7-ELEVEN v. DEPT. OF ENV. QUALITY, Record No. 2380-01-2.

• Docket Nº: Record No. 2380-01-2.
• Citation: 573 S.E.2d 289, 39 Va. App. 377
• Case Date: December 10, 2002
• Court: Court of Appeals of Virginia

573 S.E.2d 289
39 Va. App. 377

7-ELEVEN, INC., f/k/a The Southland Corporation,
v.
The DEPARTMENT OF ENVIRONMENTAL QUALITY

Record No. 2380-01-2.

Court of Appeals of Virginia, Richmond.

December 10, 2002.

573 S.E.2d 290

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

John R. Butcher, Senior Assistant Attorney General (Randolph A. Beales, Attorney General, on brief), for appellee.

Present: BENTON, ANNUNZIATA and HUMPHREYS, JJ.

HUMPHREYS, Judge.

7-Eleven, Inc. ("7-Eleven") appeals a decision of the circuit court upholding a determination of the Department of Environmental Quality denying 7-Eleven full reimbursement from the Virginia Petroleum Storage Tank Fund for third-part damages. 7-Eleven raises four issues on appeal. For the reasons that follow, we affirm the decision of the trial court.

I. Background

A. Underlying Facts

In 1988, Hechinger, Inc. purchased a parcel of real property located in Henrico County, Virginia. The property was located near a parcel of property leased by 7-Eleven, Inc. (f/k/a) Southland Corporation. On June 11, 1990, 7-Eleven reported to the State Water Control Board (the "Board") a leaking seal on an unleaded gasoline pump located on the property. Two days later, an environmental consultant hired by 7-Eleven found gasoline in a spring and stream located on the nearby Hechinger property.

7-Eleven subsequently hired a contractor to clean the affected areas, including those areas located on the Hechinger property. During the clean-up process, which was not concluded until September 1998,¹ 7-Eleven

573 S.E.2d 291

requested reimbursement from the Board for expenditures involved in correcting the petroleum release, pursuant to Code § 62.1-44.34:11(A)(2)(a) of the statutes governing the Virginia Petroleum Storage Tank Fund (the "Fund").² Accordingly, the Board, acting through its staff, the Department of Environmental Quality ("DEQ"), reimbursed 7-Eleven for $408,838.74 of its incurred clean-up expenditures.³ The corrective action only partially abated the gasoline plume in the groundwater

Hechinger filed a motion for judgment against 7-Eleven in the Alexandria Circuit Court on April 19, 1995. On October 15, 1996, Hechinger filed an amended motion for judgment. The amended motion for judgment contained four counts with causes of action including negligence, trespass, nuisance, and statutory liability under Code § 62.1-44.34:18(C)(4), and sought damages of $2,000,000 plus interest, costs, and attorneys' fees.⁴ Shortly thereafter, 7-Eleven stipulated to statutory liability under Code § 62.1-44.34:18(C)(4). The case subsequently went to trial on the issue of damages. After a day and half of trial proceedings, the parties agreed to a settlement of $575,000.

B. Administrative Hearing

By letter dated May 1, 1996, 7-Eleven notified the Board of its potential claim against the Fund for third-party damages due to Hechinger, pursuant to Code § 62.1-44.34:11(A)(2)(b). 7-Eleven notified the Board of the settlement on September 23, 1997. The DEQ held an informal fact-finding proceeding on July 12, 2000 to consider 7-Eleven's claim for reimbursement, The DEQ also allowed both parties to submit additional evidence subsequent to the hearing.

The evidence presented on the issue of damages included appraisals prepared by each party's expert witnesses, depositions of each of the experts, and Henrico County tax

573 S.E.2d 292

assessment records. The evidence demonstrated that Hechinger had purchased the property at issue in 1988 for a purchase price of $903,117. However, Hechinger's expert, Salzman Real Estate Services, Inc. ("Salzman"), opined that the pre-injury fair market value of the property was $1,300,000 ($124,820 per acre). Salzman did not offer an opinion as to the post-injury fair market value of the property. Yet, Salzman opined that Hechinger lost rental income in the amount of $710,000, and investment returns in the amount of $550,000, as a result of the environmental damage. Salzman further opined that Hechinger had to pay $283,000 in taxes, insurance, administration expenses, as well as legal fees and expert fees, that it would not have had to pay but for the contamination

Jay B. Call, III Associates, Inc. ("Call"), an expert providing evidence on behalf of 7-Eleven, estimated the property's pre-injury fair market value as only $715,000 ($68,651 per acre). Salzberg Appraisals, Inc. ("Salzberg"), another expert for 7-Eleven, estimated the post-injury fair market value of the property to be $520,750 ($50,000 per acre). Salzberg based its opinion on an assumption that the contamination was no longer present and that the lower property value was merely a result of topographical problems that Salzberg described as "severe." Henrico County tax assessment records appraised the property at a pre injury value of $938,700 ($90,130 per acre), and a post-injury fair market value of $508,700 ($48,843 per acre). However, the County based its reduced assessment amount on the estimated cost to perform remediation on the property, which had already been largely completed, and for which the Board had already reimbursed 7-Eleven.

The evidence further established that Hechinger listed the property for sale in 1990, prior to the discovery of the contamination, asking for a price of $1,550,000. Hechinger was ultimately offered $800,000 for the property in 1996. In determining the amount 7-Eleven was entitled to for reimbursement, the hearing officer, J. Andrew Hagelin, Director of the Office of Spill Response and Remediation, stated the DEQ's interpretation of the standard to determine "reasonable and necessary" costs for third party claims as follows: 1) the claimant's legal liability for third party damages must be at least disputable; 2) the amount of damages claimed must be supported by the evidence; and 3) the types of damages must be eligible pursuant to the Fund's Guidelines.

After concluding 7-Eleven's liability was at least disputable, the hearing officer evaluated legal precedent concerning the availability of damages. The hearing officer considered "whether (i) the facts justified] permanent, temporary or both types of damages; (ii) whether an adjustment for the partial cure of the Hechinger property should be applied; and (iii) whether an adjustment for multiple causes of damages applie[d]." He concluded as follows:

Upon site closure, contamination remained on the Hechinger property. The Regional Office's July 7, 2000 memorandum indicates that it is simply not possible to predict how long it will take for natural attention [sic] to return the site to background levels. [7-Eleven] provided no evidence and no evidence exists in the Agency's records that indicates the remaining contamination will attentuate within a known time frame. Consequently, it is appropriate to treat the injury as permanent. That measure for permanent injury to real property pursuant to Packett v. Herbert [237 Va. 422, 377 S.E.2d 438 (1989),] is the permanent dimunition in the value of property.

To determine the permanent dimunition in the value of the property, the fair market value of the property after the injury is subtracted from the fair market value of the property before the injury.

In making this determination, the hearing officer disregarded the expert opinions of Salzman and Call as not credible, because they valued the property well above the amount Hechinger paid for it, and well above the county assessment amount. Further, they did not offer post-injury fair market valuations and offered damage estimates using formulae other than that prescribed in

573 S.E.2d 293

Packett.⁵ The hearing officer also disregard the opinion of Salzberg because the post-injury evaluation offered assumed no contamination was present on the property. In addition, the hearing officer disregarded the county's assessed post-injury value, because it reflected the estimated clean-up costs that the Board had already paid to 7-Eleven.

Based on the remaining evidence, the hearing officer found a reasonable range for the pre-injury fair market value of the property was $903,177 to $938,700, the pre-injury county assessment amount and the actual purchase price Hechinger paid for the property just two years before the pollution report. He found the 1996 offer of $800,000 to purchase the property a reasonable basis for estimating post-injury fair market value, as most of the clean-up expenses had already been incurred and it was not unreasonable to assume the potential buyer was aware of the condition of the parcel, and that the condition was reflected in the offer price. According he awarded 7-Eleven $103,117 ($903,117-$800,000) in reimbursement for third-party claim costs, finding this amount of damages most accurately reflected the actual market value of the property.⁶

C. Circuit Court Appeal

7-Eleven appealed this finding to the Richmond Circuit Court arguing that the hearing officer 1) failed to consider important factors in analyzing the reasonableness of the settlement; 2) misunderstood and misapplied the law of damages; and 3) arbitrarily and capriciously rejected the opinions of certain experts. 7-Eleven further contended that the Fund's Guidelines conflicted with Code § 62.1-44.34:11 (A)(2)(b). 7-Eleven asserted that each of these issues constituted matters of law, requiring little deference to be given to the determination of the DEQ.

Following written briefs and oral argument, the trial judge issued a letter opinion finding the decision concerning "reasonable and necessary per occurrence costs" was an area involving the special expertise of the DEQ, entitling its decision to deference and making the appropriate standard of review whether the decision was supported by substantial evidence. Finding that the decision was both supported by the evidence and not arbitrary and capricious, the trial court up-held the DEQ's decision.

II. Analysis

A....