Matter of Supreme Energy, LLC v. Martens , 42 N.Y.S.3d 454 ( 2016 )

State of New York
Supreme Court, Appellate Division
Third Judicial Department
Decided and Entered: December 1, 2016 522518
________________________________
In the Matter of SUPREME
ENERGY, LLC, et al.,
Petitioners,
v MEMORANDUM AND JUDGMENT
JOSEPH J. MARTENS, as
Commissioner of Environmental
Conservation, et al.,
Respondents.
________________________________
Calendar Date: October 18, 2016
Before: Peters, P.J., Garry, Devine, Clark and Aarons, JJ.
__________
Cohen & Cohen, Utica (Daniel S. Cohen of counsel), for
petitioners.
Eric T. Schneiderman, Attorney General, Albany (Meredith G.
Lee-Clark of counsel), for respondents.
__________
Aarons, J.
Proceeding pursuant to CPLR article 78 (transferred to this
Court by order of the Supreme Court, entered in Albany County) to
review a determination of respondent Commissioner of
Environmental Conservation finding, among other things, that
petitioners failed to obtain a license for an onshore major
petroleum storage facility.
Alaskan Oil, Inc. operated and owned an onshore major
petroleum storage facility located in the Village of
Baldwinsville, Onondaga County. In 2003, petitioner Supreme
Energy, LLC, of which petitioner Frederick Karam was the sole
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owner and member, entered into a land contract with Alaskan Oil
to purchase the facility. While Supreme Energy did not
officially take title until 2006, it had assumed operational
control over the facility in 2004. After Supreme Energy failed
to comply with deficiencies delineated in separate notices of
violations, respondent Department of Environmental Conservation
(hereinafter DEC) commenced an enforcement proceeding in 2008
alleging that, as relevant here, petitioners operated a major
petroleum storage facility without a license, petitioners failed
to pay required licensing fees and submit monthly certifications
and petitioners failed to maintain an adequate secondary
containment area for the storage tanks. After a hearing, the
Administrative Law Judge (hereinafter ALJ) issued a report in
which he recommended, among other things, that petitioners be
held liable on these charges and that Karam bear personal
liability for the charges relating only to operating a facility
without a license and failing to maintain an adequate secondary
containment area. Respondent Commissioner of Environmental
Conservation (hereinafter respondent) largely adopted the ALJ's
recommendation 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 to maintain
adequate secondary containment – for a total of $1,269,517.
Respondent, however, imposed personal liability upon Karam for
all of the charges. Petitioners commenced this CPLR article 78
proceeding seeking annulment of respondent's determination.
Supreme Court thereafter transferred the matter to this Court.
We confirm.
The applicable standard of review is whether substantial
evidence supports respondent's determination (see CPLR 7803 [4];
Matter of Al Turi Landfill v New 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 and denied 24 NY3d 1065 [2014]). Under this
standard, "it is the responsibility of the administrative agency
to weigh the evidence and choose from among competing inferences
therefrom and, so long as the inference drawn and the ultimate
determination made are supported by substantial evidence, it is
not for the court to substitute its judgment for that of the
administrative agency" (Matter of Murtaugh v New York State Dept.
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of Envtl. Conservation, 42 AD3d 986, 987 [2007] [internal
brackets, quotation marks and citation omitted], lv dismissed 9
NY3d 971 [2007]). Respondent is not bound by the ALJ's factual
findings and is entitled to make his own findings (see Matter of
Jackson'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 substantial evidence (see Matter of
Carney's Rest. Inc. v State of New York, 89 AD3d 1250, 1252
[2011]).1
We find that respondent's determination that Supreme Energy
operated a major petroleum facility without a license was
supported by substantial evidence. Under New York's Navigation
Law, a person is prohibited from operating a major petroleum
storage facility 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, Alaskan Oil's license, which was non-
transferable, had already expired in 2002. Supreme Energy, in
fact, submitted an application for a license in 2004, but DEC
deemed that application incomplete and another license
application was never submitted. Furthermore, even if we agreed
with petitioners' assertion that Supreme Energy was permitted to
operate the facility pursuant to the terms of a 2004 consent
order, a notice of violation dated April 27, 2007 from DEC and
addressed to Karam explicitly informed him that Supreme Energy's
"license information [was] not current and correct" and that this
deficiency needed to be rectified. Supreme Energy nevertheless
continued its operation of the facility without a license.
Inasmuch as respondent found that Supreme Energy unlawfully
operated the facility without a license from May 2, 2007 to June
2009, which encompassed a period after the April 2007 notice of
violation explicitly advised Karam that Supreme Energy did not
have a valid license, we find no basis to upset this
determination (see Matter of Huntington & Kildare, Inc. v
1
Contrary to respondents' assertion, petitioners did not
abandon their argument that the determination was unsupported by
substantial evidence inasmuch as petitioners' brief incorporates
by reference such argument as set forth in the petition (see
Matter of Murphy Heating Serv. v Chu, 124 AD2d 907, 909 [1986]).
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Grannis, 89 AD3d 1195, 1197 [2011]).
We also conclude that substantial evidence exists in the
record supporting respondent's determination that petitioners
failed to pay license fees and submit timely certification
reports. Under the applicable statutory provisions and
regulations, Supreme Energy was obligated to submit monthly
certification reports (see Navigation Law §§ 172 [10]; 174 [5];
17 NYCRR 30.6 [c] [2]; 30.8 [a]), and, along with these reports,
Supreme Energy was required to submit full payment of any license
fees or surcharges (see Navigation Law § 174 [5]; 17 NYCRR 30.9
[b]). The hearing testimony and documentary evidence reveal that
31 out of the 47 monthly certification reports submitted between
August 2004 and June 2008 were deemed untimely because they were
not accompanied by the requisite license fee or surcharge
payments and, as a consequence, subjected Supreme Energy to
additional late fees (see 17 NYCRR 30.9 [e]). Taking into
account Supreme Energy's admission that it did not pay all of the
required licensing fees, substantial evidence exists to support
respondent's determination on this point (see generally 300
Gramatan Ave. Assoc. v State Div. of Human Rights, 45 NY2d 176,
181 [1978]).
Next, we discern no reason to disturb respondent's finding
that Supreme Energy failed to maintain an adequate secondary
containment area for the petroleum storage tanks. The regulatory
scheme requires that an aboveground petroleum storage tank with a
capacity of 10,000 gallons or more have around it a secondary
containment area to protect against petroleum leakage and the
release of petroleum (see 6 NYCRR 613-4.1 [b] [1] [v] [a]).2
Whether a facility maintains an adequate secondary containment
area for its tanks can be based on internal DEC guidelines (see
17 NYCRR 30.5 [e]), one of which is that the secondary
containment 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
2
6 NYCRR former 613.3 (c) (6) (i), which was repealed in
2015 but governed the time of the events here, similarly imposed
a secondary containment system requirement.
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investigations of the facility conducted since Supreme Energy
assumed operational control in 2004 found that the 110% capacity
requirement had not been complied with, and, as of 2008, Supreme
Energy still had not satisfied this requirement. The record
evidence also supports respondent's determination that the
secondary containment 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 that Supreme Energy
could seek financial reimbursement for any damage caused by the
DEC contractor and, to the extent that Karam denies being told
this information, it presented a credibility 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 NY3d 929 [2014]). Furthermore, most of the
damage in the liner was unrelated or existed prior to the work
performed by the DEC contractor at the facility, and none of this
damage was addressed by Supreme Energy. We therefore find that
respondent's determination that Supreme Energy failed to maintain
an adequate secondary containment area for its tanks was
supported by substantial evidence.
We also reject petitioners' contention that respondent
erred in piercing the corporate veil and imposing personal
liability upon Karam. "Generally . . . piercing the corporate
veil requires a showing that: (1) the owners exercised complete
domination of the corporation in respect to the transaction
attacked; and (2) that such domination was used to commit a fraud
or wrong against the plaintiff which resulted in [the]
plaintiff's injury" (Matter of Morris v New York State Dept. of
Taxation & Fin., 82 NY2d 135, 141 [1993]). Whether to pierce the
corporate veil involves a scrutiny of various considerations,
including "the overlap in ownership, officers, director and
personnel, the capitalization of the corporation, any commingling
of assets and the presence, or absence, of the formalities that
attend the corporate form" (Kain Dev. LLC v Kraus Props., LLC,
130 AD3d 1229, 1235 [2015]; see Austin Powder Co. v McCullough,
216 AD2d 825, 826-827 [1995]). Karam testified at the hearing
that not only did he own Supreme Energy, but he was also the sole
owner of Cold Springs Terminal, LLC, which operated a petroleum
storage facility next to the one operated by Supreme Energy.
Notwithstanding the fact that Supreme Energy and Cold Springs
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Terminal were separate entities, Karam used a single checkbook
for both of them. Moreover, Karam commingled personal and
business finances in that he deposited payments that he
personally received for child support into the corporate account
and monies from that same account would be used for Karam's house
payments (see National Union Fire Ins. Co. of Pittsburgh, Pa. v
Bodek, 270 AD2d 139, 139 [2000], lv dismissed 95 NY2d 887 [2000];
Austin Power Co. v McCullough, 216 AD2d at 827; compare Heim v
Tri-Lakes Ford Mercury, Inc., 25 AD3d 901, 903 [2006], lv
dismissed and denied 6 NY3d 886 [2006]). Additionally, while
Karam admitted that Supreme Energy lacked funds to pay the
previously discussed license fees, Supreme Energy provided Cold
Springs Terminal with a monetary loan in 2007 of approximately
$74,000. To that end, Karam likewise admitted that Supreme
Energy passed the cost of the license fees by billing it to
clients, but the monies received from the clients were not used
to satisfy payment of the license fees owed to DEC. In view of
the foregoing, Karam failed to observe corporate formalities and
abused the corporate form to perpetuate a wrongdoing against DEC.
As such, we find no error in respondent's determination to pierce
the corporate veil and to hold Karam personally responsible for
the imposed financial penalties. In light of this determination,
it is unnecessary for us to reach whether personal liability
attaches under the responsible corporate officer doctrine.
Finally, respondent was authorized to sanction petitioners
$25,000 per day (see Navigation Law § 192), which, in this case,
could have resulted in a financial penalty in excess of $19
million. Respondent, however, did not use this permissible rate
and instead used a fraction of that $25,000 daily rate in
calculating the overall fine. Accordingly, taking into account
petitioners' wrongdoing and the deference accorded to respondent
in determining an appropriate sanction, we conclude that the
assessed monetary fine of $1,269,517 does not shock the judicial
conscience so as to constitute an abuse of discretion (see Matter
of Pell v Board of Educ. of Union Free School Dist. No. 1 of
Towns of Scarsdale & Mamaroneck, Westchester County, 34 NY2d 222,
233 [1974]; State of New York v Williamson, 8 AD3d 925, 930
[2004]; Matter of Slemp v New York State Dept. of Envtl.
Conservation, 176 AD2d 1122, 1124 [1991]).
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Petitioners' remaining contention, to the extent not
specifically addressed, has been examined and is found to be
without merit.
Peters, P.J., Garry, Devine and Clark, JJ., concur.
ADJUDGED that the determination is confirmed, without
costs, and petition dismissed.
ENTER:
Robert D. Mayberger
Clerk of the Court