State Ex. Rel. DeWine v. Mass Realty, L.L.C. , 197 Ohio App. 3d 653 ( 2012 )

[Cite as State ex rel. DeWine v. Mass Realty, L.L.C., 197 Ohio App.3d 653, 2012-Ohio-146.]
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
The STATE ex. rel. : APPEAL NO. C-110279
DEWINE, ATTORNEY GENERAL, TRIAL NO. A-0603011
:
Appellant, O P I N I O N.
:
v.
:
MASS REALTY, L.L.C.,
:
Appellee, et al.
:
:
Civil Appeal From: Hamilton County Court of Common Pleas
Judgment Appealed From Is: Affirmed
Date of Judgment Entry on Appeal: January 18, 2012
Michael DeWine, Attorney General, and John F. Cayton and Nicholas J.
Bryan, Assistant Attorneys General, for appellant.
Xanders & Xanders Co., L.P.A., Gerald J. Robinson, and Christopher H.
Hurlburt, for appellee.
Please note: This case has been removed from the accelerated calendar.
OHIO FIRST DISTRICT COURT OF APPEALS
SYLVIA S. HENDON, Judge.
{¶ 1} This case involves an appeal from the trial court’s ruling, following
a bench trial, in an action that plaintiff-appellant, Ohio Attorney General Mike
DeWine, on behalf of the Director of the Ohio Environmental Protection Agency
(“EPA”), brought against defendant-appellee, Mass Realty, L.L.C. (“Mass
Realty”). The trial court held that the state was not entitled to collect response
costs that the EPA had charged against Mass Realty, and it assessed a $5,000
civil penalty against Mass Realty for violations of orders that had been issued by
the EPA.
{¶ 2} Because the trial court properly determined that the EPA was not
entitled to collect response costs from Mass Realty, and because the court did not
abuse its discretion when calculating the civil penalty to be assessed, we affirm its
judgment.
Factual Background
{¶ 3} Mass Realty is the owner of the property located at 614 Shepard
Drive in the city of Lockland. Prior to Mass Realty’s purchase of that property,
groundwater on the property had been contaminated with various volatile
organic compounds. As a result of the contamination, the property’s former
owner, Evergreen Limited Partnership, had been subject to orders issued in 1991
by the director of the EPA that concerned the remediation of the water
contamination. Evergreen had installed a ground-water-gradient-control system
on the property to prevent the spread of the contaminated water.
{¶ 4} Upon its purchase of the property, Mass Realty was also subject to a
document titled “Director’s Final Findings and Orders” (“order”) that was issued
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OHIO FIRST DISTRICT COURT OF APPEALS
by the director of the EPA. The order was signed by the director and Jeffrey
Robinson, a member of Mass Realty, in February 2001. The order required that
Mass Realty operate and maintain the ground-water-gradient-control system that
had been previously installed by Evergreen. They provided that should Mass
Realty successfully remediate the property so that contamination levels met
standards set out in the order for a specified period of time, Mass Realty could
petition the EPA to turn off the system. But if Mass Realty was permitted to
cease operation of the ground-water-gradient-control system, it was required to
maintain the system to allow for resumed operation at any time. Under the
order, Mass Realty was additionally required to collect and analyze quarterly
groundwater samples and to notify the EPA prior to all sample-collection activity,
as well as to provide quarterly progress reports to the EPA. If the groundwater
samples indicated a rebound in contamination levels, Mass Realty was required
to reactivate the ground-water-gradient-control system.
{¶ 5} In addition to requiring remediation of the water contamination,
the order also required that Mass Realty reimburse the EPA for all response costs
that had been incurred in connection with the site. Specifically, Mass Realty was
required to pay the EPA approximately $89,000 in response costs that had been
incurred prior to Mass Realty’s purchase of the property, as well as all response
costs incurred after the order was executed.
{¶ 6} Mass Realty contracted with a company to handle the water
sampling and maintain the ground-water-gradient-control system. The system
worked effectively at remediating the water contamination, and at the end of
2002 Mass Realty was permitted to cease operation of the system. In 2004, the
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OHIO FIRST DISTRICT COURT OF APPEALS
EPA tested the water on Mass Realty’s property. The testing revealed that the
contaminant levels had rebounded, and pursuant to the order, the EPA requested
that Mass Realty resume operation of the ground-water-gradient-control system.
But as a result of financial difficulties, Mass Realty did not comply with the EPA’s
request and operation of the system was never resumed.
{¶ 7} Beginning in early 2003, Mass Realty failed to collect and analyze
groundwater samples on a quarterly basis. It additionally failed to submit the
required quarterly reports and a majority of the required payments towards the
response costs owed. Consequently, the Attorney General, upon the EPA’s
request, filed suit against Mass Realty. The complaint alleged that Mass Realty
had failed to operate and maintain a ground-water-gradient-control system, had
failed to conduct groundwater monitoring and submit required reports, and had
failed to pay the required response costs. The case proceeded to a bench trial,
where the state sought approximately $116,000 in response costs, assessment of
a civil penalty, and an injunction ordering Mass Realty to comply with the
director’s order.
{¶ 8} The trial court found that as a creature of statute, the EPA could not
recover response costs. But with respect to the remaining relief sought, the trial
court ordered Mass Realty to comply with the 2001 order and continue testing
the waters on the property. Specifically, the court held, “[S]hould Mass [Realty]
comply with the 2001 orders, no penalties should be assessed against it because
of its prior breach. If Mass [Realty] fails to comply with the 2001 Orders,
penalties should be awarded to Plaintiff.”
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶ 9} The state appealed the trial court’s ruling. But this court found that
because the trial court had deferred the issue of civil penalties, the judgment
appealed from was not a final, appealable order. Upon remand, the trial court
found in favor of Mass Realty on the claim for injunctive relief, and it assessed a
$5,000 civil penalty against Mass Realty for its past violations of the director’s
orders.
{¶ 10} The state has again appealed to this court. In two assignments of
error, it argues that the trial court erred in finding that the EPA had no legal
authority to collect response costs. And in its second assignment of error, the
state argues that the trial court abused its discretion when it failed to assess an
appropriate civil penalty.
Response Costs
{¶ 11} As stated, the order issued by the director of the EPA required Mass
Realty to pay response costs incurred by Evergreen prior to Mass Realty’s
purchase of the property, as well as all future response costs incurred after the
order was executed. The order defined response costs as “all costs including, but
not limited to, payroll costs, contractor costs, travel costs, direct costs, indirect
costs, legal and enforcement-related costs, oversight costs, laboratory costs, the
costs of reviewing or developing plans, reports, and other items pursuant to these
Orders, verifying the Work, or otherwise implementing or enforcing these
Orders.”
{¶ 12} In support of its first assignment of error, the state argues that its
authority to collect response costs was provided by two statutory provisions: R.C.
3734.20(B) and R.C. 3745.01(C).
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶ 13} The first provision relied upon, R.C. 3734.20(B), authorizes the
director of the EPA to perform corrective measures necessary to prevent or abate
air and water pollution. It further provides that “the director shall keep an
itemized record of the cost of the investigation and measures performed,
including costs for labor, materials, and any contract services required. Upon
completion of the investigation or measures, the director shall record the cost of
performing those measures. * * * Upon written request of the director, the
attorney general shall institute a civil action to recover the cost.” After review, we
are not persuaded that this provision authorizes the director to collect the
response costs provided for in the director’s order.
{¶ 14} R.C. 3734.20(B) particularly delineates the types of costs that are
authorized to be recovered. It allows the director to recover costs incurred by the
EPA for investigations and corrective measures performed by or contracted out
by the agency itself. The state has not demonstrated that it incurred such costs.
Although the record contains highly detailed annual billing invoices, we cannot
conclude that the charges are the type of “investigative” costs permitted by the
statute. Rather, the agency is attempting to recoup normal office-overhead items
while it has failed to itemize actual costs of “investigation” or “corrective
measures.” In fact, the corrective measures undertaken in this case were
performed by Mass Realty and the corresponding costs were likewise incurred.
{¶ 15} The response costs sought to be recovered in this case, as defined in
the order, clearly sought recoupment of costs well beyond those authorized by
R.C. 3734.20(B). They included items such as payroll costs, travel costs, and
enforcement-related costs. We cannot find that R.C. 3734.20(B) provided
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OHIO FIRST DISTRICT COURT OF APPEALS
authorization for the director to collect the type of response costs set out in the
order.
{¶ 16} The state additionally relies upon R.C. 3745.01(C). This statute
provides that the director of the EPA may “advise, consult, cooperate and enter
into contracts or agreements with any other agencies of the state * * * and with
affected groups, political subdivisions, and industries in furtherance of the
purposes of this chapter and Chapters 3704., 3714., 3734., 3751., 3752., 6109.,
and 6111. of the Revised Code.” The state contends that this provision is
applicable because the condition in the order requiring payment of response costs
furthered the purposes of R.C. Chapter 3734.
{¶ 17} We cannot agree. First, R.C. 3745.01(C) states that the director may
enter into contracts and agreements with affected groups. But the present
controversy involves neither a contract nor an agreement; rather, as shown by the
title of the document, in this case the director has issued an order to Mass Realty.
R.C. 3745.01(C) does not provide authority for the director to issue orders.
Instead, the director’s authority to issue orders is found in R.C. 6111.03(H), which
provides that the director shall “[i]ssue, modify, or revoke orders to prevent,
control, or abate water pollution.” The collection of response costs does not fall
within any of the enumerated means or manners in which the director may issue
orders contained in R.C. 6111.03(H)(1) through (4). And R.C. 6111.03(H) does
not contain broad language similar to that contained in R.C. 3745.01(C) allowing
the director to generally issue any orders that would further the purposes of the
environmental statutes.
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶ 18} As an administrative agency of the state, the EPA “has only such
authority, express or implied, as conferred upon it by the General Assembly.”
Burger Brewing Co. v. Thomas, 42 Ohio St.2d 377, 379, 329 N.E.2d 693 (1975).
The EPA cannot extend its powers beyond those authorized by statute. We have
found no statutory provision expressly authorizing the collection of the response
costs, as defined in the orders, by the director of the EPA. We reach the same
conclusion with respect to implied authority. An implied power “ ‘is only such as
may be reasonably necessary to make the express power effective.’ ” Id. at 383,
quoting State ex rel. A. Bentley & Sons Co. v. Pierce, 96 Ohio St. 44, 47, 117 N.E.
6 (1917). When determining whether an implied power exists, any potential
doubt must be resolved against the grant of power. Id.{¶ 19} The state argues that its power to collect response costs was implied
by R.C. 3745.01(C). We have already found that the order issued by the director
did not fall within the purview of this statute. But even if we were persuaded that
R.C. 3745.01(C) was applicable here, we find that it did not provide implied
authority to collect the response costs at issue. As previously discussed, R.C.
3734.20(B) allows the EPA to recover certain costs that it has incurred. The
response costs sought recoupment of costs well beyond those authorized by that
provision. Given that the general assembly has specifically provided for the
recoupment of particularized costs, we find that R.C. 3745.01(C) cannot be used
as an implied power to circumvent R.C. 3734.20 and allow the director to recover
any and all types of costs.
{¶ 20} The state urges us to view the order not as an order issued by the
director to Mass Realty, but rather as a contract negotiated at arm’s length
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OHIO FIRST DISTRICT COURT OF APPEALS
between these two parties in which Mass Realty voluntarily and knowledgably
consented to pay response costs. That position is untenable. As we have
discussed, the law is clear that a state agency has only such authority as
specifically conferred by statute. That authority includes the power to contract,
and it necessarily follows that “[s]tate departments and agencies only have the
limited power to contract which is delegated to them by the state legislature.” A
& B-Abell Elevator Co., Inc. v. Columbus/Cent. Ohio Bldg. & Constr. Trades
Council, 10th Dist. Nos. 92AP-1540 and 92AP-1541 (Sept. 30, 1993). A state
agency cannot expand its powers and circumvent legislative intent by obtaining
the voluntary consent of contracting parties. Such an action could result in
unequal application of the law and violate public policy.
{¶ 21} The collection of the response costs provided for in the order was
neither expressly nor impliedly authorized by statute. Accordingly, we find that
the trial court correctly determined that the director was not authorized to collect
these response costs. The first assignment of error is overruled.
Civil Penalty
{¶ 22} In its second assignment of error, the state argues that the trial
court abused its discretion by assessing a minimal civil penalty of $5,000. As
stated in its proposed findings of fact and conclusions of law, the state had sought
a civil penalty of approximately $417,280. After finding that Mass Realty had
failed to comply with the director’s order, the trial court assessed a $5,000 civil
penalty.
{¶ 23} Pursuant to R.C. 6111.07(A), “no person shall violate or fail to
perform any duty * * * or violate any order * * * issued or adopted by the director
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of environmental protection.” The attorney general may bring suit, upon request
by the director of the EPA, against any party who violates the director’s order.
R.C. 6111.07(B). With respect to the penalty imposed for such a violation, the
court may award up to, but not more than, $10,000 for each day of each
violation. R.C. 6111.09(A) and 3734.13(C).
{¶ 24} The assessment of an appropriate penalty falls within the discretion
of the trial court. State ex rel. Brown v. Dayton Malleable, Inc., 1 Ohio St.3d 151,
157-158, 438 N.E.2d 120 (1982). A trial court abuses its discretion in the
imposition of a penalty when its decision involves more than an error in
judgment, and is instead unreasonable, arbitrary, or unconscionable. Pembaur
v. Leis, 1 Ohio St.3d 89, 91, 437 N.E.2d 1199 (1982). A civil penalty should serve
as a deterrent to prevent future violations. Brown at 157. In order to be an
effective deterrent, a civil penalty “should be large enough to hurt the offender.”
State ex rel. Brown v. Howard, 3 Ohio App.3d 189, 191, 444 N.E.2d 469 (1981).
When assessing a civil penalty, a court should consider whether the offender
acted in good or bad faith, whether the defendant received a financial gain as a
result of the violations, and whether the violation caused any environmental
harm. Id.{¶ 25} In this case, the trial court considered these relevant factors. With
respect to good or bad faith on the part of Mass Realty, the court found that the
record contained no evidence of bad faith. It further noted that despite the
violations, Mass Realty had successfully remediated over 90 percent of the
contamination and that financial hardship had been the driving force behind
Mass Realty’s noncompliance with the director’s order. With respect to financial
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OHIO FIRST DISTRICT COURT OF APPEALS
gain, the court found that Mass Realty had received no net financial gain arising
from its failure to comply with the order and that no member of Mass Realty had
taken any income from the business. Last, the court found that the record
contained no evidence that the contaminated water on Mass Realty’s property
had spread to any additional water sources and that very minimal environmental
harm had resulted from Mass Realty’s actions. The trial court further considered
the deterrent effect of a penalty. It found that because Mass Realty’s violations of
the director’s order had not been willful, a heavy fine would have little deterrent
effect.
{¶ 26} After considering these factors, the trial court imposed a penalty of
$5,000. While such a penalty seems low to this court, we cannot find that the
trial court abused its discretion. The trial court provided detailed support for its
penalty assessment, and its findings were supported by the record. The state
argues that a $5,000 fine was not severe enough to serve as an effective
deterrent. In light of the numerous violations committed by Mass Realty, this
fine is clearly low. But considering Mass Realty’s financial difficulties noted by
the trial court, as well as the court’s finding that no violations had been willful, we
are not persuaded by the state’s argument. The trial court’s decision was in no
manner arbitrary, unreasonable, or unconscionable, and we cannot find that it
abused its discretion when imposing the civil penalty. The second assignment of
error is overruled.
{¶ 27} The judgment of the trial court is, accordingly, affirmed.
Judgment affirmed.
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OHIO FIRST DISTRICT COURT OF APPEALS
DINKELACKER, P.J., and CUNNINGHAM, J., concur.
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