7-Eleven, Inc. v. Department of Environmental Quality, Record No. 2380-01-2 (Va. App. 12/10/2002)

Decision Date10 December 2002
Docket NumberRecord No. 2380-01-2.
CourtVirginia Court of Appeals

Appeal from the Circuit Court No. HN-2268, of the City of Richmond Melvin R. Hughes, Jr., Judge.

Wyatt B. Durrette, Jr. (Derrick L. Walker; Durrette Bradshaw, P.L.C., on briefs), for appellant.

John R. Butcher, Special Assistant Attorney General (Jerry W. Kilgore, Attorney General; Roger L. Chaffe, Senior Assistant Attorney General, on brief), for appellee.

Present: Chief Judge Fitzpatrick, Judges Benton, Elder, Annunziata, Bumgardner, Frank, Humphreys, Clements, Felton and Kelsey.

For reasons stated in writing and filed with the record, the Court is of opinion that there is error in the judgment appealed from. Accordingly, the opinion previously rendered by a panel of this Court on December 10, 2002 is withdrawn and the mandate entered on that date is vacated. The judgment of the trial court is reversed and annulled, and the matter is remanded to the trial court for reconsideration in accordance with the views expressed in the written opinion of this Court.

This order shall be certified to the trial court.




The Department of Environmental Quality denied a substantial part of a request by 7-Eleven, Inc. for reimbursement from the Petroleum Storage Tank Fund for payments 7-Eleven made when it settled a suit brought by a third-party for property damage related to a petroleum spill. 7-Eleven contends the trial judge erroneously upheld that decision by (1) applying incorrect standards on review, (2) ruling that the issue on review was within the Department's specialized competence and expertise, (3) failing to properly consider evidence in the record, and (4) upholding the Department's Tank Fund guidelines. In reviewing these issues, we must examine the term "costs" in the context of a statutory indemnity scheme.

A divided panel of this Court affirmed the trial judge's decision. See 7-Eleven, Inc. v. Dep't of Env. Quality, 39 Va. App. 377, 573 S.E.2d 289 (2002). We granted 7-Eleven's petition for rehearing en banc, and, for the reasons that follow, we reverse the judgment.


The Department of Environmental Quality, which the legislature created to consolidate the programs of the State Water Control Board and four other agencies, see Code § 10.1-1182 et seq., administers the Petroleum Storage Tank Fund for the Board. See Code §§ 62.1-44.34:10 through 62.1-44.34:13. In pertinent part, the Tank Fund statute provides as follows:

2. Disbursements from the Fund may be made only for the following purposes:

a. Reasonable and necessary per occurrence costs incurred for releases . . . by the owner or operator who is the responsible person, in taking corrective action for any release of petroleum into the environment from an underground storage tank which are in excess of the per occurrence financial responsibility requirement imposed in subsection B of § 62.1-44.34:12, up to one million dollars.

b. Reasonable and necessary per occurrence costs incurred for releases . . . by the owner or operator who is the responsible person for compensating third parties, including payment of judgments for bodily injury and property damage caused by the release of petroleum into the environment from an underground storage tank, which are in excess of the per occurrence financial responsibility requirement imposed by subsection B of § 62.1-44.34:12, up to one million dollars. Disbursements for third party claims shall be subordinate to disbursements for the corrective action costs in subdivision A 2 a of this section.

Code § 62.1-44.34:11(A)(2).

The evidence in the record proved that in June 1990, 7-Eleven reported to the Board a leaking gasoline pump at one of its properties in Henrico County. After an environmental consultant found petroleum in the ground and in a spring and a stream, 7-Eleven hired a contractor to clean the contaminated area, which included a nearby parcel of property owned by Hechinger, Inc. The corrective action, however, only partially abated the petroleum plume in the groundwater. As permitted by the Tank Fund, 7-Eleven requested reimbursement of $599,746.94 from the Board for its "reasonable and necessary . . . costs" in correcting the release of petroleum into the environment. See Code § 62.1-44.34:11(A)(2)(a). The Board, acting through the Department, approved $458,838.74 of the clean-up costs. After subtracting $50,000 for 7-Eleven's financial responsibility, see Code § 62.1-44.34:12(B), the Board reimbursed 7-Eleven for $408,838.74 of its costs. Those costs and reimbursements are not at issue in this appeal.

In April 1995, Hechinger sued 7-Eleven in the Circuit Court of the City of Alexandria for property damage caused by the petroleum release, alleging negligence, trespass, nuisance, and statutory liability under Code § 62.1-44.34:18(C)(4). Hechinger's motion for judgment sought damages of $2,000,000, interest, costs, and attorneys' fees. While the litigation was pending, 7-Eleven notified the Department of its potential claim against the Tank Fund for damages to Hechinger's property. See Code § 62.1-44.34:11(A)(2)(b). After 7-Eleven stipulated to statutory liability under Code § 62.1-44.34:18(C)(4), the case went to trial in the circuit court on the issue of damages. During the second day of trial, the parties agreed that 7-Eleven would pay Hechinger $575,000 as a settlement of its $2,000,000 claim.

7-Eleven notified the Department of the settlement and sought reimbursement from the Tank Fund. See Code § 62.1-44.34:11(A)(2)(b). In support of its claim, 7-Eleven presented to the Department various documents, including exhibits prepared for and used at trial. The Department held an informal fact-finding proceeding and allowed 7-Eleven to later submit additional evidence. Based on its consideration of the evidence, the Department found that 7-Eleven "was the responsible person for this release and the release was from a regulated [underground storage tank]." The Department awarded 7-Eleven $103,117 as reimbursement for payment of property damage to Hechinger. The Department found that this amount represented the diminution in the market value of Hechinger's property.

7-Eleven appealed to the circuit court, alleging the case decision was unlawful. Following written briefs and oral argument, the trial judge ruled that the Department's decision concerning "reasonable and necessary per occurrence costs" for compensating Hechinger for property damage was an issue involving the Department's special expertise. Finding that the decision was supported by substantial evidence and was not arbitrary and capricious, the trial judge upheld the Department's decision to award only partial reimbursement to 7-Eleven. This appeal followed.


In simple terms, the issue in this appeal is whether, in evaluating the "reasonable and necessary . . . costs" 7-Eleven incurred in compensating Hechinger for property damage caused by the petroleum release, the Department could disregard the reasonableness of the $575,000 settlement. Noting that its liability was indisputable, 7-Eleven contends the Department erred by failing to consider the factors reflective of the reasonableness of the settlement, including "the strength of Hechinger's case heading into trial, 7-Eleven's exposure to liability and damages, the expense to the parties, the complexity of the issues presented in the litigation, the likely duration of the litigation, the amount offered at settlement, and the state of the proceedings at the time of the settlement." The Department responds that the trial judge correctly ruled that substantial evidence supported the Department's decision.


The record reflects that neither the Department nor the trial judge found that the settlement was unreasonable or unnecessary given the circumstances of the litigation. Moreover, the Department found that "[a]t a minimum, information contained in the Department's corrective action files demonstrates that the contamination . . . originated from the [7-Eleven] release" and, thus, determined that 7-Eleven's liability was "fairly disputable."

To the extent the Department concluded, without determining the reasonableness of the settlement, that 7-Eleven's settlement costs were not recoverable, the Department's decision was based on an interpretation of Code § 62.1-44.34:11(A)(2)(b) that excluded from the Code's definition of "costs" the kind of property damage settlement costs 7-Eleven incurred. Dismissing 7-Eleven's claims on its appeal to the circuit court, the trial judge ruled that "[b]ecause the statute does not tie the reasonableness requirement to the litigation arena, the Department did not need to consider the factors listed by [7-Eleven] and failure to do so was not error." We hold that those decisions are legally flawed.


In reviewing those decisions, we hold that no special agency expertise is necessary for a resolution of the issues this appeal raises.

The sole issue involves a question of statutory interpretation. The issue does not involve "the substantiality of the evidential support for findings of fact," which requires great deference because of the specialized competence of the agency. Instead, when, as here, the question involves a statutory interpretation issue, "little deference is required to be accorded the agency decision" because the issue falls outside the agency's specialized competence.

Sims Wholesale Co. v. Brown-Forman Corp., 251 Va. 398, 404, 468 S.E.2d 905, 908 (1996) (citation omitted). "The reviewing court may set the agency action aside, even if it is supported by substantial evidence, if the court's review discloses that the agency failed to comply with a substantive statutory directive." Browning-Ferris Indus. of South Atlantic, Inc. v. Residents Involved in Saving the...

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