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Liberty Oil Co. - Ruling 2, May 2, 1996

Ruling 2, May 2, 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,

DEC No. D9-A113-94-12

-by-

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

Respondents

RULINGS ON MOTIONS TO DISMISS AND TO AMEND COMPLAINT

SUMMARY

The motion of respondent, William F. Hogan, dated February 8, 1996 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 ECL . 23-0305(8)(e) provides 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.

As set forth in my ruling in the Matter of Daggett Oil Co, et al (March 20, 1996), 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 staff has moved to amend its complaint to add three causes of action based upon alleged violations of 6 NYCRR .. 551.2, 555.1 and 555.4 relating to failure to provide annual production reports, plugging and abandonment and restoration. I grant this motion on the grounds that the proposed amended complaint conforms to the factual contentions previously put forth by the Department and does not prejudice the respondent. However, I note the substantial increase in the proposed penalty and remind staff that it will have to present proof of the propriety of this amount pursuant to the Department's Civil Penalty Policy (June 20, 1990).

PROCEEDINGS

The staff commenced this enforcement proceeding in December 1994 and January 1995 with the service of a Notice of Motion for Order Without Hearing and supporting papers. Respondent Roberts submitted an answer dated January 3, 1995. Liberty Oil, Hogan Energy, Inc. and William F. Hogan submitted responding affidavits signed by William F. Hogan and dated February 1, 1995. By ruling dated March 14, 1995, Administrative Law Judge William J. Dickerson denied the staff's Motion for Order without Hearing on the grounds that staff had provided insufficient information on the status of the abandoned well, staff had submitted insufficient support for the claim that wells capable of commercial production had been shut-in for more than one year without Department authorization and the respondents presented facts in contest with those in the complaint.

On February 5, 1996, I convened a conference call among the parties, at which time a schedule was set for exchange and filing of additional motion papers. The respondent William F. Hogan (Hogan) moved to dismiss the proceedings on or about February 8, 1996. The staff's papers in response to the motion to dismiss and also in support of its motion to amend were received by this office on March 25, 1996. On April 1, 1996, Mr. Gunner filed an affidavit in opposition to the motion to amend the complaint on behalf of respondents Hogan, Hogan Energy Oil, Inc. and Liberty Oil. On April 12, 1996, staff filed its reply and on May 1, 1996, Mr. Cahilly, who represents Carl H. Roberts, advised me that he would not be putting in a response to the staff's motion.

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. ECL . 23-0305(8)(e) sets forth 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. 6 NYCRR . 551.4.

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 both 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 having 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. There is no statute of limitations that is applicable to administrative proceedings. In addition, 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; although in his affidavits, Mr. Arieda describes documents received by DEC in the 1980's and 1990's that indicated compliance problems. While respondent Hogan reiterates his alleged disassociation from the wells in 1986, based upon the provisions in 6 NYCRR . 551.4(c) that require the maintenance of financial security by an owner, the alleged violations may be ongoing.

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 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 with 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 March 22, 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 three causes of action based upon alleged violations of .. 551.2, 555.1 and 555.4. These matters all appear to relate to issues raised by staff in its papers submitted in support of its Motion for Order without Hearing. Thus, I do not believe that the respondents are in any way prejudiced by these amendments. However, as I noted in my ruling in Matter of Daggett Oil Co., et al (March 20, 1996 at p. 6, fn 3), the amended complaint of the staff constitutes the only complaint, at this time, upon which this enforcement proceeding is based.

Staff also seeks to raise the penalty amount it requested from $150,000 to $450,000 with $200,000 suspended in the event all abandoned wells are plugged properly 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, at the hearing, staff must present the basis for this penalty pursuant to the 1990 Civil Penalty Policy.

Respondents Liberty Oil Co., Hogan Energy, Inc. and William F. Hogan object to staff's motion to amend its complaint on several grounds. In an attorney's affidavit, these respondents allege that because more than a year has passed since the service of the original complaint, an amendment now would prolong the period of delay. As discussed above, there is no statutory time limitation applicable to administrative proceedings and the burden is initially on the respondents to demonstrate prejudice as a result of a delay to show that it is unreasonable. The respondents have not done so here. While referring to the original complaint, respondents argue that certain regulations may not be applicable to respondents' activities because the regulations were not effective at the time. This is a matter which will have to be addressed at a hearing because the respondents have not clearly set forth what activities would be permitted. In addition, in its reply affirmation, staff has presented copies of earlier versions of the cited regulations indicating that they took effect on dates prior to the dates cited by respondents.

Respondents also argue that the complaint remains vague in its description of the wells involved and the role of the individual respondents. In his affidavit, Mr. Gunner makes other arguments regarding the roles of each respondent. I find that the complaint accompanied by the annexed exhibits is sufficient for the purposes of pleading. The arguments asserted by respondents are more appropriate for presentation through a witness during a defense at hearing. Of course, at hearing, the staff will be obligated to provide further detailed information in support of its case and the respondents will have the ability to cross-examine any of the staff's witnesses.

Additionally, these respondents argue that the penalty provision cited by staff is not applicable to actions alleged prior to 1991. However, I note that staff has referenced the earlier version of the statute as well. Mr. Gunner's representation that there are other parties that should be in this proceeding may or may not have merit but that does not preclude staff from proceeding with respect to the parties it has identified from its records. During our conference call of February 5, 1996, I urged the parties to meet to discuss the Department's allegations and to share information. I reiterate that request at this time with respect to Mr. Gunner's claim of additional necessary parties.

CONCLUSION AND FURTHER PROCEEDINGS

The respondent Hogan's motion to dismiss the complaint is denied and the staff's motion to amend is granted. Apart from the fact that I am denying the motion to dismiss and objections of respondents Hogan Energy, Inc. and William F. Hogan with respect to staff's motion to amend; these respondents are not entitled to attorney's fees pursuant to CPLR Article 86 which is inapplicable to administrative proceedings.

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 September 6, 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
May 2, 1996

To: D. Bruce Cahilly, Esq.
12 E. Second Street
Coudersport, PA 16915

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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