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Churchill Community Development, LP v. Allegheny County Health Department

Commonwealth Court of Pennsylvania

December 27, 2019

Churchill Community Development, LP Paradigm Consultants, LLC, Ramesh Jain and Vikas Jain
Allegheny County Health Department, Appellant

          Argued: October 3, 2019




         Allegheny County Health Department (Department) appeals from the January 29, 2019 Order (Order) of the Court of Common Pleas of Allegheny County (trial court), which reversed Department Hearing Officer's[1] decision following an administrative hearing that Churchill Community Development, LP, Paradigm Consultants, LLC, Ramesh Jain, and Vikas Jain (collectively, Appellees) were able to prepay the penalty or post bond related to Appellees' alleged violation of Department Rules and Regulations. Based on the foregoing decision, the Hearing Officer directed Appellees to prepay the entire penalty of $1, 471, 675 in order to proceed to an administrative hearing on the merits of their appeal. When Appellees appealed without prepaying, the Hearing Officer found that they waived a hearing and owed the penalty. (Reproduced Record (R.R.) at 1056a-57a.) After reversing the Hearing Officer's decision, the trial court ruled that, if Department proceeded with its action against Appellees, the matter should proceed to a hearing on the merits before a Hearing Officer. (Order.) In addition, the trial court vacated "[t]he penalty imposed by the Hearing Officer." (Id.) On March 28, 2019, the trial court issued Findings of Fact and Conclusions of Law (Opinion) in support of the Order. (Trial Court's Opinion (Trial Ct. Op.).) Upon review, we agree with the trial court that Department failed to rebut Appellees' evidence of their inability to prepay at the administrative hearing and, therefore, that this matter should proceed to a hearing on the merits of the violations. Therefore, we affirm.[2]

         I. BACKGROUND

         A. Enforcement Order and Department Action

         On February 28, 2016, Department received notice that individuals were observed removing suspected asbestos-containing materials from a building owned by Appellees (Building #501) without a license and without a licensed abatement contractor as required by Article XXI of Department Rules and Regulations. (R.R. at 0003a-0011a.) On that same day, Department inspectors investigated Building #501 with the local building inspector and local fire marshal. (Id. at 0004a.) Department inspectors concluded that asbestos-containing materials were removed from Building #501. (Id.) On March 6, 2017, Department inspectors inspected another building owned by Appellees (Building #401) and discovered the same issues. (Id. at 0030a-0039a.) On March 2 and 6, 2017, Department entered emergency orders (Emergency Orders) directing Appellees to cease work, restricting entry into Building #501, and requiring Appellees to file the proper applications for removing asbestos-containing material within 30 days of receipt of the Emergency Orders.[3] (Id. at 0011a-0013a, 0024a-0025a.) Department issued an Enforcement Order regarding Building #401 on March 7, 2017. (Id. at 0027a.) On March 13, 2017, Appellees appealed the March 2, 2017 Emergency Order and the Enforcement Order. (Id. at 0041a-42a, 0044a.) On April 7, 2017, Appellees issued responses to the Emergency Orders. (Id. at 0047a-0049a, 0051a-0053a.)

         On June 2, 2017, Department issued a Civil Penalty Order assessing a total penalty of $1, 471, 675 against Appellees for violating Department Rules and Regulations. (Id. at 0083a-0086a.) Pursuant to Department Rules and Regulations, parties seeking to appeal[4] a Civil Penalty Order, and who wish to receive a hearing on the merits of the violations and the penalty, are required either to prepay in full the attached penalty or demonstrate a financial inability to prepay at a hearing before an Administrative Hearing Officer. (Department Rules and Regulations, Article XXI, Section 2109.06.)[5] Appellees subsequently filed an appeal of the Civil Penalty Order asserting a financial inability to prepay the penalty and challenging the merits of the violations. (R.R. at 0088a-0090a.)

         On August 7 and 29, 2017, the Hearing Officer held hearings on Appellees' alleged financial inability to prepay. (Id. at 0092a, 0716a.) Appellees provided documentary evidence as to their finances, including financial statements and tax returns. They also presented Ramesh Jain's and Vikas Jain's testimonies and that of their Certified Public Accountant that they did not have sufficient liquid assets or cash to prepay the penalty. (Trial Ct. Op. at 2.) Ramesh Jain testified that many of their assets and funds are tied to their properties, and Vikas Jain testified that there were insufficient liquid assets to cover a bond or provide the prepayment. (R.R. at 0134a, 0141a-42a, 0147a, 0229a.) Additionally, Ramesh Jain testified that the Appellees were unable to obtain a bond to satisfy the prepayment amount. (Id. at 0147a-49a.)

         Department presented evidence challenging Appellees' asserted inability to prepay. This evidence included that Appellees received a $5.9 million loan and that they applied for two grants in 2016 and 2017 from the Commonwealth Redevelopment Assistance Capital Program (RACP). (Id. at 0096a, 0209a-13a, 0863a-0935a.)

         Department also presented the testimony of the Enforcement Chief of its Air Quality Program, Dean DeLuca (DeLuca), who the Hearing Officer accepted as an expert, over Appellees' objection, in the use of the INDIPAY model to determine a party's ability to prepay a penalty. (Id. at 0884a.) DeLuca testified regarding his half-day training in the use of the INDIPAY model, and that it is also used by the federal Environmental Protection Agency (EPA) for the same purpose. (Id. at 0866a, 0874a.) DeLuca explained that the INDIPAY model determines whether a party has the ability to prepay a penalty, although he could not explain exactly how the model made its calculations. (Id. at 0867a, 0875a-76a.) DeLuca noted that INDIPAY uses two separate tests to determine whether a party has the ability to prepay and that the model takes the lower of the two results and, therefore, is relatively conservative in its results. (Id. at 0878a.) The first test, test A, focuses on cash flow. (Id. at 0902a.) The second test, test B, relies on debt capacity. (Id.) DeLuca explained that INDIPAY does not account for assets on which a party could obtain a lien, but, instead, uses cash flow, income, tax returns, net worth, and a consideration of possible loans. (Id. at 0880a-81a, 0901a.) DeLuca testified the INDIPAY model results demonstrated that Appellees would lack $250, 000 from the total needed to prepay the full penalty, but he concluded that Appellees could still prepay because they had assets to make up that difference. (Id. at 0911a-12a.) DeLuca acknowledged that INDIPAY does not require that Appellees have the actual cash at the moment of calculation; instead, the model relies on five years of cash flow of the businesses that the individual operates. (Id. at 0930a.)

         During DeLuca's testimony, Appellees' counsel objected to the use of the assessed values of Appellees' properties to calculate Appellees' ability to prepay because such assessments, obtained from county websites, were hearsay. (Id. at 0889a-96a.) Subsequent to the hearing, the Hearing Officer sustained Appellees' objection as to the county websites' assessed valuations of Appellees' properties as hearsay. (Id. at 1011a-12a.) However, the Hearing Officer did not find the INDIPAY results inadmissible because DeLuca testified that those assets, anything that was not cash flow, income, or information on tax returns, were not considered. (Id. at 0880a-81a, 0903a, 1013a.)

         On December 20, 2017, the Hearing Officer issued a decision and order, in which he found that Appellees did not meet the burden of proving their inability to prepay the civil penalty. (Id. at 1030a.) Specifically, the Hearing Officer stated that Appellees' testimony "was largely self-serving and conclusory, and thus fell short of the standard of showing that paying the civil penalty would 'interfere with [their] ordinary and necessary expenses.'" (Id. (quoting Hrivnak Motor Co. v. Dep't of Envtl. Prot., 299 EHB 437, 1999 WL 542409, *3 (Pa. Envtl. Hearing Bd. 1999)).) The Hearing Officer further noted that Appellees' arguments regarding their inability to prepay were based upon their lack of liquid or cash assets, not income or assets that could be used to obtain funding for the prepayment. (Id. at 1023a.) The Hearing Officer rejected this argument, citing the standard set forth by the Environmental Hearing Board (EHB) in Hrivnak, in which the EHB held that, for a petitioner to prove an inability to prepay a penalty, the petitioner must provide proof of its assets and liabilities, among other things, to show that prepaying would interfere with the petitioner's ordinary and necessary expenses. (R.R. at 1023a.) He found that Ramesh Jain's and Vikas Jain's testimonies were unpersuasive and conclusory, thus failing to meet the standard of proof. (Id. at 1024a, 1027a, 1030a.) The Hearing Officer added that DeLuca's testimony regarding Appellees' ability to prepay as calculated by the INDIPAY model was credible and "attempts to discredit" DeLuca's "findings miss[ed] the mark." (Id. at 1030a.) Thus, the Hearing Officer concluded that Appellees failed to prove their inability to prepay and ordered them to prepay the civil penalty or post a bond for $1, 471, 675 within 30 days of the decision and order. (Id.)

         Appellees filed a petition for review with the trial court on January 16, 2018, seeking review of the December 20, 2017 Order. On January 22, 2018, Department filed a Motion to Dismiss the appeal of the Civil Penalty Order because Appellees had not prepaid the penalty within 30 days. (Id. at 1032a-35a.) Appellees responded and, in the alternative, requested that a stay be granted because Appellees had filed a petition for review with the trial court. (Id. at 1040a-53a.) In an order on the motions dated February 13, 2018, the Hearing Officer denied Appellees' petition to stay and granted Department's Motion to Dismiss Appellees' appeal. (Id. at 1056a-57a.) Appellees timely filed a petition for review with the trial court seeking review of the February 13, 2018 Order. (Appellees' Brief (Br.) at 4-5, Ex. B.) The trial court consolidated the two petitions for review by an order dated May 16, 2018. (R.R. at 1060a.)

         B. Proceedings Before the Trial Court

         After filing their petitions for review of the Hearing Officer's orders, Appellees filed a "Motion to Set Aside Results of Hearing and to Supplement the Record on Appeal and Alternatively, to Supplement the Record on Appeal and to Permit Further Discovery" with the trial court. (R.R. at 1062a-73a.) Appellees' motion requested that the trial court hear this matter de novo as the administrative hearing record was incomplete. (Id. at 1072a-73a.) Appellees requested that the Hearing Officer's decision and orders be set aside due to bias and violations of their due process rights. (Id. at 1071a-72a.) Appellees attached to their motion evidence from Right-to-Know Law[6] requests they made to Department, which Appellees argued uncovered commingling of adjudicatory and prosecutorial functions resulting in a denial of due process. (Id. at 1068a-72a.) The trial court never officially admitted those materials as part of the record. Department subsequently filed its own "Motion to Supplement the Record on Appeal" to rebut Appellees' assertions as to the Hearing Officer's impropriety and due process claims. (Id. at 1207a-14a.) The documents attached to, and referenced within, Department's motion were admitted into the record by order of the trial court. (Id. at 1240a.)

         Department and Appellees thereafter submitted briefs to the trial court in support of their positions on Appellees' inability to prepay the penalty assessed by Department. (Id. at 1244a-1349a.) On December 13, 2018, the trial court heard oral argument on the issue. (Id. at 1352a.) Appellees generally argued that they were denied due process because they received no hearing or trial on the merits, that they could not prepay the penalty, that the Hearing Officer used the wrong standard, and that Department failed to rebut that evidence. (Id. at 1358a-68a.) Department argued that the administrative hearing record was complete, and there was no need for the trial court to review the Hearing Officer's decision de novo. (Id. at 1372a-73a.) Department also pointed out that the purpose of the prepayment of the penalty was to prevent frivolous lawsuits and that this Court has previously held that requiring prepayments or bonds was constitutional and did not violate due process. (Id. at 1373a-76a.) Department referenced that, consistent with EHB decisions on this issue, the Hearing Officer relied on loans and applications for grants, as well as DeLuca's testimony regarding the INDIPAY model, as proof that Appellees possessed the money to prepay. (Id. at 1385a-89a.) Appellees responded that there should be no doubt that this was to be a de novo review. (Id. at 1405a.)

         C. Trial Court's Decision

         Following oral argument, the trial court issued the following Order:

1. The Hearing Officer's determination that [Appellees] had the ability to prepay the penalty was in error.
2. If the [Department] determines it will proceed with the penalty against [Appellees], [Appellees] may proceed to a hearing on the merits of their case before a Hearing Officer designated by the [Department].
3. The penalty imposed by the Hearing Officer is hereby vacated.

(Id. at 1413a.)

         On March 28, 2019, the trial court issued its Opinion noting that when a trial court takes additional evidence on the merits, the court must decide the case de novo. (Trial Ct. Op. at 2 (citing Mitchell v. Zoning Hearing Bd. of the Borough of Mount Penn, 838 A.2d 819, 825 (Pa. Cmwlth. 2003)).) The trial court then made its own findings of fact and conclusions of law. It cited Commonwealth v. Smetana, 191 A.3d 867, 873 (Pa. Super. 2018), in which the Superior Court concluded that a defendant's ability to pay a fine was based on the financial ability of the defendant alone and he could not be held in contempt for failing to borrow from someone else. (Trial Ct. Op. at 2.) The trial court examined Appellees' evidence related to their liquid and cash assets to determine their ability to prepay the penalty. Restating the testimony and facts presented at the hearing, the trial court determined that Appellees met their burden to prove that they did not have the liquid and cash assets necessary to prepay, and Department failed to rebut that with its own evidence. (Id. at 2-3.) For these reasons, the trial court held that the Hearing Officer erred in finding that Appellees could prepay the $1, 471, 675. (Id. at 3.) The trial court concluded that the order to prepay "was arbitrary, an abuse of discretion, not supported by substantial evidence, and/or contrary to law." (Id.)


         Both Department and Appellees agree the trial court considered Appellees' appeal de novo pursuant to Section 754(a) of the Local Agency Law, [7] 2 Pa. C.S. § 754(a). However, Department argues de novo review was improper as the record before the Hearing Officer was complete, and the trial court should have applied the standard appellate review under Section 754(b) of the Local Agency Law, 2 Pa. C.S. § 754(b).[8] The parties do not dispute that additional evidence was presented to the trial court, but instead argue whether that evidence related to the merits of Appellees' appeal. Appellees argue that the additional evidence was related to their claims that their due process rights were violated in the proceedings before the Hearing Officer and the determination that they were able to prepay the penalty. Department maintains the new evidence was solely to rebut Appellees' assertions and misstatements and was not evidence that went to any central issue of Appellees' ability to prepay the penalty.

         Department argues that the trial court erred in determining that the Hearing Officer's findings of fact and conclusions of law did not support the inability to pay determination. Department further asserts that the trial court ignored DeLuca's testimony and his assessments regarding INDIPAY, the RACP grants that Appellees applied for, the $5.9 million loan that was unaccounted for, and Appellees' $10 million net worth. Appellees respond that the trial court did not ignore Department's witnesses and evidence presented at the administrative hearing. They assert that DeLuca's testimony failed to explain what INDIPAY is and how the model calculated Appellees' ability to prepay. Appellees additionally argue that

         Department failed to offer substantial evidence to support Department's use of the INDIPAY model. Appellees claim DeLuca should not have been admitted as an expert and the Hearing Officer's reliance on DeLuca's testimony was an abuse of discretion. Appellees assert that Department's calculations as to the loans and grants were erroneous and should not have been considered.

         Department asserts that the trial court erred in vacating the penalty imposed by the Hearing Officer, as Department, not the Hearing Officer, imposed the penalty. (Department's Br. at 35.) Department additionally argues that the trial court violated Section 753(a) of the Local Agency Law, 2 Pa. C.S. § 753(a), [9] when it addressed an issue not raised before the Hearing Officer, without due cause. (Department's Br. at 35-36.)

         III. ANALYSIS

         A. Whether the trial court erred in reviewing the appeal de novo.

         The general rule under Section 754(a) of the Local Agency Law, 2 Pa. C.S. § 754(a), is that if a full and complete record is not made before an agency, a court may hear the appeal de novo or remand for further proceedings. Under the Local Agency Law, the question of what standard to apply depends on whether the "record before the local agency is full and complete." Powell v. Middletown Twp. Bd. of Supervisors, 782 A.2d 617, 621 (Pa. Cmwlth. 2001). A record "is full and complete if there is a complete and accurate record of the testimony taken so that the appellant is given a basis for the appeal and if the court is given a sufficient record upon which to rule on questions presented." Id. The key determination is "whether the trial court accepted additional evidence." Bolus v. City of Scranton Dep't of Licensing, Inspections and Permits (Pa. Cmwlth., No. 202 C.D. 2018, filed May 2, 2019), slip op. at 14.[10]

         Based on the language of the trial court's Opinion, it is not entirely clear whether the trial court reviewed the appeal de novo. The trial court stated that, if a court takes additional evidence on the merits, it must review a case de novo, citing Mitchell, 838 A.2d at 825 (holding that under Section 1005-A of the Pennsylvania Municipalities Planning Code (MPC), [11] "[w]here the trial court took any additional evidence on the merits . . . it must determine the case de novo, making its own findings of fact based on the record made before the board as supplemented by the additional evidence"). The trial court does not state that it reviewed the appeal de novo, although the Opinion contains findings of fact and conclusions of law, and it also states that it reviewed "all of the evidence in the record and the testimony." (Trial Ct. Op. at 2.) Moreover, although apparently accepting evidence into the record related to Appellees' due process claims, the trial court did not specifically recount any of this new evidence in its Opinion or make a finding based upon it.[12](R.R. at 1206a-31a, 1240a.) ...

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