Fourth Department Upholds DEC Denial of Brownfield Cleanup Program Application

In the Matter of Lighthouse Pointe Property Associates LLC, v. NYS Department of Environmental Conservation, et al., Appellate Division, Fourth Department, 2009 NY  Slip Op 00878 (Feb. 6, 2009)

This article focuses on a area of environmental law – the New York Brownfield Cleanup Program – which is the subject of much recent controversy and litigation. 

For those unfamiliar with New York’s brownfield program, a little background will be helpful.  In 2003, the State enacted a comprehensive law to help spur development of  contaminated – “brownfield” – properties in New York.  The heart of the law was the creation of an entirely new brownfield cleanup and financing scheme known as the Brownfield Cleanup Program (BCP).  The BCP allows a party (such as a developer) to remediate a brownfield site to cleanup standards which are tied to the anticipated future use of the site.  In return, the developer receives certain liability protections and substantial, refundable tax credits based upon both the cost of the site cleanup as well as the cost for redeveloping the site.  The BCP is overseen by the New York State Department of Environmental Conservation (DEC).  To participate in the BCP,  a party must apply to the DEC for entry into the program.  To determine eligibility into the BCP, DEC must first decide whether the contaminated site meets the statutory definition of a “brownfield.”  Under the statute, a brownfield site is “any real property, the redevelopment or reuse of which may be complicated by the presence or potential presence of a contaminant,” where contaminant is defined as hazardous waste or petroleum.

Unfortunately, the statute does not provide any direction to DEC as to what facts or evidence is needed to decide whether a site is so “complicated” by real or perceived contamination. Though DEC promulgated BCP implementing regulations, the regulations do not clarify this issue.   Needless to say, DEC’s decisions to reject applications for entry into the BCP based on its determination the subject site was not a “brownfield” has led to numerous lawsuits brought by parties denied entry.  

The first case to be decided by an appellate level court is In the Matter of Lighthouse Pointe Property Associates LLC, v. NYS Department of Environmental Conservation, et al., Appellate Division, Fourth Department, 2009 NY  Slip Op 00878 (Feb. 6, 2009).  In this case, the Petitioner, Lighthouse Pointe Property Associates, LLC applied for entry into the BCP in order to cleanup and redevelop two contiguous contaminated sites in Rochester, New York.  These properties had historically been used, among other things, as a municipal landfill and wastewater treatment plant.  Refuse, ash, slaw, sewage sludge, construction debris and other fill materials were deposited at the site.  Prior to applying to the DEC, Lighthouse Pointe investigated the environmental conditions of the site and found that contamination exceeded DEC’s soil and groundwater standards for several contaminants.   In particular, some of the contamination exceeded DEC’s own brownfield cleanup standards, the Soil Cleanup Objectives (SCOs), set forth in DEC’s brownfield cleanup regulations.

Nonetheless, DEC denied Lighthouse Pointe’s entry by DEC into the BCP program.  Petitioner commenced an Article 78 proceeding against the DEC.  The Supreme Court ruled in Petitioner’s favor holding that to DEC failed “to state the reasoning [it] employed in reaching" its decision that the SCO exceedances were minimal and thus would not complicate the redevelopment project. The Court concluded that, "[b]y failing to provide any rational basis for [its] determination that the development of [the parcels] would not, or could not, be complicated by the possible presence of even minimal levels of contaminants, the DEC has failed to demonstrate that [its] actions were anything but arbitrary and capricious."  Supreme Court ordered the DEC to admit Lighthouse Pointe into the BCP.  DEC appealed. 

The Appellate Division, 4th Department, reversed and upheld DEC's denial of the application. The Court relied on the affidavit of a DEC engineer who opined that, despite the fact that there were exceedances of DEC’s own cleanup standards, that the "exceedances revealed by both historical and current sampling data were few in number, were limited in magnitude, were widely dispersed throughout the property, and did not indicate the need for remedial action."   Stating that courts cannot “second-guess a reasoned agency determination,” the Appellate Division deferred to DEC and ruled that DEC's denial of Petitioner’s BCP application was not unsupported by the evidence and that DEC did not act in an arbitrary and capricious manner.

Significantly, Judge Smith dissented in a detailed and well-reasoned opinion.  After examining the facts of the case, the statutory definition of a "brownfield site" and the DEC's brownfield guidance, Judge Smith strongly disagreed with the majority and concluded “that this case in fact presents a paradigm of sites that fall within the ambit of the BCP as defined by the statutes, and that the interpretation by the DEC of the BCP's enabling statutes to exclude the subject parcels is unreasonable.”  Pointedly noting that the DEC found this site not to be a brownfield even though the contaminant levels exceeded the DEC’s own brownfield cleanup standards, the dissent stated that if these cleanup standards (the SCOs) are not the standard for determining whether a property is contaminated such this would be a brownfield, then "there really is no standard at all."

Rejecting the majority view, the dissent argued that this was not a case where the Court must defer to DEC’s interpretation of the brownfield statute.  Instead, Judge Smith found that the DEC “improperly interpreted the enabling statutes for the BCP” by “redacting” certain sites (i.e., solid waste disposal sites such as the Lighthouse Pointe site) from inclusion into the BCP, the DEC “improperly usurped legislative function.”  In sum, the dissent believed that DEC's determination to deny the application was unreasonable in light of the facts and was arbitrary and capricious due to the lack of standards.

For practitioners representing clients applying for inclusion in the BCP, the majority opinion in this case is a disappointing one.  Moreover, the law on what is or is not a brownfield in New York is still very unsettled.  There are three very recent Supreme Court decisions which found DEC’s denial of petitioners’ entry into the BCP to be arbitrary and capricious.  See, Destiny USA Dev., LLC v. New York State Depart of Envtl. Conservation, 19 Misc 3d 1144[A], 2008 WL 2368085 (N.Y.Sup., Onondaga Cnty., 2008); East River Realty Co., LLC v. New York State Dept. of Environmental Conservation, 866 N.Y.S.2d 537 (N.Y.Sup., N.Y. Cnty., 2008); HLP Properties, LLC v. New York State Dept. of Environmental Conservation, 21 Misc.3d 658 (N.Y.Sup., N.Y. Cnty., 2008). Given this confusion, as well as the likelihood that the Lighthouse Pointe Petitioners will seek leave to appeal this decision to the Court of Appeals, advising clients on their prospects of gaining entry into the BCP will be difficult for quite some time to come.