NY State Court Affirms Broad Liability for Owners of Property With Old USTs

Article 12 of the New York State Navigation Law imposes strict liability on “dischargers” of petroleum. The term “discharger” has been broadly construed so that it can encompass owners of property with abandoned or inactive underground storage tanks (USTs) even where the owners never used the tanks. A recent New York State appeals court illustrates the potential scope of liability property owners can face under Navigation Law. 

In Huntington and Kildare, Inc , v Alexander B. Grannis, 2011 N.Y. App. Div. LEXIS 7597 (App. Div-3rd Dept 11/3/11) petitioners Huntington and Kildare (H& K) purchased  property in 1988 that had been operated as a gas station since the 1930s. It appears that a prior tenant of the property had reported inventory losses in 1987. Three steel tanks were closed in place because they were located under the building and new tanks were installed just prior to the purchase by H&K.

In 1997, petroleum contamination was detected in a water supply well located on an adjacent property.  The New York State Department of Environmental Conservation (NYSDEC) conducted an investigation that included installation of groundwater monitoring wells on the H&K property. In 1998, the NYSDEC advised H&K that gasoline had been detected in groundwater wells near the area where the old steel tanks were located. NYSDEC requested that H&K takeover the investigation but H&K declined.

Three years later, NYSDEC notified H & K that the three old steel USTs had not been properly closed, directed H & K to either remove or properly close the tanks, and to conduct quarterly sampling of on-site monitoring wells located in the vicinity of the tanks. Again, H & K declined to take any action.

In February 2004, H & K sold the property to Metz Family Enterprises, LLC (MFE). A principal of MFE reviewed the monitoring reports generated by H&K consultants and also discussed the site with the consultant who had closed the tanks.

NYSDEC then filed a complaint against both H&K and MFE, seeking $15K in penalties from each entity.  An administrative hearing was held and the  Administrative Law Judge (ALJ) issued a report finding that petitioners were guilty of the violations alleged in the complaint. As part of its decision, the ALJ noted that the old steel tanks were trade fixtures and that title to the tanks passed first to H&K when the tenant failed to remove them at the termination of its lease, and then to MFE when it purchased the property. The NYSDEC Commissioner adopted the ALJ’s report and ordered H&K and MFE to submit a remedial action work plan. H&K and MFE then sought judicial review of the decision.

The Petitioners then filed an article 78 action seeking review of the NYSDEC decision. The petitioners argued they could not be liable as “dischargers” under the Navigation Law because they never owned or operated the closed steel tanks that were the source of the petroleum plume. However, the court said that strict liability under the Navigation Law need not be premised on ownership of land or a petroleum system at the time a discharge occurs but instead could be founded either upon a party’s capacity to prevent spills or the ability to clean up contamination thereafter. As a result, the court said the petitioners were liable because they had control over the activities conducted on the property they owned and failed to remediate the contamination. The court said that both petitioners had reason to know that petroleum products had been and were being used on the property. In addition, the court went on, petitioners were aware that a discharge had occurred and each had the ability to clean up the contamination but failed to do so. Based on the foregoing, the court said the NYSDEC determination that petitioners were responsible as dischargers was supported by substantial evidence.

New York City has thousands of old USTs that were abandoned in place before the advent of the modern environmental era. As a result, it is important to carefully review the historical use of properties to determine if former tanks might exist on the property. Do not be fooled by the current use or configuration of a property. It is not uncommon to discover abandoned tanks in a parking lot or in a parking garage. Many buildings that are now serviced with natural gas may have previously used oil-fired burners that were supplied by large heating oil tanks. And, of course, many former industrial facilities located in areas that have been rezoned for residential use may have USTs that were used to store solvents or other hazardous wastes that were closed in place.

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