Agency of Natural Resources v. Deso

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Agency of Natural Resources v. Deso (2001-532); 175 Vt. 513; 824 A.2d 558

2003 VT 36

[Filed 27-Mar-2003]

ENTRY ORDER

2003 VT 36

SUPREME COURT DOCKET NO. 2001-532

JANUARY TERM, 2003

Agency of Natural Resources } APPEALED FROM:
}
}
v. } Environmental Court
}
Richard Deso }
} DOCKET NO. 204-9-00 Vtec

Trial Judge: Merideth Wright

In the above-entitled cause, the Clerk will enter:

¶ 1. Respondent Richard Deso appeals an order of the environmental
court fining him $200,474 (reduced to $100,000 pursuant to 10 V.S.A. §
8010(c)) for operating a gas station for eighteen months without installing
a Stage II vapor recovery system as required by Vermont's Air Pollution
Control Act, 10 V.S.A. §§ 551-576, and Air Pollution Control Regulations,
Stage II Vapor Recovery Controls at Gasoline Dispensing Facilities §
5-253.7. Deso argues that in calculating the penalty, the court erred by
(1) improperly counting as an economic benefit of his misconduct $161,264
in profits earned from the sale of gasoline without an approved emission
control system; (2) incorrectly determining that the violation, which
ceased in 1999, was a "continuing violation" and thus subject to a $100,000
fine instead of $25,000 maximum penalty; and (3) including $5,000 to
replace underground pipes as part of Deso's avoided costs despite the
State's failure to produce evidence at trial that the pipes had failed
while Deso owned the gas station. We affirm in part and reverse in part.

¶ 2. Vermont regulations require all gasoline dispensing
facilities with an annual throughput of 400,000 or more gallons per year to
install a Stage II vapor recovery system to capture harmful volatile
organic compounds that would otherwise escape into the atmosphere when
vehicle gas tanks are filled. See Air Pollution Control Regulations, Stage
II Vapor Recovery Controls at Gasoline Dispensing Facilities, 7 Code of Vt.
Rules § 5-253.7(a)-(d), at 12 031 001 - 36.1-36.2. Under the regulatory
schedule, any gas station that sells 1,200,000 or more gallons per year
must cease all gasoline transfers after Dec. 31, 1997 unless and until an
approved Stage II system is installed. Id. § 5-253.7(c)(1),(g)(1), at 12
031 001 - 36.1, 36.5.

¶ 3. Deso owned and operated a self-service gas station in St.
Albans from August 31, 1990 until he sold the station to Bradford Oil on
June 30, 1999. During that time, he installed underground return piping
for a gravity-feed Stage II vapor recovery system, but never installed the
above ground components. Shortly after the sale, tests by the new owner
showed that the underground pipes had malfunctioned and needed to be
replaced.

¶ 4. A year later, the Secretary of the Agency of Natural
Resources (ANR) issued an administrative order and imposed a $27,050
penalty pursuant to the state's Uniform Environmental Law Enforcement Act
(UELEA), 10 V.S.A. §§ 8001-8018, finding that Deso had (1) submitted false
written reports to the Air Pollution Control Division regarding gasoline
sales, (2) failed to pay the proper petroleum assessment fees, and (3)
failed to install a Stage II vapor recovery system. After Deso requested a
hearing before the environmental court pursuant to § 8012(a), the Secretary
amended the administrative order by raising the assessed penalty to $44,000
and reserving the right to augment the penalty based on evidence to be
presented at the hearing regarding the amount of economic benefit Deso
gained from the violations.

¶ 5. Based on the evidence at the hearing, the environmental court
found that Deso had substantially underreported his actual gasoline sales,
failed to pay the petroleum assessment fee on the actual sales volume, and
knowingly operated his gas station without a Stage II vapor recovery system
from January 1, 1998 until June 30, 1999. The court determined that during
those eighteen months, approximately 14,627 pounds of volatile organic
compounds were released into the air. The court also found that the
original underground piping was either not installed properly in 1994, or
had failed by the time Deso sold the station in the summer of 1999.

¶ 6. Pursuant to 10 V.S.A. § 8012(b)(4), the environmental court
reviewed anew the penalty to be assessed against Deso, using the eight
criteria set forth at § 8010(b). Regarding Deso's failure to install the
required Stage II vapor recovery system, the court determined that Deso
gained two types of economic benefits. First, the court held that Deso
gained ten cents per gallon profit, or $161,264, by illegally selling
gasoline between January 1, 1998 and June 30, 1999. Second, the court
determined that Deso benefitted by avoiding the costs of installing and
maintaining the vapor recovery system, including $8,070 to install the
above ground components and $5,000 to dig up and replace the faulty
underground piping. Pursuant to § 8010(b)(6), the court assessed $26,140,
or twice the avoided costs. The court further determined that Deso knew or
had reason to know the violation existed, and that it caused an actual
impact on the environment and a potential for harm to the health of users
and neighbors of the facility, but assessed no penalty for these factors.
In total, the court fined Deso $200,474 for selling gasoline without a
Stage II vapor recovery system, $5,000 for submitting false written
reports, and $4,800 for underpaying the proper petroleum assessment fee.
Pursuant to § 8010(c), the court reduced the total penalty to $100,000.
Deso now appeals the penalty imposed for his violation of the Stage II
regulation.

¶ 7. Deso's first contention is that the court erred by
determining that his so-called "wrongful profits" - $161,264 earned from
the sale of gasoline without an approved emission control system - was an
economic benefit gained from the violation. We agree. In calculating the
amount of a penalty under UELEA, the environmental court must consider all
of the statutory criteria set forth in § 8010(b), including "the economic
benefit gained from the violation." 10 V.S.A. § 8010(b)(5); Agency of
Natural Res. v. Godnick, 162 Vt. 588, 598, 652 A.2d 988, 994 (1994).
Although the term "economic benefit" is not defined in § 8010(b)(5), it is
clear from the purpose of UELEA that the goal of the economic benefit
analysis is to "prevent the unfair economic advantage obtained by persons
who operate in violation of environmental laws." 10 V.S.A. § 8001(2); cf.
United States v. Mun. Auth. of Union Township, 150 F.3d 259, 263 (3d Cir.
1998) (the aim of the economic benefit criteria in Clean Water Act is to
recoup any benefits a violator gained by breaking the law and which gave
the violator an advantage vis-a-vis its competitors).

¶ 8. At the time he became subject to the regulations, Deso had at
least two means of compliance: spending $13,070 to install a Stage II vapor
recovery system, or the vastly more expensive alternative of ceasing
production all together, which the court found would mean forgoing $161,264
in profits. Economic principles, normal business behavior, and common
sense suggest that a rational business would choose to install the required
equipment. Thus, the unfair economic advantage Deso gained over his
competitors is the savings gained by not installing an approved Stage II
vapor recovery system. Using a wrongful profits analysis significantly
over inflates the actual economic benefit to the violator; rather than
leveling the playing field, it puts him or her at a marked disadvantage.
See Robert H. Fuhrman et al., Consideration of 'Wrongful Profits' in
Environmental Civil Penalty Cases, 29 Env't Rep. 1010, 1011 (1998)
("economic benefit calculation must be based on the compliance choice a
rational business would make and should reflect the least costly means of
compliance"); see also Matthew B. McGuire, Muddying the Waters: "Wrongful
Profits" as a Measure of Economic Benefit to Violators of the Clean Water
Act in the Wake of United States v. Union Township, 9 Dick. J. Envtl. L. &
Pol'y 361, 378 (2000) ("The wrongful profits analysis may serve to
over-inflate the actual enjoyed benefit of noncompliance.").

¶ 9. ANR argues that our prior cases affirm the view that any
profit realized from a prohibited activity is properly defined as an
economic benefit under 10 V.S.A. § 8010(b)(5). See Sec'y v. Earth Constr.,
Inc., 165 Vt. 160, 165-66, 676 A.2d 769, 773 (1996) (profit from sale of
crushed rock extracted prior to obtaining Act 250 permit properly included
as an economic benefit of the violation); Agency of Natural Res. v. Bean,
164 Vt. 438, 445-46, 672 A.2d 469, 472 (1995) (affirming penalty for "all
economic gain," including both profits and delayed and avoided costs,
resulting from mobile home park constructed in violation of and prior to
obtaining final Act 250 permits); Godnick, 162 Vt. at 597, 652 A.2d at 994
(affirming economic benefit calculation including both profits and delayed
costs that resulted from using newly constructed warehouse prior to
obtaining final Act 250 permits). These cases, however, involved the
construction of new facilities, and not the retrofitting of existing
facilities. By using these facilities before receiving final permits, the
violators enjoyed an income stream sooner than a competitor would who
waited until they were in full compliance before startup. Rather than
wrongful profits, the income gained by premature operation is properly
characterized as advanced profits, the corollary of delayed costs. Such
profits qualify as an unfair competitive advantage and, therefore, as an
economic benefit of the violation. See Environmental Conservation, Ch. 20
- Environmental Administrative Penalty Rules, 6 Code of Vt. Rules § 104, at
12 030 002-3 - 002-4 ("Economic benefit may include the estimated net
income or net gain realized by a respondent through the use of facilities
before all required environmental permits are obtained."). Therefore, ANR
is incorrect. Not all profits gained through a violation are necessarily
an economic benefit of the violation. But when the violation gives the
violator a competitive advantage, such profits are an economic benefit
subject to penalty by confiscation. See 10 V.S.A. §§ 8001(2), 8010(b)(5).

¶ 10. ANR also warns that disgorging companies of profits earned by
ignoring Vermont's environmental programs is necessary to deter others from
committing similar violations. While we agree that such a deterrent may be
necessary - indeed, Vermont's environmental programs would cease to
function if permittees were allowed to unilaterally disregard permit
requirements - for the reasons above we do not think so-called "wrongful
profits" can be calculated as an economic benefit. Rather, we note that 10
V.S.A. § 8010(b)(6) provides for penalties in order to achieve deterrence,
and that the environmental court had the discretion to set Deso's penalty
at the same level based on other § 8010(b) factors without relying on an
incorrect theory of economic benefit. See Agency of Natural Res. v.
Duranleau Constr., Inc., 159 Vt. 233, 239-40, 617 A.2d 143, 147 (1992)
(environmental court has broad discretion to determine how each criterion
should affect the amount of penalty imposed).

¶ 11. Generally, the calculation of a final penalty under UELEA,
particularly the calculation of economic benefit, will be imprecise. See
Pub. Interest Research Group of N.J. v. Powell Duffryn Terminals, Inc., 913 F.2d 64, 80 (3d Cir. 1990) (the determination of economic benefit or other
factors does not require an elaborate or burdensome evidentiary showing;
reasonable approximations of economic benefit will suffice). There must be
at least some evidence of cause and effect between the misconduct and an
unfair economic advantage gained from the misconduct - for example, if Deso
had gained higher profit margins or increased market share by selling
cheaper gas. See Agency of Natural Res. v. Handy Family Enters., 163 Vt.
476, 486, 660 A.2d 309, 315 (1995) (reversing penalty of two and a half
percent of a restaurant's gross profits because no evidence supported use
of the percentage or how the restaurant benefitted from Act 250 violation).
In this case, there was insufficient evidence to determine that all profits
Deso earned while in noncompliance were an economic benefit of the
violation. Thus, we reverse the penalty determination and remand to the
environmental court for consideration consistent with this order.

II.

¶ 12. Deso next argues that the environmental court exceeded the
maximum penalty allowable under UELEA. He contends that 10 V.S.A. §
8010(c) limits penalties for violations of Vermont's Air Pollution Control
Regulations to $25,000 per violation, and that the statute's $10,000 per
day additional allowance for continuing violations applies only to
violations that continue after the initial penalty is assessed, not, as
here, to violations that ceased prior to notice of violation. Since this
claim was not raised before the environmental court, it is not preserved
for our review. Earth Constr., Inc., 165 Vt. at 165, 676 A.2d at 773
(Court will not address issues not raised in environmental court). Because
the question may arise on remand we address it now.

¶ 13. UELEA provides that as part of an administrative order,

[a] penalty of not more than $25,000.00 may be assessed for each
determination of violation. In addition, if the secretary
determines that a violation is continuing the secretary may assess
a penalty of not more than $10,000.00 for each day the violation
continues. The maximum amount of penalty assessed under this
subsection shall not exceed $100,000.00.

10 V.S.A. § 8010(c). Deso asserts that by using the present tense in the
phrase "is continuing" and the word "continues," the Legislature intended
to restrict application of the $10,000 per day allowance solely to active,
ongoing violations. Deso would thus interpret the second sentence of §
8010(c) as a contempt provision, authorizing an additional fine of not more
than $10,000 per day to be levied against violators who persist in their
misconduct after receiving notice of violation and penalty. ANR asserts
that a continuing violation under § 8010(c) means any violation that
persists more than one day, and that notice of penalty is not required. We
find that the latter is the proper construction of the statute.

¶ 14. References to continuing violations appear in almost fifty
penalty statutes in Vermont, yet none define "continuing violation" or a
"violation that is continuing." ANR's Environmental Administrative Penalty
Rules interpreting § 8010(c) provide a definition:

Continuing Violation: The Secretary may consider any violation of
a statute listed in 10 V.S.A. Section 8003(a) or a rule
promulgated under such statute or a condition of a related permit,
order, or assurance of discontinuance that continues longer than
one day as a continuing violation subject to additional penalties
for each day of continuance of the violation.

6 Code of Vt. Rules § 106, at 12 030 002-4 (emphasis added). We conclude
that the highlighted portion of this definition is correct for three
reasons. First, an administrative agency's interpretation of a statute
within its area of expertise is presumed to be correct, valid, and
reasonable. In re Prof'l Nurses Serv., Inc., 164 Vt. 529, 532, 671 A.2d 1289, 1291 (1996). Second, other states consistently use continuing
violation provisions in penalty statutes, not as a contempt mechanism, but
rather as a term of art to authorize cumulative penalty assessments for an
ongoing offense. See, e.g., 3B TV Inc. v. State, 794 So. 2d 744, 750 (2001)
(Fla. Dist. Ct. App. 2001) ("When the Florida Legislature has intended to
permit a penalty to be assessed on a daily basis, or to define each day of
continuing conduct as a separate violation, it has expressly so
provided."); Am. Transit Ins. Co. v. Corcoran, 565 N.E.2d 485, 487 (N.Y.
1990) ("Pyramiding of penalties, i.e., treating continuing violations as
separate daily transgressions, has been upheld only where cumulative
penalties are expressly authorized by statute."). Third, we note that
other jurisdictions considering nearly identical statutes have reached the
same result. See, e.g., Comm'r of Envtl. Prot. v. Conn. Bldg. Wrecking
Co., 629 A.2d 1116, 1129 (Conn. 1993) (continuing violation includes the
number of days debris was illegally deposited in a wetland as well as the
subsequent period in which the debris remained in the wetland); In re
Russet Valley Produce, Inc., 904 P.2d 566, 571 (Idaho 1995) (repeated
mislabeling of shipments of potatoes over a two-week period is a two week
"continuing violation" of the state's labeling laws). Therefore, we
conclude that the Legislature intended "continuing" in 10 V.S.A. § 8010(c)
to mean any violation that lasts longer than one day.

¶ 15. This does not, however, answer the question of whether prior
notice is required under § 8010(c) before cumulative penalties may be
assessed. We conclude that notice is not required. First, when the
Legislature intends that a violator be on notice before cumulative
penalties can be assessed, it has provided so expressly. See, e.g., 6
V.S.A. § 1107 (pesticide control) ("[I]n the case of a continuing
violation, the fine for each day's continuance thereof shall be increased
by 10 percent over the amount accrued during the previous day starting from
the day the violator is served with notice of the violation."); 10 V.S.A. §
1025(a) (stream flow regulation) ("In the case of a continuing violation,
each day's continuance thereof may be deemed a separate offense, starting
from the day the violator is served with notice of the violation."); 10
V.S.A. § 1384 (interstate water pollution control compact) ("In the case of
a continuing violation, each day's continuance after notification by a law
enforcement officer shall be considered an additional offense for which a
person shall be fined not more than $100.00 for each day's offense, in
addition to the penalty imposed for a single violation."). By contrast, §
8010(c), like Vermont's other environmental control statutes, does not
require notice. For example, these statutes state only that "in the case
of a continuing violation, each day's continuance may be deemed a separate
and distinct offense." See, e.g., 10 V.S.A. § 568(a) (air pollution
control); 10 V.S.A. § 6612(c) (solid and hazardous waste management); 10
V.S.A. § 1275 (water pollution control). Given the express statutory
requirement of notice in certain penalty provisions, the absence of similar
language in 10 V.S.A. § 8010(c) demonstrates a legislative intent not to
require notice here. See State v. LeBlanc, 171 Vt. 88, 92, 759 A.2d 991,
993 (2000) (Court will not expand a statute "by adding words that we
presume the Legislature intentionally omitted"). Reinforcing this
conclusion is the fact that Chapter 211 of UELEA, which provides for civil
enforcement of environmental statutes in superior court, contains a similar
continuing violation provision that does not include a notice requirement.
See 10 V.S.A. § 8221(b)(6) ("A civil penalty of not more than $50,000.00
may be imposed for each violation. In addition, in the case of a
continuing violation, a penalty of not more than $25,000.00 may be imposed
for each day the violation continues.").

¶ 16. Second, the legislative history of UELEA evinces an intent
not to require notice. As originally introduced in 1989, section 8010(c)
provided that "in the case of a continuing violation, each day's
continuance may be deemed a separate and distinct offense." 1989, S. 54
(Vt. Bien. Sess.). The Senate twice amended this language to require
either notice, an order, or a warning before allowing assessment of
cumulative daily penalties. See Sen. Jour. 301, 312 (Mar. 30, 1989 Vt.
Bien. Sess.). The Legislature, however, ultimately accepted the House
version, which deleted the requirement that additional penalties may apply
only after receipt of a notice, order, or warning. See House Jour. 787
(May 2, 1989 Vt. Bien. Sess.); Sen. Jour. 643 (May 2, 1989 Vt. Bien.
Sess.); 1989, No. 98, § 1 (codified as amended at 10 V.S.A. § 8010(c)).
This Court will reject construction of an ambiguous statute where
amendments to the same effect were expressly rejected by the Legislature.
See In re Lunde, 166 Vt. 167, 170, 688 A.2d 1312, 1314 (1997).

¶ 17. Third, the construction Deso seeks would conflict with
UELEA's statute of limitations provision. 10 V.S.A. § 8015. Section
8015(2) requires actions brought under the Act to commence within six years
from the date a continuing violation ceases. It would be nonsensical to
simultaneously require notice, i.e., filing an administrative order, prior
to establishing a continuing violation and at the same time set the statute
of limitations for taking action, i.e., filing administrative orders, at
six years after a continuing violation ceases. See State v. Lussier, 171
Vt. 19, 36, 757 A.2d 1017, 1028-29 (2000) (citing Craw v. District Court,
150 Vt. 114, 119, 549 A.2d 1191, 1194 (1984) for proposition that we reject
statutory construction that leads to absurd results).

¶ 18. Finally, we note that UELEA is a remedial statute and, as
such, it must be construed liberally "so as to furnish all the remedy and
all the purposes intended." State v. Custom Pools, 150 Vt. 533, 536, 556 A.2d 72, 74 (1988). The purpose of UELEA is, inter alia, to enhance the
protection of the environment and human health, prevent unfair economic
advantage obtained by persons who operate in violation of environmental
laws, foster greater compliance with environmental laws, and deter repeated
violations. 10 V.S.A. § 8001. Deso's construction would require that the
maximum penalty for any violation - no matter how hazardous to the
environment or human health, or how long it existed, or the extent of
profit realized through the misconduct - never exceed $25,000, unless that
violator continues the misconduct after issuance of an administrative
order. Such a result would create an artificially low ceiling on penalties
and defeat the purpose of the Act by limiting its deterrent effect. This
is particularly relevant where, as here, the violation ceased because Deso
sold the facility while the violation was ongoing, and not because he
stopped his eighteen months of misconduct.

¶ 19. Thus, we hold that continuing violations under 10 V.S.A. §
8010(c) may include any violation that persists longer than one day,
regardless of whether the violation is currently ongoing or has ceased. We
disagree with Deso's contention that this means that the Secretary may
issue a $100,000 fine any time a violation lasts longer than ten days.
Deso fails to understand that 10 V.S.A. § 8010(c) sets only the maximum
penalty. To fix the actual penalty amount the Secretary must apply the
criteria set forth in § 8010(b).

III.

¶ 20. Finally, Deso asserts that in calculating the costs he avoided
through non-compliance, the environmental court erred by including $5,000
to dig up and replace the underground piping for the Stage II vapor
recovery system. Deso contends that because no evidence was given at trial
proving that the underground pipes had failed before Deso sold the station,
it was clear error for the court to conclude that he would have had to
replace the pipes had he timely installed a Stage II vapor recovery system.
We disagree.

¶ 21. We will affirm the trial court's findings of fact unless,
"viewing the evidence in the light most favorable to the prevailing party
and excluding the effect of modifying evidence, a finding is clearly
erroneous." Houle v. Quenneville, __ Vt. __, __, 787 A.2d 1258, 1267
(2001) (internal quotations and citations omitted). "A finding will not be
disturbed merely because it is contradicted by substantial evidence;
rather, an appellant must show there is no credible evidence to support the
finding." Mullin v. Phelps, 162 Vt. 250, 260, 647 A.2d 714, 720 (1994)
(internal quotations and citations omitted).

¶ 22. At trial, Douglas Cone, the manager of the firm that
originally installed the underground pipes in 1994, testified that the
pipes would most likely have malfunctioned because of a design error,
defective installation, or lifting due to frost heaves. The uncontested
evidence at trial showed that Deso installed only minimal frost proofing
above the pipes, that he never caused the pipes to be tested, and that the
new owner had the pipes tested and discovered the failure within months of
purchase. If the pipes were designed or installed incorrectly, then Deso
is clearly liable. If the pipes failed due to frost damage, the evidence
shows that Deso controlled the property for at least five winters, whereas
the new owner discovered the problem prior to his first winter. Based on
these facts, there was sufficient credible evidence for the trial court to
conclude that the pipes either never worked, or failed while Deso owned the
property.

¶ 23. Additionally, we find Deso's attempt to claim credit for work
left incomplete and unmaintained since 1994 wholly unpersuasive in light of
the regulatory requirements he ignored. See Air Pollution Control
Regulations, Stage II Vapor Recovery Controls at Gasoline Dispensing
Facilities, 7 Code of Vt. Rules § 5-253.7(e)(1)(i), at 12 031 001 - 36.4.
(requiring initial testing of underground piping to verify proper
installation and functioning); id. § 5-253.7(d)(3) (requiring a gas station
owner to inspect and maintain all components of a Stage II vapor recovery
system in good working order); id. § 5-253.7(d)(5), (6), at 12 031 001 -
36.3 (requiring immediate replacement of any defective components).

¶ 24. The environmental court's determination of the maximum
statutory penalty and Deso's economic benefit for avoided costs are
affirmed. The court's determination that Deso's economic benefit also
included all profits earned from gasoline sales in violation of Air
Pollution Control Regulation § 5-253.7 is reversed, and the cause is
remanded.

The penalty calculation of the economic benefit Deso gained by
avoiding costs is affirmed. The penalty calculation of the economic
benefit Deso gained by transferring gasoline in violation of the Air
Pollution Control Regulation § 5-253.7 is reversed, and the matter is
remanded for further proceedings consistent with this opinion.

BY THE COURT:

_______________________________________
Jeffrey L. Amestoy, Chief Justice

_______________________________________
Denise R. Johnson, Associate Justice

_______________________________________
Marilyn S. Skoglund, Associate Justice

_______________________________________
Ernest W. Gibson III, Associate
Justice (Ret.) Specially Assigned

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Note: Justice Dooley sat at oral argument but did not participate in this
decision.

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