Supreme Court Finds NYS DEC Acted Arbitrarily And Capriciously, and Unconstitutionally

I devote this month’s column to discussion of one court case:  a 31-page unpublished decision from the Supreme Court, Onondaga County, apparently a case of first impression regarding regulations promulgated under the State’s 2003 Brownfield Cleanup Program.

Supreme Court Finds NYS DEC Acted Arbitrarily And Capriciously – And Unconstitutionally -- With Respect to Petititioner Destiny USA

Destiny USA v. NYS DEC, 2008 WL 2368085 (SCt Onondaga Cty 6/10/08)
State Supreme Court judge Cherundolo ruled June 10, 2008. that the New York State Department of Environmental Conservation (“DEC”) acted arbitrarily and capriciously in largely denying Destiny USA’s application for inclusion into the State’s Brownfield Cleanup Program (“BCP”).

Petitioner proposed to clean up 152 acres of land in Syracuse, Onondaga County for development of a massive research, retail, hotel, dining and entertainment venue to be called “DestiNY USA.”  When finally built, it is expected to be one of the largest construction and development projects in the U.S.  Destiny contends the project will be built according to the United States Green Building Counsel Leed Standards, and will employ “green” principles in its construction and operation.  The total cost of the development is estimated to be somewhere between $2 to 6 billion. 

In October 2007, the NYS DEC denied most of Destiny’s application for inclusion in the BCP.  Specifically, the NYS DEC determined that only six (6) of the approximately twenty parcels within the 152 acres constituting the area to be developed.

The BCP was enacted in 2003, with regulations subsequently promulgated thereunder in December 2006.  Under the current Brownfield statute, a developer may claim a state tax credit ranging from 10 to 22 percent.  The credit applies not only to the cost of cleaning up polluted land, but also to the cost for redeveloping the land for commercial use.  The Court noted that this decision was the first to interpret the December 2006 regulations.  Much of Destiny’s activity concerning the initial development, initial cleanup activity, and initial agreements all occurred before the effective date of the BCP statute.

The Court noted the “prior industrial uses of the property, the known extensive environmental contamination, and the high risk and costs associated with the development of such property have continued to frustrate any thought of redeveloping the various parcels through standard development procedures.”  The parcels included land near Onondaga Lake, “perhaps one of the most polluted and contaminated lakes in the world.” 

The Court reviewed the “guidance factors” which the DEC applied in its October 2007 determination, and found that these factors differed from the December 2006 DEC regulations.  In only approving the six parcels, the NYS DEC arbitrarily failed to apply its own guidance factors (i.e., “the cost of remediation versus cost of project” assessment).  Moreover, the Court found the DEC was not justified in adding and applying new “factors” that were not part of the DEC’s December 2006 brownfield regulations.  As you can see, the Court was not pleased:

“Clearly, in deciding to adopt the ‘guidance factors,” the DEC has opted to make itself a fiscal watchdog without legislative authority.  Moreover, by adopting the so-called “guidance factors” the DEC has chosen to rewrite the statute that was clearly written by the legislature, the effect of which is to not only dull, but to emasculate the clear intent of the statute, by administrative agency fiat.”

Not only did the Court find that the DEC acted arbitrarily and capriciously, the Court also violated the Equal Protection Clause of the New York State and federal constitutions when it failed to include the additional parcels in the BCP.  The DEC was ordered to include all the parcels into the BCP, and was ordered to “enter into immediate discussions” with Destiny USA to make arrangements for a Brownfield Cleanup Agreement to be executed as soon as possible. 

Judge Cherundolo’s decision results in a tax credit to Destiny in the range of between $200 and $700 million.  Not surprisingly, the State indicated it intends to appeal the ruling.

[Note:  out of concern that the tax credits being offered under the BCP statute were overly generous (i.e., in allowing developers a credit for the entire cost of a construction project when brownfield remediation was only a small portion thereof), the Legislature enacted a moratorium on DEC approval of any new brownfield projects, to allow the Legislature an opportunity to amend the program.  Governor Patterson has submitted a proposed amendment in which cleanup and development costs are separated rather than lumped together.  As of this writing, the brownfield program had not been amended, and the moratorium was due to expire July 23, 2008.]