Agency of Natural Resources v. Deso

• Decision Date: 27 March 2003
• Docket Number: No. 01-532.,01-532.
• Citation: 824 A.2d 558
• Parties: AGENCY OF NATURAL RESOURCES v. Richard DESO.
• Court: Vermont Supreme Court

824 A.2d 558

AGENCY OF NATURAL RESOURCES v. Richard DESO.

No. 01-532.

Supreme Court of Vermont.

March 27, 2003.

Present: AMESTOY, C.J., JOHNSON, SKOGLUND, JJ., and ERNEST W. GIBSON III, J. (Ret.) Specially Assigned.

ENTRY ORDER

¶ 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 December 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.

I.

¶ 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 altogether, 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 overinflates the actual economic benefit to the violator; rather than leveling the playing field, it puts him or her at a marked disadvantage. See R. 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 M. 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, Agency of Natural Resources 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...