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Liberty Oil Co. - Ruling 3, May 2, 1997

Ruling 3, May 2, 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 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. Do-A113-94-12

ALJ RULINGS AND ORDER ON STAFF'S MOTION TO COMPEL AND ROBERTS' MOTION TO DISMISS

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. Respondent Roberts submitted an answer dated January 3, 1995. Liberty, Hogan Energy and 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. Subsequent to a February 5, 1996 conference call, Hogan moved to dismiss the proceeding and the staff moved to amend its pleadings on or about March 22, 1996. By ruling dated May 2, 1996, I denied Hogan's motion and granted staff's motion.

On May 13, 1996, the Office of Hearings and Mediation Services (OHMS) received copies of the answers of Liberty, Hogan Energy and Hogan to the amended complaint. On June 17, 1996, the OHMS received a copy of Roberts' answer to the amended complaint. Due to lack of progress in discovery matters, I convened a conference call on February 26, 1997, when a schedule was set for staff to pose a motion to compel discovery and for Roberts to make a motion for summary judgment or to dismiss. William Gunner, Esq., on behalf of Liberty, Hogan Energy and Hogan, agreed that the Department staff had fulfilled his discovery requests. This office received staff's motion to compel on March 27, 1997, responding papers by Liberty, Hogan Energy and Hogan were delivered to this office on April 9, 1997 and staff's reply was received on April 21, 1997. Roberts' motion to dismiss was received on April 1, 1997, responding papers by Liberty, Hogan Energy and Hogan were delivered to this office on April 7, 1997, and staff's response was received on April 23, 1997.

Staff's Motion to Compel Discovery

Pursuant to 6 NYCRR 622.7(c), on or about March 27, 1997, the Department staff moved for an order compelling the respondents Liberty, Hogan Energy and Hogan to comply with staff's interrogatories and combined discovery demand and to preclude the respondents from using any documents and/or information demanded by staff that respondents have failed to produce. In support of its motion, staff submitted an attorney's affirmation by Joseph M. Kowalczyk dated March 27, 1997, an affidavit dated March 26, 1997 by John P. Hoffman, a DEC Region 8 mineral resources technician and accompanying exhibits.

The staff's motion papers set forth the repeated attempts by staff to obtain the documents and responses from respondents over a lengthy period. Staff represents that Liberty did not submit any responses to staff's interrogatories and combined discovery demand. Responses were submitted by Hogan and Hogan Energy to this demand; however, the staff maintains that these responses are incomplete, numbered improperly and interrogatories were left out completely or in part. In their respective affidavits in support of the motion, Kowalczyk and Hoffman explain the relevance of the requested documents and information to these proceedings. The respondents did not move for a protective order pursuant to 6 NYCRR 622.7(c)(1).

In the attorney's affirmation submitted by G. William Gunner on behalf of his clients Liberty, Hogan Energy and Hogan, he represents that the respondents had informed staff in their response to the interrogatories that the well records sought were "believed to be in the possession of respondent Roberts." Attorney Gunner also states that he met with Mr. Hoffman several times, including occasions when respondent Hogan informed Hoffman that he believed the Liberty records were kept by the respondent Roberts. In addition, counsel for these respondents argues that the staff had failed to vigorously pursue discovery from Roberts and the Winston Davis Estate. In his affirmation, Mr. Gunner also rejects any assertion that the well records are secret and argues that the remainder of the information sought from respondents consists of financial information that is not relevant to these proceedings. To demonstrate that the staff's interrogatories were mere boilerplate, Mr. Gunner attached to his affirmation a page from a document that refers to a party that is unrelated to this proceeding, indicating that these form questions came from staff.

Obviously, parties are not obligated to produce records that they do not possess or control. However, in the limited responses to staff's interrogatories that Hogan and Hogan Energy provided, these parties admit that they do maintain certain records requested by staff and which are relevant to these proceedings. See, Hogan Interrogatory Response no. 58(d); Hogan Energy Interrogatory Response no. 35(c). Staff counsel has represented in his affirmation that staff has served respondent Roberts with discovery requests to which he responded in September 1996. As part of this response, Roberts claimed that Hogan Energy has the requested records. 1 With regard to the "secrecy" of the well records, I recall that this was a topic of discussion in the conference call held on February 26, 1996. At that time, I asked the parties to consider a confidentiality agreement if the proprietary nature of the records was the obstacle to disclosure.

As to the page of interrogatories that Mr. Gunner attached to his affirmation, I found no such references in the copies of interrogatories and responses submitted by staff in support of its motion. See, Exs. 1,2,4,5 annexed to Kowalczyk Aff.

In its present motion, the staff do not seek to compel the disclosure of requested financial information and thus, I will not address those issues here. However, it is apparent that the interrogatories address matters that go beyond financial issues and relate directly to the allegations in the amended complaint.

Hogan Energy

In response to interrogatory nos. 29(b) (c) (e), Hogan Energy has failed to supply adequate responses. Discovery is premised on access to information that is relevant to prosecution or defense of a proceeding. CPLR 3101(a). Thus, it is insufficient to respond that such relevant information will be supplied "prior to hearing after the scope of the issues is defined."

In response to no. 35(b), Hogan Energy's answer is inadequate because the various individuals alluded to are not identified. As stated above, the response to no. 35(d) is also improper -- Hogan Energy is to supply the substance and content of each document (or supply the documents) at this time. In response to no. 37, Hogan Energy states that it knows of no communications or documents among the respondents which pertain to this proceeding. Similarly, in response to no. 39, Hogan Energy answered "N/A". Yet, in response to Roberts' motion to dismiss, Mr. Gunner annexed four documents to his affirmation related to the Liberty lease. See, Exs. A-D annexed to Gunner Aff. in opposition to Roberts' motion to dismiss. In light of the availability of these four documents, I order the respondent to carefully examine its records and produce those documents responsive to these interrogatories.

In response to no. 44, Hogan Energy provides an answer that lacks the detail requested by the interrogatory and is therefore inadequate. In response to nos. 46, 47, 48, 50, 52, 58, 60, 61 and 62, Hogan Energy refers to the Department, other documents, other entities or conditions its response with "will respond when DEC supplies records in question." These are not adequate responses because the interrogatories request information that is relevant to these proceedings and if Hogan Energy has this information it is obligated to supply it at this time. In addition, Mr. Gunner has agreed that there are no outstanding discovery requests on behalf of his client.

With respect to no. 53, Hogan Energy responds with "none." I must interpret this response as there is no basis for respondent's denial of each and every allegation contained in 18,19,20,21,22,23,32,40,43,44 and 49 of staff's amended complaint. While many of these paragraphs set forth legal requirements, they also contain allegations related to respondents' failure to submit annual well status and production reports and respondents' abandonment of wells. Hogan Energy's current response to this interrogatory shall be construed as an admission with respect to liability and an abandonment of affirmative defenses.

Hogan Energy supplied an inadequate response to no. 54 by failing to provide the number of inactive wells that it considers capable of producing oil "in commercially paying quantities" as well as the basis for that determination.

In reviewing Hogan Energy's responses to staff's interrogatories, I have reviewed primarily the questions and responses posed in the respondent's version annexed to the Kowalczyk affirmation as Ex. 4. I see that this version of the interrogatories varies from Exhibit 1 which appears to be the version sent to Liberty Oil by staff and that is, according to staff, identical to the interrogatories sent to Hogan Energy. Because staff did not provide this office with a copy of the interrogatories it sent to Hogan Energy, I relied on the version that contains Hogan Energy's responses. To the extent that Hogan Energy has failed to number the interrogatories properly, has omitted questions or parts of questions, that is wholly improper and must be corrected.

Hogan

Based upon the same analysis as above, I find that respondent Hogan has failed to respond adequately to staff's interrogatory nos. 52,58,60,67,69,70,71,73,74,75 and 77. To the extent that respondent Hogan has failed to properly number his responses, has left out questions or has omitted parts of questions, I direct him to correct these errors.

Order

Accordingly, I grant staff's motion to compel with respect to the interrogatories identified above. I direct respondents Hogan Energy and Hogan to provide full and complete responses to these interrogatories and to provide the documents requested by staff in its combined discovery request taking into consideration the entire time period that the interrogatories address. To the extent that Hogan Energy and Hogan failed to properly number their responses or left out parts of or complete interrogatories and responses, they are required to correct those errors. According to staff, Liberty has never responded to staff's interrogatories and therefore, I direct that respondent to submit full and complete responses to all of the interrogatories also taking into consideration the entire time period that the interrogatories address. Respondents do not have to provide the financial records that are relevant to the interrogatories that staff is not pursuing at this time.

I require that the respondents fulfill these requirements by no later than May 14, 1997. To the extent that the respondents fail to respond in full, such parties will be precluded from use of the material demanded at the hearing as provided in 6 NYCRR 622.7(c)(3). In addition, a failure to comply with this ruling allows the ALJ or the Commissioner to draw the inference that the material demanded is unfavorable to the noncomplying party's position. 6 NYCRR 622.7(c)(3).

Roberts' Motion to Dismiss

Through his attorney, D. Bruce Cahilly, Esq., respondent Carl H. Roberts has moved to dismiss this proceeding against him for failure to state a cause of action upon which relief may be granted. The OHMS received these papers on April 1, 1997 and the response of respondents Liberty, Hogan Energy and Hogan on April 7, 1997. Staff submitted its response on April 23, 1997.

In an attorney's affirmation, Mr. Cahilly provides that in 1982, an oil and gas lease was made between Liberty and Francis R. Root, Inc. requiring Root to drill certain wells on lands leased by Liberty. According to Cahilly, Roberts submitted a letter of understanding in June 1982 to Root in which he agreed to drill the three wells for which Root had responsibility on the Liberty lease. Cahilly maintains that Roberts drilled the three wells plus two more -- Nichols CR-1, CR-2, CR-3, CR-4 and Burger CR-5 -- and in 1990, Roberts conveyed his interest by bill of sale to respondent Hogan Energy. Despite correspondence between Hogan Energy, Roberts and the Department regarding the transfer, the request for well transfer was never signed by Roberts. Attached to Cahilly's affirmation are copies of these referenced documents.

Mr. Cahilly argues that Roberts complied with all relevant regulations while conducting the drilling operation and was advised by staff that a bond/surety was not required at the time he was the operator. Moreover, the attorney maintains that the five wells are non-abandoned, producing wells and are not subject to plugging. In sum, the position of Roberts is that he does not own the lease(s) and has complied with all applicable regulations, putting the responsibility for surety with Hogan Energy.

In opposition to Roberts' motion to dismiss, Mr. Gunner, on behalf of the other respondents, submitted an affirmation. Citing correspondence and documents related to a dispute between Roberts and Liberty and Hogan Energy regarding the extent of the commitments Roberts maintained on this lease, Gunner indicates that Roberts had interests beyond the five wells. In addition,

Mr. Gunner states that until financial surety was accepted by the Department, "irrespective of changes in operator", Roberts' principal remains responsible for bonding and plugging. In his affirmation, Gunner also argues that the Department has not investigated sufficiently the identity of the entity for which Roberts acts. Based upon these arguments, Gunner maintains that Roberts' motion to dismiss should be denied.

In its behalf, staff submitted an affidavit by Donald J. Drazan, Chief of the Technical Assistance Section, Bureau of Oil and Gas Regulation, Division of Mineral Resources of DEC dated April 23, 1997. Attached to this affidavit are a number of documents including a Declaration of Active and Inactive Unplugged Oil, Gas and Solution Mining Wells Subject to Financial Security in New York State and an Order on Consent, both signed by respondent Roberts as either an owner or operator of the lease in question.

Conclusion

CPLR 3211(a)(7) provides for the dismissal of a proceeding for failure to state a cause of action. I find that the staff's complaint meets the pleading requirements of Part 622. The motion of respondent Roberts while entitled a "motion to dismiss," appears to be one for summary judgment. However, even as one for summary judgment, it cannot be sustained. Respondent Roberts claims in his motion that while he did drill wells on the subject lease, his role was limited and thus, he sustains no liability. This admission does not entirely contravene the staff's amended complaint. Rather, Roberts' motion makes claims that may more properly be raised at a hearing to mitigate whatever liability he may have. In addition, both staff and the other respondents raise a number of factual issues contradicting Mr. Roberts' claims and which must be properly resolved at a hearing. Therefore, I deny respondent Roberts' motion to dismiss.

Dated: May 2, 1997
Albany, New York
/s/
Helene G. Goldberger
Administrative Law Judge

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