Challenging Cleanup and Removal Costs From Petroleum Discharges

The court utilized the date of the AG Demand Letter as the trigger of the time to challenge the cleanup and removal costs.

Ten years later, the Third Department revisited the issue in State of New York v. Ackley.⁶ A gas spill was discovered below a gas station owned by Robert Ackley. After Mr. Ackley unsuccessfully attempted to conduct the remediation, NYSDEC advised him that it would assume responsibility for remediation and seek reimbursement. The state’s action to recover the cleanup and removal costs was not brought until almost 10 years later.

Mr. Ackley died before the state brought action, and his estate proceeded from that point forward. The estate asserted that even if the state were granted partial summary judgment on liability, the estate was entitled to a hearing to challenge the reasonableness of the expenses. Supreme Court disagreed, denying the request for a hearing, granting the state’s motion for partial summary judgment and awarding reimbursement costs. The Third Department reversed on appeal on the ground that it could not determine from the record which of the costs incurred by the Fund fell within the six-year statute of limitations.

The court also held, however, that while §185 does authorize a discharger to challenge the reasonableness of the costs incurred, Mr. Ackley’s challenge was untimely since he “[had been] told of his ultimate liability for the cleanup costs, and plaintiff’s intent to seek reimbursement thereof, just days after the spill occurred’ (internal citation omitted).”⁷ The court appears to have been referring to the initial “liability letter” sent out very early in the process, immediately following a spill, well before any funds are expended by the state.

The issue was addressed a third time in 2003, in State of New York v. Speonk Fuel.⁸ The state brought an action to recover costs for the cleanup of a fuel storage tank leak in Suffolk County. The state moved for partial summary judgment, and Speonk opposed the motion, claiming, among other things, that it had raised a triable issue regarding the reasonableness of the cleanup costs expended. Supreme Court awarded the state all cleanup costs incurred within six years of the commencement. On appeal, the Third Department held, among other things, that as a discharger, the defendant was strictly liable and was not entitled to a hearing on the reasonableness of the state’s cleanup expenditures, and stated:

Thus, the Third Department effectively held that when the Fund is utilized, §185 is inapplicable to allow a hearing for a discharger.

In 2004, the Court of Appeals affirmed the Third Department’s ruling in Speonk, but clarified the issue of the right to challenge expenditures. The Court held that while the Navigation Law does not create a right by a discharger to contest the reasonableness of costs incurred by the state in the cleanup of a discharge, the discharger nonetheless has whatever rights exist under Article 78 to challenge the state’s conduct as arbitrary or capricious or an abuse of discretion.¹⁰ The Court of Appeals in Speonk steered practitioners into the world of Article 78 as an avenue to challenge cleanup and removal costs expended by the Fund, but provided no direction as to the accrual date of an Article 78 proceeding.

In 2005, the Third Department applied Speonk to two cases. In State of New York v. Dennin,¹¹ the court upheld its previous decision in Speonk, but expanded its holding to address due process concerns. The court held that the unavailability of a hearing in the context of a Navigation Law action did not pose a constitutional impediment since Article 78 provides sufficient procedural safeguards by providing dischargers with an avenue to challenge the reasonableness of remediation costs.

In the second case, State v. Neill, the Third Department stated outright that “[n]owhere in the Oil Spill Act is a discharger afforded any right to contest the reasonableness of the costs incurred by the [Environmental Protection and Oil Spill Compensation] Fund in an action brought by the State to recoup these [monies] (internal citation omitted).”¹² In this second case, the court did not reference any remedy under Article 78.

It is abundantly clear from the foregoing cases that a discharger cannot contest the reasonableness of cleanup and removal costs in the context of the state’s action for reimbursement. The Court of Appeals and the Third Department have clarified that the proper vehicle in which to raise such a challenge is an Article 78 proceeding. It is important for practitioners to ensure that a client who is a potential discharger retains the ability to assert such a claim in a timely manner.

Article 78 Proceedings

After years of providing little, if any, guidance on the correct way to challenge the reasonableness of cleanup and removal costs expended by the Fund, one court finally established a path for practitioners to follow to preserve their clients’ right to challenge such costs if they are held liable under the Navigation Law. The case providing this direction was George Moore Truck v. NYSDEC, decided by Justice Phillip R. Rumsey in Cortland County Supreme Court.¹³ The procedure is not foolproof, since it requires an action to be commenced by a potentially innocent party well before there is a determination of liability pursuant to the Navigation Law, but it is a step in the right direction.

In George Moore Truck, the petitioner brought an Article 78 proceeding seeking review of actions taken by NYSDEC in connection with cleanup and removal activities at a salvage yard. NYSDEC moved to dismiss the petition as premature, since no final determination had yet been made as to the total amount expended in the cleanup. In deciding the motion, the court properly noted, citing Speonk and Dennin, that “[t]he Court of Appeals has held, however, that the reasonableness of the actual expenditures made by DEC to clean up a spill may not be raised in an action brought pursuant to the Navigation Law, to recover those costs.” The court, therefore, determined that an Article 78 was a proper vehicle for the petitioner to assert its claim that NYSDEC had acted in an arbitrary and capricious manner by incurring unreasonable and unnecessary costs.¹⁴

With regard to the accrual date for the Article 78, the court focused on the AG Demand Letter dated Jan. 24, 2006: