State of New York v. Markowitz

• Decision Date: 22 June 2000
• Citation: 273 A.D.2d 637,710 N.Y.S.2d 407
• Court: New York Supreme Court — Appellate Division
• Parties: STATE OF NEW YORK, Respondent,<BR>v.<BR>LEAH MARKOWITZ et al., Appellants.

273 A.D.2d 637

710 N.Y.S.2d 407

STATE OF NEW YORK, Respondent,

v.LEAH MARKOWITZ et al., Appellants.

Spain, J.

Decided June 22, 2000.

Cardona, P.J., Peters, Carpinello and Graffeo, JJ., concur.

Spain, J.

Following a jury trial, two corporations and two individuals who owned the corporations' stock and acted as their sole officers were held liable under Navigation Law § 181 (1) for cleanup costs for oil spills occurring on property owned by one of the corporations and operated by the other. A third individual who neither owned stock in either corporation nor held any position therein was also held liable under Navigation Law § 181 (1). This appeal requires this Court to address questions primarily concerning the extent to which personal liability under Navigation Law § 181 (1) may be imposed upon the individual noncorporate defendants, if any. For reasons to follow, we find that none of the individual defendants should have been held personally liable.

The following facts were adduced at trial. During the relevant period, defendant Think Big Auto Rental and Leasing, Inc. owned a parcel of land in Bronx County which was improved by a gas station. Until his 1993 death, Emanoil Marcovici was the sole shareholder and sole officer of Think Big. Defendant 242 East 138th Street, Inc. (hereinafter East 138th Street), the lessee of the site, operated the gas station thereon. Defendant Gurmit Singh Dhinsa was the sole shareholder and sole officer of East 138th Street. In April 1991, gasoline was discovered seeping into a utility tunnel beneath a street adjacent to the site, and the Department of Environmental Conservation (hereinafter DEC) ultimately determined that the principal cause of the spill was that a delivery truck had overfilled one or more of the station's four gasoline storage tanks. Tank leakage tests conducted the following day indicated that one of the storage tanks—containing diesel fuel—showed a leakage rate slightly above that allowed.^[1] Shortly thereafter, a private contractor—apparently hired by East 138th Street— installed overfill protection devices on the tank fill lines, but not on the stick lines which are capped openings in each tank used to gauge the amount of gasoline in the tank by use of a measuring stick. There is evidence that the caps used to cover and seal these stick lines were, at times, removed and left off by East 138th Street employees creating a danger of spillage during deliveries if the tanks were overfilled.

On May 10, 1991 DEC mailed a letter addressed to Marcovici stating that it had received information that he was the owner of the site. The letter indicated the results of its investigation, recommended a number of remediation procedures and advised that DEC would remediate the site and seek reimbursement if he did not do so himself.^[2] Marcovici's attorney responded by letter advising DEC that the corporate entity—Think Big—owned the site and that Marcovici was merely the principal of that corporation. The letter denied that any of the tanks were leaking but agreed to advise East 138th Street of DEC's notice and to provide DEC with the results of more recent tank tests which confirmed that there were no tank failures.

In August 1991, after another spill was detected at the site, DEC mailed a letter erroneously addressed to "Mr. L. Markowitz" to defendant Leah Markowitz^[3] —Marcovici's daughter-in-law —stating that DEC had undertaken the remediation measures. The letter—apparently referring to DEC's earlier letter to Marcovici—erroneously states "[o]ur last correspondence with you was a letter dated May 10, 1991" and that "[y]ou have been advised repeatedly that a serious problem exists and you have decided not to perform the necessary remedial work [emphasis in original]." Notably, this letter was not sent nor copied to Marcovici or to Think Big; it was copied to Marcovici's attorney. When Marcovici thereafter died in 1993, his wife was appointed the executor of his estate and, upon her death in 1995, their granddaughter Orit Markowitz—Markowitz's daughter—was named administrator of her grandfather's estate. Neither Dhinsa—who was known to DEC from the outset—nor East 138th Street were sent any DEC noncompliance correspondence regarding this site prior to the commencement of this action.

In August 1996 plaintiff commenced this Navigation Law § 181 (1) action seeking to hold Marcovici's estate, Dhinsa and Markowitz personally liable, jointly and severally with the corporations—Think Big and East 138th Street—for clean-up costs (see, Navigation Law § 181). Plaintiff also sought statutory penalties against each defendant (see, Navigation Law § 192).

The jury found all of the individual and corporate defendants jointly and severally liable to plaintiff for clean-up costs of $910,000 and future costs of $150,000. The jury also assessed a $1 million penalty against Markowitz and a penalty of $2.25 million each against Marcovici's estate, Think Big, Dhinsa and East 138th Street. Only Markowitz, Marcovici's estate, Dhinsa and East 138th Street have appealed. Notably, in its appeal, East 138th Street only challenges the legality of the statutory penalties imposed against it and does not contest its liability for the clean-up costs. Thus, our primary focus will be on the propriety of imposing personal liability upon the individual defendants under Navigation Law § 181 (1).

We begin our analysis recognizing that Navigation Law § 181 (1) provides that "[a]ny person who has discharged petroleum shall be strictly liable, without regard to fault, for all cleanup and removal costs * * * no matter by whom sustained." Further, a "discharge" is defined as "any intentional or unintentional action or omission resulting in the releasing, spilling, leaking, pumping, pouring, emitting, emptying or dumping of petroleum into the waters of the state or onto lands from which it might flow or drain into said waters" (Navigation Law § 172 [8]). The Court of Appeals has not yet addressed the issue of precisely who can be held liable as a discharger, a term not defined in Navigation Law article 12 (see, Matter of Art-Tex Petroleum v New York State Dept. of Audit & Control, 93 NY2d 830, 832; White v Long, 85 NY2d 564, 568; see also, Drouin v Ridge Lbr., 209 AD2d 957, 958).

This Court has construed Navigation Law § 181 (1) to impose strict liability on corporations and individuals who directly own the system from which a discharge occurred; such liability has been held to attach despite a lack of proof that the owner caused or contributed in any way to the discharge (see, State of New York v Green, 271 AD2d 11 [decided herewith]; Matter of White v Regan, 171 AD2d 197, 199-200, lv denied 79 NY2d 754; State of New York v Wisser Co., 170 AD2d 918; State of New York v New York Cent. Mut. Fire Ins. Co., 147 AD2d 77; see also, White v Long, supra, at 568; but see, Drouin v Ridge Lbr., supra, at 957). However, the appellate case law in this State interpreting Navigation Law § 181 (1) has not imposed such strict liability on stockholders or officers of corporations which own or operate the system from which a spill has occurred based solely on those statuses, and we decline to do so.

We next turn to the theory on which plaintiff prosecuted this action against the noncorporate individual defendants (Marcovici's estate, Dhinsa and Markowitz) as dischargers under Navigation Law § 181 (1). To clarify, plaintiff has expressly disavowed seeking to pierce the corporate veil of the corporations—Think Big and East 138th Street—(see, New York Assn. for Retarded Children v Keator, 199 AD2d 921, 922). Rather, plaintiff's theory of liability has been that the individual defendants are personally liable as dischargers under Navigation Law § 181 (1) by virtue of their alleged control of, or their ability to control, corporate activities and their actions or omissions in causing, aggravating or neglecting the gasoline spills. Thus, we address the viability of such a theory to impose personal liability on these individual defendants as dischargers within the purview of Navigation Law § 181 (1) and § 172 (8).

For reasons to follow we hold that, as a matter of fact and law, the respective statuses of Marcovici, his estate and Dhinsa—as officers and stockholders of these corporations—do not provide a basis under Navigation Law § 181 (1) for imposing personal liability upon them for clean-up costs in view of the lack of evidence of their active involvement in corporate operations relating to the spills. Further, as to Markowitz, we find absolutely no basis for the imposition of personal liability against her under any relevant section of the Navigation Law.

Extending personal liability to individuals such as stockholders or officers who have developed a sufficient relationship to the activities of a corporate owner or operator for the consequences of environmental contamination is not novel under Federal law, although it has been carefully circumscribed by the Federal courts. Recent Federal case law relating to the enforcement of the Comprehensive Environmental Response, Compensation and Liability Act (42 USC § 9601 et seq.) (hereinafter CERCLA) is instructive. Under the interpretation of who constitutes a responsible "operator" of a contaminated site, Federal courts have imposed liability against corporate owners and operators, who are by statute strictly liable under CERCLA. They have also recognized personal liability for other individuals such as officers who are directly involved and actively participate in the corporate activities which led to the contamination (see, State of New York v Shore Realty Corp., 759 F2d 1032, 1052-1053). Allegations that such individuals both "exercised management control over the company's operations" and "knowingly exercised direct and personal control over the handling of the hazardous substance at issue" have been determined to sufficiently state a claim for personal liability under CERCLA (...