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.
Deborah F. Howitt
Sherin and Lodgen LLP
100 Summer Street
Boston, MA 02110
The New York Propane Gas Association ("NYPGA"), as amicus curiae, respectfully submits this brief in support of Petitioners-Appellants' pending motion for leave to appeal to this Court from an Order of the Appellate Division, Fourth Department, dated and entered October 1, 2002 (the "Appellate Division Order"). The Appellate Division Order reversed, in part, an Order of Supreme Court, Livingston County (Hon. Raymond E. Cornelius), which granted, in part, Petitioner-Appellants' Verified Petition pursuant to Article 78 of the New York Civil Practice Law & Rules (hereinafter the "CPLR"). The Appellate Division Order constitutes a final order since it dismissed the Verified Petition in all respects.
This case arises from the New York State Department of Environmental Conservation's ("DEC") denial of the request of Bath Petroleum Storage Inc. and E.I.L Petroleum, Inc. (collectively "BPSI") to renew the wastewater discharge permit that has governed wastewater discharges at BPSI's underground LPG storage facility in Bath, New York for nearly thirty years. The DEC's stated reason for denying BPSI's renewal application was a purported lack of information regarding BPSI's operational processes - notwithstanding that those processes have remained essentially unchanged over the last thirty years, including the last twenty in which Petitioners have operated the facility.
BPSI administratively appealed DEC's decision pursuant to the DEC's "Uniform Hearing Procedures." In a ruling dated August 3, 2000, Administrative Law Judge ("ALJ") P. Nicholas Garlick interpreted the Uniform Hearing Procedures and denied BPSI's request for an adjudicatory hearing. On or about November 6, 2000, DEC Deputy Commissioner Carl Johnson affirmed ALJ Garlick's ruling, notwithstanding his observation that the DEC's actions departed dramatically from the relevant procedural rules.
Upon BPSI's challenge pursuant to CPLR Article 78, Livingston County Supreme Court interpreted the DEC's Uniform Hearing Procedures and Uniform Permit Procedures, concluded that the regulations failed to support DEC's finding of incompleteness, and remanded the case to DEC for an adjudicatory hearing on the veracity of BPSI's responses and, in instances where DEC alleged that BPSI failed to respond to its informational requests, on whether the information sought by DEC was "necessary" or "reasonably necessary" for the approval or denial of BPSI's application - standards expressly set forth in the DEC's regulations. Livingston County Supreme Court's remand to the agency reflects that court's interest in preserving DEC's ability to create a record in support of its factual determination.
DEC appealed Supreme Court's Order to the Appellate Division, Fourth Department, which reversed Supreme Court's decision and vacated its Order. The Memorandum-Opinion of the Fourth Department and the Decision and Order of Livingston County Supreme Court are like the proverbial ships passing in the night; whereas Judge Cornelius properly interpreted and applied the clear statutory and regulatory limitations on DEC discretion to conclude that DEC's actions were affected by an error of law, the Fourth Department simply refused to read and apply the same statutes and regulations and instead relied upon a line of inapposite cases to conclude that DEC's actions had a rational basis in the voluminous record which consists mainly of BPSI's responses to DEC's informational demands.
NYPGA asks this Court to grant BPSI's motion for leave to appeal the decision of the Appellate Division, Fourth Department and reverse the Appellate Division Order. By granting the instant motion for leave to appeal and reversing the Appellate Division Order, this Court will: (1) clarify that its holding in Flacke v. Onondaga Landfill Sys., Inc., 69 N.Y.2d 355 (1987), did not open the door to unbridled administrative derogation of unambiguous statutes and regulations; (2) reaffirm the power of New York State trial courts to annul, as affected by errors of law, administrative determinations made in derogation of unambiguous statutes and regulations; (3) restate that judicial deference to administrative agency determinations is only appropriate where the administrative agency's expertise is required to interpret an ambiguous statutory and regulatory framework; and (4) establish that an administrative agency may not impose a regulatory framework on a case-by-case basis that it is otherwise unable to enact under color of law.
The New York Propane Gas Association ("NYPGA") is a member-focused trade organization with a principal place of business in Albany, New York, and is affiliated with the National Propane Gas Association. Formed in 1948, NYPGA provides services that educate and promote the propane industry throughout New York State. NYPGA offers its members opportunities to learn about the propane industry through training and networking with peers, and assists its members in remaining current with legislative and regulatory issues affecting the propane industry. NYPGA often represents the interests of New York' s propane businesses before government agencies to ensure the safe and successful operation of the propane industry. NYPGA comments on proposed regulations in order to balance the interests of its members with the recognized need for environmental protection, and to lend industry expertise to the regulatory rulemaking process.
BPSI is an important member of NYPGA due to its substantial contribution to propane storage capacity in New York State and, as such, the state's propane industry has an abiding interest in the continued operation of BPSI's facility. The development of in-state propane storage of the type provided by BPSI is essential to the health and welfare of the propane industry and its industrial, commercial and residential customers, the majority of whom are "off the mains" and thus more vulnerable to problems associated with cold, inclement weather and distance from supply points. BPSI's need to limit its operations because of its inability to discharge wastewater exacerbates an already tenuous LPG storage situation in the State of New York, and could effect LPG supplies and pricing in New York.
Addressing the lack of adequate propane and petroleum storage is a goal of the State of New York, as expressed in the Energy Plan jointly issued every two years by NYSERDA, PSC and DEC. The Energy Plans cite, inter alia, the excessive burden of meeting environmental standards as a specific reason for this lack of capacity. Declining propane storage capacity and the existence of only a single propane pipeline in New York State have adversely affected the reliability of supply and the continued movement of propane throughout the state. This has led suppliers to utilize reduced storage capacity by employing "just-in-time" inventories, leaving little cushion for exigencies associated with product supply interruptions from crude oil producers abroad, refinery and pipeline shut downs, and bad weather. Moreover, it is in New York State's best interest to ensure that backup supplies remain on hand in the event that some portion of the pipeline or other means of supply are interrupted, either through operational difficulties or terrorist acts.
Many electric generating facilities burn propane as a backup when there is an interruption in natural gas supply. When required to switch to standby fuels, these facilities use significant quantities over short periods. Any storage shortage may strain the ability of these utilities to respond to consumer energy needs in emergencies. In light of the burgeoning energy crisis, it is imperative that these facilities have ready access to adequate LPG storage capacity within New York State; capacity provided in large part by BPSI. In fact, the enabling legislation passed in 1963, now codified as ECL Article 23, had as one of its goals the development of LPG/natural gas storage fields within the borders of the state to lessen the dependency on other states during periods of supply interruption and high demand. DEC's actions in imposing upon the regulated community, ad hoc, arbitrary application requirements stand the legislative intent on its head.
NYPGA members are concerned that the decline in overall storage capacity is adverse to the flexibility needed to meet even basic consumer demands. In support of this view, NYPGA has for the last several years sought relief from the driver hour limitation rules of the United States Department of Transportation and the New York State Department of Transportation, which when waived, allow drivers of long haul transports and local delivery vehicles to work additional hours. Unlike the supply and storage system for gasoline and distillate, propane deliveries to the state depend more on rail and transport, which are less extensive and have less unit capacity than pipeline and ocean or coastwise vessels. Ninety-nine percent of gasoline and distillate is shipped to New York State by pipeline (50%) and vessels (49%) and held at large breakout storage terminals, while only 50% of propane is shipped via one pipeline with three terminal loading racks, with little breakout storage. The remainder is transported from Canada where weather and security concerns delay shipments, and by rail, a transportation medium that lacks sufficient assets to meet transportation needs for the foreseeable future.
In sum, this proceeding presents many legal and policy issues of state, regional, and national concern because of BPSI's contribution and importance to supply levels in New York State and the northeast. NYPGA brings a unique perspective to the proceeding that will add to the Court's understanding of the backdrop to DEC's actions and can offer a unique, state-wide perspective on the regulatory issues before this Court. NYPGA members are directly affected by state regulations that create obstacles to the development of the industry and, therefore, NYPGA plays an active role in supporting its members in regulatory affairs when appropriate and, in the instant case, necessary.
The decision of the Appellate Division, Fourth Department, threatens to arm administrative agencies with unfettered discretion to grant or deny permits without justification. The Fourth Department relied heavily on this Court's decision in Flacke v. Onondaga Landfill Sys., Inc., 69 N.Y.2d 355 (1987). (1) This reliance is not only misplaced, but unreasonable. The circumstances that led to the holding of Flacke a fully developed administrative record and call for technical expertise are absent from the instant case.
In 1984, the United States Supreme Court, in Chevron, U.S.A. Inc. v. Natural Res. Def. Council, stated that "[w]e have long recognized that considerable weight should be accorded to an executive department's construction of a statutory scheme it is entrusted to administer, and the principle of deference to administrative interpretations had been consistently followed by this Court." 467 U.S. 837, 844 (1984) (internal citations omitted). New York jurisprudence recognized this principle more than forty (40) years before the decision in Chevron: "[I]n the absence of clear and convincing proof that the discretion of [an agency] has been exercised arbitrarily, unfairly or capriciously, the courts will not interfere." Matter of Marburg v. Cole, 286 N.Y. 202, 208 (1941). See also Matter of Mounting & Finishing Co., Inc. v. McGoldrick, 294 N.Y. 104, 108 (1945) ("The administrative determination is to be accepted by the courts 'if it has warrant in the record and a reasonable basis in law.'") (emphasis supplied).
However, this Court has expressly limited the rule of deference to administrative agency determinations: "When 'the question is one of pure statutory reading and analysis, dependent only on accurate apprehension of legislative intent, there is little basis to rely on any special competence or expertise of the administrative agency,' because 'statutory construction is the function of the courts.'" Matter of Rho v. Ambach, 74 N.Y.2d 318, 321 (1989) (quoting Kurcsics v. Merch. Mut. Ins. Co., 49 N.Y.2d 451, 459 (1980). This does not mean that an agency's special expertise should be discarded "but that principle of deference should be applied only where such expertise is relevant." Matter of Indus. Liaison Comm. v. Williams, 72 N.Y.2d 137, 144 (1988). Thus, where "the judgment of the agency involves factual evaluations in the area of the agency's expertise and is supported by the record, such judgments must be accorded great weight and judicial deference." Flacke, supra, at 363.
By no means did Flacke extend judicial deference to unlawful actions of administrative agencies, particularly where, as here, agency expertise is not relevant. Whether or not DEC treated BPSI's application consistent with the applicable statutes and regulations is not beyond the reach of the judiciary. Indeed, it is the very reason for judicial review. See e.g. Matter of N.Y.S. Ass'n of Life Underwriters, Inc. v. N.Y.S. Banking Dep't, 83 N.Y.2d 353, 360 (1994) ("Deference to such construction is appropriate where the language used in the statute is special or technical and does not consist of words of clear import."), Matter of Ellis Center for Long Term Care v. DeBuono, 261 A.D.2d 791, 794 (3rd Dep't 1999) ("An agency's interpretation of a statute is entitled to considerable deference by a reviewing court particularly where, as here, the interpretation also implicates the agency's highly technical knowledge and understanding of complex procedures and practices.").
Simply put, where an agency's "specialized knowledge is not necessarily implicated, the courts use their own competence to decide issues of law raised, since those questions are of ordinary statutory reading and analysis." Matter of Indus. Liaison Comm., 72 N.Y.2d at 144. In the instant matter, Livingston County Supreme Court simply refused to defer to an agency interpretation that would have nullified the Legislature's use of the terms "necessary" and "reasonably necessary."
The effect of the Fourth Department's holding is to provide a government agency with a road map on how to permanently shelve projects and permits it disapproves of without providing any basis for its action; let alone a basis grounded in rationality. Instead of following the appropriate administrative channels and seeking to revoke an operational permit, an agency can now simply stonewall the applicant for a renewal permit with overly burdensome and irrelevant informational requests during the application process. To the extent the applicant questions the agency's demands, as did BPSI, the agency can simply declare that the application is incomplete and deny the application - without any administrative, much less, judicial review of its actions. This Court's precedent, and the laws of New York State, do not, and cannot, compel such a draconian result.
The interminable and unfair nine (9) month-long renewal application process in the instant matter is particularly troublesome to NYPGA because of the strain it will place on its members. Businesses in possession of long-term permits now face an uncertain future. DEC's actions in these proceedings essentially amounted to a revocation of BPSI's permit; but in doing so avoided the constitutional safeguards within the formal revocation procedure enacted to protect citizens from arbitrary agency action. By stonewalling the renewal of BPSI's permit, DEC's ultimate denial of the application outlasted the life of the permit. Now other members of the business community, without knowledge of DEC's concern with their permitted operations, might be targeted. Any notice, normally provided through the institution of revocation procedures, would not be forthcoming until it was too late.
NYPGA strongly disagrees that the duplicative and overly burdensome application process in this case is rational and anything other than arbitrary and capricious. Because of the uncertainty created by this decision for NYPGA's members and the unbridled discretion afforded to DEC, NYPGA submits this memorandum in support of Petitioners-Appellants' motion for leave to appeal.
DEC made informational demands of BPSI and applied regulatory requirements that were set forth only in draft amendments to Title 6 of the New York Code of Rules and Regulations for Mineral Resources. Although DEC circulated the regulations for limited public review in 1997, they were not enacted and no further action has been taken. The proposed regulations were highly controversial within the industry, exceeded DEC's authority without clear legislative direction, and would have dramatically increased the cost of storing energy in New York State without a corresponding environmental benefit.
DEC chose to shelve the draft regulations, apparently in response to sharp industry criticism. Now, DEC seeks to apply the same objectionable requirements on a case-by-case basis, thus opening the door to their unauthorized, arbitrary, and selective enforcement against BPSI and other NYPGA members. In light of the drastic reduction in propane storage over the last ten years, the burgeoning energy crisis, and the nationwide trend toward deregulation, DEC's actions in this regard stand as an anomaly and contribute to the destabilization of the industry. NYPGA's mission is to prevent such regulatory actions from interfering with the development of the industry and, therefore, its intervention in these proceedings is both necessary and appropriate.
The actions of DEC threaten to further destabilize the propane industry and reduce existing supplies in New York State to dangerously low levels. It is against this backdrop that NYPGA submits this memorandum in support of Petitioners-Appellants' motion for leave to appeal.
For all of the foregoing reasons, the New York Propane Gas
Association, as amicus curiae, respectfully requests that this
Court grant Petitioners-Appellants' motion for leave to appeal
from the Order of the Appellate Division, Fourth Department.
Dated: November __, 2002
NEW YORK PROPANE GAS ASSOCIATION
Deborah F. Howitt
Sherin and Lodgen LLP
100 Summer Street
Boston, MA 02110
1) The Fourth Department also cited Matter of Heintz v. Brown, 80 N.Y.2d 998, 1001 (1992) for the proposition that the reviewing court must only determine whether the agency's determination was arbitrary or capricious. That case involved a decision under the Administrative Code of the City of New York by the police commissioner in connection with an on-the-job injury. Id. at 1000. However, that case did not involve, as here, an agency determination unrelated to its area of expertise or the interpretation of its enabling legislation.
A true and correct copy of the foregoing was sent by overnight
mail on November ___, 2002, to:
John J. Privitera, Esq.
William A. Hurst, Esq.
75 State Street - P.O. Box 459
Albany, New York 12201-0459
Jerry William Boykin, Esq.
W. Michael Holm, Esq.
6862 Elm Street, Suite 800
McLean, VA 22101
Assistant Attorney General
NEW YORK STATE DEPARTMENT OF LAW
Albany, New York 12224