NEW YORK STATE
COURT OF APPEALS
BATH PETROLEUM STORAGE INC. and E.I.L. PETROLEUM, INC.,
Petitioners - Appellants,
THE NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION, and JOHN P. CAHILL, COMMISSIONER OF THE NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION,
Respondents - Respondents.
MCNAMEE, LOCHNER, TITUS
& WILLIAMS, P.C.
Attorneys for Petitioners
75 State Street - P.O. Box 459
Albany, New York 12210-0459
WOMBLE CARLYLE SANDRIDGE
& RICE, PLLC
Attorneys for Petitioners
6862 Elm Street, Suite 800
McLean, Virginia 22101
1. May the New York State Department of Environmental of Conservation
("DEC") ignore the plain, unambiguous language of a
carefully crafted regulatory scheme in exercising its discretionary
powers and do so in a manner that effectively rewrites the unambiguous
2. Does this Court's decision in Flacke v. Onondaga Landfill Systems, Inc., 69 N.Y.2d 355 (1987), requiring that courts defer to agency determinations, apply where the agency makes legal findings which contradict the unambiguous language of the applicable regulatory scheme?
This case tests the limits to which an administrative agency, in exercising its discretionary powers, may ignore the plain, unambiguous language of enabling statutes and regulations. This Court has consistently held that agencies may not exercise powers except as prescribed by statutes and regulation. That is, they may not act outside of the law. Moreover, even where those powers include the ability to exercise discretion in making decisions, as where applications for regulatory permits are at issue, that discretion is not unbridled. Rather, in exercising their discretionary powers, agencies must articulate reasons for their decisions and provide applicants a mechanism to challenge those decisions. The ability to appeal an unfavorable administrative action, thus, provides a procedural backstop to check arbitrary and capricious behavior by agency officials.
Here, the Fourth Department ignored that consistent legal precedent and, relying upon Flacke v. Onondaga Landfill System, Inc., 69 N.Y.2d 355 (1987), overturned the decision of Supreme Court, Livingston County (Hon. Raymond E. Cornelius), which found that the DEC had acted contrary to lawful procedure in denying BPSI's permit application. The Fourth Department's gross misapplication of Flacke stretched this Court's prior holding far beyond reason, effectively giving the DEC unbridled discretion to ignore unambiguous regulatory language. This case provides this Court with the opportunity to rationalize the holding in Flacke with other decisions governing statutory construction and agency powers in a manner that brings consistency to the law.
Briefly, in 1999, Bath Petroleum Storage Inc. and E.I.L. Petroleum, Inc. (collectively "BPSI") applied for a renewal of its State Pollutant Discharge Elimination System permit ("SPDES") that had been in effect for 24 years and had been most recently modified by the DEC in 1998 (R. 126). In response to the application, the DEC issued a number of notices of incomplete application that sought additional information. In many cases, however, the information sought was not new; rather, the agency demanded that BPSI change its answers to particular questions contained in the application (R. 9-10). Despite numerous supplemental submissions by BPSI, in December 1999, the DEC denied the permit application on the basis that the application was incomplete (R. 14).
BPSI appealed the denial, and by ruling dated August 3, 2000,
Administrative Law Judge P. Nicholas Garlick found that there
were no adjudicable issues presented by BPSI's challenge to the
Department's December 8 determination and that BPSI was not entitled
to a hearing on the grounds of the Department's denial (R. 89).
By decision dated November 6, 2000, DEC Deputy Commissioner Carl
Johnson affirmed that ruling (R. 79).
BPSI filed the instant Article 78 proceeding challenging the Department's decision (R. 37). Judge Raymond E. Cornelius issued a Memorandum Opinion holding that: (1) the plain language of the applicable statutes and regulations draws a clear distinction between what is required to deem an application "complete" and the ability of the DEC to request additional information during its "review" of an application; (2) BPSI submitted sufficient information for the Department to begin its "review" of the application, therefore it was "complete" within the terms of the applicable statute and regulation; and (3) the attempt by the DEC to rely on the completeness determination in denying the permit application and thereby block BPSI from ever challenging the Department's actions was arbitrary and capricious (R. 5-28).
Based upon its finding that BPSI provided the Department with adequate information to "commence review" of the renewal application, Supreme Court deemed the application complete as a matter of fact and law, thus allowing BPSI the benefits of the safe harbor provision found in the State Administrative Procedures Act ("SAPA"), Section 401(2) (R. 25-26). Rather than substitute its judgment for the agency, however, the court remanded the case to the Department, ordering a new ALJ to hold an adjudicatory hearing on whether the information sought by the Department was "necessary" or "reasonably necessary" to the decision-making process - standards of administrative review expressly set forth in the applicable regulations (R. 27).
The Department appealed Judge Cornelius' ruling to the Fourth Department (R. 23) which, by Memorandum Opinion and Order dated October 1, 2002, reversed Judge Cornelius' decision and vacated his Order. See Exhibit 1. In its two-paragraph summary opinion, the Fourth Department merely held that, based upon Flacke, its inquiry was limited to determining whether the DEC had articulated a rational basis for its decision. It concluded that it had and that the Department's conduct was, therefore, neither arbitrary nor capricious - without ever reaching Supreme Court's statutory/regulatory findings. In so ruling, the Fourth Department ignored the plain meaning of the applicable statutes and regulations, as well as long-standing principles of statutory construction adopted by this Court; misapplied the holding in Flacke; effectively sanctioned the ability of midlevel DEC officials, in this instance, to regulate by whim and caprice; and allowed the DEC to insulate itself from having its decisions challenged by BPSI. The decision is contrary to all applicable precedent.
By this motion, BPSI asks this Court to permit BPSI to appeal the flawed decision of the Fourth Department, thereby providing an opportunity for this Court to: (1) revisit the application of Flacke; (2) clarify the proper interpretation of the carefully crafted regulatory scheme; (3) reaffirm that agencies may not act outside the law in exercising their discretion; and (4) decree that the Department's discretion does not allow its Staff to ignore the law in this state, in order to protect applicants such as BPSI from arbitrary and capricious action by agency officials. The importance of these issues cannot be overstated.
The October 1, 2002, Memorandum and Order of the Appellate Division, Fourth Department, reversed, in part, an Order of Supreme Court, Livingston County (Hon. Raymond E. Cornelius), entered October 2, 2001. A copy of the Appellate Division Order is attached as Exhibit 1. Supreme Court's Order granted, in part, the relief sought by Petitioners in their Verified Petition. A copy of Supreme Court's Decision and Order is attached as Exhibit 2. The Appellate Division denied New York State's application for a stay pending appeal. See Exhibit 3. Respondent's Notice of Appeal is attached as Exhibit 4. The Appellate Division's Memorandum and Order constitutes a final order, pursuant to CPLR § 5602(a)(1)(i). (1)
Respondents served the Appellate Division Order by hand with Notice of Entry on October 4, 2002. See Exhibit 1. Fewer than the statutorily stipulated thirty days have elapsed from Respondents' service of the Appellate Division Order to the date of this application. See CPLR §§ 5513(b) and (d).
The New York Court of Appeals has jurisdiction over this timely application for leave to appeal pursuant to the New York State Constitution and the New York Civil Practice Law and Rules.
Petitioner E.I.L. Petroleum, Inc., is the parent corporation to petitioner, Bath Petroleum Storage Inc. Neither is a public corporation.
I. THE APPELLATE DIVISION'S RELIANCE UPON THIS COURT'S HOLDING IN FLACKE V. ONONDAGA LANDFILL SYSTEM, INC. WAS MISPLACED.
The Fourth Department premised its decision upholding the DEC's actions on its interpretation of Flacke. That interpretation, however, reflects a gross misreading of Flacke's holding. Rather than carefully analyze Flacke, the Fourth Department broadly interpreted that case's narrow holding, which requires that courts give deference to agency decisions based upon factual evaluations by the agency where the agency demonstrates a rational basis for its decision.
Flacke involved the DEC's regulation of landfills and its authority to impose specific conditions as part of a closure plan. This Court, in upholding the DEC's actions, first found that the Department was acting pursuant to a regulatory scheme that empowered it to "take such remedial measures as may be necessary or appropriate." Id. at 362?63. It further found that the record below fully supported the DEC's factual determinations relating to the need to impose the requirements (PVC cap over the landfill) at issue as a condition for closing the facility. Id. at 364.
This Court's legal holding, therefore, that courts must defer to agency determinations "where . . . the judgment of the agency involves factual evaluation in the area of the agency's expertise and is supported by the record" should be limited to those specific circumstances. Where an agency has acted in accordance with its statutory duties and has developed a full factual record supporting its factual findings, that decision is entitled to judicial deference. Where, however, the issue is whether the Department followed statutorily mandated procedures in arriving at its decision, the Flacke analysis does not apply.
Here, the DEC refused to review BPSI's SPDES application, did not make any technical, factual findings, then denied the application as incomplete, a legal decision that Supreme Court found to be in total disregard of the unambiguous statutory scheme (2). Flacke simply does not apply to this case. Had the Fourth Department carefully reviewed the statutes at issue and the DEC's actions within the narrow framework mandated by Flacke, it would have reached the opposite conclusion.
Further, neither do this Court's recent opinions in Ifrah v. Utschig, 98 N.Y.2d 304 (2002) and P.M.S. Assets, Ltd. v. Zoning Board of Appeals, Village of Pleasantville, 98 N.Y.2d 683 (2002), compel a different result. In both cases, this Court upheld zoning appeals where (1) there had been a full public hearing below that complied with all statutory requirements, and (2) the administrative decision was supported by evidence in the record below. Neither of those conditions were satisfied here.
In short, Flacke must be limited to situations where, consistent with enabling statutes and regulations, the DEC has made technical, factual findings that are being challenged. That it is being cited by courts like the Fourth Department to uphold the DEC's legal interpretations, as opposed to factual findings, is unwarranted and goes far beyond its intended limits. This case presents the unique opportunity to revisit the doctrine announced in Flacke and clarify its application.
II. THE PLAIN LANGUAGE OF THE APPLICABLE STATUTES AND REGULATIONS DEMONSTRATES THAT THE DEPARTMENT'S ACTIONS WERE ARBITRARY AND CAPRICIOUS.
The issue before this Court is straightforward: May a state agency ignore a carefully crafted regulatory scheme in exercising its discretionary powers and do so in a manner that effectively rewrites the statutes at issue? Based upon principles of stare decisis, the answer is "No."
A. Principles of Statutory Construction.
As a first step in the analysis, this Court must examine the applicable statutes and regulations in the context of long recognized principles of statutory construction. The cardinal rule in New York requires that words used in a statute be given their plain and natural meaning. Brown v. Wing, 93 N.Y.2d 517 (1999); MCKINNEY'S CONS. LAWS OF N.Y., Book 1, Statutes § 94 (requiring, inter alia, that statutory language be construed "according to its natural and most obvious sense.") In addition, "a statute must be viewed as a whole, and, to that end, all of its parts should, if possible, be harmonized to achieve the legislative purpose." Exxon Corp. v. Board of Standards and Appeals of the City of New York, 28 A.D.2d 289, 295 (1st Dept. 1987). Effect and meaning must be given to every word. Id.
Where a statute is unambiguous, courts must give effect to the intent expressed by the legislature. Brown, supra, 93 N.Y.2d at 522. In such cases, judicial inquiry is limited. Atlantic Cement Co, Inc. v. Williams, 129 A.D.2d 84, 89 (3rd Dept. 1987). In fact, it is only where a statute is ambiguous that courts look to the interpretation placed upon it by the affected agency to determine whether that interpretation is a reasonable one. Brown, supra, 93 N.Y.2d at 524, citing Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 843, 844 (1984) ("If a statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.")
Accordingly, the Fourth Department's holding that the DEC's interpretation of the statutes and regulations must be given deference is erroneous for two reasons. First, the issue is one of law, that is, whether the DEC acted in accordance with the statutes and regulations at issue. The agency's interpretation is only an issue for consideration if the statutes are found to be ambiguous. Here, neither Supreme Court nor the Fourth Department made a finding of ambiguity that would support granting the DEC any deference in this instance. Second, even to the extent they are implicated here, factual determinations are not entitled to deference where they are based upon a misinterpretation of the applicable law. Simply stated, an agency's discretion may not be invoked outside the law. Barry v. O'Connell, 303 N.Y. 46, 52 (1951).
B. The Statutes and Regulations at Issue.
BPSI's application for renewal of its SPDES permit was denied on the basis that it was "incomplete" under the authority granted by Environmental Conservation Law ("ECL") § 70-0117(2) and 6 NYCRR §621.15(b) (R. 75). Those sections, however, do not apply to a determination as to whether a particular application is "complete." That determination must be made in accordance with other statutory and regulatory provisions.
Both the ECL and the corresponding regulations define a "complete application." ECL § 70-0105(2) provides:
'Complete application' shall mean an application for a permit which is in an approved form and is determined by the department to be complete for the purpose of commencing review of the application but which may need to be supplemented during the course of review as to matters contained in the application in order to enable the department to make the findings and determinations required by law. A complete application shall include such draft impact statement as may be required pursuant to article eight of this chapter (emphasis supplied).
The corresponding regulation found at 6 NYCRR § 621.1(d) provides:
Complete application means an application for a permit which is in an approved form and is determined by the department to be complete for the purpose of commencing review of the application but which may need to be supplemented during the course of review in order to enable the department to make the findings and determinations required by law (emphasis supplied). The cited statute and regulation plainly establish that the DEC does not "commence review" of an application unless and until it deems the application "complete" for that purpose. Moreover, both sections contemplate that an application may need to be supplemented after it is deemed "complete."
By comparison, both sections relied upon by the DEC in denying BPSI's application (R. 75) are confined to circumstances where the Department has determined that the application is "complete" and has commenced "review" of the application. ECL § 70-0117(2) provides:
At any time during the review of an application for a permit or a request by a permit holder for the renewal, reissuance, recertification or modification of an existing permit, the department may request additional information from the applicant or permit holder with regard to any matter contained in the application or request when such additional information is necessary for the department to make any findings or determination required by law. Such a request shall not extend any time period for department action contained in this article. Failure by the applicant or permit holder to provide such information may be grounds for denial by the department or the application or request (emphasis supplied).
6 NYCRR §621.15(b) similarly provides:
At any time during the review of an application for a new permit, modification, or renewal, the department may request in writing any additional information which is reasonably necessary to make any findings or determinations required by law. Such a request shall be explicit, and shall indicate the reasonable date by which the department is to receive the information. Failure to provide such information by the date specified in the request may be grounds for denial of the application (emphasis supplied).
When read together, these statutory and regulatory provisions establish, as a matter of law, that the Department does not "commence review" of an application until it deems the application "complete." The fundamental question, therefore, is whether the DEC's denial of BPSI's application in reliance upon statutes and regulations that apply only "during the review" of an application was consistent with its statutory powers or, as found by Supreme Court, contrary to lawful procedure.
C. Significance of the Issues.
The importance of this issue cannot be overstated. First, if the DEC is correct, its determination of "incompleteness" is not reviewable, therefore insulating it in all circumstances from legal challenge. 6 NYCRR §624.4(c)(7) is clear: "The completeness of an application, as defined in section 621.1(d) of this Title, will not be an issue for adjudication" [in an appeal of a DEC determination]. Therefore, if the DEC's position is sustained, its mid-level personnel who review applications for various permits are able to act in an authoritarian manner without fear that their decisions will ever be legally challenged. On the other hand, if Judge Cornelius is correct, the language of the statutes and regulations at issue, as properly applied, provides a full level of administrative and judicial review to disappointed applicants such as BPSI.
Second, under Section 401(2) of SAPA, where an applicant for a permit or license makes a "timely and sufficient" application for the renewal of a permit for an activity of a continuing nature, the existing permit "does not expire until the department has made a final decision on the renewal application and if such application has been denied, then not until the last day for seeking review of the agency order ." See also 6 NYCRR §621.13(i). In this instance, periodic discharges as allowed by BPSI's SPDES permit are essential to its operations. The DEC's decision to deny the application on the basis of completeness effectively allowed it to terminate the existing SPDES permit as of the date of the denial, notwithstanding any efforts on the part of BPSI to challenge that decision. As a result, BPSI's operations were substantially curtailed.
D. The Statutes and Regulations Are Not Ambiguous.
This Court must next decide whether the statutes and regulations are ambiguous, such that the DEC's interpretation of their meaning is relevant or whether the plain meaning of the words control the analysis. Here, the language used is crystal clear. Simply stated, an application is "complete" when the Department has enough information to "commence review." By definition, it is contemplated that the applicant may have to supplement the application to enable the Department to make a final decision on the merits. ECL § 70-0105(2); 6 NYCRR §621.1(d)(R. 25). An application that is incomplete never reaches the review stage.
Alternatively, once the DEC determines that the application is "complete" and begins its review, it is authorized to seek additional information that is "reasonably necessary" for it to make the determinations required by law. See ECL § 70-0117(2); 6 NYCRR §621.15(b). Where it does so and the applicant either does not provide the information or submits material that is insufficient, the Department may deny the application. In that situation, however, the applicant is entitled to challenge the determination, and whether the requested information was "reasonably necessary" to the Department's review process, may be the subject of both an administrative review and, ultimately, an Article 78 proceeding. (3) Accordingly, the DEC's reliance upon ECL § 70-0117(2) and 6 NYCRR §621.15(b) in denying BPSI's application as "incomplete" was erroneous as a matter of law.
Judge Cornelius recognized the illogic of the DEC's position:
If this logic be correct, the application for an adjudicatory hearing should be denied any time an administrative agency is empowered to request information from an applicant, which it concludes to be necessary, and then finds that there has been noncompliance with the request. This, in effect renders the requirement of an adjudicatory hearing meaningless, and abdicates the role of the Administrative Law Judge to the agency staff.
Judge Cornelius applied the plain meaning rule to the various statutes and regulations at issue in holding that an application is "complete" "if it is sufficient for purposes of commencing review of the application." (R. 25). He concluded that BPSI had met that requirement in this instance. Id. Therefore, the Department's requests for additional information should have been analyzed in the context of 6 NYCRR §621.15(b) and ECL § 70-0117(2), which permit an applicant to administratively challenge whether the requested information was "reasonably necessary" to the Department's review of the application. Here, by relying upon the same sections (6 NYCRR §621.15[b] and ECL § 70-0117), even though they do not speak to the issue of "completeness," the ALJ and Deputy Commissioner blocked BPSI from pursuing any remedy and thereby protected the Department's determination from review. Not only was this interpretation at odds with the plain language of the statutes, it violates long-standing precedent established by this Court. "Laws are made by the law-making power, and not by administrative officers acting solely on their own ideas of sound public policy, however excellent such ideas may be." Barry, supra, 303 N.Y. at 52-53. In upholding the Deputy Commissioner's decision and reversing the trial court, the Appellate Division clearly erred. (4)
E. Given the Unambiguous Language Contained in the Statutes and Regulations at Issue, the Rational Basis Test Does Not Apply.
In applying the rational basis test to its review of the DEC's actions, the Fourth Department ignored the teachings of this Court.(5) That is, an agency's discretion may not be invoked outside the law. Barry, supra, 303 N.Y. at 52. Where the agency action complained of violates a specific statute or is essentially arbitrary, it is appropriate for a court to interfere with the agency's exercise of discretion. Marburg v. Cole, 286 N.Y. 202, 208(1941).
In the context of administrative licensing, a public official performing a discretionary act must do so "in conformity with the express or clearly implied standard, policy or purpose of the licensing law." Matter of Bologno v. O'Connell, 7 N.Y.2d 155 (1959). Where an administrative agency's refusal to issue a license is based upon a ground which, under the applicable statute, the licensing authority may not consider or is based upon a ground which is not supported by substantial evidence, the administrative action is arbitrary and capricious. Matter of Small v. Moss, 277 N.Y. 501 (1938). The moment something ceases to be discretionary, it becomes arbitrary. Pell v. Board of Educ., 34 N.Y.2d 222, 231(1974).
As the DEC made its "completeness" determination based upon the wrong statutes and wholly ignored the statutory provisions regulating that determination, it was owed no deference with respect to its interpretation of the statutes and regulations at issue or with regard to its determination to deny BPSI's permit application. Brown, supra, 93 N.Y.2d at 524.
Atlantic Cement Company, Inc. v. Williams, 129 A.D.2d 84 (3rd Dept. 1987), is directly on point. There, an application for renewal of a DEC-issued mining permit was denied as "incomplete" based upon the failure of the applicant to provide certain information sought by the Department. The Supreme Court, in an Article 78 proceeding, held that the denial of the application on "completeness" grounds was illegal, arbitrary, and capricious. In affirming that decision, the Third Department noted that a completeness determination "does not preclude DEC from requesting supplemental information during the course of review of the application (See ECL §§70?0105; 70?0117)." Id., 129 A.D.2d at 90. Rather, the failure to produce the requested information provides a basis for denial of the application. Id.
In Atlantic Cement, the Appellate Division examined the specific information requested by the DEC and concluded that the ability to request supplemental information did not authorize the type of information sought by DEC in that case. Id. Significantly, this holding recognized that where the Department seeks supplemental information relating to an application, courts may determine whether that information was of the type reasonably necessary for the agency to act on the application. Where it is not, the agency's actions may be overruled by a court. Id. That the Fourth Department failed to recognize this distinction in the law is plain error.
This Court has an opportunity not only to correct the misapplication of the law by the Fourth Department, in particular the Flacke decision, but also to interpret various statutory provisions which have broad state-wide impact. The limits to which state agencies may exercise their discretionary powers, the requirements that they do so consistent with the plain language of enabling legislation, and the protection of meaningful due process rights enabling permit applicants to challenge agency decisions are important issues which require resolution. BPSI respectfully requests that this Court grant its Motion and allow these matters to be appealed to this Court, pursuant to CPLR § 5602, so that the injustice BPSI has suffered at the hands of overzealous regulators may be corrected and so that the law may be clarified on these points.
DATED: November 4, 2002
Albany, New York
MCNAMEE, LOCHNER, TITUS & WILLIAMS, P.C.
John J. Privitera, Esq.
Bar Roll No. 102399
William A. Hurst, Esq.
Bar Roll No. 510271
Attorneys for Plaintiffs
E.I.L. Petroleum, Inc. and
Bath Petroleum Storage Inc.
75 State Street - P.O. Box 459
Albany, New York 12201-0459
WOMBLE, CARLYLE, SANDRIDGE & RICE, PLLC
Jerry William Boykin, Esq.
W. Michael Holm, Esq.
Attorneys for Plaintiffs
E.I.L. Petroleum, Inc. and
Bath Petroleum Storage Inc.
6862 Elm Street, Suite 800
McLean, VA 22101
T: (703) 790-3310
A true and correct copy of the foregoing Motion for Leave to Appeal with Memorandum in Support was sent by facsimile and first class mail on November 4, 2002, to:
Assistant Attorney General
New York State Department of Law
Albany, New York 12224
John J. Privitera
(1) The briefs submitted to the Appellate Division
are attached as Exhibits 5-7.
(2) As addressed, infra, the statutes and regulations draw a clear distinction between what is required to deem an application "complete," so that the "review" process may begin, and the need to supplement the application during the "review" phase, so that the Department may make a final determination on the merits.
(3) 6 NYCRR 624.4 provides that an issue is adjudicable if "it relates to a matter cited by Department staff as a basis to deny the permit and is contested by the applicant."
(4) To uphold the Department's interpretation is to render meaningless the distinction between the two phases of the inquiry and to eliminate any need for the provisions which allow the Department to seek additional information that is "'reasonably necessary' to its determination at any time during the review of an application . . . ." Use of the term "reasonably necessary" implies that it is subject to challenge. Under the DEC's interpretation, that is not the case.
(5) The Fourth Department also misapplied Flacke, as previously noted.