State of New York v LVF Realty Co., Inc.

[*1] State of New York v LVF Realty Co., Inc. 2007 NY Slip Op 51398(U) [16 Misc 3d 1112(A)] Decided on June 5, 2007 Supreme Court, Nassau County LaMarca, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 June 5, 2007
Supreme Court, Nassau County

State of New York, Plaintiff,

against

LVF Realty Co., Inc., Sun Super Service Centers, Inc., and Sunoco, Inc., (R&M), Defendants.



12328/02



Andrew M. Cuomo, Esq.

Attorney General of the State of New York

Attorney for Plaintiff

The Capitol Albany, NY 12224

Daniels and Porco, LLP

Attorneys for Defendant Sunoco, Inc., (R&M)

119 Washington Avenue

Albany, NY 12210

Robert G. Del Gadio, Esq.

Attorney for Defendants LVF Realty Co., Inc. and Sun Super Service Centers, Inc.

90 Merrick Avenue, Suite 510

East Meadow, NY 11554

WILLIAM R. LaMARCA, J.

Motion by defendant SUNOCO, pursuant to CPLR §4404, to set aside the jury's penalty award of $6 million dollars is denied.

This is an action to recover cleanup and removal costs of an oil spill pursuant to Navigation Law §181. Plaintiff, the STATE OF NEW YORK (hereinafter referred to as the "STATE"), also seeks to recover the statutory penalties provided by Navigation Law § 192.

Between 1941 and 1985, SUNOCO was the owner of a gasoline station located at 105 Sheridan Boulevard in Inwood. SUNOCO leased the gas station to various operators, and defendant, SUN SUPER SERVICE CENTERS, INC., became the tenant in 1980. SUNOCO sold the gas station to defendant, LVF REALTY CO., INC. (hereinafter referred to as "LVF"), in 1985, but SUNOCO continued to supply gasoline products to the station until 2003.

In November 1992, LVF was undertaking construction work at the gas station and, during the course of excavation, four underground steel storage tanks were discovered. Soil testing in the vicinity of the steel tanks revealed the presence of petroleum contamination. While there had been other oil spills in the area, no environmental impact had been detected. Because there appeared to be no effect upon drinking water or other sensitive receptors, the environmental consultant retained by SUNOCO initially concluded that no further investigation was necessary. However, the Department of Environmental Conservation believed that the contamination extended to the groundwater and urged SUNOCO to remediate the site. In 1993, a compromise was reached whereby SUNOCO agreed to conduct sampling in an area separate from the location where the steel tanks had been discovered. The testing was performed in the vicinity of some underground fiberglass tanks which had been installed by SUNOCO in 1983. Based upon the testing near the fiberglass tanks, SUNOCO decided not to remediate the site.

As the owner of the facility, LVF was responsible for the environmental cleanup. Navigation [*2]Law §181(3) provides that, subject to certain defenses, the owner or operator of a major facility or vessel which has discharged petroleum shall be strictly liable for cleanup and removal costs and for all direct and indirect damages paid by the New York Environmental Protection and Spill Compensation Fund. After SUNOCO refused to perform any remediation, LVF hired an environmental contractor to remove the steel tanks and approximately 290 tons of contaminated soil from the site. The cost of the cleanup was $57,000. In February 1994, without conceding that it was responsible for the oil spill, SUNOCO reimbursed LVF for the cleanup cost.

This action seeking to recover cleanup costs and statutory penalties was commenced by the STATE on December 17, 2002. Plaintiff asserted causes of action against SUNOCO for cleanup costs based upon its ownership of the property at the time of the spill and upon its operation of the system located at the site. Navigation Law §181(1) provides that "[a]ny person who has discharged petroleum shall be strictly liable, without regard to fault, for all cleanup and removal costs and all direct and indirect damages, no mater by whom sustained". Plaintiff also asserted a cause of action for statutory penalties on the grounds that SUNOCO had violated the oil spill article by failing to report the discharge in a timely fashion and failing to take all measures necessary to clean it up. Navigation Law §175 provides that any person responsible for causing a discharge shall immediately notify the department pursuant to regulations established by the department but in no case later than two hours after the discharge. Failure to so notify shall make persons liable to the penalty provision of Navigation Law §192. The complaint alleged that defendants were liable for the penalties set forth in § 192 in the amount of not more than $25,000 for each day that the offenses were continuing.

The jury found that there was a discharge of petroleum from the steel underground tanks and that SUNOCO had abandoned the tanks or performed another action or omission which led to the discharge. The jury also found that there had been a discharge of petroleum from the fiberglass underground system and that during the delivery of petroleum, SUNOCO had performed an act or omission that led to the discharge. The jury further found that SUNOCO owned all or part of the fiberglass system when the discharge of petroleum was discovered. The jury found that the contamination from the abandoned steel tanks commingled with the contamination from the fiberglass system and that the STATE had incurred costs associated with the cleanup and removal of petroleum from both areas. The parties had stipulated that the total costs expended by the STATE for the cleanup of the site was $66,120 and that the appropriate penalty period was three (3) years prior to the commencement of the action. The jury assessed penalties against SUNOCO in the amount of $6 million based upon its failure to investigate, contain, or cleanup the petroleum discharge after December 17, 1999.

SUNOCO now moves pursuant to CPLR §4404 to set aside the penalty award on the grounds that it is a grossly excessive punishment in violation of the Due Process clause and the Eighth Amendment of the U.S. Constitution.[FN1] SUNOCO analogizes the statutory penalty provided by the Navigation Law to an award of punitive damages and argues that the penalty award is [*3]unconstitutional because it is grossly excessive and because it was imposed without an individualized procedure whereby general criteria are applied to the facts of the particular case. Alternatively, SUNOCO argues that the penalty award is barred by the statute of limitations.

Navigation Law § 192, entitled "Enforcement of article; penalties," provides, as follows: Any person who knowingly gives or causes to be given any false information as a part of, or in response to, any claim made pursuant to [the oil spill] article for cleanup and removal costs, direct or indirect damages resulting from a discharge, or who otherwise violates any of the provisions of this article or any rule promulgated thereunder or who fails to comply with any duty created by this article shall be liable for a penalty of not more than twenty-five thousand dollars for each offense in a court of competent jurisdiction. If the violation is of a continuing nature each day during which it continues shall constitute an additional, separate and distinct offense.

The requirement of "knowingly" applies only if the predicate for the penalty is the giving of false information in relation to an oil spill claim (State v Markowitz, 273 AD2d 637, 710 NYS2d 407 [3d Dept. 2000]). Section 192 does not contain a mens rea requirement if the basis for the penalty is the violation of any other provision of the oil spill act. Because time is frequently of the essence when the environment is at risk, failure to report a spill or failure to clean it up may give rise to a continuing violation (see State v Super Value, Inc., 257 AD2d 708, 682 NYS2d 492 [3d Dept. 1999]).

The court notes as a preliminary matter that it has been held that a penalty award under the Navigation Law is not in the nature of punitive damages (See New York v Travelers Indemnity Co., 120 AD2d 251, 508 NYS2d 698 [3d Dept. 1986]). Nevertheless, upon reviewing the penalty as though it were an award of punitive damages, the court concludes that the penalty award does not violate the Due Process clause or the Eighth Amendment.

In Cooper Industries, Inc. v Leatherman Tool Group, Inc., 532 U.S. 424 [2001]), the Supreme Court held that the Due Process clause and the Eighth Amendment prohibit state courts from imposing "grossly excessive" punishments on tortfeasors. The Court also established the criteria for reviewing punitive damage awards pursuant to these constitutional provisions. The Court noted that although compensatory and punitive damages are awarded at the same trial, they serve distinct purposes (Id. at 432). Compensatory damages are intended to redress the concrete loss that the plaintiff has suffered by reason of the defendant's wrongful conduct. Thus, a jury's assessment of the extent of plaintiff's injury is essentially a factual determination (Id). Punitive damages, on the other hand, are intended to punish the defendant and to deter future wrongdoing. Since punitive damages are "quasi-criminal" and operate as "private fines," the imposition of punitive damages is an expression of the jury's moral condemnation (Id).

In Cooper Industries, the Court recognized that legislatures have broad discretion in authorizing and limiting punitive damage awards as they do in setting the range of permissible penalties for criminal violations (Id. at 433). However, the Court held that despite the broad discretion which the states possess with respect to the imposition of punitive damages, the Due Process clause and the Eighth Amendment impose substantive limits on that discretion (Id). The Court noted that the constitutional line, beyond which a punitive damage award is excessive, is "inherently imprecise" (Id at 434). Nevertheless, in reviewing a punitive damage award, a court is to focus on three general criteria: 1) the degree of the defendant's reprehensibility or [*4]culpability, 2) the relationship between the penalty and the harm caused to the victim, and 3) the sanctions imposed for comparable misconduct (Id. at 435).

In Cooper Industries, the Court stressed that an appellate court reviews the trial judge's determination as to excessiveness de novo, that is the appellate court engages in an independent examination of the relevant criteria (Id). The reason for de novo review is to ensure that punitive damages are reasonable in amount and rational in light of their purpose to punish what has occurred and to deter its repetition (Id at 436). In Cooper Industries, it had been argued that de novo review deprives a party of the right to a jury trial because it is tantamount to a finding by the court as to the level of punitive damages (Id. at 437). However, the Court reasoned that because the level of punitive damages is more a moral judgment than a "fact" to be tried by the jury, the right to trial by jury is not effected (Id. at 437). Before reviewing the penalty award to determine whether it is grossly excessive, this Court will consider SUNOCO's procedural due process arguments.

SUNOCO argues that the penalty award was arbitrarily imposed because "the jury awarded penalties based on no criteria whatsoever". (See, SUNOCO's Memorandum of Law at 17). To the extent that SUNOCO is objecting to the failure of the Court to instruct the jury as to the applicable criteria, CPLR §4110-b precludes defendant from assigning error to the Court's charge at this stage. Nevertheless, the Court will address SUNOCO's arguments that the penalty was arbitrary because it was assessed without criteria, and that SUNOCO was deprived of a hearing with regard to the amount of the penalty. The Court concludes that because of the nature of a Navigation Law penalty, it is not too late to remedy these procedural objections.

Similar to a punitive damage award, the penalty mandated by Navigation Law §192 is in essence a measure of the jury's moral condemnation. Thus, the level of the penalty is no more a "fact" to be tried by the jury than is the level of punitive damages. If the jury had imposed the penalty based upon application of the appropriate criteria, SUNOCO would have been entitled to a review for excessiveness by this Court and de novo review in the Appellate Division. Since a de novo review must be undertaken on appeal, it may also be conducted by the Trial Court within the context of a CPLR §4404 motion. Indeed, since this Court observed the witnesses as they testified, it is in a better position to review the penalty than is the appellate Court. Because this Court can, and will, review the excessiveness of the penalty, there has been no procedural due process violation.

Although the imposition of a penalty is mandatory once a violation is found, the Navigation Law is silent as to how the penalty should be assessed. SUNOCO argues that the general criteria to be applied upon review of a punitive damage award should be applied upon review of a Navigation Law penalty. The court agrees that the degree of defendant's culpability and the sanctions imposed for comparable misconduct should be considered. However, the relationship between the penalty and the harm caused to the victim is inapposite in a Navigation Law action because the STATE is seeking redress for harm caused to the public (See Navigation Law § 170-171).

The court notes that the Federal Comprehensive Environmental Response, Compensation and Liability Act has a purpose similar to that of the Navigation Law and creates an analogous statutory scheme (42 U.S.C. § 9601 et seq). Similar to the Navigation Law, CERCLA provides that the owner or operator of a vessel or facility at which hazardous substances are disposed of shall be liable for damages, including the cost of removal or remedial action incurred by the federal government and necessary costs of response incurred by any person(42 U.S.C. § 9607). [*5]CERCLA also provides for judicial assessment of civil penalties in an amount of not more than $25,000 per day for certain violations of the statute, including violations of administrative orders issued by the EPA and failure to give notice to the agency as to knowledge of the release of a hazardous substance (42 U.S.C. § 9609; 9622, 9603[a]).

The court is of the view that the criteria to be applied under CERCLA are more apt than the general criteria to be applied to an award of punitive damages. Indeed, it has been recognized that Federal case law under CERCLA is instructive as to the proper enforcement of the oil spill act (see State v Markowitz, supra ).

While civil penalties are not mandatory for violations of CERCLA, the Federal Courts have identified five factors to be considered in determining whether a penalty should be imposed and, if so, the level of the penalty (United States v Barkman, 784 F. Supp. 1181, 35 ERC 1318, 22 Envtl. L. Rep. 20,964 [E.D. Pa. 1992]). The factors include: 1) the good faith or bad faith of the defendant, 2) the injury to the public, 3) the defendant's ability to pay, 4) the need to eliminate any benefit derived from the violation, and 5) the necessity of vindicating the authority of the agency (Id). The Court will now consider these criteria, as well as the sanctions imposed for comparable misconduct, in determining whether the penalty imposed upon SUNOCO was excessive.

SUNOCO argues that it was in good faith because the environmental impact was not immediately apparent, its responsibility for the spill was unclear, and it did in fact pay for the removal of the steel tanks. However, DEC maintained from the onset that SUNOCO was responsible for the spills. Thus, SUNOCO's initial unwillingness to remediate the spill suggests a lack of good faith even though a "compromise" was eventually negotiated. Moreover, the fact that the underground steel tanks were abandoned, despite the risk of contamination, suggests a degree of callousness to environmental concerns on SUNOCO's part. SUNOCO claims that it had no knowledge as to the risk of contamination because it closed the steel tanks in 1983-84, prior to selling the gas station in 1985. However, because SUNOCO continued to supply gasoline to the station until 2003, it was on notice as to conditions at the site. Although a violation of the oil spill act need not be knowing, the penalty may be enhanced based upon constructive knowledge of the facts giving rise to the violation.

With respect to the issue of injury to the public, the environmental consultant retained by the DEC found significant evidence of contamination. Liquid phase hydrocarbons were detected in one of the monitoring wells. In addition, dissolved petroleum constituents in the form of BTEX [FN2] and MTBE [FN3] were found in the groundwater. The consultant determined that the highest [*6]concentration of these substances was in the area north of the fiberglass tanks, and the groundwater flow appeared to be in a southerly direction. The consultant also noted that there had been 133 spills in the Inwood area since 1977, and several were in close proximity to the Sheridan Boulevard site. The court concludes that the subject oil spill involved significant injury to the public.

With regard to the issue of ability to pay, the court notes that SUNOCO is a major gasoline retailer. There is no question that it has the ability to pay the penalty without its operations being significantly disrupted.

It may be inferred that there was some cost savings by abandoning the steel tanks as opposed to disposing of them in a more environmentally safe manner. Because there was no proof as to the cost of disposing of the tanks properly, the court cannot assume that the economic benefit to SUNOCO was significant. However, as in common law negligence, if social benefits outweigh costs, there may be a duty to take remedial action to avoid the risk of environmental injury (Matter of Asbestos Litigation, 5 NY3d 486, 840 NE2d 115, 806 NYS2d 146 [2005]).

SUNOCO did not accept the recommendation of the DEC that it remediate the site. However, it did not display any defiance and did eventually compromise, at least as to further testing. Thus, the court concludes that there is no need to vindicate the authority of the agency. SUNOCO argues that the penalty is disproportionate, considering both the ratio of punitive to compensatory award and the penalties which have been imposed upon comparable violations of the Navigation Law. The ratio of punitive to compensatory award should receive little weight because the cost to clean up the spill fails to allow for the injury to the environment (See 42 U.S.C. § 9607(a)(4)[c] [damages for injury to natural resources]). As indicated above, the sanctions which have been imposed for comparable misconduct are relevant to a proportionality or due process analysis. However, the court may have to compare the penalties in cases which are only roughly analogous, recognizing that the constitutional line is inherently imprecise.

There are very few reported decisions in which juries have imposed penalties under the Navigation Law. SUNOCO relies upon State v Super Value, Inc, 257 AD2d 708, 682 NYS2d 492 [3d Dept. 1999]). In Super Value, the first indication of a gasoline spill was that the tanks located at a service station failed a "tightness test". Further investigation revealed that one of the tanks sustained leakage at a rate of up to 3.7 gallons per hour, and tests of the ground water suggested that the municipal water supply was affected. Although the gasoline spill was not promptly reported to the DEC, the tanks were removed two months later. The jury found defendant liable for $9,500 in cleanup and removal costs and imposed a penalty of $157,000 upon the owner of the service station. The penalty in Super Value was considerably lower than the penalty in the present case. However, the defendant was a local service station owner rather than a national gasoline retailer. Moreover, unlike the case at bar, the spill in Super Value was remedied in a timely fashion and failure to report the spill was the only evidence of bad faith.

In State v Markowitz, supra , a delivery truck overfilled one or more of the storage tanks at a service station located in the Bronx, causing the gas to seep into a utility tunnel beneath the street. A test which was conducted the following day indicated that one of the tanks showed a leakage rate slightly above the permissible level. Shortly after the spill occurred, the operator of [*7]the station hired a contractor to install overfill protection devices on the tanks' fill lines. However, the contractor failed to install protection devices on the "stick lines". Stick lines are openings in the tanks through which a measuring stick is inserted to gauge the amount of gasoline. Because the stick lines were frequently left uncapped, the danger of spillage during delivery of gasoline was not eliminated by the contractor. The jury awarded cleanup costs of $910,000. In Markowitz, the service station was owned by one corporation and operated by another corporation. Each of the corporations had only one shareholder. The jury awarded penalties of $2.25 million each, against the corporate owner, the corporate lessee, and the sole shareholders of the two corporations, one of which was an estate. The jury also awarded a penalty of $1 million against the daughter-in-law of one of the shareholders. While the total penalty of $10 million was spread among five separate parties, the parties were close corporations and individual shareholders rather than a major corporation. Although the remedial action taken by the defendants in Markowitz was not effective, they appear to have been in good faith.

By contrast, in the case at bar the steel gasoline tanks were abandoned and allowed to remain in the ground although SUNOCO was on notice as to the danger of contamination. Thus, an inference arises that there was acquiescence on SUNOCO's part, if not active concealment of the risk to the environment. As noted, the defendant is not an operator of a single service station but rather a major gasoline retailer. Although SUNOCO was no longer the owner of the site, the public has a right to expect a national supplier to adopt a more proactive environmental policy. The penalty imposed by the jury was a moral condemnation of defendant's laxity. Having applied the applicable criteria and considered the penalties imposed for comparable misconduct, the court concludes that the penalty imposed in this case is not excessive. Furthermore, because remarks by counsel during summation are not evidence, the STATE is not bound by counsel's request that the jury impose a specific dollar amount as the penalty. (See Braun v Ahmed, 127 AD2d 418, 515 NYS2d 473 [2d Dept. 1987]).

Under the continuous wrong doctrine, continuous injuries create separate causes of action if the harm sustained by the complaining party is not exclusively traced to the day when the original wrongful act was committed (Covington v Walker, 3 NY3d 287, 819 NE2d 1025, 786 NYS2d 409 [2004]). The doctrine is applicable in an oil spill case because the environmental impact from a spill may become aggravated if the original spill is left untreated. CPLR §214(2) provides that an action to recover upon a penalty imposed by statute must be commenced within three years, and the parties stipulated that this was the appropriate penalty period. Because failure to clean up a spill is a continuing wrong, the penalty award is not barred by the statute of limitations. Accordingly, defendant's motion to set aside the penalty verdict is in all respects denied.

This constitutes the decision and order of the Court.

Dated: June 5, 2007

_________________________

WILLIAM R. LaMARCA, J.S.C.

TO:

stateofny-lvfrealty&sunoco,#

08/cplr Footnotes

Footnote 1:The Eighth Amendment to the U.S. Constitution provides that, "Excessive bails shall not be required, nor excessive fines imposed..." The Eighth Amendment is applicable to the states by virtue of its incorporation into the due process clause of the 14th amendment (Furman v. Georgia, 408 U.S. 238 [1972]).

Footnote 2:BTEX is an acronym for benzene, toluene, ethylbenzene, and xylene (see www.wipedia.org). These compounds are found in gasoline and can have major effects on the central nervous system. Benzene is a known carcinogen. The amount of BTEX is sometimes used to aid in assessing the risk at contaminated locations and the need of remediation of the site(Id).

Footnote 3:Although methyl tert-butyl ether, or "MTBE," is not classifiable as a human carcinogen, the health risks of MTBE are debatable (See, www.wikepedia.org).Since MTBE is an ether, it acts as an emulsifier, increasing the solubility of benzene and other harmful components of gasoline. Thus, MTBE may increase the risk of contamination by other compounds. Additionally, even low concentrations of MTBE will ruin the taste of drinking water (Id).