. To the extent that staff seeks to hold Roberts responsible for the reports on the other wells on the leasehold pursuant to 6 NYCRR 551.2, it has not demonstrated that there are no facts in contest with respect to his control over those wells. Accordingly, a hearing is necessary to determine the extent of Robert's control of these wells.

As to the third cause of action, staff's motion for summary order should be granted. There is no factual dispute between the parties as to Robert's failure to post financial security with the Department pursuant to 6 NYCRR 551.4 in order to secure the proper plugging of the five wells that he operated. However, to the extent that staff seeks to hold Roberts responsible for failure to post financial security for the other wells on the leasehold, this claim must be subject to a hearing.

I reject Roberts' arguments with respect to laches as a defense. As set forth in my May 2, 1996 ruling in this proceeding in response to Hogan's motion to dismiss the complaint based upon failure to prosecute, delay and statute of limitations, there is no statute of limitations in administrative proceedings. The State Administrative Procedures Act (SAPA) 301 requires that parties be afforded a hearing within a reasonable time. Respondent has not pleaded any of the criteria set forth by the Court of Appeals in Cortlandt Nursing Home v. Axelrod, 66 NY 2d 169 (1985) upon which a finding of unreasonable delay could be found. See also, Manor Maintenance Corp., et al, Rulings of the ALJ (March 25, 1992). And, while Roberts may believe that he properly transferred responsibilities to Hogan Energy in 1990, his failure to obtain Department approval of the transfer failed to relieve him of the surety responsibilities pursuant to ECL 23-0305(8)(e) and 6 NYCRR 551.4.

With respect to the fourth and fifth causes of action, respondent claims that the five wells for which he maintains responsibility were producing wells upon his transfer of ownership and therefore there was no abandonment in violation of 6 NYCRR 555.1 and 555.3. Thus, staff's motion for summary order for these causes of action should be denied in order to provide respondent with an opportunity to present proof on the status of these wells at the time of transfer. Consistent with my ruling of May 2, 1997, Roberts' motion to dismiss the fifth cause of action should be denied because the staff has presented a sufficient claim to allow it to go forward to hearing.

As to the sixth cause of action, the staff has agreed to withdraw its claims regarding the two wells the respondent has admitted to plugging. To the extent that it seeks to find liability for unlawful plugging of other wells on the leasehold, that matter should be a subject of the hearing. Roberts' motion to dismiss this cause of action.

Conclusion and Recommendation

As explained in the Commissioner's Order in the Matter of Farrell and Williams (July 30, 1996), ECL Article 23 and the associated regulations require oil and gas well owners and operators to take measures to prevent waste of oil and gas resources, optimize recovery of these resources and protect the rights of owners and the public. See also, ECL 23-0301. The law and regulations require that abandoned wells be properly plugged in order to seal off fluids in the strata penetrated by the well to ensure that oil and gas will not seep into other strata potentially contaminating groundwater. ECL 23-0305(8)(d),(e); 6 NYCRR Part 555. To carry out these goals, the law and regulations also require extensive recordkeeping and filing of financial security and reports with the Department. ECL 23-0305(8)(e); 6 NYCRR Part 551.

Based upon the facts and discussion as set forth above, I find the respondents Liberty Oil, Hogan Energy and Hogan liable for the violations set forth in the staff's amended complaint with the except of the sixth cause of action concerning the illegal plugging of abandoned wells. As to respondent Roberts, I find him liable for violations set forth in staff's amended complaint in the first and third causes of action. Roberts' motion to dismiss the fifth and sixth causes of action in the amended complaint should be denied.

By agreement of all parties, a hearing is scheduled for July 22-24, 1997 at DEC's Olean office commencing at 9:30 a.m. on July 22. The facts as set forth above are deemed uncontroverted. The subject of the hearing will be staff's claims against respondent Roberts concerning alleged violations of: 6 NYCRR 551.1 for failure to file an organizational report regarding the cessation or termination of activities on the Liberty leasehold and to report wells that have not been plugged and abandoned to the satisfaction of DEC; 6 NYCRR 551.2, 551.4 for failing to file annual well reports and file financial security for wells other than the five wells Roberts admits to having operated; 6 NYCRR 555.1 and 555.3 for abandoning wells or temporarily abandoning wells without proper plugging or permission from the Department. Additionally, the hearing will address the staff's allegation against all the respondents of violations of 6 NYCRR 555.4 for plugging wells without permission from the Department.

The hearing will also take testimony and other evidence on the issue of appropriate relief and penalties consistent with the Department's Civil Penalty Policy dated June 20, 1990.

/s/
Helene G. Goldberger
Administrative Law Judge

Dated: Albany, New York
July 11, 1997

TO: D. Bruce Cahilly, Esq.
12 East Second Street
Coudersport, PA 16915

G. William Gunner, Esq.
Embser & Woltag, P.C.
164 North Main Street
Wellsville, New York 14895-1152

Joseph M. Kowalczyk, Esq.
Minerals Compliance Counsel
New York State Department of Environmental Conservation
50 Wolf Road, Room 410A
Albany, New York 12233-5550

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