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PGS Carting Company, Inc. - Ruling 2, February 25, 1993

Ruling 2, February 25, 1993

STATE OF NEW YORK : DEPARTMENT OF ENVIRONMENTAL CONSERVATION

In the Matter

of

the Alleged Violation of Articles 27 & 24 of the New York State Environmental Conservation Law, and 6 NYCRR Part 360 by

PGS CARTING COMPANY, INC.,
BAY VILLAGE DISPOSAL CORPORATION, and
JOSEPH PARZIALE and JOSEPH SPADA,
individually and as owners/principals of
PGS CARTING COMPANY, INC.,
BAY VILLAGE DISPOSAL CORPORATION, and
AMITY DEVELOPMENT CORPORATION

Respondents

RULINGS

(1) Motions to Dismiss/for Documents
(2) Cross Motions to Amend Complaint and Supplement Prefiled
(3) Motion for STEVEN W. SCHWARTZ, individually and as President of AMITY DEVELOPMENT CORPORATION
(4) Further Protective Proceedings

Order File No. 1-1603

PROCEEDINGS

On September 16, 1991, Respondents moved for dismissal of the proceedings against Amity Development Corporation ("Amity Development" or "Amity") and Steven W. Schwartz ("Mr. Schwartz"), and for the production of certain documents specified in Respondents' subpoenas that had been withheld by Department Staff. On October 18, 1991, Department Staff filed its opposition to Respondents' motion to dismiss, expressly did not address the motion for document production alleging it was within the jurisdiction of the Supreme Court It should be noted here that the ALJ expressly denied a previous motion by Staff to modify Respondents' subpoenas because of the ambiguity of a Supreme Court Order on the issue, and ruled that in the absence of a clarification of that order, Staff was "expected" to provide the subpoenaed documents to Respondents' counsel (see Rulings, October 19, 1990, Rulings I(b) and I(c))., and cross-moved to (a) amend paragraph 7th of the Complaint and (b) be permitted to supplement previously prefiled evidence with additional evidence (a deed). On March 27, 1992, Respondents submitted their Memorandum of Law and Affirmation opposing Staff's Cross Motion to amend the complaint and submit new evidence, and supplemented their previous motion to dismiss regarding Amity and Mr. Schwartz. The parties agreed to continue the hearing on Staff's prefiled evidence while these motions were pending.

On August 5, 1992, Staff rested its case in chief. Among other things, Respondents indicated they had not received all the documents they had subpoenaed, and might require additional cross examination of Staff's witnesses, depending upon what the documents reveal. Staff contended that the documents not turned over were privileged.

In Rulings dated August 25, 1992, following proceedings recounted therein, the ALJ directed Staff to either disclose the undisclosed subpoenaed documents to Respondents' counsel, or move for a protective order within 30 days. Respondent was given two weeks from receipt of Staff's motion papers to respond thereto.

Following its appeal of other portions of the August 25, 1992 Rulings, Staff moved for a protective order on October 30, 1992. On November 20, 1992, Respondent replied.

These matters are now ripe for determination.

RULINGS/DISCUSSION

These rulings are made without consideration of the product of Respondents' cross examination of Staff's witnesses, and therefore should not be construed as being a determination of whether or not a prima facie case exists following such cross examination. The rulings do take into consideration Staff's pre-filed evidence. (Staff was required by the Ground Rules, October 19, 1990 Rulings, to pre-file all of its evidence on matters within its burden to prove).

[1] Motion to dismiss charges against Amity Development and Mr. Schwartz and [2] Cross-motions to amend the complaint and supplement the pre-filed evidence:

Ruling I: Subject to the Commissioner's final determination, Respondents' motion to dismiss charges is denied with respect to Amity Development, and is granted with respect to Mr. Schwartz.

Ruling II: Staff's motion to amend the Complaint is denied, and its motion to supplement its prefiled evidence with a Deed to the subject site is granted.

Ruling III: Exhibits S-31 and S-33 are admissible herein.

Summary of arguments:

Respondents contend that charges against Amity Development and Mr. Schwartz should be dismissed because the complaint fails to state a cause of action against them; that there is no proof that they were in any manner connected to an operation or that they had any knowledge thereof; and that there is no proof that they knew of, permitted, condoned and/or participated in any activities for the period prior to the submission of any application and/or prohibited activities (in general), nor that they (or their employees, agents and/or officers, directors and/or shareholders) committed or permitted to occur any of the acts alleged in the complaint on the dates in question. Further, Respondents contend that any statement of ownership and/or office held by these entities at the time the Answer was verified (October 1989) or at the time any other such statements were made are not admissions of same for the specific dates within the scope of the prosecution, and that any such statements (made on dates outside the scope of the prosecution) are irrelevant to proving that such conditions of ownership and/or office existed within the scope or timeframe of the prosecution. Respondents note that Staff on the record, on February 4, 1991 (Tr. p 16), stated that its action herein relates to the failure to have a permit to operate up until the time at which applications were submitted and that "[t]here is no action being commenced or has been commenced by staff in order to secure a penalty or otherwise with respect to the period of time commencing in September of 1988 when the freshwater wetland application was received." Respondents object to the admission into evidence of the application and/or any statements, admissions, etc., contained therein, as being against Amity's and Mr. Schwartz' constitutional and statutory rights.

Respondents Amity and Mr. Schwartz further argue that they did not have adequate notice of the charges, and that no legally admissible evidence exists to support the charges against these two respondents (1) because respondents contend that certain statements allegedly attributable to them are "hearsay" and not substantial evidence and (2) because these respondents' constitutional privileges against unreasonable search and seizure [4th Amendment] and self-incrimination [5th Amendment] were violated by Staff having induced the submission of an application in 1989 with a "pre-determination" that its contents would be utilized for the purposes of prosecution.

Staff, in response to the above Respondents' motion, cross- moves to amend paragraph 7 of the complaint as set forth below. Staff also moves that the Record receive a copy of the Deed to the premises. Staff concedes that the Complaint's Paragraph 7th was "inartfully drawn" and that it has not yet presented evidence showing that the site had been owned by "Amity Respondents" (Amity and Mr. Schwartz) for the entire period of the alleged Part 360 violations at the site. Staff essentially argues that to ensure time is not wasted in continuing a hearing on incorrect premises, the complaint should be amended to conform to the facts, the complaint should be amended to correct possible mis-identification of the parties, and claimed as fact that Amity is a closely held corporation that is the alter ego of Mr. Schwartz.

With reference to Exhibits 31 and 33, Staff argues that these are admissible, and that they show Amity's ownership of the subject premises and the "active involvement" of Mr. Schwartz therein. The application documents were given voluntarily, under no compulsion, thus there could be no violation of 5th Amendment rights (which only a natural person may assert). Staff also argues that Respondents waived any objection based on alleged lack of notice by not having raised it previously.

Regarding its motion to submit additional documentary evidence, Staff notes exhibits indicating that Amity was the parcel's owner and Mr. Schwartz was Amity's President at a particular point in time, opined that this was sufficient evidence to support an inference of ownership at the relevant times in question, but that the site's Deed is now required to set the record straight in light of Respondents' arguments to the contrary.

In reply, Respondents reiterated their contention that the application materials are not admissible on 4th and 5th Amendment constitutional grounds, and argue that the documents were compelled because they are mandatory to obtain the permit the Respondents are charged with not having.

Discussion:

The motion on behalf of Respondents Amity and Mr. Schwartz effectively requests that these entities be differentiated from the other Respondents.

Exhibit S-31 (an application for Freshwater Wetlands and Protection of Waters permits by Bay Village Disposal Corp.) contains an August 9, 1988 letter from Amity, signed by Mr. Schwartz, that authorizes Bay Village "to obtain all necessary permits required under municipal laws for construction of their building on the rear portion of the property located at 47 Wellington Place, Amityville NY. These permits should include, but are not limited to, building and wetlands." (underline added). Exhibit S-33 (an application by Bay Village to construct and operate a Solid Waste Management Facility Materials Recovery Transfer Station) contains a letter from Amity, dated October 20, 1988, signed by Mr. Schwartz, President, stating that Amity, as the owner of 47 Wellington Place, authorizes Bay Village to obtain all necessary permits for construction and operation of a construction and demolition debris transfer station on the rear portion of the property, and that "Bay Village shall be responsible" for same and "hold Amity harmless" in all respects (underline supplied).

S-31 and S-33 were not obtained in violation of Amity and/or Mr. Schwartz' 4th or 5th Amendment constitutional rights because (1) they were not obtained during a search, and (2) they were not obtained under circumstances where someone was compelled to incriminate themselves. On their face, these documents were given to the Department by a third party, the representative of Bay Village, which was seeking permits. Although objection based on hearsay has been made, hearsay is admissible in administrative proceedings because the rules of evidence are not strictly applied (SAPA 306, 6 NYCRR 622.12). The exhibits are admissible and may be considered herein.

S-31 and S-33 indicate that Amity owned the site in question, and that Mr. Schwartz was Amity's President.

An essential element of the alleged violations is that a person "operate" a solid waste management facility (6 NYCRR 360.2 (b); 360-1.7(a)(1)(ii)). "Operator" means the person (including corporations per 360.1(d)(52) or 360-1.2(b)(108)) "who is responsible for the operation of a solid waste management facility" (360.1(d)(49)) or "who is in charge of a solid waste management facility and has the authority and knowledge to make and implement decisions regarding operations at the facility" (360-1.2(b)(104)). Staff does not contend that Amity or Mr. Schwartz are responsible for the activities constituting "operation" of a facility, nor that they are "in charge of" the facility with "the authority and knowledge to make and implement decisions." Indeed, the nature of the documents Staff relies upon to show property ownership and Mr. Schwartz' "active involvement" tends to indicate the opposite - that Bay Village was to be responsible for operations. Rather, Staff seeks to attach liability to these persons under a theory wherein ownership of the facility imposes the obligations of Part 360.

There is precedent supporting such a theory.

In his Order in the Matter of Krevolin Construction, Inc. and Rudolph J. Krevolin (dated 4/28/91, at 4), the Commissioner held that the new Part 360 regulations (effective 12/31/88) place a burden on the owner as well as the operator to permit its facility, without regard to the owner's participation in or even knowledge of the facility's operation. In Krevolin, the Commissioner relied on the wording of 6 NYCRR 360-1.4(a)(1), which places a burden on the "owner or operator" to demonstrate the facility's qualification for an exemption from regulation. Although Staff has indicated on the record that it is not seeking penalties for the period of time after the wetlands application was filed (during 1988), Staff is still seeking as relief the cessation of operations and remediation of the site - future activities which would be controlled by the new regulations. Because of this, the Krevolin case indicates that it may be premature to dismiss the instant charges against a person simply because the person did not participate in the activities constituting "operation," if such person can be found to be an "owner" (a person who owns a facility or part of one; 360.1(d)(50) or 360-1.2(b)(105)).

Amity has admitted ownership of the site in question. The land itself purportedly was used during alleged waste handling operations. Amity would therefore be an "owner" if solid waste management activities took place on its site. Thus, under Krevolin, charges should not be dismissed against Amity.

Mr. Schwartz has not been shown to directly own the facility (and Staff's request to amend its complaint and remove the allegation of Mr. Schwartz being an owner, infra, indicates it has abandoned such a position). Staff now attempts to establish Mr. Schwartz' liability by relying on the admission that Mr. Schwartz was President of Amity, and arguing that Amity is a closely held corporation and an alter ego of Mr. Schwartz. In other words, Staff seeks to "pierce the corporate veil" to make the corporation's ownership of the site tantamount to Mr. Schwartz' ownership of the site. However, Staff offered no evidence of such an alter ego relationship; and the law generally protects corporate officers from a corporation's liabilities. Since the corporate veil has not been pierced, Mr. Schwartz has not been shown to be an "owner." Again, the allegations are insufficient to make him an "operator." Therefore, a basis for his personal liability has not been established, and the charges as to him must be dismissed.

Staff's proposed amendment of the complaint would drop the allegation that Mr. Schwartz is an owner of the facility, and allege his status as president of Amity during the time of the alleged violations. Staff already amended its complaint in October 1989. This request came approximately 2 years later. No explanation was offered why the new wording couldn't have been proposed earlier, though the nature of the change indicates Staff has changed its theory of Mr. Schwartz'liability. Staff's changing its mind on legal theory is not good cause for amending the complaint. Allowing such now would raise due process questions. In addition, as explained above, the theory is defective. No good cause having been shown, amendment of the Complaint is denied.

Staff will be permitted to submit for the record the deed to the facility site, as evidence that Amity owned the site since before the time of the alleged violations. Respondents have objected to this, arguing that Staff had its chance to prove ownership during the period of the alleged violations, did not do so, and should not now be given another chance. It is noted that the August and October 1988 letters already provide sufficient basis to infer that Amity owned the site at the time of the alleged violations. The offer of the Deed clarifies the record on this point. Staff offered the deed before it rested its case, therefore it was timely. The deed speaks for itself, requiring no testimony, and, thus, no cross examination. Respondents are therefore not prejudiced by its admission.

[3] Motion for Protective Order:

Ruling IV: Staff's motion for a protective order is partially granted and partially denied as stated in rulings on individual documents and/or classes of documents specified below. Where a protective order is granted, it means that the hearing will be permitted to continue without Staff producing the specified document or documents. (Such granting, however, does not relieve Staff of any obligation to produce the documents which may have been imposed by Order of the Supreme Court, or pursuant to any representation made on behalf of the Department before that court.) Where a protective order is denied, it means that Staff must produce the document for Respondents' counsel within 10 days of the date hereof, and that Respondents will not be expected to present evidence in their defense until after the document has been produced.

Staff's motion for a protective order was made pursuant to the August 25, 1992 Rulings. The Rulings provided in pertinent part:

"In the event that Staff asserts that a privilege (such as attorney-client privilege) applies to a particular document, Staff is to identify the document in its motion papers, including its date, who the persons writing and receiving the documents were and the positions they held at the time of the communication, give a general description of what the document pertains to, and explain why it is entitled to be protected under the privilege. (Mere identification of the privilege being asserted will not be considered an adequate explanation -- enough facts and circumstances surrounding the communication must be related to enable me to determine that it falls within the purposes for which the privilege was created.) The document itself (or a true, accurate and complete copy thereof) is to be submitted to me in a sealed envelope conspicuously marked "Confidential to ALJ, Do Not Open," separate from the motion papers, for my in camera review."

Staff submitted 12 documents for the ALJ's in camera review. They were not enclosed in a sealed envelope per the direction above. These documents are separately discussed below. Staff noted that one document it claimed to be privileged was not submitted because it could no longer be found. Staff also indicated that it had already given Respondents 8 documents Staff previously [in 1990] claimed were privileged; and that Staff was giving Respondents 2 additional documents with the present submission -- thus no ruling on these 11 documents is made.

Summary of Arguments:

Staff's October 30, 1992 motion was in the form of a letter discussing its assertion of privilege and/or reasons why Staff should not be required to produce certain documents for Respondents, listing the alleged privileged documents, and referring to its previous October 3, 1990 motion. The letter was accompanied by the alleged privileged documents. Staff also argued against being required to comply with Respondents' subpoena of any and all part 360 applications, permits and enforcement proceedings, Consent Orders, or violation inspections or violation notices; claiming that the disclosure would be unreasonably burdensome and that the materials would be irrelevant.

Staff did not make separate arguments for each document, nor did it describe the documents beyond the persons corresponding, their official positions, and the dates. Rather, Staff generally asserted that these are privileged as attorney-client communications because each discusses some aspect of the handling of the enforcement action, or litigation related to it.

Respondents objected to Staff's motion, because it was not made within the time period set by the ALJ's August 25, 1992 Order, and took exception to the ALJ now permitting Staff to submit the documents at this time. Respondents argue that Staff never demonstrated that its request was burdensome or would involve irrelevant materials because it never informed opposing counsel or the ALJ of the nature and scope of the existing documentation. Respondents argued that Rossi v Blue Cross and Blue Shield of Greater New York, 73 NY2d 588 (1989) limits the ability of corporate counsel to utilize attorney-client privilege to protect communications from themselves to their "clients." Respondents argued that based upon the sketchy description provided by Staff, the documents would not be protected under Rossi, nor under Matter of Grand Jury Subpoena Served Upon Bekins Record Storage Co., Inc., 62 NY2d 324 (1984).

Discussion/individual rulings:

Staff's belated motion must be entertained given the strong public policy favoring maintenance of exclusion from disclosure of materials entitled to the attorney-client privilege. The Commissioner has ruled that it is an abuse of discretion for an ALJ to reject such claims because they are made a few days late (Interim Decision 1/11/93, Matter of MB Recycling Unlimited, Inc.).

Staff is reminded that the Office of Hearings' files containing the official Record and all correspondence with the ALJ, are public files, available for inspection. This is the reason why Staff was expressly directed to submit potentially privileged documents in a specially marked, sealed envelope, so that their security might be maintained. To not submit the documents in the directed manner could be construed to be a waiver of the privilege because measures intended to prevent third parties from reading the documents were not employed. Since in camera inspections have not been a common occurrence in the Office of Hearings, the manner of submission, for this case only, will be regarded as an oversight rather than a waiver.

1) 3/28/90 - Memo from Lori Riley [Regional Attorney] to Dave Markell [Attorney and Director, Division of Environmental Enforcement].

The memo reported the status of the administrative hearing and supreme court proceedings, and requested advice on how to proceed. Because legal advice was solicited, the communications are of the type that the attorney-client privilege was designed to protect. It is found to be Privileged.

2) 8/13/90 - Memo from John Byrne [Assistant Regional Attorney] to Lori Riley [Regional Attorney]

The memo reported the status of and how Mr. Byrne was handling this case, and steps being taken to inspect or monitor the facilities. It involved the process of legal Staff developing its case. As attorney work product, it is found to be Privileged.

3,4) 4/6/90 and 4/9/90 - Virtually identical memos from Lori Riley [Regional Attorney] to Dave Markell [Attorney and Director, Division of Environmental Enforcement].

The memos reported the status of the administrative hearing and supreme court proceedings, and requested advice on how to proceed. Because legal advice was solicited, the communications are of the type that the attorney-client privilege was designed to protect. They are found to be Privileged.

5) 1/26/90 Letter from Marc Gerstman [General Counsel] to Robert Abrams [Attorney General].

This letter requests that the Attorney General's office represent the Department's interests. There are seven people copied on the correspondence whose relationship to this matter is unknown. One person, "M. Gallo" is believed to be the Department's Assistant Commissioner in the Office of Public Affairs (the Press Office), someone who would not be seeking legal advice on this case. Because third parties were copied on the document, any privilege has been waived. It is found to be Not Privileged.

6) 2/2/90 - Memo from Marc Gerstman [General Counsel] to Commissioner Jorling.

The memo is a "Litigation advisory" reporting the Article 78 proceeding and Department's position thereon. It is copied to at least 9 other persons, whose relationship to this matter is unknown. It generally informs personnel of the status of the proceedings, but does not impart legal advice. One copied person, "M. Gallo" is believed to be the Department's Assistant Commissioner in the Office of Public Affairs (the Press Office), someone who would not be seeking legal advice on this case. Because it does not impart legal advice, and third parties were copied thereon on, it is Not Privileged.

7) 1/22/90 - Memo from Marc Gerstman [General Counsel] to Commissioner Jorling.

The memo is a "Litigation advisory" reporting the Article 78 proceeding and Department's position thereon. It is copied to at least 9 other persons, whose relationship to this matter is unknown. It generally informs personnel of the status of the proceedings, but does not impart legal advice. One copied person, "M. Gallo" is believed to be the Department's Assistant Commissioner in the Office of Public Affairs (the Press Office), someone who would not be seeking legal advice on this case. Because it does not impart legal advice, and third parties were copied thereon on, it is Not Privileged.

8) 1/10/90 - Memo from Lori Riley [Regional Attorney] to Marc Gerstman with hand written note from Ms. Riley to Mr. Gerstman dated 1/11/90.

The memo and note report arrangements with the Attorney General's Office to lift the stay and aspects of that matter. The memo is between attorneys and assists in the securing of legal services. It is Privileged.

9) 3/27/90 - Memo from Lori Riley [Regional Attorney] to Dave Markell [Attorney and Director, Division of Environmental Enforcement].

This item is essentially the same as items 3 and 4, but appears to be a draft because it contains handwritten corrections. For the reason items 3 and 4 were found privileged, it is Privileged.

10) 6/20/86 - Memo from Stan Farkas [Solid Waste Engineer] to Lori Riley [Regional Attorney].

The memo is Mr. Farkas' comment on the appropriateness of a particular penalty. Since it appears to be part of the process of technical Staff formulating its position with legal Staff, the communication is of the type that the attorney-client privilege was designed to protect. Therefore it is privileged.

11) 6/10/86 message from Lori Riley to Stan Farkas, and 6/20/86 reply.

The messages discuss the appropriateness of a cease and desist order. For the same reason as 10 above, it is privileged.

12) 9/14/89 - Memo from Lori Riley [Regional Attorney] to Mark McQuerry [Attorney and Chief, Compliance Bureau, Division of Environmental Enforcement].

The memo reported the status of and how the instant case was going to be handled. The communication is of the type that the attorney-client privilege was designed to protect. Therefore it is privileged.

13) The class of documents described as any and all part 360 applications, permits and enforcement proceedings, Consent Orders, or violation inspections or violation notices.

Staff will not be required to produce these documents. The request for "any and all" is palpably improper. Also, since selective enforcement is not a defense, the documents' relevancy or how they could lead to relevant evidence is not apparent.

Ruling V: Cross examination of Staff's witnesses is deemed completed since the documents found discoverable above were not produced by these witnesses, and Staff has rested its case.

Ruling VI: Further proceedings:

(a) Subject to (c) below, the hearing is tentatively scheduled to continue with Respondents' case at 10:00 AM on Wednesday, April 7, 1993 at the Region One Offices. The following 2 days should be kept available if needed. The conference call tentatively scheduled for February 26, 1993 is now cancelled.

(b) Subject to (c) below, Respondents are required to pre-file their evidence, in accordance with the ground-rules previously established, by March 26, 1993.

(c) Given the length of the proceeding thus far and the extensiveness of cross-examination, I deem it in the interest of administrative efficiency to test the sufficiency of Staff's case before taking testimony on Respondents' behalf. Therefore, pursuant to 6 NYCRR 622.12, I will entertain motions to dismiss specific charges at this time. Respondents are to make any motions for dismissal, as well as any motion regarding the admissibility of Staff's exhibits (under the liberal standards applicable to administrative proceedings), by March 19, 1993. Such motion to dismiss will stay the due date for pre-filing evidence and require rescheduling the above mentioned hearing dates. If a motion to dismiss is filed, Staff will have three weeks from receipt to respond thereto. It is requested that the parties refrain from lengthy repetition of previous arguments (a summary or citation to the record will be appreciated).

_____________/s/_____________
Frank Montecalvo
Administrative Law Judge
Dept. of Environmental Conservation,
Office of Hearings
50 Wolf Rd., Rm 409
Albany, NY 12233-1550
FAX 518 485-7714

Dated: Long Island City, New York
February 25, 1993

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