BEFORE: HONORABLE BERNARD L. McGINLEY, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE ROCHELLE S. FRIEDMAN, Senior Judge
PATRICIA A. McCULLOUGH, Judge
Gnagey Gas & Oil Co., Inc. (Gnagey) petitions for review of the June 21, 2012 adjudication and order of the Underground Storage Tank Indemnification Board (Board), which adopted the report and recommendation of the Presiding Officer of the Underground Storage Tank Indemnification Fund (Fund) and dismissed Gnagey's exceptions to the report. The Board upheld the Presiding Officer's conclusion that Gnagey engaged in fraudulent conduct in concealing material information and in failing to cooperate with the Fund during the removal of underground storage tanks (USTs) on contaminated property owned by Gnagey. Accordingly, the Board concluded that under the Storage Tank and Spill Prevention Act of 1989 (the Tank Act) and applicable regulations, the Fund is entitled to recoup $319, 738.57 it paid to Gnagey for remediation expenses.
This case involves the Fund's determination that Gnagey was eligible for funds for remediation measures made in connection with the removal of four USTs from Gnagey's property and the Fund's later decision to revoke Gnagey's eligibility and recoup the funds paid on the grounds that Gnagey fraudulently concealed the existence of eight unregistered and abandoned/orphaned tanks during the clean-up.
I. Facts and Procedural History
The relevant facts and procedural history of this case, as found and detailed in a commendable fashion by the Presiding Officer, are as follows:
Gnagey purchased the Cranberry Township site of the subject claim in 1995 from Gulf Oil…. When Gnagey purchased the property, five [USTs] were registered for the site. The four registered gasoline tanks were located in one tankfield on the southern edge of the property while the location of a 500 gallon registered waste oil tank was unknown.
In addition to the registered tanks, the site contained eight additional abandoned and unregistered USTs. Four of the unregistered tanks were just southwest of the dispenser islands near the center of the property, and the other four were north of the dispensers. The tanks were of the type used in the 1950s and 1960s, and all had been taken out of service sometime before 1970.
In connection with Gnagey's purchase of the property, a site assessment was performed in 1995 to identify potential contamination on the site. Twenty-four borings were drilled on the site, mostly around the perimeter of the property. Three of the borings revealed contamination in excess of the state regulatory standards in effect at that time. One of the borings containing contamination was between the dispenser islands and the registered tanks where the drill hit a product line. The other two borings showing contamination were near the northernmost unregistered tanks. The environmental contractor dug out the area around the boring which struck a product line, removed a small amount of soil, made a repair to the line and backfilled everything. The area around the other two contaminated borings was not addressed, and the sale to Gnagey was completed.
After purchasing the property from Gulf Oil, Gnagey operated the site as a convenience store and service station until 2007, when Gnagey was in the process of selling the site to a land developer. As part of that sale, a site assessment was conducted for the buyer and the assessment indicated contamination. Because the sale was contingent on the site being free of contamination, Gnagey engaged United Environmental Group ("UEG"), a firm which performed Gnagey's environmental work for many years …. In August 2007, UEG on behalf of Gnagey timely reported the release to the Pennsylvania Department of Environmental Protection ("DEP") and to [the Fund]. At that time, the source of the contamination was listed as being unknown. [The Fund] engaged ICF International ("ICF") to investigate and administer the claim, and the claim was assigned to Ron Moore. After an initial investigation, [the Fund] through Mr. Moore granted eligibility for the claim on November 1, 2007, with the letter indicating that any corrective action costs attributable to contamination found to have been released prior to February 1, 1994 would not be covered by the Fund.
Mr. Moore was notified that the tanks were going to be removed in March 2008…. On March 3, 2008, UEG began excavation, starting on the southern side of the property where the registered tanks were located.
Upon removing the four tanks, UEG encountered contamination in the tank pit and began removing the contaminated soil and water. One of the tanks was cracked, and UEG determined it to be the source of the release even though the tank system had passed tightness testing as recently as 2007. After removing the tanks and excavating soil in the tank pit, UEG began excavating along the product line towards the dispenser islands as that trench also was contaminated. On March 17, 2008, UEG issued an invoice which was paid by the Fund.
UEG initially stockpiled the contaminated soil on the northern side of the property but eventually ran out of room and began hauling the contaminated soil away to an incineration facility. Given the volume of contaminated soil which was being excavated, the Ohio facility was less costly than a Pennsylvania landfill which requires analytic sampling on every hundred tons of soil. As a result, the excavated soil was not available for analysis and samples were not taken or preserved for analysis.
UEG continued to excavate towards the north of the property, ultimately encountering and removing the abandoned unregistered tanks between March 18 and 28, 2008. The abandoned tanks were riddled with holes and were filled with water. UEG removed the contaminated water from the tanks and disposed of it off site. Soil was visibly contaminated under and around the abandoned tanks. Gnagey was notified when UEG encountered the first set of abandoned tanks in the center of the property and again when UEG encountered the second set in the northern portion of the property. Gnagey was informed that there was contamination around the abandoned tanks.
In March and April 2008, UEG invoiced Gnagey rather than [the Fund] for removal of the abandoned tanks and disposal of contaminated water in the tanks. With those invoices, UEG supplied Gnagey with photographs of the abandoned tanks in the ground and after removal. The photographs showed the obvious contamination of the soil under and in the vicinity of the abandoned tanks.
On March 19, 2008, after the first set of abandoned tanks was discovered, Mr. Klesic of UEG telephoned Mr. Moore and informed him that the product line ditches were filtering product into an old pit or former foundation but did not mention the abandoned tanks in the pit. On March 26, 2008, in response to a request for status by Mr. Moore, UEG advised Mr. Moore that 4, 000 tons of impacted soil had been removed from the site and that no other remedial activity had occurred other than removal of ponded water. Again, the abandoned tanks and surrounding contamination were not mentioned.
UEG issued invoices on March 28, April 7 and April 15…. The March 28 invoice was accompanied by a narrative and a site map showing the general areas of excavation. The area containing the first set of abandoned tanks encountered was designated as a former excavation with fill material which "could have been [the] former basement of [the] previous station." The area mostly containing the second set of abandoned tanks was described as "what may have been old leach bed." Only the registered tanks were shown on the site map and the daily narrative did not mention encountering and removing the abandoned tanks. Unlike the invoices and supporting narrative prior to discovery of the unregistered tanks, the subsequent invoices and supporting narrative do not indicate work performed which was billed to Gnagey [e.g., removal of the abandoned tanks and disposal of contaminated water in the tanks.]
The April 7 invoice was accompanied by a photo-documentary and narrative of the 37 photographs. There were no unregistered tanks described in the narrative or depicted in the photographs. [The Fund] requested additional information from Gnagey. UEG informed Mr. Moore on April 30, 2008 that the excavated area had been backfilled. Because the site had been backfilled and over 6, 000 tons of soil had been excavated without backup information, the Fund in early May 2008 authorized a third party reviewer to examine the remedial action at the site, including whether it was reasonable, necessary and appropriate.
Also in May 2008, Gnagey and UEG submitted the tank closure report to DEP. The report did not mention the abandoned tanks. The site map showing the limits of excavation depicted only the registered tanks. The photographs submitted showed the areas where the abandoned tanks had been removed but do not show the abandoned tanks. When DEP's professional geologist from the environmental cleanup section visited the site in May of 2008, all of the tanks had been removed and the site was backfilled.
Gnagey and UEG were pressing [the Fund] for payment of three outstanding invoices, but the Fund indicated that it was having a hard time approving payment for 6, 000 tons of soil without explanation and on the basis of one soil sample. UEG supplied Mr. Moore with a June 6, 2008 chronology of the daily work activities at the site from March 3, 2008 through April 3, 2008. Although the chronology contained detail concerning observations, field testing and excavation of contaminated soil performed on each day, it did not disclose the discovery of the eight abandoned tanks and associated contamination.
Mr. Moore continued to request additional information from Gnagey about past contamination and the fifth registered tank which had not been accounted for. On July 1, 2008, the third party reviewer (Dennis Breakwell, P.G.) and a colleague met with Mr. Gnagey and UEG's owner (Stephen Klesic) and environmental manager (Michael McIntyre, P.G.). During the two-hour meeting, Mr. Breakwell was given the 1995 site assessment report, additional photographs and a site map showing the limits of excavation. UEG's contaminate transport model, how one tank in a corner of the site could impact the entire site, did not make sense to Mr. Breakwell. Breakwell asked about the "old tank field" area designated on the 1995 site map and which contained four of the abandoned tanks, and was informed that Gnagey and its consultant had no idea of the number of tanks, whether they had leaked, what they had contained, or when they were removed. UEG described the other four abandoned tanks as possibly being an old foundation or old UST cavity, but did not mention the four abandoned tanks encountered in that area.
The conceptual contamination model presented to Mr. Breakwell was that contamination came from the one registered tank in the southwest corner of the property and migrated during periods of high shallow groundwater through the product piping trench to the center of the site and from there to the east and north through old fill material. Following the meeting, Mr. Breakwell summarized the meeting for Mr. Moore and [the Fund] and his conclusions that the site was heavily contaminated and that the conceptual model was feasible.
The Fund did not have enough information to deny payment of the invoices nor enough information to approve full payment. The Fund also determined that because the site had been backfilled and there were no other sources of evidence, it would offer to pay 70 percent of the soil removal invoices. The Fund made the offer to Gnagey through his attorney verbally on July 7, 2008 and in writing on July 11, 2008 to pay 70 percent of the soil removal invoices, or $319, 738.57. The written offer was in the form of a Fund determination including the right to appeal the determination by August 15, 2008. On August 13, 2008, Gnagey's attorney accepted the proration of the three invoices and [the Fund] paid the reduced amount.
Gnagey and UEG submitted the Site Characterization Report and Remedial Action Plan to DEP in late September or early October 2008. Neither document described nor depicted the eight abandoned tanks…. Both documents were supplied to the Fund in early October 2008.
Mr. Moore still had questions about the fifth registered tank which [remained] unaccounted-for. [Gnagey] replied that [it] had no information "related to the location and date of the former 5th on-site UST or Tank 005. During Gnagey's Interim Remediation activities, UEG did not encounter any 550 gallon Waste Oil Tank, nor did [it] encounter any other regulated storage tank, other than the four tanks that were indicated in Gnagey's closure report." However, the documentation which had been supplied to Mr. Moore contained a handwritten field note for March 28, 2008 referencing the "last UST found yesterday." Mr. Moore asked Gnagey's attorney about the field note and requested information about its location, condition, evidence of surrounding contamination as well as whether [Gnagey] was aware of the orphan tank.
The response to Mr. Moore was that on March 27, 2008, UEG found an unregulated, intact 6, 000 gallon orphan UST under the kiosk/fuel islands with significant contamination in the vicinity which was reported to DEP. The reply stated that Gnagey was unaware of the tank when purchasing the property and during its ownership of the property until Gnagey became aware of the tank when it was discovered on March 27, 2008. The reply did not mention the other seven unregistered tanks which had been discovered during the excavation. The reply also pressed for payment of outstanding invoices not covered by the compromise payment or an explanation why they were not being paid.
In November and December 2008, Mr. Moore requested of Gnagey's attorney additional information about the orphan tank and indicated that such information was crucial in resolving the outstanding invoices. UEG finally supplied to Gnagey's attorney a site map depicting the eight abandoned tanks and the photographs of their removal which had been withheld from [the Fund]. The attorney met with Mr. Moore on February 27, 2009 and showed him the site map and 59 photographs. This was the first time the [Fund] or its agents learned of the abandoned tanks.
Mr. Moore took Mr. Gnagey's statement under oath on March 27, 2009, and Mr. Gnagey acknowledged knowing about the eight abandoned tanks. Mr. Gnagey also acknowledged that he was informed by UEG that there was contamination around the abandoned tanks, something which was his obligation to pay for. However, UEG never billed Gnagey for any soil removal, instead seeking payment from the Fund. Because of this new information, the Fund on September 2, 2009 denied Gnagey's request for further payments related to corrective action at the site and denied eligibility for the claim because of a failure to cooperate and material misrepresentations to the Fund. Gnagey appealed that determination, but the appeal was held in abeyance at Gnagey's request. Ultimately, on September 22, 2010, the Fund affirmed the September 2, 2009 denial and reserved the right to seek reimbursement for payments made which were subsequently deemed to have been ineligible. Gnagey did not further appeal that determination. On November 16, 2010, the Fund's Executive Director sent a demand letter to Gnagey for repayment of $394, 948.56 for reimbursement of ineligible claim payments, which is the determination at issue….
(Presiding Officer's Recommendation at 36-44) (emphasis added).
By report and recommendation dated January 31, 2012, the Presiding Officer found that the Fund presented clear and convincing evidence that Gnagey perpetrated a fraud in concealing the existence of the abandoned tanks and/or misrepresenting the number of tanks at the site. (Presiding Officer's Recommendation at 46-52.) In so doing, the Presiding Officer, based upon his credibility determinations, found that Gnagey did not have knowledge of the abandoned tanks prior to March 18, 2008:
Mr. Klesic's testimony, the statements by Mr. Gnagey, and their submissions to the Fund indicating lack of knowledge of the abandoned tanks or associated contamination until discovered in March 2008 is credible. Gnagey did not purchase the property until 1995, long after the tanks were taken out of service. The environmental assessment performed at that time indicated minimal contamination, with the greatest contamination occurring where a soil boring struck an active product line. The site map in connection with that assessment designated one of the old tank fields, but did not show any tanks other than four registered gasoline tanks. Mr. Gnagey and his contractor had no reason to know of the eight abandoned tanks. Also credible is the existence of a crack in one of the registered tanks which could lead Gnagey and UEG to believe initially that contamination encountered in early March 2008 was from the registered tank. There was no misrepresentation or deceitful nondisclosure prior to approximately March 18, 2008 when UEG encountered the first set of abandoned tanks surrounded by extensive contamination.
(Presiding Officer's Recommendation at 47.)
However, the Presiding Officer rejected as not credible Gnagey's argument and evidence that Gnagey did not attempt to deceive the Fund after it became aware of the abandoned tanks:
Not credible is Gnagey's explanation why the abandoned tanks and surrounding contamination were concealed from the Fund. Nor is it credible that Gnagey and UEG believed that no contamination came from the old abandoned tanks. Mr. Gnagey himself acknowledged that Mr. Klesic told him of contamination around the old tanks not covered by the Fund, although removal of that contaminated soil was billed to the Fund. By Mr. Klesic's admission, the old tanks were riddled with holes and surrounded by substantial contamination. Both Gnagey and UEG knew that contaminated water was in the tanks. The pictures taken by UEG and supplied to Gnagey clearly showed the contamination on and surrounding the [abandoned] tanks, including the soil directly underneath [the] tanks. n.3
n.3. Mr. Klesic's explanation why the contamination around the abandoned tanks did not come from those tanks defies credulity, and actually corroborates that the abandoned tanks were the source. Explaining that the tanks were "riddled with holes, and water was leaking out of them, " Mr. Klesic states that petroleum product would have found the surface of the water because it floats. [N.T. at 437]. He then testified that because the contamination around the tanks was in the soil below the water table it must have come from something else. [N.T. at 438]. This contradicts UEG's asserted contamination transport model in which the product from the registered tank supposedly floated on water through fill material throughout the site. Mr. Klesic did not explain how under that theory, heavy contamination could end its way to the soil directly underneath the abandoned tanks.
(Presiding Officer's Recommendation at 47-48.)
Based on the evidence presented, the Presiding Officer instead determined that Gnagey engaged in knowing concealment of material information:
[T]he actions of UEG and Gnagey demonstrate a knowing concealment calculated to induce the Fund to pay for cleanup of a release which was not … eligible. The photographs were supplied to Gnagey but not to [the Fund]. Although the soil removal was billed to [the Fund], the tank removal and at least a substantial portion of the contaminated water disposal was billed to Gnagey, [and] invoicing [the Fund] for these activities would have tipped off the Fund of the existence of the abandoned tanks. Further, unlike the invoices submitted to the Fund prior to discovery of the abandoned tanks, the details supplied to the Fund failed to indicate work which was being billed to Gnagey. This shift in invoicing procedure evidences a conscious concealment of the activities surrounding the abandoned tanks.
In addition, very selective information was given to DEP and the Fund in the months following discovery of the old tanks and associated contamination. The information included daily narrative, photographs, field test results, observations, and work performed each day except anything to do with the abandoned tanks. Answers to questions and documents supplied to [the Fund] and DEP failed to disclose the obviously material conditions in the two old tankfields from which massive amounts of soil were removed and taken away for incineration and disposal. If any analytic soil samples were taken from the contaminated soil beyond the registered tank area, analytic results were never supplied to [the Fund] which caused the Fund to question the reasonableness of the large excavation and request additional information. None of the responses for additional information revealed the existence of the eight abandoned tanks except, probably accidently, the handwritten field note for March 28, 2008 referencing "last tank found yesterday." Other than that obscure reference to one of the abandoned tanks, all of the photographs, narratives, explanations, answers ...