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Rollingwood Acres, Inc. v. Rhode Island Department of Environmental Management

Supreme Court of Rhode Island

June 24, 2019

Rollingwood Acres, Inc. et al.
Rhode Island Department of Environmental Management et al.

          Superior Court Providence County, PC 14-1339 Netti C. Vogel Associate Justice

          For Plaintiffs: Joelle C. Rocha, Esq. Attorney(s) on Appeal Michael A. Kelly, Esq.

          For Defendants: Susan B. Forcier, Esq.

          Present: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.


          Suttell Chief Justice

         Rollingwood Acres, Inc. (Rollingwood), Smithfield Peat Co., Inc. (Smithfield Peat), and Smithfield Crushing Co., LLC (Smithfield Crushing) (collectively, plaintiffs) appealed from a Notice of Violation (NOV) issued on November 6, 2006 by the Rhode Island Department of Environmental Management (DEM). The NOV alleged ten discrete violations of the Rhode Island Water Pollution Act, DEM's Water Quality Regulations, the Rhode Island Oil Pollution Control Act, DEM's Oil Pollution Control Regulations, and DEM's Regulations for the Rhode Island Pollution Discharge Elimination System. After a hearing before the Administrative Adjudication Division of DEM (AAD), the plaintiffs prevailed on all but two of the alleged violations. The plaintiffs requested reasonable litigation expenses under the Equal Access to Justice for Small Businesses and Individuals Act, G.L. 1956 chapter 92 of title 42 (EAJA). The AAD hearing officer denied their request, finding that DEM's "decision to initiate and proceed with the enforcement action was based on substantial justification" within the meaning of EAJA. The plaintiffs appealed to the Superior Court under the Administrative Procedures Act, G.L. 1956 chapter 35 of title 42 (APA), which upheld the AAD's denial of reasonable litigation expenses. The plaintiffs then filed a petition for the issuance of writ of certiorari, seeking this Court's review of the Superior Court's decision, which we granted. For the reasons set forth in this opinion, we quash the judgment of the Superior Court.


         Facts and Travel

         This case has a protracted history dating back to the 1980s. The facts of the case have been recounted many times throughout the various administrative and Superior Court decisions; therefore, we include only details relevant to the case before us now.


         Permit Issuance

         Rollingwood is the record owner of property located at 961 Douglas Pike, Route 7, in Smithfield (the property). Smithfield Peat operates a leaf and yard waste composting facility at the property and is registered with the United States Environmental Protection Agency (EPA) as a hazardous waste generator. Smithfield Crushing operates a rock crushing facility at the property.[1]

         In May 1982, DEM issued a freshwater wetlands permit to Smithfield Peat. The permit authorized Smithfield Peat to alter freshwater wetlands by excavating, filling, and grading within fifty feet of an unnamed swamp to remove peat, construct two stormwater detention basins, install a sewer line, and construct a road. In accordance with the permit, Smithfield Peat was required to use fifteen-inch-diameter discharge pipes as part of its stormwater detention basins. The plaintiffs spent over $100, 000 and two years constructing the authorized drainage structure.


         Complaint and Initial Inspections

         From 1996 through 1997, the Rhode Island Department of Transportation (DOT) carried out a project to improve Route 7. Part of this project was located along Rollingwood's property. Without plaintiffs' knowledge and without seeking a permit from DEM, DOT replaced plaintiffs' fifteen-inch-diameter pipe with an eighteen-inch-diameter pipe. The plaintiffs discovered the larger pipe only after DOT had finished its project. The larger pipe resulted in the drainage system's increased discharge of turbid, or sediment-laden, water into a stream.

         To add insult to injury, on December 3, 1996, a DOT employee filed a complaint with DEM stating that plaintiffs' drainage structure was discharging turbid water into a stream. As a result, DEM, through its Office of Compliance and Inspection (OC&I), made two site inspections in January 1997. Sean Carney, a site inspector, observed a "discharge of sediment into a stream in non-conformity with the permit letter * * * ." DEM concluded that the sediment was discharging from plaintiffs' detention basin and that the Route 7 project had also contributed to unpermitted discharge levels. On June 3, 1997, DEM issued a Notice of Intent to Enforce (NOIE) to plaintiffs, which required remediation of the drainage structure. The plaintiffs apparently took no action in response to the NOIE, nor did DEM seek to enforce the NOIE; however, DEM's case file on this matter remained open.


         Follow-Up Investigations and Discovery of the Oil Pollution Violations

         Over eight years later, DEM revisited the property on February 9, 2005, when Peter Naumann, a DEM site inspector, was investigating another complaint in the area. During that inspection, Naumann noticed an "oily sheen" in one of plaintiffs' retention ponds, which caused him to suspect an oil spill. Naumann quickly notified plaintiffs and DEM Emergency Response. The plaintiffs immediately secured Lincoln Environmental, Inc. for remedial work, which, within hours, began containing and cleaning up the oil discharge.

         On February 10, 2005, Naumann returned to the property for follow-up testing of the oil spill and runoff water. He collected five water samples for a variety of tests, including turbidity and hydrocarbon presence. Four of the water samples were taken from the water on the property or downstream of the property, and one background sample was taken from a nearby, but unconnected, stream. The samples revealed the presence of hydrocarbons, which indicated that a petroleum product had been released on the property. The plaintiffs determined that the oil source came from a pile of stone and waste rock that Smithfield Peat had recently obtained from the Narragansett Bay Commission Combined Sewer Overflow Tunnel project.

         On April 4, 2006, Patrick Hogan, another DEM site inspector, returned to take additional water samples because the 2005 background sample, taken from an unconnected stream, could not be used. Again, Hogan observed the discharge water's turbidity. Hogan could not find an appropriate upstream sample, and later testified that he was unable to do so because "[t]here is no upstream with this location * * * [t]he water seems to begin right there." Due to the lack of a suitable upstream location to take a sample, Hogan collected a sample roughly 1, 500 feet downstream from the discharge to function as DEM's background sample.


         DEM's Issuance of a Notice of Violation and Plaintiffs' Administrative Appeal

         On November 6, 2006, DEM issued an NOV against plaintiffs, and assessed an administrative penalty of $31, 470. The NOV charged plaintiffs with violations of the Rhode Island Water Pollution Act, DEM's Water Quality Regulations, the Rhode Island Oil Pollution Control Act, DEM's Oil Pollution Control Regulations, and DEM's Regulations for the Rhode Island Pollution Discharge Elimination System.

         The plaintiffs appealed the NOV to AAD. Five years later, an AAD hearing officer conducted an extensive administrative hearing, with six days of testimony from nine witnesses over the course of five months in late 2011 and early 2012. During the course of the hearing, plaintiffs filed a motion to dismiss for failure to join DOT as an indispensable party, which was denied before the end of the hearing.[2]

         The AAD hearing officer issued a comprehensive decision on June 27, 2012 (Merits Decision). Finding that DEM had not met its burden of proof by a preponderance of the evidence to support most of the violations, the hearing officer dismissed all but two violations. The water pollution violations were dismissed for lack of a valid background sample. The hearing officer found that the water samples "were not taken in accordance with the Water Quality Regulations and are of no use in proving a turbidity violation by [DEM]." "Without a valid upstream sample[, ]" the hearing officer noted, "all of [DEM's] samples and testing on turbidity are meaningless."

         David Chopy, director of OC&I, testified at the administrative hearing about DEM's decision to issue turbidity-related violations to plaintiffs rather than to DOT. He testified, according to the Merits Decision, that "he didn't know who changed the drainage system but assumed that [plaintiffs], as owners of the property, had either made the change [to the drainage system] or consented to it." He further testified, the Merits Decision states, that "he didn't have any other facts or information" that would indicate that plaintiffs were responsible for the change to the authorized drainage system. In the Merits Decision, the hearing officer noted that "[w]hen asked if [Chopy] read the notes to file [on DOT's involvement] Chopy's response very often was that he probably read the notes but didn't recall." The hearing officer stated: "After hearing all the evidence on the issue of turbidity, it is clear that [plaintiffs] were victimized by [DOT]. Instead of following up and holding [DOT] responsible for its involvement in this matter [DEM] charged [plaintiffs] only."

         In dismissing two of the alleged oil pollution violations, the hearing officer at the outset noted that these violations are "separate and apart" from the water pollution violations. He found that plaintiffs were not aware of the oil discharge, thus they were not liable to DEM for failure to immediately notify it of the release, and that, once aware, plaintiffs immediately initiated remediation on the property, and thereby were not liable for failure to immediately clean the oil discharge. The hearing officer did find that plaintiffs received product contaminated with oil and were therefore responsible for the oil discharge into waters of the state under a strict liability theory. The hearing officer reduced the administrative penalty from $31, 470 to $2, 615. When explaining his decision to do so, the hearing officer noted that Chopy had testified that he had assessed the warranted monetary penalty for plaintiffs' violation as "moderate" rather than "minor"-not because of any factors in the Administrative Penalty matrix, [3] but simply because Smithfield Peat was a registered small-quantity generator with oil and he would expect its employees to be familiar with oil releases.

         Both parties timely appealed the hearing officer's Merits Decision to the Superior Court, and both appeals were ultimately dismissed.

         E EAJA Request

         On July 27, 2012, plaintiffs filed a request for litigation expenses under the EAJA and Rule 1.20 of DEM's AAD Rules and Regulations, 250 R.I. Code R. § 10-00-1.20.[4] Finding that plaintiffs were not "parties" under the EAJA, the hearing officer denied plaintiffs' request. The plaintiffs appealed that decision to the Superior Court. The Superior Court found plaintiffs to be "parties" under the EAJA and remanded the case to AAD to consider the merits of plaintiffs' claim for litigation expenses.

         On February 28, 2014, in considering the substantive claim for litigation expenses, the hearing officer denied plaintiffs' request, finding that DEM had acted with substantial justification (AAD EAJA Denial). Recognizing that most of the charges against plaintiffs had been dismissed, the hearing officer nonetheless found that DEM was substantially justified both in initiating the investigation as a response to a complaint and in pursuing the NOV. The plaintiffs appealed to the Superior Court on March 14, 2014.

         F Superior Court Decision

         The Superior Court set a briefing schedule, and plaintiffs and defendants filed memoranda on the AAD EAJA Denial. On December 15, 2014, the trial justice issued her decision upholding the AAD EAJA Denial. The plaintiffs filed a motion to reconsider on June 18, 2015, which was heard and denied on September 10, 2015. Final judgment entered on October 9, 2015. The plaintiffs filed a petition for writ of certiorari with this Court seeking our review, which we granted.

         II Statutory Framework

         As this is the first opportunity we have had to review a fee determination initially awarded or denied under § 42-92-3(a), ...

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