| Matter of Supreme Energy, LLC v Martens |
| 2016 NY Slip Op 08143 [145 AD3d 1147] |
| December 1, 2016 |
| Appellate Division, Third Department |
[*1]
| In the Matter of Supreme Energy, LLC, et al.,Petitioners, v Joseph J. Martens, as Commissioner of EnvironmentalConservation, et al., Respondents. |
Cohen & Cohen, Utica (Daniel S. Cohen of counsel), for petitioners.
Eric T. Schneiderman, Attorney General, Albany (Meredith G. Lee-Clark ofcounsel), for respondents.
Aarons, J. Proceeding pursuant to CPLR article 78 (transferred to this Court by orderof the Supreme Court, entered in Albany County) to review a determination ofrespondent Commissioner of Environmental Conservation finding, among other things,that petitioners failed to obtain a license for an onshore major petroleum storagefacility.
Alaskan Oil, Inc. operated and owned an onshore major petroleum storage facilitylocated in the Village of Baldwinsville, Onondaga County. In 2003, petitioner SupremeEnergy, LLC, of which petitioner Frederick Karam was the sole owner and member,entered into a land contract with Alaskan Oil to purchase the facility. While SupremeEnergy did not officially take title until 2006, it had assumed operational control over thefacility in 2004. After Supreme Energy failed to comply with deficiencies delineated inseparate notices of violations, respondent Department of Environmental Conservation(hereinafter DEC) commenced an enforcement proceeding in 2008 alleging that, asrelevant here, petitioners operated a major petroleum storage facility without a license,petitioners failed to pay required licensing fees and submit monthly certifications andpetitioners failed to maintain an adequate secondary containment area for the storagetanks. After a hearing, the Administrative Law Judge (hereinafter ALJ) issued a report inwhich he recommended, among other things, that petitioners be held liable on thesecharges and that Karam bear personal liability for the charges relating only to operating afacility without a license and failing to maintain an adequate [*2]secondary containment area. Respondent Commissioner ofEnvironmental Conservation (hereinafter respondent) largely adopted the ALJ'srecommendation and fined petitioners $234,900 for operating a facility without a license,$564,817 for failing to pay the required licensing fees, and $469,800 for failing tomaintain adequate secondary containment—for a total of $1,269,517. Respondent,however, imposed personal liability upon Karam for all of the charges. Petitionerscommenced this CPLR article 78 proceeding seeking annulment of respondent'sdetermination. Supreme Court thereafter transferred the matter to this Court. Weconfirm.
The applicable standard of review is whether substantial evidence supportsrespondent's determination (see CPLR 7803 [4]; Matter of Al Turi Landfill vNew York State Dept. of Envtl. Conservation, 98 NY2d 758, 760 [2002]; Matter of Protect the Adirondacks!Inc. v Adirondack Park Agency, 121 AD3d 63, 69 [2014], lv dismissed anddenied 24 NY3d 1065 [2014]). Under this standard, "it is the responsibility of theadministrative agency to weigh the evidence and choose from among competinginferences therefrom and, so long as the inference drawn and the ultimate determinationmade are supported by substantial evidence, it is not for the court to substitute itsjudgment for that of the administrative agency" (Matter of Murtaugh v New York State Dept. of Envtl.Conservation, 42 AD3d 986, 987 [2007] [internal brackets, quotation marks andcitation omitted], lv dismissed 9 NY3d 971 [2007]). Respondent is not bound bythe ALJ's factual findings and is entitled to make his own findings (see Matter ofJackson's Marina v Jorling, 193 AD2d 863, 865-866 [1993]). To that end,respondent's determination will not be disturbed so long as it is supported by substantialevidence (see Matter of Carney'sRest., Inc. v State of New York, 89 AD3d 1250, 1252 [2011]).[FN1]
We find that respondent's determination that Supreme Energy operated a majorpetroleum facility without a license was supported by substantial evidence. Under NewYork's Navigation Law, a person is prohibited from operating a major petroleum storagefacility in the absence of a license (see Navigation Law § 174 [1][a]; [9]). By the time Supreme Energy assumed control over the facility in 2004, AlaskanOil's license, which was nontransferable, had already expired in 2002. Supreme Energy,in fact, submitted an application for a license in 2004, but DEC deemed that applicationincomplete and another license application was never submitted. Furthermore, even if weagreed with petitioners' assertion that Supreme Energy was permitted to operate thefacility pursuant to the terms of a 2004 consent order, a notice of violation dated April27, 2007 from DEC and addressed to Karam explicitly informed him that SupremeEnergy's "license information [was] not current and correct" and that this deficiencyneeded to be rectified. Supreme Energy nevertheless continued its operation of thefacility without a license. Inasmuch as respondent found that Supreme Energy unlawfullyoperated the facility without a license from May 2, 2007 to June 2009, whichencompassed a period after the April 2007 notice of violation explicitly advised Karamthat Supreme Energy did not have a valid license, we find no basis to upset thisdetermination (see Matter ofHuntington & Kildare, Inc. v Grannis, 89 AD3d 1195, 1197 [2011]).
We also conclude that substantial evidence exists in the record supportingrespondent's determination that petitioners failed to pay license fees and submit timelycertification reports. [*3]Under the applicable statutoryprovisions and regulations, Supreme Energy was obligated to submit monthlycertification reports (see Navigation Law §§ 172 [10]; 174 [5];17 NYCRR 30.6 [c] [2]; 30.8 [a]), and, along with these reports, Supreme Energy wasrequired to submit full payment of any license fees or surcharges (see NavigationLaw § 174 [5]; 17 NYCRR 30.9 [b]). The hearing testimony anddocumentary evidence reveal that 31 out of the 47 monthly certification reportssubmitted between August 2004 and June 2008 were deemed untimely because they werenot accompanied by the requisite license fee or surcharge payments and, as aconsequence, subjected Supreme Energy to additional late fees (see 17 NYCRR30.9 [e]). Taking into account Supreme Energy's admission that it did not pay all of therequired licensing fees, substantial evidence exists to support respondent's determinationon this point (see generally 300 Gramatan Ave. Assoc. v State Div. of HumanRights, 45 NY2d 176, 181 [1978]).
Next, we discern no reason to disturb respondent's finding that Supreme Energyfailed to maintain an adequate secondary containment area for the petroleum storagetanks. The regulatory scheme requires that an aboveground petroleum storage tank with acapacity of 10,000 gallons or more have around it a secondary containment area toprotect against petroleum leakage and the release of petroleum (see 6 NYCRR613-4.1 [b] [1] [v] [a]).[FN2] Whether a facility maintains anadequate secondary containment area for its tanks can be based on internal DECguidelines (see 17 NYCRR 30.5 [e]), one of which is that the secondarycontainment area be at least 110% of the capacity of the largest tank in the facility.Karam testified that he was aware of this particular 110% capacity requirement. Yet,DEC's numerous investigations of the facility conducted since Supreme Energy assumedoperational control in 2004 found that the 110% capacity requirement had not beencomplied with, and, as of 2008, Supreme Energy still had not satisfied this requirement.The record evidence also supports respondent's determination that the secondarycontainment area was unsatisfactory due to holes, rips and tears in the urethane liners.While some of this damage was caused by a DEC contractor, DEC advised Karam thatSupreme Energy could seek financial reimbursement for any damage caused by the DECcontractor and, to the extent that Karam denies being told this information, it presented acredibility issue for respondent's resolution (see Matter of ELG Utica Alloys, Inc. v Department of Envtl.Conservation, 116 AD3d 1200, 1205 [2014], appeal dismissed 24 NY3d929 [2014]). Furthermore, most of the damage in the liner was unrelated or existed priorto the work performed by the DEC contractor at the facility, and none of this damage wasaddressed by Supreme Energy. We therefore find that respondent's determination thatSupreme Energy failed to maintain an adequate secondary containment area for its tankswas supported by substantial evidence.
We also reject petitioners' contention that respondent erred in piercing the corporateveil and imposing personal liability upon Karam. "Generally . . . piercingthe corporate veil requires a showing that: (1) the owners exercised complete dominationof the corporation in respect to the transaction attacked; and (2) that such domination wasused to commit a fraud or wrong against the plaintiff which resulted in [the] plaintiff'sinjury" (Matter of Morris v New York State Dept. of Taxation & Fin., 82NY2d 135, 141 [1993]). Whether to pierce the corporate veil involves a scrutiny ofvarious considerations, including "the overlap in ownership, officers, director andpersonnel, the capitalization of the corporation, any commingling of assets and thepresence, or absence, of the formalities that attend the corporate form" (Kain Dev., LLC v Krause Props.,LLC, 130 AD3d 1229, 1235 [2015]; see Austin Powder Co. vMcCullough, 216 AD2d 825, 826-827[*4][1995]).Karam testified at the hearing that not only did he own Supreme Energy, but he was alsothe sole owner of Cold Springs Terminal, LLC, which operated a petroleum storagefacility next to the one operated by Supreme Energy. Notwithstanding the fact thatSupreme Energy and Cold Springs Terminal were separate entities, Karam used a singlecheckbook for both of them. Moreover, Karam commingled personal and businessfinances in that he deposited payments that he personally received for child support intothe corporate account and monies from that same account would be used for Karam'shouse payments (see National Union Fire Ins. Co. of Pittsburgh, Pa. v Bodek,270 AD2d 139, 139 [2000], lv dismissed 95 NY2d 887 [2000]; AustinPowder Co. v McCullough, 216 AD2d at 827; compare Heim v Tri-Lakes Ford Mercury, Inc., 25 AD3d901, 903 [2006], lv dismissed and denied 6 NY3d 886 [2006]). Additionally,while Karam admitted that Supreme Energy lacked funds to pay the previously discussedlicense fees, Supreme Energy provided Cold Springs Terminal with a monetary loan in2007 of approximately $74,000. To that end, Karam likewise admitted that SupremeEnergy passed the cost of the license fees by billing it to clients, but the monies receivedfrom the clients were not used to satisfy payment of the license fees owed to DEC. Inview of the foregoing, Karam failed to observe corporate formalities and abused thecorporate form to perpetuate a wrongdoing against DEC. As such, we find no error inrespondent's determination to pierce the corporate veil and to hold Karam personallyresponsible for the imposed financial penalties. In light of this determination, it isunnecessary for us to reach whether personal liability attaches under the responsiblecorporate officer doctrine.
Finally, respondent was authorized to sanction petitioners $25,000 per day(see Navigation Law § 192), which, in this case, could have resultedin a financial penalty in excess of $19 million. Respondent, however, did not use thispermissible rate and instead used a fraction of that $25,000 daily rate in calculating theoverall fine. Accordingly, taking into account petitioners' wrongdoing and the deferenceaccorded to respondent in determining an appropriate sanction, we conclude that theassessed monetary fine of $1,269,517 does not shock the judicial conscience so as toconstitute an abuse of discretion (see Matter of Pell v Board of Educ. of Union FreeSchool Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County,34 NY2d 222, 233 [1974]; Stateof New York v Williamson, 8 AD3d 925, 930 [2004]; Matter of Slemp vNew York State Dept. of Envtl. Conservation, 176 AD2d 1122, 1124 [1991]).
Petitioners' remaining contention, to the extent not specifically addressed, has beenexamined and is found to be without merit.
Peters, P.J., Garry, Devine and Clark, JJ., concur. Adjudged that the determination isconfirmed, without costs, and petition dismissed.
Footnote 1:Contrary to respondents'assertion, petitioners did not abandon their argument that the determination wasunsupported by substantial evidence inasmuch as petitioners' brief incorporates byreference such argument as set forth in the petition (see Matter of Murphy HeatingServ. v Chu, 124 AD2d 907, 909 [1986]).
Footnote 2:6 NYCRR former 613.3(c) (6) (i), which was repealed in 2015 but governed the time of the events here, similarlyimposed a secondary containment system requirement.