Holtzman Oil Corp. v. Commonwealth

COURT OF APPEALS OF VIRGINIA

Present: Chief Judge Fitzpatrick, Judge Benton and
Senior Judge Duff
Argued at Alexandria, Virginia

HOLTZMAN OIL CORP.
OPINION BY
v. Record No. 0422-99-4 CHIEF JUDGE JOHANNA L. FITZPATRICK
JUNE 6, 2000
COMMONWEALTH OF VIRGINIA,
STATE WATER CONTROL BOARD AND
DEPARTMENT OF ENVIRONMENTAL QUALITY

FROM THE CIRCUIT COURT OF SHENANDOAH COUNTY
Dennis L. Hupp, Judge

Thomas A. Schultz, Jr., for appellant.

John R. Butcher, Assistant Attorney General
(Mark L. Earley, Attorney General, on brief),
for appellee.

Holtzman Oil Corp. (Holtzman) appeals a final circuit court

judgment upholding a decision by the Commonwealth's Department

of Environmental Quality (DEQ) denying reimbursement from the

Petroleum Storage Tank Fund (Tank Fund). 1 After the DEQ denied

its request, Holtzman appealed pursuant to the Virginia

Administrative Process Act (VAPA), Code §§ 9-6.14:1 through

9-6.14:25. The circuit court ruled that the agency's decision

1
Code §§ 62.1-44.34:10 through 62.1-44.34:13 govern the
establishment and administration of the Tank Fund under the
direction of the State Water Control Board (Board). DEQ is
empowered to implement regulations of the Board and administer
funds appropriated to it. See Code §§ 10.1-1182 through
10.1-1187.
was not "arbitrary or capricious resulting in a clear abuse of

discretion." The sole issue raised on appeal is whether the

evidence supports the circuit court's order affirming the DEQ's

decision denying reimbursement from the Tank Fund. For the

following reasons, we affirm.

I. BACKGROUND

The evidence established that on November 5, 1993, Holtzman

notified the DEQ of its intent to remove certain underground

storage tanks from a gas station in Harrisonburg, Virginia. In

December 1993, the tanks were replaced. During the tank removal

process, Holtzman discovered "mildly contaminated soils but saw

no evidence of a leaking tank or line during any part of the

excavation." Upon further investigation, the company learned

that "the product lines had been replaced in the early 1980's

due to leaks." Approximately 2,900 tons of soil were excavated

from the Harrisonburg site and laboratory analysis of the

"backfill material in the basins" showed the petroleum

hydrocarbon level in the soil was 160 parts per million.

Holtzman notified the DEQ of these findings on December 8, 1993.

On December 15, 1993, the DEQ informed Holtzman that, in

accordance with applicable regulations, it was required to

perform a "Release Investigation Report" upon a finding of

contaminated soils. That report, submitted by the company on

January 31, 1994, disclosed that nine underground tanks had been

removed from the site, no holes were found in any of the tanks,

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and samples of the soils alongside and beneath the tanks showed

petroleum hydrocarbon levels ranging from 24 to 57 parts per

million. A sample of "backfill material" from around the diesel

tank showed petroleum hydrocarbon in the soil of 160 parts per

million and samples of "backfill material" from the main

excavation showed 129 and 42 parts per million. In February

1994, without prior notice to the DEQ, Holtzman incinerated the

2,900 tons of contaminated soil at a total cost of $140,705.

Based on the Release Investigation Report and addendum

information, the Valley Regional Office of the DEQ found no

"significant release" and that "the risk in the urban setting

would be extremely low." The regional office recommended "that

the case should be closed." In its letter dated October 20,

1994, the DEQ notified Holtzman that it was closing its

investigation and that no further "corrective action" would be

required unless "significant environmental or health/safety

problems develop in this area."

Pursuant to Code § 62.1-44.34:11, Holtzman made a formal

request on March 22, 1995 for reimbursement from the Tank Fund

for the clean-up costs. Holtzman alleged that the removal of

the contaminated soil constituted an "abatement activity" within

the meaning of Virginia Regulation 680-13-02 § 6.3(A)(4) and,

based on its interpretation of the applicable regulations, the

clean-up costs were reimbursable.

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 On July 18, 1995, the DEQ denied Holtzman's request for

reimbursement. In a letter dated October 11, 1995, the DEQ

explained its reasons for denying the claim, stating:

[R]eview of the file indicates that the
denials stem from the excavation of soils
without approval by the Regional Office.

* * * * * * *

. . . [T]he Agency is required by law
to determine whether the activities
submitted for reimbursement were approved or
would have been approved had they been
timely presented to the Agency for
consideration.

Valley Regional Office (VRO) files
indicate that your client failed to contact
VRO staff to determine whether soil removal
would be approved. Moreover, VRO files
indicate that the removal would not have
been approved had your client timely
requested such consideration. Among other
things, (1) even the highest TPH result
showed minimal contamination; (2) the site
is in a location with public water, meaning
there was no threat of a drinking water
impact; and (3) there were no basements
nearby, meaning there was no threat of a
building vapor impact.

(Emphasis added).

Holtzman sought review by the DEQ's Reconsideration Panel

(Panel). In its opinion letter dated May 28, 1995, the Panel

issued its final decision denying Holtzman's request for

reimbursement. The Panel considered the issue before it to be

"whether the removal of the soil from the Rolling Hills site was

necessary for corrective action." Because Holtzman did not seek

prior approval from the DEQ before incinerating the soil and

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consistent with the regulations and policy then in effect, the

Panel determined whether the excavation would have been approved

had the DEQ been properly notified. On reconsideration, the

Panel affirmed the denial of Holtzman's claim, stating the

following:

Soil excavation and removal may be
conducted when implementing a corrective
action plan or as part of a Phase II initial
abatement. The regulation and Agency
guidance indicate that initial abatement
activities do not normally include removal
of soil with low levels of contamination, as
the focus is instead on abatement of fire,
vapor and explosion hazards.

The course of events at your site
indicated that the soil was removed as part
of site reconstruction and not as part of
corrective action. The fact that the soil
already had been excavated before you
reported a release establishes that the soil
removal was not conducted as an abatement
activity. Equally important, during the
meeting you acknowledged that the soil was
removed to allow for site reconstruction
rather than for environmental considerations
(corrective action).

Given the preceding facts, we must
conclude that the soil excavation was not a
necessary, approvable corrective action
activity. Because the soil excavation was
not a necessary corrective action activity,
the subsequent disposal activity also was
not a necessary corrective action activity.
Thus, costs incurred as a result of the soil
excavation are not approved for
reimbursement.

(Emphasis added).

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 On July 31, 1996, Holtzman appealed the DEQ's final

decision to the circuit court. The circuit court affirmed the

DEQ's decision, stating:

In reviewing the record, I must afford
the agency decision a presumption of
official regularity, and I must take into
account the experience and specialized
competence of the [Board] and DEQ. I am not
to substitute my own judgment for that of
the agency. While I find Holtzman's
position quite reasonable in this case, I
cannot find that the agency's decision was
arbitrary or capricious resulting in a clear
abuse of discretion.

The circuit court denied Holtzman's motion for reconsideration,

concluding that it could not "substitute [its] judgment" for the

"factual determination[s]" by the "agency officials."

II. STANDARD OF REVIEW

Judicial review of agency decisions is authorized by the

VAPA. See Code § 9-6.14:17. Issues of law specified in the

statute "fall into two categories: first, whether the agency

. . . acted within the scope of [its] authority, and second,

whether the decision itself was supported by the evidence."

Johnston-Willis Ltd. v. Kenley, 6 Va. App. 231, 242, 369 S.E.2d

1, 7 (1988). Although many circumstances involve "mixed

questions" of both "law and fact," issues are sometimes

"oversimplified" as "legal" or "factual," a distinction that is

significant to judicial review of an administrative decision.

Id. at 243, 369 S.E.2d at 7. The separate standards of review

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determine the degree of deference, if any, to be given to an

agency's decision on appeal. See id. at 246, 369 S.E.2d at 9.

Where the issue is whether there is
substantial evidence to support findings of
fact, great deference is to be accorded the
agency decision. Where the issue falls
outside the specialized competence of the
agency, such as constitutional and statutory
interpretation issues, little deference is
required to be accorded the agency decision.
Where, however, the issue concerns an agency
decision based on the proper application of
its expert discretion, the reviewing court
will not substitute its own independent
judgment for that of the agency but rather
will reverse the agency decision only if
that decision was arbitrary and capricious.
Finally, in reviewing an agency decision,
the courts are required to consider the
experience and specialized competence of the
agency and the purposes of the basic law
under which the agency acted.

Id. (emphasis added).

The DEQ, acting in conjunction with the Board, is the

Virginia agency charged with administrating the Tank Fund. See

Code §§ 62.1-44.34:10 through 62.1-44.34:13; Code §§ 10.1-1182

through 10.1-1187. The DEQ possesses the requisite experience

and competence necessary to determine levels of contamination

and the reimbursement due "owners and operators" for the

reasonable costs incurred for their environmental clean-up

efforts. As such, its interpretations of the statutes and

regulations governing the Tank Fund's reimbursement policies are

entitled to deference by a reviewing court and should only be

overturned when found to be arbitrary and capricious. See

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Fralin v. Kozlowski, 18 Va. App. 697, 701, 447 S.E.2d 238, 241

(1994).

III. TANK FUND REIMBURSEMENT

Holtzman argues that it was required under

VR 680-13-02 § 6.3 to remove and dispose of the contaminated

soil at its Harrisonburg site simply because there was a

confirmed release of petroleum in the environment. In seeking

reimbursement, Holtzman interprets VR 680-13-02 § 6.3(A)(4) to

mean that the costs for any "abatement activity" under this

subsection are reimbursable. Applying the plain meaning of the

term "abate," Holtzman contends an activity that "reduce[s] or

lessen[s]" soil contamination falls within the meaning of the

regulations. Because the excavation in the instant case

resulted in a reduction or lessening of the petroleum

hydrocarbon levels in the soil, Holtzman concludes that the

clean-up efforts were reimbursable. We hold that the trial

judge did not err in affirming the DEQ's decision.

The Tank Fund was established to reimburse "reasonable and

necessary" costs incurred by "owners and operators" of

underground petroleum storage tanks "in taking corrective action

for any release of petroleum into the environment . . . ." Code

§ 62.1-44.34:11(A)(2)(a). A "release" means "any spilling,

leaking, emitting, discharging, escaping, leaching, or disposing

from an underground storage tank or facility into . . .

subsurface soils . . . ." Code § 62.1-44.34:10. The

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regulations provide for reimbursement in, among others, the

following two instances: (1) where there is "corrective action

necessary to protect human health and the environment,"

VR 680-13-03 § 21(A)(1) (emphasis added); or (2) where the owner

or operator conducts a "board approved corrective action plan."

VR 680-13-03 § 21(A)(2) (emphasis added).

Because Holtzman's activities were not conducted pursuant

to a "board approved corrective action plan," the sole issue

before us is whether the excavation of the contaminated soil

constituted "corrective action necessary to protect human health

and the environment." In making this determination, we note

that effective March 1, 1995, DEQ policy required that

"corrective action activities be authorized by the appropriate

Regional Office in order to be eligible for reimbursement."

However, consistent with the regulations and policy in effect at

the time of the instant case, reimbursement for "corrective

action" activities would be proper if Holtzman's activities

"were approved or would have been approved had they been timely

presented to the Agency for consideration." (Emphasis added).

The DEQ's denial of reimbursement costs from the Tank Fund

was consistent with the applicable regulations, was supported by

the evidence in the record, and was not arbitrary and

capricious. The DEQ concluded that "the soil excavation itself

was not a necessary corrective action activity" and that "the

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subsequent disposal activity also was not a necessary corrective

action activity." The phrase "corrective action" means

all actions necessary to abate, contain and
cleanup a release from an underground
storage tank, to mitigate the public health
or environmental threat from such releases
and to rehabilitate state waters in
accordance with [Sections 5 and 6] of VR
680-13-02 . . . . The term does not include
those actions normally associated with
closure or change in service as set out in
[Section 7] of VR 680-13-02 or the
replacement of an underground storage tank.

VR 680-13-03 § 1. Thus, any one of the activities enumerated in

Sections 5 and 6 of VR 680-13-02 may constitute "corrective

action," including the following: "[r]elease investigation and

confirmation steps"; "[r]eporting and cleanup of spills and

overfills"; and "site characterization."

VR 680-13-02 §§ 5.3, 5.4, 6.4.

As applied in the instant case, the term "corrective

action" also includes those activities conducted as "initial

response" measures under Section 6.2 or "initial abatement

measures" under Section 6.3. See VR 680-13-02 §§ 6.2, 6.3. The

clear language of Section 6.2 requires that upon a confirmed

release of petroleum, owners and operators must: (1) report the

release to the Board within twenty-four hours; (2) take

immediate actions to prevent further release; and (3) identify

and mitigate fire, explosion, and vapor hazards. See

VR 680-13-02 § 6.2. The DEQ has interpreted VR 680-13-02 § 6.2

to include those activities involving "hazards" to "human

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health, safety and the environment," which "must be initiated

immediately." As applied to the instant case, Holtzman may not

recover its costs for clean-up as an "initial response" activity

under Section 6.2 because that regulation addresses those

activities used to "mitigate fire, explosion, and vapor

hazards," none of which was present here. Indeed, in its final

decision, the DEQ concluded that "[t]he regulations and Agency

guidelines indicate that initial abatement activities do not

normally include removal of soil with low levels of

contamination, as the focus is instead on abatement of fire,

vapor and explosion hazards." Because Holtzman's activities

were not performed as an "initial response" activity,

reimbursement would not have been proper under

VR 680-13-02 § 6.2.

Holtzman contends that it conducted an "initial abatement

measure" under VR 680-13-02 § 6.3. The DEQ's April 29, 1992

"Guidance Memorandum" characterizes the following activities as

appropriate "Phase I Initial Abatement Measures":

[A]ll those activities which for human
health, safety and the environment must be
initiated immediately. Examples of these
activities include emptying the tank, free
product removal, mitigation of vapor hazards
and excavation/proper disposal of saturated
soils immediately surrounding an
[underground storage tank] being removed.

(Emphasis added). These initial abatement measures "may be

undertaken without Regional Office approval," and the DEQ will

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"require [the party] to justify any questionable Initial

Abatement Measures" before it will reimburse those expenses.

(Emphasis added).

Although Holtzman did not seek prior approval in this case,

the DEQ concedes that costs may be recovered under Section 6.3

if the "initial abatement measures" would have been approved had

the company timely notified the DEQ of its actions. Here,

Holtzman contends that any "abatement activity" that reduces or

lessens contamination levels in the soil is reimbursable.

In response, the DEQ argues there were no "hazards" to

remedy and, therefore, the initial abatement measure would not

have been approved. Additionally, the DEQ contends that

excavation of the contaminated soil was performed in the process

of replacing the tank system, as opposed to the "result of

release confirmation, site investigation, abatement, or

corrective action activities." VR 680-13-02 § 6.3(A)(4). Thus,

the DEQ concludes, the circuit court properly affirmed the DEQ's

denial for reimbursement under Section 6.3 of the regulations.

Contrary to Holtzman's argument, the regulations do not

provide a catch-all reimbursement provision for any "abatement

activity." Rather, VR 680-13-02 § 6.3 provides in pertinent

part as follows:

A. Unless directed to do otherwise by the
board, owners and operators must perform the
following abatement measures:

* * * * * * *

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 4. Remedy hazards posed by contaminated
soils that are excavated or exposed as a
result of release confirmation, site
investigation, abatement, or corrective
action activities. If these remedies
include treatment or disposal of soils, the
owner and operator must comply with
applicable state and local requirements[.]

(Emphasis added). By express terms of the regulation, to

qualify for reimbursement under this section, Holtzman was

required to show: (1) the existence of "hazards posed by

contaminated soils," and (2) the hazard was the result of an

"abatement, or corrective action activit[y]."

VR 680-13-02 § 6.3(A)(4).

Holtzman failed to establish the first prong of this test.

As noted in the initial Regional Investigation Report, Holtzman

reported that it discovered "mildly contaminated soils but saw

no evidence of a leaking tank or line during any part of the

excavation." (Emphasis added). Upon further investigation,

Holtzman learned that "the product lines had been replaced in

the early 1980's due to leaks." According to DEQ records,

Holtzman reported "that there were some 'hot spots' around some

of the old pipelines but that the basin soils were okay." The

DEQ agreed, stating that there was an "insignificant release"

and that the soil "could have been used as 'clean fill.'"

Accordingly, the DEQ closed its investigation of the site on

October 20, 1994 and concluded "further corrective action is not

required at this time."

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 Without prior notification to the Board, Holtzman

incinerated the 2,900 tons of contaminated soil. In a letter

explaining its denial for reimbursement, the DEQ concluded that

the removal would not have been approved as "corrective action"

because there was "minimal contamination," "no threat of

drinking water impact," and "no threat of a building vapor

impact." On review by the Panel, the DEQ further concluded that

"initial abatement activities do not normally include removal of

soil with low levels of contamination, as the focus is instead

on abatement of fire, vapor and explosion hazards." The record

supports the finding that Holtzman did not prove the level of

contamination was substantial enough to require an excavation of

soil so as to fall within the parameters of an initial abatement

measure.

We accord great deference to an administrative agency's

interpretation of the regulations it is responsible for

enforcing. See Hilliards v. Jackson, 28 Va. App. 475, 479, 506

S.E.2d 547, 550 (1998); Arellano v. Pam E. K's Donuts Shop, 26

Va. App. 478, 483, 495 S.E.2d 519, 521 (1998). The term

"hazard" has been defined as "a thing or condition that might

operate against success or safety . . . a possible source of

peril, danger, duress or difficulty." Webster's Third New

International Dictionary 1041 (1993).

In the present case, Holtzman presented no evidence

regarding an abatement of "fire, explosion, and vapor hazards"

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or the presence of high levels of contamination. Moreover, the

record supports the following findings made by the DEQ:

[The] site is in an urban area with public
water, no basements and a relatively deep
water table. In addition, none of the test
results showed significant contamination,
including the test results from the
excavated soil piles. Thus, the evidence
supports the conclusion that this was a low
risk site with minimal contamination in a
limited area.

* * * * * * *

The course of events at your site
indicated that the soil was removed as part
of site reconstruction and not as part of
corrective action. The fact that the soil
already had been excavated before you
reported a release establishes that the soil
removal was not conducted as an abatement
activity. Equally important, during the
meeting you acknowledged that the soil was
removed to allow for site reconstruction
rather than for environmental considerations
(corrective action).

The DEQ concluded that Holtzman's actions were not

necessary to "remedy hazards posed by contaminated soils," and

like the circuit court, we will not substitute our own

independent judgment for the factual determinations of the DEQ.

Because the DEQ's decision was not arbitrary and capricious, we

affirm.

Affirmed.

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