Fourth Department Revisits Brownfield Cleanup Program Eligibility

Fourth Department Revisits Brownfield Cleanup Program Eligibility in In the Matter of Destiny USA Development, LLC, et al. v.  NYS Department of Environmental Conservation, et al.

In my March Environmental Update, I discussed the 4th Department’s ruling in In the Matter of Lighthouse Pointe Property Associates LLC, v. NYS Department of Environmental Conservation, et al.,  61 A.D.3d 88 (4th Dept., 2009).  In that case, the 4th Department affirmed the determination of the Department of Environmental Conservation (DEC) which denied petitioner’s application for inclusion in the State’s Brownfield Cleanup Program (BCP).

In the Matter of Destiny USA Development, LLC, et al. v. NYS Department of Environmental Conservation, et al.,  ___ A.D.3d ___,  2009 WL 1570205, 2009 N.Y. Slip Op. 04504 (4th Dept., 2009), the 4th Department was once again faced with the issue of the scope of eligibility of certain properties into the BCP pursuant to Article 27, Title 14 of the Environmental Conservation Law (ECL).  In Destiny USA,  Destiny USA Development and Pyramid Company Of Onondaga commenced an Article 78 proceeding challenging the DEC’s denial of their application for entry into the BCP of 11 of 17 parcels located in Syracuse, New York.  The rejected parcels included two located at the existing Carousel Center (Carousel Parcels),  one known at the Clark Containment Cell, a hazardous waste containment area (Clark Parcel) and eight on a former petroleum bulk storage area known as Oil City (Oil City Parcels).   The Supreme Court annulled DEC’s denial and declared the DEC’s self-promulgated BCP  “guidance” and “guide factors” -- upon which DEC had relied -- to be null and void and in violation of the equal protection clause.  Finally, the Supreme Court ordered DEC to include all of the rejected parcels into the BCP.  The DEC appealed. 

The 4th Department first addressed the issue of whether the DEC’s determination on petitioner’s BCP application was entitled to “great weight and judicial deference” as being within the environmental agency’s special area of expertise.  The Court found that DEC’s decision on this application was simply based on the DEC’s interpretation of the BCP statutory language and on its application of its own internal guidance  and “guide factors” and was, therefore, not a factual determination within DEC’s special area of expertise.  Thus, the Court ruled that DEC’s determination was not entitled to the Court’s deference.

Next the Court examined the DEC’s rejection of the Carousel Parcels into the BCP.  Brownfield is defined in the ECL as real property whose redevelopment or reuse is “complicated” by the real or potential presence of contamination.  Noting that the DEC failed to examine the specific complications to redevelopment raised by Destiny USA in its application, the Court found that DEC relied only on its self-promulgated guidance and guide factors in rejecting these parcels. The Court rejected this approach entirely, stating that the DEC’s “categorical application” of the guidance factors as a “precondition to admission into the BCP” conflicted with the intent of the statute and constituted “an impermissible attempt to legislate.”  Accordingly, DEC’s denial of the Carousel Parcels into the BCP was deemed to be arbitrary and capricious.

Nonetheless, the Court disagreed with the Supreme Court’s declaration that such guidance and guide factors were null and void. The Court also rejected the Supreme Court’s dismissal of the guidance was on constitutional grounds.  Instead, the Court found that the use of such guidance – as with any guidance -- was appropriate as long as it such guidance is not applied by the agency in a fixed manner without regard to other facts relevant to the overall regulatory scheme.  Thus, the Court modified the judgment below to reinstate the guidance and guide factors used by DEC, so long as the DEC used the guidance in the appropriate manner.

With respect to the eight Oil City Parcels, the Court rejected the DEC’s view that they were ineligible for inclusion into the BCP based upon statutory exclusions in the BCP law. In opposition to the Petition, DEC relied upon ECL 27-1405(2)(d), which bars properties which are the subject of certain cleanup orders, as the rationale for rejecting these parcels.  This provision, however, includes an exception for property subject to a “stipulation agreement.”  While the DEC had, in fact, entered into consent orders with several petroleum companies with respect to these parcels, it had also entered into a Stipulation Agreement with Destiny USA in 2005.  Indeed, that Stipulation expressly provided that entering into the agreement would not adversely affect the eligibility of the site into the BCP.  The Court found that this 2005 Stipulation superseded the orders on consent and governed the remediation of the parcels.  Thus, the Court concluded that the Oil City Parcels were not subject to this statutory exclusion and were therefore eligible for inclusion into the BCP.

The Court also rejected DEC’s exclusion of the Clark Parcel from the BCP.  In its determination, DEC relied on another statutory exclusion, ECL 27-1405(2)(e) which bars properties subject to “on-going state and federal enforcement” relating to the contamination.   The Court determined that this parcel was actually subject to voluntary cleanup agreements, which the Court found not to be enforcement actions within the meaning of the BCP.  Thus, the Court found that DEC acted in an arbitrary and capricious manner with respect to the Clark Parcel.

Finally, the Court rejected DEC’s position that the Supreme Court erred in “directing” the DEC to grant Destiny USA’s BCP application in its entirety.  The Court found that a court is authorized, in an Article 78 proceeding, to direct or prohibit a specified action.  The Court concluded that in this matter the  record was sufficiently developed for the Supreme Court to direct the DEC to include all of the parcels into the BCP.

Though the legal and factual issues in Destiny USA and the Lighthouse Pointe were very similar, the 4th Department reached essentially opposite conclusions.  Significantly, the Court of Appeals recently granted petitioners in Lighthouse Pointe leave to appeal.   Brownfield practitioners will have to anxiously await a decision on that appeal to find out what the Court of Appeals determines to be the scope of DEC’s power to reject or accept properties into the BCP.