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Lighthouse Pointe Property Associates LLC v. New York State Department of Environmental Conservation

February 18, 2010

IN THE MATTER OF LIGHTHOUSE POINTE PROPERTY ASSOCIATES LLC, APPELLANT,
v.
NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION, ET AL., RESPONDENTS.



The opinion of the court was delivered by: Read, J.

This opinion is uncorrected and subject to revision before publication in the New York Reports.

Petitioner Lighthouse Pointe Property Associates LLC (Lighthouse) commenced this CPLR article 78 proceeding to challenge the decision by the New York State Department of Environmental Conservation (DEC or the Department) to deny its requests for acceptance of certain real property into the Brownfield Cleanup Program (BCP). For the reasons that follow, we conclude that DEC acted arbitrarily and capriciously and contrary to law when it determined that the real property addressed in Lighthouse's requests did not fall within the statutory definition of a brownfield site.

I.

In 2003, the Legislature enacted a new title 14 of article 27 of the New York State Environmental Conservation Law to promote the voluntary cleanup, reuse and redevelopment of brownfields through the BCP, to be administered by DEC (see L 2003, ch 1, effective Oct. 7, 2003). The Legislature found "that there are thousands of abandoned and likely contaminated properties that threaten the health and vitality of the communities they burden, and that these sites, known as brownfields, are also contributing to sprawl development and loss of open space" (ECL 27-1403). As the Division of the Budget put it when endorsing the legislation, "[b]rownfields are abandoned, idled, or under-used properties where redevelopment is complicated by real or perceived environmental contamination . . . [and they] often pose not only environmental, but legal and financial, burdens on communities. Left vacant, contaminated sites can diminish the property value of surrounding property and threaten the economic viability of adjoining properties. The impediments to brownfield redevelopment are complex . . . The existing liability scheme, which holds all owners of contaminated property liable for cleanup costs, regardless of when or how the property was acquired relative to the contamination, contributes to the reluctance of developers to purchase even minimally contaminated sites. So, too, does the potential cost of cleanup, which may not be known at the time of purchase. In addition, lenders are often reluctant to extend credit for the purchase and cleanup of brownfield sites, fearing future liability or diminution of the value of the property held as collateral should the site prove to require more extensive and costly cleanup than initially thought. Consequently, financing such a purchase may be more difficult than financing a purchase of a greenfield site" (Budget Report on Bills, Bill Jacket, L 2003, ch 1, at 38).

The BCP broadly defines the term "brownfield site" as "any real property, the redevelopment or reuse of which may be complicated by the presence or potential presence of a contaminant" (ECL 27-1405 [2] [emphases added]). "Contaminant" is defined as "hazardous waste and/or petroleum as such terms are defined in [ECL 27-1405]" (ECL 27-1405 [7-a]); and "hazardous waste," in turn, includes hazardous waste as defined in ECL 27-1301 (see ECL 27-1405 [17], referencing ECL 27-1301; see also ECL 27-1301 [1], referencing ECL 27-0903 [Identification and listing of hazardous waste] and ECL 37-0103 [Lists of substances hazardous or acutely hazardous to public health, safety or the environment]). There are statutory exclusions from the definition of the term "brownfield site," notably including certain properties listed in the State's Registry of Inactive Hazardous Waste Disposal Sites (the Registry), a hallmark of the State's Superfund Program, or properties included on the National Priorities List, comprising designated federal Superfund sites (see ECL 27-1405 [2] [a], [b]). "A person who seeks to participate in [the BCP] shall submit a request to [DEC]" on forms devised by the Department, and shall provide therein information "sufficient to allow [DEC] to determine eligibility and the current, intended and reasonably anticipated future land use of the site" (see ECL 27-1407 [1]). There are enumerated restrictions on eligibility (ECL 27-1409 [8], [9]). Among them is the direction that DEC "shall reject" any request that it "determines . . . is for real property which does not meet the requirements of a brownfield site as defined in . . . title [14]" (ECL 27-1407 [8] [a]).

An applicant*fn1 must enter into an agreement with DEC to conduct an investigation to assess the nature and extent of contamination at the brownfield site (ECL 27-1409, 27-1411), and must devise and carry out a "remedial program" that DEC judges to be "protective of public health and the environment" (ECL 27-1415 [1], [2]). DEC issues a written certificate of completion to the applicant once the site has been cleaned up in accordance with the applicable remedial requirements (ECL 27-1419 [3]); the certificate is transferable to an applicant's successors or assigns (ECL 27-1419 [5]). Further, the certificate qualifies the applicant to receive a liability release and covenant not to sue from the State of New York, which "runs with the land" (ECL 27-1421 [1], [3]), as well as financial benefits (Tax Law §§ 21, 22 [b], 23 [a]). Public notice and opportunities for citizen participation are integral features of the BCP at every stage, from the request to participate to issuance of the certificate (ECL 27-1417).

The statute directed DEC to develop tables of numeric and contaminant-specific soil cleanup objectives (SCOs) that protect public health and the environment and do not exceed specified risk levels based on three types of land use --unrestricted (residential), commercial, and industrial (ECL 27-1415 [6]; see also 6 NYCRR subpart 375-6). Further, the BCP affords applicants the flexibility to employ the tables or site-specific criteria to determine acceptable levels of residual contamination, based on four different cleanup "tracks."*fn2

As originally enacted, the most significant financial incentive available to an applicant -- the brownfield redevelopment tax credit -- ranged from 10% to 22% of covered costs.*fn3 This tax credit consists of a "site preparation credit component" (costs to get the site ready for cleanup and redevelopment, except for the cost of acquiring the real property) (Tax Law § 21 [a] [2], [b] [2]); a "tangible property credit component" (the cost of erecting commercial, industrial or recreational buildings) (Tax Law § 21 [a] [3], [b] [3]); and an "on-site groundwater remediation credit component" (Tax Law § 21 [a] [4], [b] [4]).

Early on, DEC estimated the value of tax credits -- "[a]mong the most powerful incentives established by" the BCP --to be "approximately $135 million when . . . fully effective" (Desnoyers and Schnapf, Environmental Remediation Process is Undergoing Sweeping Changes Mandated by New Brownfields Law, 76 NY State Bar Journal 10). As it turned out, since the tangible property credit component "potentially amount[ed] to as much as 22 percent of the total cost of development of the project," sites with minimal contamination but high development costs were eligible for "very large tax credits with a relatively small investment" in cleanup costs (Block and Curran, Brownfields Cleanup: Case Law, Amendments May Modify Program, NYLJ, Mar. 12, 2008, at 5, col 3).

In June 2008, the State Comptroller estimated that "[t]he outstanding tax credit liability for all projects [then] enrolled in the BCP . . . [was] potentially as high as $3.1 billion" (Thomas P. DiNapoli, New York State Comptroller, Overview of the New York State Brownfields Cleanup Program, at 9 [June 2008]). Indeed, "[s]everal projects [had] accrued tax credits in excess of $100 million [causing] the New York State Division of the Budget" to "express concern that the [BCP might] pose a significant financial risk to the state" (id. at 2).

These financial misgivings caused the Legislature to include a 90-day moratorium on the acceptance of new sites into the BCP as part of the enacted state budget for fiscal year 2008-2009, and subsequently to enact amendments revamping the brownfield redevelopment tax credit for applicants accepted into the BCP after June 23, 2008 (see L 2008, ch 390, §§ 1, 2). The amendments restructured the tax credits so as to encourage more thorough cleanups while reducing the State's financial exposure. First, the Legislature tied the percentage of remedial costs (i.e., the site preparation and groundwater remediation credit components) available to the level of cleanliness achieved, ranging from a high of 50% for soil cleanups allowing for unrestricted use to a low of 22% for track 4 soil cleanups for industrial use (ECL 27-1419 [3]). Importantly, the Legislature capped the tangible property credit component, which captures development costs, to the lesser of $35 million or three times remedial costs; or, for sites used primarily for manufacturing activities, to the lesser of $45 million or six times remedial costs (Tax Law § 21 [3-a]).

The BCP replaced the Voluntary Cleanup Program (VCP), an administrative initiative inaugurated by DEC in late 1994 to accommodate "developers and landowners with contaminated but otherwise marketable property [who] sought government review and 'sign-off' of cleanup plans so that they could access financial backing and be freed from worry over potential legal actions under the State's pollution and hazardous waste laws" (Testimony of Peter Grannis, Commissioner, New York State Department of Environmental Conservation, before the New York State Senate and Assembly Standing Committees on Environmental Conservation, Aug. 27, 2007). The VCP offered no financial incentives; however, upon completion of a DEC-sanctioned cleanup, a participant in the VCP received a waiver of liability from DEC -- i.e., the waiver did not bind other State agencies or the State Attorney General. Despite its perceived shortcomings, the VCP "evolved into a well-recognized way for property owners to obtain official sanction for their cleanups" (Gerrard, N.Y. Brownfields Program Buffeted by Legislature, Courts, NYLJ, July 25, 2008, at 3, col 1), which paved the way for redevelopment and reuse of their property.

II.

Lighthouse plans to redevelop land located along the Genesee River in Monroe County "into a vibrant, pedestrian-friendly and attractive $250 million mixed-use waterfront development, including condominiums, townhouses, a marina, restaurants, retail stores and a hotel."*fn4 Most of the land, situated within a 100-year flood zone, encompasses what was historically a marsh area and is largely vacant. The occupied portions are used primarily for boat storage and parking. Lighthouse divided the land into two development parcels (collectively referred to as the properties): the 22-acre Riverfront Site, bordering the east side of the Genessee River in the Town of ...


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