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Bath Petroleum Storage, Inc. and EIL Petroleum, Inc. - Ruling 3, April 30, 1999

Ruling 3, April 30, 1999


In the Matter of

Alleged Violations of the Environmental Conservation Law Articles 3, 17, and 23, Title 6
of the Official Compilation of Codes, Rules and Regulations of the State of New York
and Permits issued pursuant to ECL Article 17, Title 8, and Article 23, Title 13

- by -

E.I.L. Petroleum, Inc.
Bath Petroleum Storage, Inc.,


Respondents' Motion for a Stay

DEC No.: R8-1088-97-01


This proceeding was commenced by the Department staff by service of a notice of hearing and complaint dated March 17, 1997 on respondents EIL Petroleum, Inc. and Bath Petroleum Storage, Inc. (collectively, "Bath" herein) that staff subsequently amended on April 17, 1997. The complaint alleges certain violations of Articles 17 and 23 that pertain to the respondents' operation of a liquid petroleum gas (LPG) storage facility in Bath, New York. By ruling dated August 31, 1998, Administrative Law Judge (ALJ) Daniel O'Connell granted staff's motion to further amend the complaint. Respondents served their answer and a motion to dismiss on October 23, 1998. In response to respondents' motion, staff cross-moved for clarification of the affirmative defenses contained in the answer. Respondents supplied staff with such a clarification by letter dated December 7, 1998. In his ruling dated December 21, 1998, ALJ O'Connell denied the respondents' motion to dismiss and dismissed the second and fifth affirmative defenses that related to issues of statute of limitations and laches respectively. In addition, in this ruling the ALJ concluded that the respondents had raised a question of subject matter jurisdiction when they argued that the Department was preempted from asserting jurisdiction over the caverns that the respondents use to store liquid petroleum gas (LPG). Accordingly, ALJ O'Connell set a briefing schedule in order to resolve this issue prior to the hearing. This latter ruling was appealed by staff and Deputy Commissioner Johnson concluded in a ruling dated February 17, 1999 that the hearing should go forward in order to develop a record that "will provide an opportunity to elucidate a decision on the preemption question."

On March 5, 1999, respondents moved to stay the enforcement hearing on the grounds that the Northern District of New York has pending before it in Bath Petroleum Storage, Inc. v. Sovas (Case No. 98-CV-0347) the identical question of preemption raised by respondents and it is properly decided there and before the State's administrative proceeding goes forward. Staff submitted a response and a reply and sur-reply were also received by this office. Since that motion was made, Chief Administrative Law Judge Daniel Louis re-assigned this matter to ALJ Helene G. Goldberger due to ALJ O'Connell's schedule. For the reasons set forth below, I deny respondents' motion.

Respondents' Position

The position of respondents is that the staff's allegations in counts 9-15 of the amended complaint regarding the alleged illegal expansion of the caverns at the Bath site are preempted by the United States Environmental Protection Agency's regulation of underground injection control (UIC) of brine pursuant to the Safe Drinking Water Act (SDWA), 42 USC § 300, et seq. Respondents maintain that because EPA has issued them a permit governing the development of these same caverns, DEC's regulation is barred by the Supremacy Clause of the U.S. Constitution. While the preemption claim was previously addressed in Deputy Commissioner Johnson's ruling of February 17, 1999 that related to respondents' third affirmative defense, respondents argue that their claim now is to prevent the unnecessary use of resources since the federal district court has before it the same claims.

Respondents also maintain that the administrative hearing process is not the appropriate forum for a determination on preemption. And, in response to staff's argument that the federal complaint relates only to DEC's jurisdiction over "[BPSI's] proposed natural gas storage caverns utilized in interstate commerce," respondents provide that staff's view is too narrow and that the concurrent regulation of the solution mining of storage wells is put in issue in the federal complaint in paragraph 1.

Bath argues that it will be prejudiced if they are forced to proceed in the administrative forum prior to a determination in federal court because a substantial part of the administrative complaint may be invalidated in the event the district court rules in respondents' favor.

Staff's Position

Staff argues that the February 17 Deputy Commissioner's ruling is the law of the case and that any stay of this proceeding would be in contravention of that determination. As to the merits of respondents' claim of preemption, staff maintains that the Federal Energy Regulatory Commission (FERC) pursuant to the Natural Gas Act, 15 USC § 717, et seq. regulates the interstate storage and transport of compressed natural gas - not the intrastate storage of LPG. With respect to EPA's jurisdiction, staff states that the UIC Permit Program, authorized by SDWA, is meant to safeguard drinking water from the migration of pollutants into the aquifer rather than to minimize subsidence and migration of LPG and to ensure mechanical and structural integrity of wells, wellheads, and caverns as are the goals of Article 23 of the ECL. The staff provides that the UIC permits explicitly state that they are not an infringement of State or local laws or regulations and do not regulate the underground storage of LPG or natural gas. Staff points to the State's regulation of the underground storage of LPG pursuant to Article 23 of the ECL since 1963 citing to both the statute and a recent declaratory ruling that was affirmed by the Appellate Division, Bath Petroleum Storage, Inc., 244 AD2d 624 (3d Dep't 1997). In the declaratory ruling, DEC had determined that Bath's expansion of a pre-1963 cavern was subject to regulation because it was a modification of its grandfathered activities.

Staff also argues that the federal complaint does not relate to the issue of DEC's regulation of the underground storage of LPG but rather concerns the State's jurisdiction over Bath's proposed natural gas storage caverns. Therefore, staff maintains that there is no basis to assume that the issue of the Department's jurisdiction of the LPG storage caverns will be addressed in the federal forum. And further, because the Department has moved to dismiss the federal action on the ground that the contemplated natural gas project is no longer viable and therefore there is no controversy for the court to consider, the staff posit that there will not be a determination on the merits in this case. The staff further argues that even if there is a determination, it will be years away and that in the meantime, the respondents continue to expand the caverns illegally.

Both parties agree that it is a court rather than the agency that must determine any preemption claims. The staff argues however that this argument can be heard by the State Supreme Court at the conclusion of the enforcement hearings and after the Commissioner renders a determination. Staff states that respondents' claim of having to defend the administrative proceeding is not tantamount to undue prejudice.


Typically, a party seeking a stay must prove (1) the likelihood of success on the merits; (2) irreparable injury in the absence of a stay; and (3) that the competing equities weigh in its favor. CPLR § 6301; see, W.T. Grant Company v. Srogi, 52 NY2d 496, 517 (1981). This remedy is viewed as drastic by the courts and should not be granted "unless a clear right thereto is established under the law and the undisputed facts upon the moving papers . . ." Orange County v. Lockey, 111 AD2d 896, 897 (2d Dep't 1985). Upon reviewing all the papers submitted by the parties, I find that the respondents have failed to sustain their burden.

Regarding the first prong of the likelihood of success on the merits, while the parties did not brief the issue of preemption in depth, it is not apparent from the briefs and cases cited therein that the Department is preempted. Preemption lies where Congress has shown an express intent to preempt the field, compliance with both federal and state law is impossible or the state statute forms an obstacle to the congressional goals. See, National Fuel Gas Supply v. Public Service Commission, 894 F.2d 571, 575 (2d Cir. 1990) (citations omitted). Here it appears that the Department's regulatory scheme is limited to the intrastate storage of LPG rather than the transport or conveyance of gas across state lines. Moreover, EPA's goals pursuant to SDWA seem distinct from those of DEC. The mere fact that the EPA permit provides for a larger cavern size would not necessarily restrict the state from issuing a permit with more stringent requirements.

However, I agree with both parties that the issue of preemption is one that most certainly must be determined by a court. This agency is charged with implementation of Articles 17 and 23, inter alia, by the Legislature. Environmental Conservation Law § 23-1301 presents the procedure for obtaining an underground storage permit. Section 23-1305 details the procedure for abandonment that includes a statement of the need to assure the continued safety of persons or value of property. In the legislative findings in Title 17 of this article, we find a statement regarding the necessity for protection of the public health relative to the siting of liquefied natural and petroleum gas facilities due to potential hazards stemming from the storage and transport of this product.

The Department cannot review the acts of the Legislature by determining whether those statutes are invalid. See, Johnson v. Robison, 415 U.S. 361, 368 (1974). I do not believe that this conclusion is necessarily in conflict with the February interim ruling of Deputy Commissioner Johnson. In that ruling, the Deputy Commissioner does not indicate that the preemption issue would be decided ultimately by the agency but rather that the development of the facts in the hearing record would bring more clarity to any determination on that issue. And the courts have held that if a constitutional issue hinges on factual issues, that record should be developed at the administrative level. Levine v. Board of Education of the City of New York, 173 AD2d 619 (2d Dep't 1991). In this hearing, the evidence will further elucidate the regulatory scheme of the Department so as to better inform a reviewing court of whether there are conflicts between federal and state oversight. Once the record in this matter is complete, if the respondents are dissatisfied with the Commissioner's determination, they may bring an Article 78 proceeding in Supreme Court where all their claims may be heard including preemption. See, e.g., Skyview Acres Corp. v. PSC, 163 AD2d 600 (2d Dep't 1990).(1)

As for irreparable injury, while the respondents state that it is an unfair burden to continue to defend themselves in the administrative proceeding while certain allegations could be struck by the federal court, the courts have routinely found that participation in the administrative process does not constitute such harm. Town Board of Town of Greenport v. NYSDEC (Sup. Ct. Albany Co. 1991, Conway, J. RJI No. 01-91-ST3038); Seaview Ass'n of Fire Island v. DEC (Sup. Ct. Suffolk Co., Index No. 19568-84 1985).

And, when looking to the balance of interests at stake, I must consider that while the Department has yet to prove the alleged violations, it has contended that they continue and therefore, it is imperative that the administrative process goes forward in order to assess the validity of these claims and if found to be true to curtail potential environmental harm. The respondents' burden in contrast (participation in the hearing) does not appear to be as essential to the public interest. In essence, the respondents seek by their motion to prevent the staff from fulfilling its administrative function mandated to it by the Legislature and I see no basis to allow such prohibition.

In its sur-reply affirmation in opposition to respondents' motion, staff has requested that this ruling deem certain statements of the respondents admissions for the purposes of this proceeding. I decline to do so as both of the statements are in essence legal conclusions relating again to the preemption issue rather than statements of facts.

Last, staff has requested that a memorandum written by Keith Silliman and Sandra Brennan to Frank Bifera and Greg Sovas dated May 10, 1994 be stricken from the record and that the respondents be ordered to return all copies to DEC.(2) This memo pertains to the Department's review of proposed natural gas storage projects and its relationship to federal entities in that process. The respondents presented the memo in support of their motion for a stay based upon the opinions of the writers regarding federal authority over these projects and the potential for preemption of the State's environmental review under the State Environmental Quality Review Act (SEQRA). Staff alleges that this document was mistakenly turned over to the respondents in the course of the latter's freedom of information law (FOIL) requests. However, I do not find the document directly relevant to these proceedings because it is a legal opinion relating to the preemption issue and because the memo refers to the permitting of natural gas storage projects. Moreover, it is clearly only the preliminary opinions of certain staff members of this Department and would not be binding on this agency on the issues it addresses. Therefore, I see no reason to "strike" it from the record nor do I see the need to become embroiled in the issue of whether the document was in fact accidentally given to the respondents or whether it is only in hindsight that staff has determined that it should have retained it. In any event, I do not see the prejudice to the Department that has occurred as a result of the disclosure of the memo.


The respondents' motion for a stay is denied and staff's request for the return and striking of the Silliman memo from the record is also denied. Staff's request that certain statements of respondents be deemed admissions is also denied. I direct the staff to contact respondents' counsel by May 14, 1999 to coordinate a conference call with me at which time we will discuss the status of these proceedings and a schedule for any discovery and the hearing.

For the New York State Department
of Environmental Conservation

By: Helene G. Goldberger
Administrative Law Judge

Dated: Dated: Albany, New York
April 30, 1999

TO: John J. Privitera, Esq.
McNamee, Lochner, Titus & Williams, P.C.
75 State Street
P.O. Box 459
Albany, NY 12201-0459

Dominic R. Cordisco, Esq.
50 Wolf Road
Albany, NY 12233-5500

Lisa Perla Schwartz, Esq.
6274 East Avon-Lima Road
Avon, NY 14414

1. In Great Lakes Dredge & Co. v. Huffman, 319 US 293 (1943), cited by respondents, the Supreme Court refused to allow the federal courts to interfere with the state administration of its tax program by way of a declaratory judgment action as it concluded that there were adequate state law remedies to address potential conflicts between federal and state law.

2. With respect to the latter request, I am unaware of what authority I have to order such relief.

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