Environmental Trust v. State, Dept. of Environmental Protection

• Decision Date: 03 June 1998
• Docket Number: 97-0255,Nos. 96-4341,97-0770 and 97-3909,s. 96-4341
• Citation: 714 So.2d 493
• Parties: 23 Fla. L. Weekly D1344 The ENVIRONMENTAL TRUST and Sarasota Environmental Investors, Inc., Appellants, v. STATE of Florida, DEPARTMENT OF ENVIRONMENTAL PROTECTION, Appellee. STATE of Florida, DEPARTMENT OF ENVIRONMENTAL PROTECTION, Appellant, v. The ENVIRONMENTAL TRUST, Sirrom Resource Funding, L.P., Southeast Solutions, Inc., Environmental Corporation of America, Inc., Sirrom Environmental Funding, LLC, and Reservoir Capital Corp., Appellees.
• Court: Florida District Court of Appeals

Page 493

714 So.2d 493

23 Fla. L. Weekly D1344

The ENVIRONMENTAL TRUST and Sarasota Environmental Investors, Inc., Appellants, v. STATE of Florida, DEPARTMENT OF ENVIRONMENTAL PROTECTION, Appellee.

STATE of Florida, DEPARTMENT OF ENVIRONMENTAL PROTECTION, Appellant, v. The ENVIRONMENTAL TRUST, Sirrom Resource Funding, L.P., Southeast Solutions, Inc., Environmental Corporation of America, Inc., Sirrom Environmental Funding, LLC, and Reservoir Capital Corp., Appellees.

Nos. 96-4341, 97-0255, 97-0770 and 97-3909.

District Court of Appeal of Florida,

First District.

June 3, 1998.

Rehearing Denied July 24, 1998.

E. Gary Early and Christopher R. Haughee of Akerman, Senterfitt & Eidson, Tallahassee, for Appellants Environmental Trust and Sarasota Environmental Investors, Inc.

W. Douglas Beason, Assistant General Counsel and Rebecca Grace, Assistant General Counsel, Tallahassee, for Appellee Florida Department of Environmental Protection.

Thomas K. Maurer of Foley & Lardner, Tallahassee, for Appellees Sirrom Resource Funding, L.P. and Sirrom Environmental Funding, LLC.

Matt Mathews of Matt Mathews P.A., Tallahassee, for Appellee Southeast Solutions, Inc.

Bradford C. Vassey, General Counsel, Tampa, for Appellee Environmental Corporation of America, Inc.

Ralph A. DeMeo and Michael P. Petrovich of Hopping, Green, Sams & Smith, Tallahassee, for Appellee Reservoir Capital Corporation.

PADOVANO, Judge.

In these consolidated appeals we review four final orders relating to the administration of the Inland Petroleum Trust Fund. Environmental Trust and Sarasota Environmental Investors challenge an order of the Department of Environmental Protection denying in part their applications for reimbursement for cleaning up petroleum contamination, as well as a related order by an administrative law judge authorizing the Department's use of incipient non-rule policies to deny the applications. The Department appeals an order by another administrative law judge invalidating a new rule adopting the policies in question, and a second order in the same case awarding attorney's fees to Environmental Trust and Sarasota Investors. We affirm the first two orders concerning the denial of the reimbursement applications, and reverse both of the remaining orders in the subsequent rule challenge proceeding.

I.

The Inland Petroleum Trust Fund was established in 1986 to encourage the restoration of groundwaters and surface waters polluted by the discharge of petroleum and related products from underground storage systems. A private party who rehabilitates a contaminated site may file an application for reimbursement of the expenses incurred in the rehabilitation. If the application is approved, the state reimburses the party from the funds held in the trust. The Department administers the program and has adopted rules implementing the statute.

Environmental Trust and Sarasota Investors filed forty-five reimbursement applications for rehabilitation work completed on various dates from July 1994 through February 1995. The cost of the work was financed in each case by a factoring arrangement. Generally, factoring is the process of purchasing accounts receivable at a discount. In these cases, the factoring company advanced capital at a discounted rate to the subcontractor, the contractor, and an investment company like Environmental Trust or Sarasota Investors, and then applied for reimbursement from the state based on the face amount of the invoices submitted at each level of the process. As a result, the cost of the discount for providing investment capital to the contractor, subcontractor, and investment company, was passed along to the state as a part of the cost of the rehabilitation.

In at least thirty of the projects, the site rehabilitation work was completed by a subcontractor, Tower Environmental Services Inc., under an agreement with the general contractor, Gator Environmental Services, Inc. Gator had no substantial involvement with these projects until the work was completed. At that point, Gator performed a site inspection for which it claimed a fifteen percent markup over the amount of the invoice submitted by Tower in its reimbursement application. Environmental Trust and Sarasota Investors were the investment companies, and they served primarily as a conduit for the capital provided by factoring companies such as American Factors Group Inc. and American Environmental Enterprises, Inc.

The Department had a rule in place concerning the necessary qualification for reimbursement but the rule did not expressly address the factoring scheme in the present case. Consequently, the Department began to gather more information from Environmental Trust and Sarasota Investors over a period of months to determine the proper approach to the review of the applications. Then, in a memorandum dated April 21, 1995, the Department stated its position on factoring discounts. In this memorandum, the Environmental Manager explained that the amount represented by a factoring discount is not reimbursable because it amounts to interest on the face amount of the invoice. By internal electronic mail dated October 20, 1995, the Department also took the position that it would allow a markup for the general contractor only if the general contractor performed an integral management function in the rehabilitation of a site. Accordingly, the Department deducted the discounts and the contractor's fifteen percent markup in all of the pending applications.

Between September of 1995 and February of 1996, Environmental Trust and Sarasota Investors filed forty-five petitions for administrative hearings under section 120.57(1), Florida Statutes (1995), to contest the denial of these claimed expenses. They also filed petitions in each case under section 120.535, Florida Statutes (1995), for a determination whether the memoranda regarding the factoring and markup policy had the effect of unadopted rules. The two sets of cases, including the individual petitions in each set, were consolidated for hearing.

On October 8, 1996, Administrative Law Judge Suzanne Hood entered two orders in the consolidated cases. The first was an order in the section 120.57(1) proceeding determining that the applications for reimbursement were properly denied. This order was adopted by the agency and is the subject of an appeal by Environmental Trust and Sarasota Investors (No. 96-4341). Judge Hood's second order was a final order in the section 120.535 proceeding. In those cases, the judge held that the Department's policies regarding factoring and the general contractor markup had the effect of unadopted rules. However, the order dismissed the petitions, based on the finding that the Department had initiated rulemaking to adopt the policies as rules as soon as it was practical or feasible. Environmental Trust and Sarasota Investors appeal that order, as well (No. 97-255). The Department cross appeals the order, contending that the memoranda did not have the effect of unadopted rules.

On March 22, 1996, while the consolidated proceedings were pending before Judge Hood, the Department published its first notice of proposed rulemaking. The notice attached a proposed rule adopting the factoring and markup policies that were the subject of the Department's previous memoranda. The final notice of the proposed rulemaking was published on September 27, 1996.

Following Judge Hood's decision, Environmental Trust and five other investment companies filed petitions under section 120.56 Florida Statutes, to determine the validity of the rule addressing the factoring and markup issues. This proceeding was assigned to Administrative Law Judge P. Michael Ruff. On February 12, 1997, Judge Ruff entered a final order declaring the proposed rule invalid. The judge held that the rule could not be applied retroactively because the statute creates a vested right to reimbursement. Additionally, the judge determined that the rule could not be applied prospectively because the Legislature had since eliminated the reimbursement program of the Inland Petroleum Trust Fund. ¹ The Department appeals this order declaring the rule invalid (No. 97-770).

Environmental Trust and the five other investment companies participating in the rule challenge then filed a motion for costs and attorneys' fees. They argued that they were entitled to fees by statute because they had obtained a declaration that the rule was invalid. Because the controversy concerning the proposed rule continued to exist after October 1, 1996, Judge Ruff applied the attorney's fee provision in section 120.595(2), Florida Statutes (Supp.1996). Ultimately, the judge granted the motion and awarded costs and attorneys' fees in favor of the investment companies. The Department appeals this order, as well (No. 97-3937).

II.

We find no error in the Department's final order in the proceeding under section 120.57(1), Florida Statutes (1995), denying in part the applications for reimbursement. This order must be affirmed because it is based on competent substantial evidence. Additionally, we agree with the result of the order by Administrative Law Judge Suzanne Hood in the proceeding under section 120.535, Florida Statutes (1995). However, we reject the main conclusion of law in this order and affirm it on other grounds. In our view, it was not necessary to excuse the Department's action on the ground that it was "incipient policy" soon to ripen into a new rule, because the Department's action was justified on the basis of the statute and the existing rule.

A party who asserts a disputed claim before an administrative agency generally has the burden of going forward with the evidence as well as the ultimate burden of establishing the basis for the claim. Young v. Department of Community Affairs, 625 So.2d 831 (Fla.1993); Balino v. Department of Health and Rehabilitative Services, 348 So.2d 349 (Fla. 1st DCA 1977). Environmental Trust and Sarasota...