Matter of New York City Dept. of Envtl. Protection v State of New York

[*1] Matter of New York City Dept. of Envtl. Protection v State of New York 2005 NY Slip Op 50496(U) Decided on April 8, 2005 Supreme Court, New York County Feinman, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on April 8, 2005
Supreme Court, New York County

In the Matter of New York City Department of Environmental Protection, CHRISTOPHER O. WARD, AS COMMISSIONER OF THE NEW YORK CITY DEPARTMENT OF ENVIRONMENTAL PROTECTION, and THE CITY OF NEW YORK, Petitioners,

against

State of New York, NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION, ERIN M. CROTTY, AS COMMISSIONER OF THE NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION, Respondents.



402174/2004



Petitioners' CounselRespondents' Counsel

Michael A. CardozoEliot Spitzer

Corporation Counsel of the Attorney General of the

City of New YorkState of New York

By: William S. PlacheBy: Andrew J. Gershon

Michael Burger Gordon J. Johnson

100 Church Street120 Broadway, 26th Floor

New York, NY 10007New York, NY 10271

(212) 788-1574(212) 416-8474

Paul G. Feinman, J.

In this proceeding the Court is called upon to resolve a dispute between the City of New [*2]York and the State of New York regarding the implementation of an administrative consent order entered into between petitioner New York City Department of Environmental Protection (DEP) and respondent New York State Department of Environmental Conservation (DEC). The consent order governs the removal of nitrogen from the wastewater discharges of certain New York City water pollution control plants. The petitioners seek a judgment pursuant to CPLR Article 78 annulling DEC's decision of March 25, 2004 which rejected DEP's request for approval of a Revised Facility Plan for nitrogen removal. DEP further asks the Court to vacate the March 12, 2004 Notice of Violation issued by DEC. As a remedy, DEP requests that the court order DEC to conduct a good faith review of DEP's Revised Facility Plan.

DEC counterclaims for stipulated penalties totaling $17,676,000.00 pursuant to the terms of the administrative consent order.

For the reasons which follow, the petition on behalf of the City and DEP is denied. Furthermore, the State respondents are awarded judgment on their counterclaims, but only to the extent indicated.

Factual and Procedural Background

The issues in this proceeding arise as a result of efforts of New York State and New York City to reduce the discharge of nitrogen into Long Island Sound and Jamaica Bay. Nitrogen discharged into the water acts as a fertilizer, encouraging the growth of algae. Excessive algae use up available oxygen in the water, creating hypoxic conditions during the summer months which can kill or drive off marine life.

In the late 1980's, the United States Environmental Protection Agency (EPA) and the States of New York and Connecticut convened the Long Island Sound Study Management Conference to conduct the Long Island Sound Study (LISS). The LISS was designed to analyze and address the serious water quality problems in the Long Island Sound. Pursuant to the LISS, a phased approach was developed to reduce the total maximum daily load (TMDL) of nitrogen in the Long Island Sound. In 1998, New York, Connecticut, and EPA adopted the Phase III policy and plan for Hypoxia Management, calling for a phased reduction of nitrogen from the 1994 baseline amounts, with a 23.4% reduction by 2004, a 43.8% reduction by 2009, and a 58.5% reduction by 2014. Those reduced amounts were to be incorporated into the effluent limits set for water pollution control plants which discharge into the Long Island Sound Basin.

As part of the efforts to reduce nitrogen, in 1994 the Nitrogen Technical Advisory Committee (NTAC) was established to review DEP's research and technical proposals for nitrogen reduction. The NTAC is comprised of a group of independent scientists. The consent order provides for continuation and review of DEP proposals by the NTAC.

In 1999, the City and the State of New York entered into discussions concerning the upgrade of four water pollution control plants that discharge into the Upper East River, and one plant that discharges into Jamaica Bay.[FN1] The purpose of the upgrade was to increase the removal of nitrogen from the plants' effluent. On April 22, 2002, DEC and DEP entered into an administrative consent order, pursuant to which DEP agreed, inter alia, to develop specific plans [*3]for upgrading the five water pollution control plants encompassed by the consent order. The consent order contains specific milestones for the upgrading of the plants. It also provides that the plans for upgrades will, at a minimum, contain additional milestones, including milestones for the beginning and completion of design, that will become part of the consent order.

As part of the discussions resulting in the consent order, DEP made technical presentations to DEC regarding design and timetables for the proposed upgrades of the water pollution control plants covered by the consent order. The program which was adopted by DEP is referred to as the Full Step-Feed Biological Nitrogen Removal (BNR). According to DEP engineer Alfonso Lopez, Step-Feed BNR converts nitrogen, which exists in the form of ammonia in the wastewater, into nitrogen gas, which is then released into the atmosphere. Live bacteria in the wastewater stream carry out the biological and chemical reactions which result in the release of nitrogen gas.

Generally, water pollution control plants perform "secondary treatment" on the water which they treat. Secondary treatment involves three separate processes: primary settling, aeration, and final settling. Aeration takes place in a series of open tanks. The wastewater flows through the aeration tanks where air is injected into the wastewater, promoting biological growth to consume wastewater pollutants. In the final settling process, more pollutants are removed. According to DEP, conventional methods for nitrogen removal require the wastewater to be held in the tanks for substantially longer periods than secondary treatment utilizes.

To overcome the problem of limited space, DEP developed the Step-Feed nitrogen removal process, which operates by creating separate aerated (oxic) and non-aerated (anoxic) zones in the secondary treatment tanks. In the oxic zones, large air compressors force air into the wastewater through an air diffusion system in the aeration tank. In the anoxic zones, the air diffusion system is turned off, but submersible mixers are used to prevent settling of solids in the anoxic zones.

DEP submitted its Facility Plan to DEC, utilizing the Full Step-Feed BNR process, on October 22, 2002, as required by the consent order. At some point after the plan was submitted, however, DEP concluded that it would be far more costly than originally estimated. While the original Facility Plan was being reviewed by DEC, DEP began working on a Revised Facility Plan that would be less costly. In February 2003, DEP informed DEC that it wanted to discuss the possibility of submitting a revised plan. The two agencies met on March 18, 2003, and began discussions of DEP's proposed changes. Following the meeting, DEP provided DEC with some technical and financial documents relating to the proposed revisions.

By letter dated March 28, 2003, DEC requested additional information prior to a follow-up meeting scheduled for April 8, 2003. In a memo dated April 3, 2003, DEP responded indicating that, because of the amount of information requested, it would not be able to provide the information in time for the scheduled meeting, but nevertheless requested that the meeting proceed. DEC cancelled the meeting, stating that, without the requested information, its technical and legal staffs would not be able to prepare adequately for the meeting.

DEP then submitted a packet of information to DEC concerning technical and financial aspects of the program by letter dated April 15, 2003. DEC responded to DEP's submissions, requesting additional information about DEP's budget, and asking that DEP evaluate "the legal framework, the existing milestones and penalties, and the impact of the proposed modifications [*4]to projects on water quality." (Letter from Erin M. Crotty and Ronald Tramontano to Christopher O. Ward, dated June 3, 2003.) The letter stated that: any proposal by the City must contain at least the same level of environmental protection as is currently set forth in the two Orders on Consent. The State is committed to giving due consideration to revised programs that can meet the City's commitment to water quality improvements in the Long Island Sound and the New York/New Jersey Harbor Estuary once this is provided. In the meanwhile, the Department is compelled to continue to enforce the BNR and [combined sewer overflow] CSO Orders until this additional necessary information is provided and conceptual agreement as to the need for an alternative approach to addressing these issues is developed.

(Id.) On June 17, 2003, prior to receiving DEP's response to the June 3, 2003 letter, DEC approved the original Facility Plan which DEP submitted on October 22, 2002.

In a letter dated July 2, 2003, DEP wrote to DEC requesting that the approval of its original Facility Plan be withdrawn, enclosing additional information requested by DEC in the June 3, 2003 letter, and stating that DEP remained committed to meeting the milestones in the consent order.

On July 31, 2003, DEC responded to DEP, rejecting its request and stating that: to date, DEP has been unable to provide the [DEC] with a basis for, explanation of, or substantive technical data supporting the proposal to comprehensively revise its October 2002 plan to address nitrogen in Long Island Sound, nor has it provided such information for its CSO upgrade program. A financial analysis to support DEP's assertion of sudden massive cost increases and unaffordiblity [sic] is fundamental to opening any reconsideration of your approval plan. * * * Only if DEP can offer a substitute plan with equal or greater performance reliability and clarity could the Department accept it as a substitute course to achieve the goals of these programs.

(Letter of Erin M. Crotty to Christopher O. Ward, dated July 31, 2003.)

On September 18, 2003, DEP sent additional information to DEC regarding an explanation of the escalation of cost estimates for the upgrade, as well as technical details concerning the proposed changes in the plans. DEP stated that it believed that if the revised plan were approved, DEP would be able to meet the construction completion milestones and nitrogen limits contained in the consent order, and that it remained committed to achieving the 10-year TMDL limit within the time frame specified in the consent order.

On October 30-31, 2003, DEP discussed its proposed nitrogen program with members of the NTAC. A summary of the discussion at the meeting indicates that several members of the NTAC expressed positive views concerning DEP's proposals; however, some concerns were also expressed including, among other things, the belief that additional analysis of the risks at each of the Upper East River plants was needed.

On December 9, 2003, DEP sent DEC additional documentation comparing the projected performance of the original and proposed revised Facility Plans which, according to DEP, [*5]demonstrated that the projected nitrogen removal in the revised plan was expected to be comparable to that using the original plan and might also mitigate construction impacts.

DEP formally submitted the Revised Facility Plan to DEC on February 27, 2004, which, according to DEP, would cost $800 million less than the original plan, and would be more effective at removing nitrogen from the wastewater. According to DEP, the Revised Facility Plan is designed for a greater reliance on the separate treatment of a component of the wastewater known as centrate, which has a particularly high nitrogen content. The revised plan also provides for construction of a demonstration facility at Wards Island Water pollution control plant for a particular approach to separate centrate treatment, known as SHARON, although DEP states that the revised plan does not rely on its projections of the success of SHARON in calculating the effectiveness of the revised program. Also, according to DEP, the original plan overestimated the wastewater flow and the nitrogen loads into the water pollution control plants and, therefore, the revised plan reduces what it terms unnecessary "design conservatism and redundancy" in the original plan.

On March 25, 2004, DEC rejected the revised plan, stating that there were several major areas of deficiency, which must be resolved. The letter further stated: Most critical is the DEP's failure to evaluate the Advanced Basic Step-Feed BNR Plan's ability to achieve compliance with the City's SPDES permit and 15 year TMDL. Though the DEC typically supports the development of cost effective wastewater treatment technologies, absent an evaluation of the revised plan's ability to meet final discharge limits, it is impossible for the DEC to complete a thorough technical review.This initial reading also revealed that DEP has failed to finalize plans to implement supplemental carbon addition under the revised facility plan. This is a serious concern for DEC. Any future review of a scaled back capital construction BNR program must include an early commitment to construct and utilize supplemental carbon facilities to offset potential performance losses and reduced redundancy, thereby assuring nitrogen reduction compliance. While the DEP states that the Sharon process demonstration is being "considered" for future incorporation in to the BNR program, the DEP is relying on the success of Sharon to offset and reduce effluent [nitrogen] discharged during construction. However, no actual commitment and schedule for Sharon is included in the Facility Plan. DEP has based their evaluations on modeling to determine the overall effect of Sharon, but is inconsistent in that it fails to complete the same modeling process to determine the denitrification rates during and post construction with carbon addition.

(Letter from Robert Elburn, P.E. to Alfred R. Lopez, P.E. and Warren Kurtz, P.E., dated March 25, 2004.)

On March 12, 2004, two weeks before its letter rejecting DEP's revised plan, DEC sent a Notice of Violation to DEP. That Notice indicates that DEP violated the consent order because it had missed agreed-upon milestones requiring DEP to submit design documents for plants at [*6]Wards Island and the 26th Ward. DEC further issued notices to proceed for construction at Tallman Island, Wards Island, and the 26th Ward. DEC also expressed concern that DEP had failed to bring construction projects back on schedule at Hunts Point and Bowery Bay. According to the Notice of Violation, the alleged violations "seriously threaten the ability of [DEP] to meet future Order milestones, and comply with the post-construction aggregate total nitrogen effluent limits set forth in Appendix B of the Order." (Notice of Violation, issued on March 12, 2004, at 2.)

Analysis

DEP contends that DEC's decision to reject its Revised Nitrogen Removal Plan and its issuance of a Notice of Violation were both arbitrary and capricious, and should be invalidated.

1. Rejection of the Revised Nitrogen Removal Plan

DEP first argues that DEC's decision rejecting the revised plan was arbitrary and capricious because its Revised Nitrogen Removal Plan would achieve greater nitrogen reductions at a lower cost than the original plan. They argue that this is particularly true in light of what is characterized by DEP as NTAC's "enthusiastic endorsement" of the plan. DEP further argues that DEC's rejection of the revised plan, after just one month of review, indicates that DEC did not give good faith consideration to the plan. Finally, DEP contends that DEC improperly changed the standard under which it would assess the revised plan.

In response, DEC submits affidavits of DEC technical staff who contend that the revised plan will be less effective than the original plan, does not contain sufficient redundancy, and will result in greater "spikes" of nitrogen discharge during construction. As a result, DEC also doubts the ability of the revised plan to satisfy the 15-year TMDL. DEC also submits the affidavit of Bruce A. Bell, a member of the NTAC, who states that DEP, at best, overstates the purported "endorsement" of DEP's revised plan. According to Bell, the NTAC was never given the formal Revised Facility Plan, nor was it asked to endorse or approve the plan. At most, the NTAC endorsed DEP's efforts to evaluate innovative technologies.

DEC also contends that DEP is applying the wrong standard in challenging DEC's rejection of the revised plan, and that, by failing to proceed with the milestones established by the consent order while it was seeking to obtain approval of the revised plan, DEP had unilaterally modified the consent order. According to DEC, under Paragraph XIV (A) of the consent order, the standard of review to be applied by this court is that contained in Rule 60 (b) of the Federal Rules of Civil Procedure. Paragraph XIV (A) states as follows, in pertinent part: A party may pursue a modification to which the other does not agree, and such a unilaterally sought modification may be granted by the court, pursuant to Paragraph XV below, only if the facts and circumstances upon which the application to modify is based would support relief from this Order under the standards of Fed.R.Civ.P. § 60 (b), or any successor rule.

Citing United States v Bank of New York (14 F3d 756, 759 [2d Cir 1994]), DEC argues that under Rule 60 (b), relief may only be granted in extraordinary circumstances. DEC contends that DEP's belated recognition that its original Nitrogen Removal Plan would cost more than originally estimated does not constitute the type of extraordinary circumstances that would justify this Court overriding DEC's technical decision to reject the revised plan. DEC further contends [*7]that, as a factual matter, DEP failed to establish that the revised plan would be as protective of the environment as the original plan which was approved by DEC.

DEP argues that the Rule 60 (b) standard only applies to its request that the Court order DEC to adopt the revised plan as a modification of the administrative consent order. To the extent that DEP is also seeking a declaration that DEC improperly rejected the revised plan, DEP contends that the arbitrary and capricious standard applies.

Regardless of which standard applies, this Court is basically faced with weighing the competing views of DEP and DEC's engineering experts. In an Article 78 proceeding, in determining whether an agency action is arbitrary and capricious, where the judgment of an agency involves factual evaluation in the area of an agency's expertise, the Court must afford great deference to the agency's judgment (Flacke v Onondaga Landfill Systems, Inc., 69 NY2d 355, 363 [1987]). Here, DEP argues that DEC's expertise should be disregarded, in part, because the period of time which DEC spent reviewing the proposed revisions was so short, compared with the review time for the original proposal (one month compared with eight months). DEP contends that, given DEC's extremely quick rejection of DEP's revised plan, it is clear that DEC did not seriously consider the proposed changes. In response, DEC contends that its engineers were able to evaluate the plan quickly because it built on the earlier plan which they had considered in depth. Furthermore, the two agencies had been discussing the proposed changes for several months before DEP submitted its formal proposal for the revised plan.

Both the dispute about whether DEC's staff of engineers could adequately review DEP's proposed Revised Facility Plan in one month, and the dispute about whether that plan will or will not result in the same level of nitrogen removal as the original plan, turn on technical questions which the Court is not ideally suited to determine. Furthermore, the factual evaluations made by DEC's staff involved highly specialized expertise, as is demonstrated by the voluminous technical documents submitted by both parties (See Matter of Regional Action Group for the Environment v Zagata, 245 AD2d 798, 800 [3d Dept 1997]). In short, this is just the sort of dispute in which the Court must give great deference to the judgment of the administrative agency responsible for the challenged decision. The fact that the petitioner is a municipal administrative agency challenging the decision of a state administrative agency should not alter these fundamental principles regarding the Court's role in this dispute.

The Court also rejects DEP's contention that DEC improperly changed the standard that DEP must meet in order to obtain approval of its proposed revised plan, when it required that the DEP's substitute plan must show equal or greater performance reliability and clarity. DEC's June 3, 2003 letter said that any revised plan must provide "at least the same level of environmental protection as is currently set forth in the two Orders on Consent." (Letter of Crotty and Tramontano to Ward, dated June 3, 2003.) DEC's July 31, 2003 letter stated that any revised plan must provide "equal to or greater performance reliability." (Letter of Crotty to Ward, dated July 31, 2003.) The Court concludes that both statements indicate that any revised plan must be as effective at nitrogen removal as the original plan, and that proposals that eliminated more nitrogen would be considered as well. DEC did not improperly change the standard that DEP must meet. While the dual laudable goals of protection of the environment and of protection of the public fisc might be more effectively achieved from a negotiated amendment to the original administrative consent order, this Court cannot conclude on this record that DEC's decision [*8]rejecting the Revised Nitrogen Removal Plan was arbitrary and capricious. Accordingly, the petitioners' request for a judgment annulling that decision must be denied.

2. Notice of Violation

The second part of the petition concerns the Notice of Violation issued by DEC shortly before it issued its decision regarding the Revised Facility Plan. The specified violations relate to DEP's failure to complete certain design phases for both the Wards Island and 26th Ward water pollution control plants, and phase I construction at the 26th Ward and Tallman Island water pollution control plants, as required by the original Nitrogen Removal Plan. DEP contends that DEC's issuance of the Notice was based on the incorrect assumption that, in missing the specific milestones mentioned in the Notice, DEP had unilaterally abandoned the original Nitrogen Removal Plan adopted pursuant to the consent order. Therefore, DEP argues, issuance of the Notice of Violation was arbitrary and capricious, and an abuse of law. DEP argues that, far from acting unilaterally, DEP had, throughout, worked with DEC in its efforts to obtain approval for a revised plan, and that DEC's rejection of that plan results from DEC's failure to understand that the revised plan is an improvement over the original plan. Citing Matter of Featherstone v Franco (95 NY2d 550 [2000]) and Matter of Pell v Board of Educ. (34 NY2d 222 [1974]), DEP further argues that a penalty of $7,498,000 [FN2] for missing certain interim milestones is disproportionate to the purported offense and, therefore, constitutes an abuse of discretion and should be declared null and void.

DEC responds that, as with other administrative orders, the arbitrary and capricious standard applies to review of the Notice of Violation, that the court should only consider whether DEC had a rational basis for issuing the Notice and, if so, the Court may not substitute its judgment for that of the agency (Flacke v Onondaga Landfill Systems, Inc., 69 NY2d at 353.) DEC also contends that imposing penalties which have been agreed to by both sides in a consent order cannot, by definition, shock a reasonable conscience. DEC cites several cases which suggest that once a penalty has been agreed to by the parties to a contract, it is error for the Court to reject the penalty sought (See New York State Dept. of Environmental Conservation v O'Neill, 273 AD2d 852 [4th Dept 2000]; State of New York v Town of Wolcott, 270 AD2d 931 [4th Dept 2000]; State of New York v Town of Wallkill, 170 AD2d 8 [3d Dept 1991]; Williams v Ludlow's Sand and Gravel Co., Inc., 122 AD2d 612 [4th Dept 1986]). According to DEC, since the milestones set forth in the administrative consent order were plainly violated, the Court must impose the stipulated penalties.

It is somewhat troubling that DEC issued the Notice of Violation just two weeks before it rejected DEP's request to revise the Nitrogen Removal Plan. Had DEP remained in compliance with the milestones and produced design plans, and carried out construction to implement the original Nitrogen Removal Plan, and had DEC approved the requested revisions, the money spent by DEP for that work may well have been wasted. Nonetheless, after DEC denied DEP's July 2, 2003 request that DEC withdraw its approval of the original plan, there is no indication that DEP requested that the milestones be delayed pending either discussions between the [*9]agencies or DEP's formal submission of a request to revise the Nitrogen Removal Plan. To the contrary, as DEC indicates, throughout the discussions between the agencies, DEC had made it clear that it might not approve revisions to the plan, and that DEP should stay on track regarding the original plan. For example, in its June 3, 2003 letter, DEC stated that, although it would consider possible revisions, in the meantime it would continue to enforce the applicable orders. Again, in its July 31, 2003 letter refusing to withdraw its approval of the original Nitrogen Removal Plan, DEC reiterated its concern that DEP had "apparently ceased work on the implementation of the approved plan and has begun to miss associated Consent Order milestones." (Letter from Erin M. Crotty to Christopher O. Ward, dated July 31, 2003.) It seems clear that DEP failed to comply with the specified milestones and, thus, is in violation of the administrative consent order.

The Court is unpersuaded by DEP's contention that it would shock the conscience or violate a sense of fundamental fairness to hold the City and its environmental agency to what it agreed to do in the consent order. While the exercise of prudence and caution might have led DEC to issue its decision regarding DEP's request to revise the Nitrogen Removal Plan before it issued the Notice of Violation, the Court, in this instance, may not substitute its judgment for that of the state environmental agency. However, the Court notes that the consent order provides that, under certain circumstances, payment of accrued stipulated penalties will be paid into a Major Milestone Escrow Account, and shall be released to the City if the City complies with the final construction milestone. This approach both penalizes the City, as agreed to in the consent order, and gives the City additional incentive to get back on track and meet its future milestones.

Therefore, the DEC's counterclaim for penalties is granted to the extent that stipulated penalties will be granted, to be calculated up to July 31, 2004, the date of the filing of the City's petition, as provided in the dispute resolution provisions of the consent order. Those penalties are to be deposited into a Major Milestone Escrow Account, and shall be released to the City if the City complies with the following final construction milestones: December 31, 2009 for Tallman Island and Wards Island water pollution control plants, and June 30, 2007 for the 26th Ward water pollution control plant. This equitably carries out the agreement between the two agencies in a manner that promotes the goal of putting the Nitrogen Removal Plan back on track, while affording the City, if acts promptly, the ability to also protect the public fisc.

Accordingly, it is hereby

ORDERED and ADJUDGED that the petition is denied, and the proceeding is dismissed; and it is further

ORDERED and ADJUDGED that the counterclaim of respondents is granted to the extent set forth above; and it is further

ORDERED that respondents shall submit a proposed supplemental judgment, on notice, calculating the amount of penalties due up until, and including, July 31, 2004.

This constitutes the Decision, Order and Judgment of the Court.

Dated: April 8, 2005

New York, New YorkE N T E R : [*10]

____________________________________

J.S.C. Footnotes

Footnote 1:The plants include Hunts Point, Bowery Bay, Tallman Island and Wards Island, which discharge into the Upper East River; and the 26th Ward water pollution control plant, which discharges into Jamaica Bay.

Footnote 2:2. The Notice of Violation calculated penalties due in the amount of $7,498,000, as of March 12, 2004. In its counterclaim, DEC seeks penalties due in the amount of $17,676,000 as of November 1, 2004.