Opinion
C.A. No.: 98C-04-161-FSS.
Submitted: June 7, 2000.
Decided: August 21, 2000.
Upon Cross-Motions for Partial Summary Judgment — GRANTED as to Plaintiffs Motion
David L. Ormond, Jr., Deputy Attorney General, Carvel State Office Building, 820 N. French Street, 6th Floor, Wilmington, Delaware, 19801. Deputy Attorney General for Plaintiff.
Joseph S. Kaufman, Esquire, Schulman Kaufman, LLC, Suite 1330, 100 Light Street, Baltimore, Maryland, 21202. Attorney for Defendants.
OPINION and ORDER
This is the decision on cross-motions for partial summary judgment in an environmental enforcement action seeking fines for the untimely removal or proper abandonment of underground storage tanks. The Court first must decide whether Delaware's Underground Storage Tank Act indisputably was violated. Then, the Court must determine whether Defendants owned the USTs. If Defendants were owners, then the Court must decide whether Defendants could insulate themselves merely by placing a clause in a lease requiring their tenant [Easton] to comply with the Act.
If the violation is manifest, if Defendants were responsible under the Act and if they remain responsible despite the lease's terms, then the Court must consider whether, based on its earlier inaction, Delaware's Department of Natural Resources and Environmental Control is estopped from seeking fines from Defendants. To answer that last question, the Court must consider what effect, if any, Easton's federal bankruptcy has on DNREC's effort to collect fines from Defendants.
I.
DNREC filed suit on April 17, 1998. On August 10, 1998, the agency filed an Amended Verified Complaint. Defendants answered on October 28, 1998. Defendants' answer is difficult. In many instances Defendants do not "admit or deny the averments upon which [DNREC] relies," as required by Superior Court Civil Rule 8(b). Instead, Defendants recast some allegations before answering them and others they sidestep altogether. Where Defendants avoided an allegation or they answered with a negative pregnant, the Court is treating the allegation as admitted. For example, DNREC alleges: "The Gas Station was owned by [each Defendant]." Each Defendant answers that "[Defendant] denies that he was ever the owner of three petroleum underground storage tanks. . . ." The Court takes that as an admission that each Defendant owned the real property where the USTs were buried.
Super. Ct. Civ. R. 8(d) and (f).
DNREC filed a Motion for Summary Judgment for Failure to Remove or Properly Abandon USTs on November 19, 1999. Defendants filed an answer and cross-motion for summary judgment on December 14, 1999. DNREC filed with the Court of Chancery on May 25, 2000 a new complaint concerning other underground storage tanks allegedly on the property. The latest litigation has no bearing here.
II.
By lease dated July 22, 1976, Milford Shopping Center, Inc. rented property to Highway Petroleum Sales, Inc., which operated a gas station. Highway Petroleum Sales' interest in the lease was assigned to Easton Petroleum, Inc. in 1983. Easton operated the gas station until 1995.
There were three known underground tanks on the property. The tanks were "underground storage tanks" within the meaning of Delaware's Underground Storage Tank Act and the Delaware Regulations Governing Underground Storage Tanks. The tanks, together with connected pipes and ancillary equipment, constituted Underground Storage Tank Systems.
UST Reg. Part A § 2.
The shopping center conveyed the property to the defendant Kaplans on July 1, 1986. On August 21, 1986, the lease was extended. The lease extension provided:
Lessee has informed Lessor that it is Lessee's desire and intention to make certain improvements in the demised premises, including, but not limited to, installing new tanks and pumps. . . .
Defendants vaguely contend that they made a rent concession in order to facilitate Easton's installing new equipment. Easton, however, did not promise specifically to comply with the Act and, more importantly, it did not install new tanks or pumps. The Kaplans also took no direct steps to bring their property into compliance.
Front Street Properties, a partnership, took title from the Kaplans on February 16, 1987. On March 21, 1991, Easton filed for protection under Chapter 11 of the federal Bankruptcy Code with the United States Bankruptcy Court for the District of Maryland, but continued to possess the property and operate the gas station. During the federal bankruptcy, Front Street Properties purportedly demanded that Easton comply with the lease provisions regarding the USTs. Other than insisting that its bankrupt tenant obey its lease and improve the UST system buried on Front Street Properties' land, Front Street Properties did nothing to comply with the Act.
For its part, Delaware's environmental agency declined to send a representative to Maryland in order to participate in the federal litigation there. In a December 8, 1997 letter to Defendants' counsel DNREC's counsel explained the agency's position:
You are entirely correct that I informed you of our decision at one point not to get involved in the bankruptcy. I had obvious concerns about the logistical and other complications in such involvement. I was indeed inclined to remain above the bankruptcy litigation and so it is not surprising I gave you that impression. However, I reasonably expected you would understand that such a decision was always, and still is, subject to reevaluation and change.
Meanwhile, Easton had the tanks pumped dry on August 4, 1995. Shortly afterwards, Easton padlocked the gas station and removed all merchandise. No materials were added to or removed from the tanks after Easton closed up shop. AHK Property Corp. then acquired the relevant part of the property through subdivision on September 3, 1996. On September 13, 1996, Front Street Properties LLC became the successor to Front Street Properties.
The Bankruptcy Court set a December 22, 1998 deadline for Easton to remove the USTs. Easton removed them on August 12, 1998, and paid for a hydrogeological survey. As mentioned above, DNREC had nothing to do with Easton's bankruptcy case.
III.
The Delaware Underground Storage. Tank Act broadly defines who is a responsible party. A responsible party includes any person who owns or has a legal or equitable interest in a UST or a facility containing a UST. Delaware's environmental laws require responsible parties to make their USTs inert when the USTs have been abandoned or after they have been out of service for more than twelve months. At this point, DNREC contends that it is entitled to summary judgment on its claim that the USTs were out of service for more than 12 months and neither timely removed nor properly abandoned.
7 Del. C. § 7402 (16).
"Responsible party" means, in pertinent part, any person who:
a. Owns or has a legal or equitable interest in a facility or an underground storage tank;
b. Operates or otherwise controls activities' at a facility;
c. At the time of storage of regulated substances in an underground storage tank, operated or otherwise controlled activities at the facility or underground storage tank, or owned or held a legal or equitable interest therein. . . .
UST Reg. Part B § 3.O1C.
DNREC's position is not complicated. It contends that the Kaplans owned the USTs from July 1986 until Front Street Properties took title in February 1987. Then, Front Street Properties owned the USTs until September 1996, when AHK became the USTs' owner. According to DNREC, while each Defendant held title, each Defendant owned the USTs and, therefore, each was a legally responsible party. DNREC then argues the undisputed fact that the USTs were emptied on August 4, 1995 and left unused until removed more than three years later on August 12, 1998. If Defendants were responsible parties, it seems inescapable that the USTs were left in the ground for years after the law required Defendants to remove or properly abandon them.
DNREC concludes that Front Street Properties owned and was responsible for the UST systems from February 16, 1987 to September 3, 1996, and AHK owned them from September 3, 1996 to August 12, 1998. DNREC contends that during the times that they each owned the USTs, Front Street Properties and AHK did not comply with UST Regulation Part B §§ 3.01 C and 3.02 A, which address how to remove or abandon USTs properly.
DNREC asserts that its refusal to become involved in the Easton bankruptcy and its decision not to bring an enforcement action immediately does not excuse AHK and Front Street Properties from meeting their obligations under Delaware's environmental laws. Nor does it immunize Defendants from financial penalties. Front Street Properties and AHK allegedly ignored DNREC's primary goal, removal of the USTs. DNREC contends that it warned Front Street Properties and AHK that the USTs violated State law and that DNREC demanded compliance with the UST Regulations. In February 1997, for example, DNREC specifically warned Andrew Kaplan of Front Street Properties that UST owners can not transfer environmental liabilities through a lease.
DNREC finally concludes that it is entitled to summary judgment on the allegation that AHK and Front Street Properties violated UST Regulation Part B §§ 3.01 C and 3.02 A. Accordingly, DNREC argues that Front Street Properties was in violation of UST Regulations from August 5, 1996 to September 3, 1996, or 29 days per tank for a total of 87 days of violation, and AHK was in violation from September 3, 1996 to August 12, 1998, or 707 days of violation per tank for a total of 2121 days of violation.
IV.
Defendants do not deny that the tanks and pipes are a UST system that falls under the Act. They insist, however, that they neither owned nor operated the UST system and so, they are not responsible. Defendants argue alternatively that legal responsibility for the USTs does not truly turn on ownership of the property, it turns on who had "control of or responsibility for the daily operations of the underground storage tank system." And it was Easton, not Defendants, that controlled and operated the UST system. By taking responsibility for the USTs, supposedly with DNREC's "clear approbation," Easton "exercised all rights of dominion and control as an owner." In their answer to DNREC's complaint, Defendants characterize Easton as "the beneficial owner of all of the tanks."
Defendants also claim that the USTs did not fit the statutory definition of "abandoned" provided by 7 Del. C. § 7402 (1), which turns in part on the USTs being "out of service" for three years. Defendants tacitly concede that the UST system was unused after August 4, 1995. But they argue that if DNREC is relying exclusively on non-use to establish abandonment, rather than on intent to abandon, then three years of non-use is required, and at worst, the non-use or "out-of-service" period was just three years. According to Defendants, Easton's 1995 removal of all products from the USTs merely was a negotiating tactic in an attempt to purchase the property at a favorable price, and not an intentional abandonment under the Act. In other words, if intent to abandon is material to DNREC's position, there are factual disputes about Defendants' intent going back to 1995.
Abandoned storage system means a storage system which:
a. Is not intended to be returned to service;
b. Has been out of service for over 3 years; or
c. Has been rendered permanently unfit for use.
Defendants further insist that Easton complied with Delaware law by removing the USTs before the Bankruptcy Court's December 22. 1998 deadline. The deadline, according to Defendants, was based on § 2.01 C of the UST Regulations, which provides:
Not later than December 22, 1998, all components of an existing UST system must be in compliance with the corrosion protection requirements of § 2.02A(2) of this Part or be in compliance with the, removal/abandonment requirements of § 3 of this Part including applicable requirements for hydrological investigation and/or corrective action under § 4 of this Part.
Defendants allege that the bankruptcy judge "was convinced that the time for removal of the tanks had been extended to and includ[ed] December 22, 1998 and, therefore, refused to order, at that time, removal of the tanks. . . ." Defendants therefore contend that because Easton met the Bankruptcy Court's December 22, 1998 deadline, Easton met all State requirements. Defendants' asserted goal was to obtain removal of the USTs by Easton prior to the Bankruptcy Court's deadline.
According to Defendants, DNREC supported Defendants' goal, but "there appears to be a `change of mind'" and DNREC now insists that Defendants were responsible for removing the USTs sooner. Defendants cite Wilson v. Triangle Oil Co. for the proposition that DNREC is seeking to impose "retroactive liability" which would "be entirely unfair and contrary to justice."
Del. Super., 566 A.2d 1016, 1020 (1989).
Id.
In an October 18, 1995 letter to DNREC, counsel for Defendants wrote: "You advised me that, under the circumstances, the items requested on your [September 14, 1995] notice [of violation] could be held in obeyance since your primary desire was to have the tanks removed." Defendants further argue that DNREC is estopped from pursuing this action because DNREC refused to participate in the bankruptcy and it would be "patently unfair" to impose liability now, after DNREC's earlier inaction. In conclusion, Defendants argue that letting DNREC proceed against Defendants now would "usurp the jurisdiction of the Bankruptcy Court," which had jurisdiction over Easton and the USTs, as part of the bankruptcy estate.
V.
As presented above, there is no dispute about the fact that Easton emptied the tanks on August 4, 1995 and that they were unused until removed on August 12, 1998. The Court must consider the legal significance of the USTs' admitted non-use. The analysis focuses on the relationship between the Act and the regulations promulgated under it by DNREC.
Under the Act, a UST system is an "abandoned storage system" if it meets any of three circumstances spelled-out in 7 Del. C. § 7402 (1). As noted above, a UST system is abandoned immediately under the Act's first definition when it is not intended to be reused. The record supports the finding that Easton did not intend to reuse the UST system when Easton emptied it and closed the gas station. That conclusion, however, is not inescapable and DNREC does not demand summary judgment on that point. Similarly, under the Act's third definition, a UST system is abandoned if it is rendered permanently unfit. That did not happen when Easton ceased operations in 1995. The UST system only was left unused.
See note 9, supra.
Finally, and most importantly, under the Act's second definition of an abandoned storage system, a UST system is abandoned after "it has has been out of service for over three years." According to the Act, "`out of service' means a storage system which:
a. is not in use; that is, which does not have regulated substances added to or withdrawn from the storage system; and b. is intended to be placed back in service."
Thus, the Court agrees with Defendants that for present purposes, the UST system was not an abandoned storage system until three years after Easton stopped using it. That preliminary finding, however, does not end this enforcement case.
Consistent with the Act's charge that DNREC promulgate UST regulations "as may be necessary to protect human health and the environment," DNREC established a regulatory scheme specifically addressing out-of-service UST systems. Under the regulations, when any UST system is out of service for three months, the system's owners and operators must comply with certain requirements, e.g., leaving vent lines open, capping and securing all other lines and equipment. When a UST system is out of service for more than twelve months, the owners and operators must remove or properly abandon the system, unless it largely meets the requirements for new or retrofitted systems, which Defendants' UST system presumably did not. In short, for the public's health and for the good of the environment, the UST regulations do not permit the owners and operators of outdated UST systems to leave them out of service for more than twelve months before legal consequences attach.
The regulations specifically apply to "owners and operators." There is no regulatory distinction between owners and operators on the basis of who controls and operates the system daily. The regulations plainly impart joint and several responsibility on owners and operators. Obviously, the regulations are designed to see to it that out-of-service USTs are rendered environmentally harmless promptly by any responsible party. The regulations do not countenance finger pointing between owners and operators, including landlords and tenants.
As to the regulations' purpose and wisdom, this is a case-in-point. Here, the operator went belly up in Maryland. Meanwhile, as discussed below, Defendants owned the gas station property in Delaware, including the buried UST system. Defendants' position not only is contrary to the regulations' plain language, it is contrary to the regulations' salutory purpose. If Defendants were correct that DNREC can only look to operators for regulatory compliance, Delaware will be left holding the bag whenever an operator founders . . . Defendants' regulatory construct requires DNREC to go on fool's errands, chasing bankrupts and fly-by-nighters. Meanwhile, the UST systems remain environmental threats to Delaware and their owners remain in possession, immune from penalty.
In summary, when they remained out of service for more than a year, the USTs had to be removed or properly abandoned on or before August 4, 1996. That conclusion plainly is required by the regulations and it is consistent with the Act.
UST Reg. Part B § 3.01 C.
VI.
Having decided that the UST system should have been removed or properly abandoned in 1996, the Court next must consider whether Defendants are responsible for the UST system's untimely removal. Because the lease provides that the landlord owns the USTs, it is difficult to escape the conclusion that Defendants owned them. The 1976 lease provides:
All constructions, additions and improvements, whether temporary or permanent, fixed or movable, made and maintained in or on the premises, either by the LESSEE or LESSOR shall be the sole property of the LESSOR . . . . In each and every such case the fixtures shall become and remain the property of the LESSOR and the LESSEE shall have no right to remove them.
Thus, even by the terms of the very lease on which they rely, Defendants owned the USTs. Furthermore, the Delaware Supreme Court has held that above-ground water storage tanks are fixtures for the purpose of taxation. By analogy, the Court can not see how a buried underground storage tank containing highly regulated substances is not a fixture for the purpose of environmental liability. It is hard to characterize a large buried tank with pipes as anything less than a fixture. If a UST system is not part of the premises or a fixture, what is it?
Wilmington Suburban Water Corp. v. New Castle County Bd. of Assessment, Del. Supr. 316 A.2d 211 (1973).
Defendants' argument that Easton owned the USTs because Easton operated them and took responsibility for their cleanup also is unconvincing. Easton's taking responsibility for the USTs in no way relieved Defendants of their liabilities as owners, for the law covers both owners and operators. Even if Easton owned the USTs, Defendants would still be responsible parties as a matter of law. Because the property contained USTs, it was a "facility." A responsible party includes any person who "[o]wns or has a legal or equitable interest in a facility or an underground storage tank," which Defendants clearly did. In short, the fact that Defendants owned the gas station and the land under it means that they owned the USTs for purposes of 7 Del. C. § 7402 (11). The fact that Easton operated the gas station did not transform Easton into the USTs' owner, nor did it divest Defendants of their proprietary interest in, and their responsibility for their property, including the buried USTs that they leased to Easton.
7 Del. C. § 7419. See also 7 Del. C. § 7402 (16) (broad definition of responsible party) (discussed supra)).
7 Del. C. § 7402 (5) ("Facility" means any location or part thereof containing 1 or more underground storage tanks).
Del. C. § 7402 (16)(a).
VII.
The December 22, 1998 deadline set by the Bankruptcy Court for Easton to remove the USTs did not absolve Defendants of their separate, Delaware environmental responsibilities. The federal Bankruptcy Act concerns financial obligations, it does not trump all state environmental laws. UST Regulation § 2.01 C, allegedly relied upon by the Bankruptcy Court, simply did not grant an extension for meeting preexisting environmental clean-up obligations. It merely brought down the final curtain on all non-complying USTs. Easton's compliance with the Bankruptcy Court's deadline does not excuse Defendants' failure to meet the State's environmental laws for well over two years.
See Midlantic Nat'l Bank v. New Jersey Dep't of Envtl. Protection, 474 U.S. 494, 502 (1985) ("Neither the Court nor Congress has granted a trustee in bankruptcy powers that would lend support to a right to abandon property in contravention of state or local laws designed to protect public health or safety").
Defendants' reliance on Wilson v. Triangle Oil Co. is misplaced because unlike Wilson, this case does not involve retroactive liability. Furthermore, Defendants' implication that DNREC told Easton or Defendants that they had until December 22, 1998 to remove the USTs is unsupported. In fact, as presented above, the record shows DNREC's insistence on compliance. It does not rise to a material dispute of fact.
Del. Super., 566 A.2d 1016, 1020 (1989).
Besides, the bankruptcy proceeding was Easton's. It was designed to protect Easton from its creditors. Easton's bankruptcy did not excuse Defendants from their own responsibilities and liabilities under Delaware's environmental laws. There is nothing indicating that the Bankruptcy Court ever had jurisdiction over DNREC's claims against Defendants. In this regard, it is worth mention that this is an environmental enforcement action seeking fines, which may not be discharged through bankruptcy. Even had Defendants themselves been in bankruptcy, DNREC could still pursue this action. DNREC's failure to take action against all responsible parties does not relieve the others of their obligations.
Ohio v. Kovacs, 469 U.S. 274, 284 (1985) (citing 11 U.S.C. § 523 (a)(7) (governmental fines and penalties exceptions to discharge)).
It is not, as Defendants contend, "patently unfair" to hold Defendants accountable for failing to remove the USTs because DNREC did not appear in the federal Bankruptcy Court proceeding in Maryland. DNREC had already warned Defendants about its concern for the USTs. DNREC had no obligation to enlist federal help in order to carry out its State environmental enforcement authority, not when it could look to Defendants for compliance. It is because of tenants like Easton that the law allows DNREC to turn to all ports in a storm.
Defendants' October 18, 1995 letter to DNREC does not create a genuine issue of material fact with regard to estoppel. For present purposes only, the Court will assume that DNREC told Defendants that the matters addressed in the September 14, 1995 Notice of Violation would be held in abeyance. The matters addressed in the Notice of Violation did not pertain to the obligation to timely remove or properly abandon the USTs at issue here. In September 1995, Defendants' obligation to remove or properly abandon the USTs had not yet arisen. Therefore, the Court finds no reason to conclude that, by law or inaction, DNREC is estopped from pursuing fines in this proceeding against Defendants.
VIII.
As previously mentioned, UST Regulation Part B § 3.01 C places a burden on owners and operators of UST systems to remove permanently or abandon properly the systems when they have been out of service for more than twelve months. Because the UST systems were neither permanently removed nor properly abandoned by August 5, 1996, Defendant Front Street Properties was in violation of UST Regulation Part B § 3.01 C from August 5, 1996 through September 3, 1996, the date that AHK acquired the land under which the USTs were located. AHK was in violation of UST Regulation Part B § 3.01 C from September 3, 1996 through August 12, 1998, when the USTs finally were removed. Because Front Street Properties and AHK violated UST Regulation Part B § 3.01 C, they could not have violated UST Regulation Part B § 3.02 A; one may not improperly do something that one has not done at all.
IX.
Accordingly, based on undisputed facts and viewing disputed facts in the most favorable light to Defendants, the Court finds that Front Street Properties violated UST Regulation Part B § 3.01 C for 29 days per tank for a total of 87 days of violation, and that AHK Corp. violated UST Regulation Part B § 3.01 C for 707 days per tank for a total of 2121 days of violation. Therefore, Plaintiffs Motion for Partial Summary Judgment is GRANTED.
Within ten days, DNREC shall advise the Court whether it seeks imposition of penalties based only on the violations now established, or whether it intends to establish additional violations. If DNREC is content to end this already protracted enforcement action now, the Court will set a penalty hearing date in the near future. Otherwise, the parties shall submit a proposed scheduling order after they confer.
IT IS SO ORDERED.
_____________ Judge
oc: Prothonotary (Civil Division)