ALJDEC decisions subject to certification as final

03A-F197-DEQ · Department of Environmental Quality · 2004-05-20

STATE OF ARIZONA IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 5, 2004 APPEARANCES: Appellant: MARDIAN INDUSTRIES NO. 3, L.P. was represented by Mariscal, Weeks, McIntyre & Friedlander, P.A., Kenneth A. Hodson, Esq. and Paul Ruderman, Esq. State: Appearing for the Arizona Department of Environment Quality was the Office of the Attorney General, Shelley D. Cutts, Assistant Attorney General. ADMINISTRATIVE LAW JUDGE: Gary B. Strickland _____________________________________________________________________ A hearing convened as scheduled at the Office of Administrative Hearings in Phoenix, Arizona to address whether Appellant, Mardian Industries No. 3, L.P. (hereafter also, Mardian Industries or “the company”), has a cognizable claim(s) under the Arizona State Assurance Fund (“SAF”).[1] The Department has denied Appellant’s claim(s) for reimbursement for costs associated with removal of seven underground storage tanks (“USTs”) from the site and remediation of the soil attendant the removal of the underground storage tanks. Reimbursement has been denied (1) because Appellant’s application for the removal of USTs 1 and 2 was untimely-filed under A.R.S. § 49-1052(M); (2) because USTs 5, 6, and 7 had been permanently closed in place prior to their removal from the site; and (3) Appellant has not demonstrated its actual costs incurred undertaking the work for which it claims reimbursement. Appellant argues that the actions of the company in its remediation efforts, under consideration in this appeal, caused the company to incur a substantial expenditure of funds for which it is entitled to be reimbursed; the governing statute and applicable Agency guidelines do not contemplate a result that the Agency is here advancing. Appellant believes that it is entitled to a $95,695.06 payout from the State Assurance Fund. The hearing that has been conducted in this matter and the DECISION AND RECOMMENDED ORDER that follows was held and is issued under the authority of A.R.S. (( 41-1092.07, 41-1092.08 and 49-1091(E). Having heard the testimony of the witnesses, having examined the exhibits,[2] and having read and considered the entire record,[3] the undersigned Administrative Law Judge makes Findings of Fact, renders Conclusions of Law, and issues the following DECISION AND RECOMMENDED ORDER to the Director of the Arizona Department of Environmental Quality.

APPLICABLE LAW 1. The Director is required to administer funds for the cleanup of underground storage tanks from monies collected through tax revenues under A.R.S. ( 49-1036.[4] 2. In order to be eligible for reimbursement of incurred costs associated with reasonable and necessary efforts to clean up a site, claims for payment from the fund must be submitted to the Department within twelve (12) months of issuance by the Department (and receipt thereof by the claimant) of a “site closure letter.”[5] 3. A party that has undertaken corrective action under A.R.S. § 49- 1052 may informally appeal the level of reimbursement offered by the Department for costs associated therewith. Should a resolution of the dispute not be accomplished, following informal appeal processes, an aggrieved party may file a formal appeal. The appeal from a Department final written decision or determination includes motion that an evidentiary hearing be conducted whereat the aggrieved party may be afforded opportunity to present evidence making it more probable that the Department’s payment decision was improper under governing law as applied to specified facts.[6] 4. For a claim to be reimbursable, it must be demonstrated that the costs incurred in the effort to undertake a corrective action have been incurred in an attempt a) to ensure the protection of public health and welfare and the environment, b) to realize the maximum beneficial use of the state’s water and soil, and c) be determined reasonable and necessary, cost-effective and technically feasible.[7]

FINDINGS OF FACT 5. Appellant Mardian Industries No. 3, L.P. is the owner of a facility in Phoenix, Arizona on which underground storage tank (“UST”) releases have been confirmed. Appellant has been utilizing the services of an environmental consultant, Burge & Associates, to investigate and to conduct corrective actions at the site. 6. Appellant filed Application 2462.02-01, the application to the State Assurance Fund that is at issue in this appeal, on June 20, 2002. The application was first denied in a letter issued by the Department on May 8, 2003, and again denied upon review on November 17, 2003. The reasons given for the denials varied but can be categorized as follows: (a) an untimely submittal of some of the costs claimed; (b) three of the tanks had been closed prior to removal; and (c) the costs claimed were not substantiated by supporting documentation. 7. On December 9, 2003, Mardian Industries No. 3, L.P. requested that it be afforded an evidentiary hearing under the authority of A.R.S. § 49-1091. 8. More specifically, the Department has denied Mardian Industries’ application for the removal of underground storage tanks (“USTs”) 1 and 2 as untimely filed under A.R.S. § 49-1052(M). In addition, the Department asserts that Appellant would not otherwise be eligible for reimbursement because it had not submitted evidence demonstrative of actual costs it may have incurred in the removal of the tanks. 9. The Department has denied Mardian Industries’ application for the reimbursement of costs ostensibly incurred in the removal of underground storage tanks (“USTs”) 5, 6, and 7 because, according to the Department, the tanks had been permanently closed in place prior to removal and because removal itself was not necessary to accomplish corrective action. In addition, the Department asserts that Appellant would not otherwise be eligible for reimbursement because it had not submitted evidence demonstrative of actual costs it may have incurred in the removal of the tanks. 10. The Department has denied Mardian Industries’ application for the reimbursement of costs incurred in the removal of underground storage tanks (“USTs”) 3 and 4, albeit Mardian Industries is otherwise eligible for reimbursement for their removal, because Mardian Industries has not submitted evidence demonstrative of actual costs it may have incurred in the removal of the tanks. 11. The seven USTs were located at the Mardian Industries No. 3, L.P. site (more correctly, on its property whereat a tenant, Marco Crane & Rigging, was situated) prior to their removal in 1993. In an effort to designate the various areas of contamination related to the tanks, the Department assigned four separate release numbers. Release number .01 was assigned to the removal of USTs 1 and 2. 12. On August 24, 2000, the Department sent to Dan Mardian, Jr., General Partner of Appellant and also the Principal of Appellant’s related entity, Marco Crane & Rigging Co., a “case closure” letter. Appellant acknowledges that it received the Department’s letter. By the letter, Mardian Industries No. 3, L.P. was informed (1) that the Department was closing release .01; (2) that the remaining releases at the property would remain open; and (3) that it had one year from the date of its receipt of the closure letter, under A.R.S. § 49-1052(M), to file its State Assurance Fund claims relating to the .01 release.[8] The letter, which referenced its subject in bold print (Re: Case Closure), further contained a paragraph headed: Informal and Formal Appeal Rights.[9] 13. Neither Mardian Industries nor any authorized representative on its behalf filed an appeal from the August 24, 2000 “case closure” letter. 14. Neither Mardian Industries nor any authorized representative on its behalf filed a claim for SAF reimbursement within one year of the August 24, 2000 “case closure” letter. [10] 15. The August 24, 2000 “case closure” letter also contained the following language in bold print: “This letter does not affect the status of the other LUST case files at this facility.”[11] 16. Therefore, according to the Department, Mardian Industries No. 3, L.P. has not timely filed a claim for reimbursement for the .01 release. 17. Mardian Industries No. 3, L.P. argues that the language of A.R.S. § 49-1052(M) does not foreclose consideration of the .01 application to the SAF. Appellant posits (1) that a plain reading of the term site, as used in A.R.S. § 49-1052(M), requires recognition that the Legislature was referring, by its usage of the term, not to individual USTs but to “1. a piece of land considered from the standpoint of its use for some specified purpose; 2. the place where something is, was, or is to be; location or scene.[12] Therefore, the site consisted of the property on which the subject tanks were situated. And - (2) that case law reveals a distinction between reference to “USTs” and a “site.”[13] Appellant seeks a ruling, as a matter of law, that the statutory limitations period of A.R.S. § 49- 1052(M) is determined by the closure of the entire site, not the closure of individual USTs. 18. The Department counters that Appellant’s construction is flawed (1) because, albeit Chapter 6 of Title 49 of the Arizona Revised Statutes does not define the term “site,” other related chapters of the Title do define the term: A.R.S. §§ 49-171(9) and 49-281(14) define a “site” as the “areal extent of contamination;” (2) the Department’s longstanding written policy has required the management of individual releases as opposed to entire sites, the policy entitled to Chevron-type[14] deference; (3) the Department’s construction of the statute promotes the public policy of paying out claims for demonstrable expenses incurred in remediation, not stale or unsupported claims; and (4) there is no question that Mardian Industries No. 3, L.P. had notice, through its qualified consultant, Scott Burge, of the policy of paying out claims for individual releases[15] and that the consultant himself had not previously claimed reimbursement for release .01 because the release had been closed.[16] 19. Mardian Industries relies for its payment also on the Department’s 1995 “TANK PULL REIMBURSEMENT GUIDELINES”[17] whereby was allowed that “summary documentation [would] be accepted [by the Department] in lieu of the normally requested specific time and material documentation” as evidence supporting a reimbursement claim. Because Mardian Industries had provided the Department with satisfactory summary documentation, Appellant argues, it is entitled to the reimbursement that it seeks. Its position is bolstered by the testimony of Michael O’Hara, a member of the UST Policy Commission. Because the guidelines were established after the tanks had been pulled at the Mardian Industries site and because those guidelines “grandfathered in” all “Tank Pulls” undertaken in 1993, Appellant could not have foreseen necessity to document the tank’s removal with invoices, time cards, and the like.[18] 20. Mr. O’Hara further testified that, to the degree that he is aware, this is the first occasion whereof the Department has complained that a claim had not satisfied the A.R.S. § 49-1052(M) limitation period.[19] 21. One of the Department’s witnesses, Ms. Tara Rosie, acknowledged in testimony that the prerequisites under the “TANK PULL REIMBURSEMENT GUIDELINES” were, in fact, met by Mardian Industries in its application.[20] Upon questioning, Ms. Rosie indirectly conceded that Mardian Industries has provided the documentation and manifests the qualifying attributes, under the “TANK PULL REIMBURSEMENT GUIDELINES,” to support the claim(s): an affidavit; that Mardian Industries is eligible for reimbursement; the tanks were, in fact, removed; the soil was remediated; and, the remediation activities undertaken at the site constituted “eligible activities.” 22. All witnesses agreed that corrective action has been performed at the Mardian Industries site. Distilled, the tanks were removed; soil was removed and then replaced. According to Mardian Industries, sufficient evidence of the reasonable value of the work performed was submitted to the Department. The amount requested in the application totals $95,695.06; the reasonable value of the tank removal work having been established by Daniel Mardian, an expert in the use of construction equipment.[21] 23. The Department contends nevertheless that the 1995 “TANK PULL REIMBURSEMENT GUIDELINES” do not apply to the Mardian Industries application because those guidelines were retracted in 1998, prior to the filing of Appellant’s application; and because the guidelines did not exist in 1993, the year during which the subject tanks were pulled. Further, the Department alleges that, even had the 1995 Guidelines applied, Mardian Industries did not comply with the requirements thereof because it did not support the application with valid invoices (it has submitted conflicting invoices) based upon the actual costs incurred (rather, the invoices represented a post hoc assessment of the reasonable value of work performed). The requirement that an applicant for reimbursement from the SAF support the application with indicia of time and materials in the work performed is a requirement that was in place in 1992. Mardian Industries simply has not provided indicia of time and materials spent and used in the removal and remediation efforts. 24. Mardian Industries has calculated the value of the work performed in the removal of the subject tanks under the SAF “cost ceilings.” [22] The “cost ceilings” were not established until 1996, subsequent to the time of the tank removal in question. 25. The Department further argues that some of the activities undertaken at the Mardian Industries site were not reasonable and necessary because (1) USTs 5, 6, and 7 had been filled with concrete prior to their removal,[23] effectively closing the tank(s) in place, and obviating necessity for their removal; (2) Mardian Industries has not produced evidence, summary or otherwise, demonstrative of actual incurred costs in the removal of tanks 3 and 4; (3) the standard by which the Department may consider reimbursement from the SAF is “actual costs incurred,” not the “reasonable value” of the work; (4) the invoices submitted, along with Appellant’s “worksheet,” and the invoice filed in 2000 by Marco Crane & Rigging Company for the identical tank removal manifest conflicting evidence in support of the claim; and (5) Marco Crane & Rigging Company has already received $31,056.04 for its consultant fees incurred in the tank removal.[24] 26. Finally, the Department argues that the actual amount in controversy is $86,993.22, not the $95,695.06 claimed by Appellant in argument. 27. The Department may only reimburse costs of activities that are determined eligible.[25]

THE ISSUES PRESENTED 28. On April 6, 2004, the Administrative Law Judge issued an ORDER HOLDING [THE] RECORD OPEN to afford Counsel time within which to file their respective arguments. In the ORDER, the Administrative Law Judge identified the issues that need to be addressed. They are:

1) Has Applicant/Appellant Mardian Industries No. 3, L.P. timely filed its claim(s) for coverage, under the State Assurance Fund, of the costs associated with remediation efforts claimed within LUST case file No. 2462.02-01?

2) If the claim(s) was timely-filed, do the Department’s previously- issued 1995 “Tank Pull Reimbursement Guidelines” apply to a proper consideration of Applicant/Appellant Mardian Industries No. 3, L.P.’s claim(s) for reimbursement?

3) May the Department reimburse the costs associated with the tank removal if the Department is unable to allocate those costs to an eligible activity?

4) Were the corrective actions undertaken at the site, for which reimbursement has been claimed, reasonable in scope and execution and otherwise reimbursable?

5) If the claim(s) is reimbursable, how much may be paid to Mardian Industries No. 3, L.P.?[26]

Each question shall be discussed and answered below.

THE ISSUES DISCUSSED AND ANSWERED Issue 1: Has Applicant/Appellant Mardian Industries No. 3, L.P. timely filed its claim(s) for coverage, under the State Assurance Fund, of the costs associated with remediation efforts claimed within LUST case file No. 2462.02-01?

29. Prior to the hearing, on March 24, 2004, Appellant filed a MOTION FOR A DISPOSITIVE RULING wherein Appellant argued that the site has not been closed to date, as the term site may reasonably be construed under A.R.S. § 49-1052(M). After first granting the motion,[27] the Administrative Law Judge rescinded the ruling,[28] as it had touched on the issue, upon motion of the Department, further ruling suspended pending additional background that might be set forth by the Department at the hearing. A ruling on the motion has been reserved. 30. Consideration of the issue has led to the following observations: (1) a reasonable construction of the statute’s use of the word “site” in A.R.S. § 49-1052(M) requires recognition that the Legislature was referring, by its usage of the term, not to individual USTs but to “[a] place or location; especially a piece of property set aside for a specific use”[29] on which the subject tanks were situated; (2) an examination of the very limited case law touching the question reveals a distinction between reference to “USTs” and a “site;”[30] (3) the Arizona environmental statutory article creating the voluntary remediation program has defined the term “site” as “the areal extent of contamination[31]” (depending on the facts, a more narrow/expansive definition than would be found by a reference simply to the property on which a “release” has occurred); in that the Department has not proved (or, attempted to prove) that any contamination produced by the subject tanks was limited to the tanks themselves, an absurdly tautological notion, it is not reasonable for the Department to rely on this definition for its proposition that the phraseology site closure in A.R.S. § 49-1052(M) is synonymous with a “tank closure”; (4) the final sentence of A.R.S. § 49-1052(M) (“The time limit prescribed by this subsection does not apply to closed sites that are subsequently reopened for the performance of additional corrective actions or at which corrective actions are proceeding pursuant to a work plan for preapproval submitted before the site was closed.” (emphasis added)) fits more readily within the construction offered in this DECISION than it would under the more limited construction suggested by the Assistant Attorney General;[32] and, (5) to read the statute in this plain manner would not produce an absurd result.[33] 31. Because the site had not been closed for one year prior to the date upon which the application had been filed (the site is still open), A.R.S. § 49-1052(M) does not prohibit consideration of the application.

Issue 2: If the claim(s) was timely-filed, do the Department’s previously- issued 1995 “Tank Pull Reimbursement Guidelines” apply to a proper consideration of Applicant/Appellant Mardian Industries No. 3, L.P.’s claim(s) for reimbursement?

32. On this issue, the problem is one that demands for solution an exercise in common sense. Neither the “Tank Pull Reimbursement Guidelines” nor the “cost ceilings” were in place at the time that the USTs were removed. They were developed after the fact of the tank removal.[34] As to the “Guidelines,“ they were, in turn, never promulgated and were retracted prior to the .01 application. What authority was in place both in 1993 and in 2002 required full time and materials detail. A.A.C. R18-12-604[35] and R18-12-605[36] require that extensive information be provided in support of a reimbursement claim.[37] Even the “Tank Pull Reimbursement Guidelines” required the applicant to provide a per-tank breakdown of costs incurred. Appellant has not furnished that information.[38] Extensive supporting documentation was not filed along with the application for reimbursement of the .01 efforts. Appellant has not even attempted to identify in the record specifically how Appellant has complied with the requirements delineated at A.A.C. R18-12-604. 33. Moreover, even under the “Tank Pull Reimbursement Guidelines,” Mardian Industries failed to satisfy the requisites because it failed to submit valid invoices showing the actual costs incurred.[39] As Dan Mardian, Jr. acknowledged, Mardian Industries submitted two conflicting invoices for the same work performed.[40] 34. To date, although having been issued each a subpoena duces tecum demanding production of supporting documentation demonstrative of actual costs incurred, neither Mardian Industries nor Marco Crane & Rigging has produced the evidence.

Issue 3: May the Department reimburse the costs associated with the tank removal if the Department is unable to allocate those costs to an eligible activity?

35. This issue is easily addressed. The Department may not reimburse from the State Assurance Fund unless the costs claimed are for activities undertaken pursuant to A.R.S. § 49-1052, that are reasonable and actually incurred under A.R.S. § 49-1054(C),[41] and that are determined reasonable, necessary, cost-effective, and technically feasible under A.R.S. § 49-1005(D).[42] Determinations of reasonableness, cost- effectiveness, and necessity cannot be made through the presentation of conflicting and less-than-informative evidence of costs incurred.

Issue 4: Were the corrective actions undertaken at the site, for which reimbursement has been claimed, reasonable in scope and execution and otherwise reimbursable?

36. The report of the fire marshal and the testimony of Scott Burge reveal that USTs 5, 6, and 7 were filled with concrete prior to their removal from the site. Having been filled in such manner, the tanks were permanently closed before any attempt was made to remove them.[43] The report of the fire marshal is the most reliable testimony as it (the report) was created contemporaneous with the closure of the tanks.[44] The account related by Burge is also reliable because he was the qualified consultant on the project and was present with the fire marshal when the latter inspected the USTs.[45] On the other hand, the contradictory testimony of Dan Mardian, Jr. is less reliable because (1) of the self- interest of the declarant, and (2) the recollection goes back eleven years. Further, Counsel’s attempt to impeach Mr. Burge’s testimony with photographic evidence[46] is unavailing because (1) the photograph was not properly authenticated, and (2) the photograph lacked foundation; the evidence, therefore, irrelevant because confusing. 37. The evidence preponderates that USTs 5, 6, and 7 were permanently closed in place prior to their removal.[47] Therefore, expenses related to the removal are not reimbursable from the State Assurance Fund. 38. Tara Rosie of ADEQ testified that Mardian Industries may otherwise be eligible for reimbursement of its expenses incurred in the removal of USTs 1, 2, 3 and 4.[48] However, the claims cannot be paid by ADEQ because Mardian Industries has not provided the Agency evidence of expenses incurred in the process. Under A.R.S. § 49-1054(C), an applicant is required to demonstrate the actual costs it incurred.[49] Dan Mardian, Jr. has confirmed that Mardian Industries cannot produce the evidence because the sought-after supporting documentation either was lost over time or because he had negligently failed to retain the documentation. Instead, Mr. Mardian has offered his “reasonable value” of the work performed in support of the claim(s).[50] Because the Department is required to reimburse for actual costs incurred, it cannot reimburse for an asserted “reasonable value” (even if the invoices did not conflict).[51] Therefore, the claims cannot be paid.

Issue 5: If the claim(s) is reimbursable, how much may be paid to Mardian Industries No. 3, L.P.?

39. As a result of the discussion of and conclusion reached on the previous issue, it is not necessary to reach this question. However, in an effort to complete the record, it is noted that sufficient question has arisen concerning whether consultant’s fees have previously been paid to Mardian Industries’ affiliate Marco Crane & Rigging[52] concerning the subject claim(s), as well as evidence of conflict in the invoices presented,[53] as not to persuade that the amount claimed could conceivably be justified.

FINDINGS SUMMARIZED 40. The weight and sufficiency of the evidence preponderates that, whereas the claims for reimbursement of the costs associated with the removal of the subject tanks in 1993 were submitted to the Department for payment about nine years after the removal of the tanks and about a year- and-a-half after the Department had issued its purported “site closure” notice, the site itself had not been closed (and, still is not closed), as “closure” is contemplated by the express language of A.R.S. § 49-1052(M); but, that Mardian Industries has presented inadequate and conflicting evidence of its costs incurred in the removal of the tanks and, as to three of the tanks, the removal is not compensable because it was not necessary to remove the tanks from their location. Therefore, the Department has properly declined Mardian Industries a recovery from the SAF. It is a challenge to one’s common sense, if not a sense of propriety, to reward a company for it’s neglect of a sizable claim for expenses incurred in legitimate remediation activity for a period of almost a decade by reimbursing the company for costs assumed but not demonstrated.[54] To entertain such a claim, without requiring extensive proof of the expenses incurred, would not cohere with principles of fiscal integrity underlying the SAF.[55] While it is true that the Legislature has prohibited the Department currently from requiring “costs associated with a given task to include details on time and materials” if the total costs do not exceed the “cost ceiling,[56] integrity and stewardship notions prohibit the payment of the Mardian Industry claims that are here presented, under the conditions concerning which the claims have been filed. The claims are stale both in time and in the form presented.

CONCLUSIONS OF LAW 1. The Director of the Arizona Department of Environmental Quality has jurisdiction over the issues presented by this appeal[57] and authority to issue a Final Administrative Order in the matter.[58] 2. The Director is authorized to approve payment from the State Assurance Fund (SAF) for certain costs incurred in connection with corrective action endeavors undertaken at a property characterized as a leaking underground storage tank (“LUST”) site.[59] 3. The legislature has mandated (“shall”)[60] that corrective actions be undertaken when a release is discovered and that all such corrective actions meet the following criteria in order to be reimbursed from the Fund: (a) assure the protection of public health and welfare and the environment, (b) realize, through the corrective action, the maximum beneficial use of the state’s water and soil, (c) be determined reasonable and necessary, cost-effective and technically feasible.[61] 4. A.R.S. § 49-1054(C) has legislatively enjoined the Department to pay eligible costs “that are reasonable and [that] were actually incurred.” The legislature proceeds strictly [“shall”] to define the reasonableness of corrective action as that “determined based on the law and the facts available to the owner, operator or person described in § 49-1052, subsection I, at the time the technical decisions were made.”[62] 5. Arizona Administrative Code (“A.A.C.”) R18-12-605(E) provides, in relevant part, that “[i]n determining the reasonable cost of a given corrective action service . . . the director shall consider both financial reasonableness and technical reasonableness.” 6. A.A.C. R18-12-605(B) and (E) require that “[e]ligible costs [be] [:] 3. [s]upported by adequate documentation as defined in subsection (E)[;] and 4. [f]or actual work performed, as described in the documentation, and the case file. Subsection (E) identifies the following as the indicia necessary to support a claim:

1. Hourly labor rate, time, and cost for each labor classification utilized in the corrective action service.

2. Equipment rate, time, and cost for each equipment classification utilized in the corrective action service.

3. Itemized material costs expended in the corrective action service.

4. Subcontractor services itemized and documented as in subsections (E)(1) through (3).

5. The applicant shall identify all amounts referenced in subsections (E)(1) through (4) of this subsection to a report of work performed on file with the Department.

6. The invoice amount supported by copies of cancelled checks, if available, or financial institution statements. If neither copies of cancelled checks nor financial institution statements are available, a certification statement, by invoice, from the vendor.

Mardian Industries simply has failed to present to the Department’s SAF adequate and consistent evidence of actual costs incurred to justify reimbursement of the asserted expenses incurred by Mardian Industries in the removal of USTs 1, 2, 3, 4, 5, 6 and 7 at the site. Moreover, efforts to remove tanks 5, 6 and 7 may not be reimbursed for the reason that they were probably closed prior to their removal. While the site had not been closed, as closure is contemplated under A.R.S. § 49-1052(M), the reimbursement claim(s) have not been substantiated, as is required by A.R.S. § 49-1054(C) and the implementing regulations. 7. Accordingly, this appeal should be denied.

RECOMMENDED DECISION Based upon the foregoing, the undersigned Administrative Law Judge recommends that the Director of the Arizona Department of Environmental Quality deny this appeal in accordance with that set forth at FINDINGS ¶ 40, above.

Done this 19th day of May 2004.

______________________________________ Gary B. Strickland Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 2004, to:

Stephen A. Owens, Director Department of Environmental Quality Attn: Judith Fought 1110 W. Washington, Sixth Floor Phoenix, AZ 85007

By ___________________________ ----------------------- [1] Title 49, Chapter 6, Article 3.

[2] Appellant Mardian Industries offered two exhibits marked A1 and A2, each of which was received. The Department offered sixteen exhibits: R1 through R53. Each of the Department’s exhibits was received into evidence without objection. In addition, Appellant filed a POST-HEARING MEMORANDUM on April 20, 2004 and a REPLY MEMORANDUM on May 14, 2004. Respondent ADEQ submitted its POST-HEARING RESPONSE MEMORANDUM on May 4, 2004.

[3] Administrative notice is taken of the documents within the Department’s hearing file, without objection.

[4] See, A.R.S. ( 49-1051.

[5] A.R.S. ( 49-1052(M).

[6] A.R.S. § 49-1091.

[7] A.R.S. § 49-1005(D).

[8] See Exhibit 45; testimony of Michael O’Hara.

[9] See Exhibit 45.

[10] On March 16, 2001, Marco Crane & Rigging submitted an application to ADEQ vis-à-vis the remediation efforts that had been undertaken at the site. Thereafter, Marco Rigging withdrew the application because it had been apprised by ADEQ that it would not assess the application under the 1995 TANK PULL REIMBURSEMENT GUIDELINES and because it had been told that the application should have been filed by Mardian Industries, not Marco Rigging.. Therefore, Mardian Industries was left with the Hobson’s choice whether to pursue a “timely” application in the name of the wrong claimant or refile an “untimely “ application in the name of the correctly- identified applicant.

[11] Id.

[12] See WEBSTER’S DICTIONARY. Appellant did not identify the source with specificity (see APPELLANT’S MOTION FOR DISPOSITIVE RULING filed on March 24, 2004). WEBSTER’S UNABRIDGED (1998) defines the term site as 1. The place where anything is fixed; situation; local position; as, the site of a city or of a house; [a] place fitted or chosen for any certain permanent use or occupation; as, a site for a church; 3. The posture or position of a thing. See http://dictionary.reference.com/search?q=site.

[13] See Resolution Trust Corporation v. Western Technologies, Inc, 179 Ariz. 195, 198, 877 P.2d 294, 297 (App. 1994) (“RTC alleged that WTI knew or should have known of the existence of the USTs and contamination of the site and that WTI breached its agreement with Southwest by failing to discover or to disclose the USTs and contamination.” and “Because these clues that USTs were on the site existed when WTI prepared its report, RTC asserts the trial court should have allowed the jury to decide whether WTI negligently failed to discover and report them.” – emphasis added).

[14] See Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43, 104 S. Ct. 2778, 2781-82, 81 L. Ed. 2d 694, 703 (1984). See also the testimony of Pejman Eshraghi, Disc 2, 1:58:03, 1:59.32, 2:03:11, 2:09:12 and Exhibits 49 and 49. See further testimony of Dan Mardian, Jr. at Disc 1, 1:52:10; Exhibit 13.

[15] Testimony of Scott Burge at Disc 1, 1:00:10.

[16] Testimony of Michael O’Hara at Disc 1, 1:26:59.

[17] Exhibit 50.

[18] Testimony of Michael O’Hara at Disc 1, 1:37:03 et seq.

[19] Testimony of Michael O’Hara at Disc 1, 1:41:46.

[20] Testimony of Tara Rosie at Disc 2, 1:02:58.

[21] In support of its contention that Mardian Industries may establish the value of its work performed and expenses incurred in the tank removal through the testimony of Dan Mardian, Jr., Counsel cites Arizona Dept. of Economic Security v. Skillin, 149 Ariz. 521, 720 P.2d 122 (1983); see APPELLANT’S POST-HEARING MEMORANDUM at p. 6, ln. 17. A review of Skillin, however, reveals that the citation is inapposite. Appellant further cites Murdock-Bryant Construction, Inc. v. Pearson, 146 Ariz. 48, 703 P.2d 1197 (1985) (a case addressing the issue of lost profits), generally, to support the proposition; see APPELLANT’S POST-HEARING MEMORANDUM at p. 7, lns. 2 and 3 (presumably, at 67 and 1216, “The record before us contains ample evidence that both Larry Bryant and Bill Murdock were, if not formal rock or demolition experts, at the very least qualified in site excavation work, and we find that their testimony was probative on the question of the reasonable value of the services rendered.”). However again, the case is not on point. To maintain an action in quantum meruit, the claimant must establish the reasonable value of work performed with the measure of the value of the services to the owner being the standard, not the cost to the contractor in performing such service. See Spitalny v. Tanner Construction Company, 75 Ariz. 192, 254 P.2d 440 (1953). Here, the governing statute, A.R.S. § 49-1054(C), requires demonstration of eligible costs actually incurred. Additionally, Counsel seemingly fails to recognize that quantum meruit is an equitable remedy not available in this venue.

[22] See Exhibit 1 to Appellant’s POST-HEARING MEMORANDUM.

[23] See Exhibit 33; testimony of Scott Burge; and, the Fire Marshall’s contemporaneous report.

[24] Testimony of Michael O’Hara; see also February 1, 2002 Service Invoice attached to Mardian Industries’ POST-HEARING MEMORANDUM.

[25] See, A.R.S. §§ 49-1052(D) and 49-1005, along with the regulatory gloss at A.A.C. R-18-12-605.

[26] Since the amount claimed is contested.

[27] See March 31, 2004 Minute Entry. The Administrative Law Judge had found:

RULING ON THE APPLICANT/APPELLANT’S DISPOSITIVE MOTION CONCERNING PROPER CONSTRUCTION OF THE LEGISLATURE’S USE OF THE WORD “SITE” IN A.R.S. § 49-1051(M) On March 24, 2004, Applicant/Appellant Mardian Industries No. 3, L.P. filed a MOTION FOR [A] DISPOSITIVE RULING on its proposition that, under the plain meaning of A.R.S. § 49-1051(M), the Site that is the subject of the anticipated hearing remains open for purposes of reimbursement application. Although intending to afford the Department a complete time period within which to respond to the motion, as is required by A.A.C. R2- 19-106(D) and in accordance with A.A.C. R2-19-107, the Administrative Law Judge is issuing this MINUTE ENTRY, under the authority of A.A.C. R2-19- 102(B), as of this date because the Department has requested issuance of subpoenas and has intimated therein that it does not intend to file a RESPONSE. The concern is for expedition; the hearing is scheduled to convene in seven (7) days.

The Question: Does “site closure” equal “tank closure” when multiple leaking tanks are situated on an applicant’s property? Short Answer: Given the paucity of information submitted and limited argument made, the answer is no. Having considered the motion and having researched the matter generally, it is determined that the argument made by Appellant on the issue of site closure is persuasive. Therefore, the motion is granted as to Appellant’s proposition concerning construction of the statute’s use of the word “site” for the following reasons: (1) a plain reading of the term site, as used in A.R.S. § 49-1052(M), requires recognition that the Legislature was referring, by its usage of the term, not to individual USTs but to “[a] place or location; especially a piece of property set aside for a specific use” on which the subject tanks were situated; cit. omit., (2) case law reveals a distinction between reference to “USTs” and a “site;” cit. omit., (3) the Arizona environmental statutory article creating the voluntary remediation program has defined the term “site” as “the areal extent of contamination,” cit. omit., (depending on the facts, a more narrow/expansive definition than would be found by a reference simply to the property on which a “release” has occurred); however, unless the Department is prepared to place into evidence proof that any contamination produced by the subject tanks was limited to the tanks themselves, an absurdly tautological notion, it is not reasonable for the Department to rely on this definition for its proposition that the phraseology site closure in A.R.S. § 49-1052(M) is synonymous with a “tank closure”; and (4) to read the statute in this plain manner would not produce an absurd result; cit. omit.

[28] See April 1, 2004 Minute Entry. The Assistant Attorney General had filed a timely objection.

[29] See BLACK’S LAW DICTIONARY 1392 (7th ed. 1999). See also A.R.S. § 1- 213 (“Words and phrases shall be construed according to the common and approved use of the language. Technical words and phrases and those which have acquired a peculiar and appropriate meaning in the law shall be construed according to such peculiar and appropriate meaning.”). Further in an effort to construe the statute’s use of the phrase site closure, the Administrative Law Judge has inquired into various other statutory schemes for reinforcement, if not enlightenment. cf. Cal Health & Saf Code § 25364.1(a) (2004) ( (4) "Site" means the site of the former Kaiser Steel Corporation steel mill located near the City of Fontana.); Cal Health & Saf Code § 25260 (2004) ((e) "Hazardous materials release site" or "site" means any area, location, or facility where a hazardous material has been released or threatens to be released into the environment.); Cal Health & Saf Code § 41805.5(i)(5) (2004)(5) ("Solid waste disposal site" means a place, location, tract of land, area, or premises in use, or which has been used, for the landfill disposal of solid waste, as defined in Section 40191 of the Public Resources Code, or hazardous waste, as defined in Section 40141 of the Public Resources Code, or both.”); Idaho Code § 41- 4903(27) (2004) ("Site" means a single parcel of property where petroleum or petroleum products are stored in a petroleum storage tank and includes all contiguous land, structures, other appurtenances, surface water, ground water, surface and subsurface soil, and subsurface strata within and beneath the property boundary.); Rev. Code Wash. (ARCW) § 70.148.150 (2004) ((2) The director shall give priority to and shall encourage local government entities to consolidate multiple operational underground storage tank sites into as few sites as possible. For this purpose, the director may provide financial assistance for the establishment of a new local government underground storage tank site contingent upon the closure of other operational sites in accordance with environmental regulations. Within the per site financial limits imposed under RCW 70.148.120 through 70.148.170, the director may authorize financial assistance for the closure of operational sites when closure is for the purpose of consolidation.); Utah Code Ann. § 19-8-107(2) (2004) ((c) An application submitted under this section [the voluntary cleanup program] shall: include pertinent information regarding the site, including property ownership, current property use, proposed property use, prior and present contact with regulatory programs that relate to the environmental condition of the property, and response action objectives[.]); Utah Code Ann. § 19-9- 106(1)(2004) (The authority is authorized, pursuant to Title 78, Chapter 34, Eminent Domain, to acquire sites sufficient in number to meet the hazardous waste treatment, storage, and disposal needs of the state if, in the judgment of the authority, private operators are not adequately meeting such needs. Exercise of the power of eminent domain to acquire such sites is declared to be for a public purpose and use.); Utah Code Ann. § 19-6- 207(2) (2004) (The owner of any hazardous waste treatment, storage, or disposal facility proposed to be located at a site included in the siting plan is not required to obtain approval of the site from any county or municipal planning commission or similar authority and no local unit of government may prohibit or unduly restrict the transportation of hazardous waste through the governmental unit to an approved hazardous waste treatment, storage, or disposal facility.); Utah Code Ann. § 19-6-102(2) (2004) ("Closure plan" means a plan under Section 19-6-108 to close a facility or site at which the owner or operator has disposed of nonhazardous solid waste or has treated, stored, or disposed of hazardous waste including, if applicable, a plan to provide postclosure care at the facility or site.); Utah Code Ann. § 19-8-105(2) (2004) (that portion of a site that is on the national priorities list); and 42 USCS § 9601(39) (2004) (The term "brownfield site" means real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.)

[30] See Resolution Trust Corporation v. Western Technologies, Inc, 179 Ariz. 195, 198, 877 P.2d 294, 297 (App. 1994) (“RTC alleged that WTI knew or should have known of the existence of the USTs and contamination of the site and that WTI breached its agreement with Southwest by failing to discover or to disclose the USTs and contamination.” and “Because these clues that USTs were on the site existed when WTI prepared its report, RTC asserts the trial court should have allowed the jury to decide whether WTI negligently failed to discover and report them.”).

[31] A.R.S. § 49-171(9). It should be noted that this section came into effect on July 18, 2000. Apparently, the alleged untimely submittal costs pertain to an application filed on June 20, 2002 (the release was “closed” on August 24, 2000). See the Department’s case file (“the hearing file”) “Informal Appeal Review,” “EXPLANATION OF DENIALS.”

See also, e.g., A.A.C. R18-12-261.01 and R18-12-262 (“LUST Site Classification” and “LUST Site Investigation”); see further A.A.C. R18-12- 263; R18-12-261(D)(11) (“Site plan showing the location of the facility property boundaries”); and R18-12-272 (“Assessing the UST Site at Closure; ” and “the operation of the UST system at the site”).

[32] That is not to say that the more limited definition would not reasonably accommodate the sentence; just that, the Legislature has not provided the technical definition that the Assistant Attorney General assumes.

[33] See Resolution Trust Corporation v. Western Technologies, Inc, 179 Ariz. 195, 201, 877 P.2d 294, 300 (App. 1994) (“If the language of a statute is clear and unambiguous, the court will apply the plain meaning of the language unless a plain meaning interpretation would lead to an absurd result or a result at odds with the legislature's intent.”); see also State v. Estrada, 201 Ariz. 247, 34 P.3d 356 (2001) (“For purposes of statutory construction, a result is absurd if it is so irrational, unnatural, or inconvenient that it cannot be supposed to have been within the intention of persons with ordinary intelligence and discretion.”); and Arpaio v. Steinle, 201 Ariz. 353, 35 P.3d 114 (App. 2001( (“If the statute’s language is clear and unambiguous, the court gives effect to that language and applies it without using other means of statutory construction, unless applying the literal language would lead to an absurd result.”).

[34] The “Tank Pull Reimbursement Guidelines” in 1995 and the “cost ceilings” in 1996. The State Assurance Fund was established in 1990.

[35] Effective September 21, 1992.

[36] Effective September 21, 1992.

[37] In the hierarchy of authorities, a promulgated rule will trump an articulated policy, just as a statute will trump a rule. The rule under consideration, R18-12-604, Individual Applicant: Application Requirements, provides in part:

D. An applicant shall provide the Department, in a format prescribed by the Department, all of the following information regarding the corrective action service for which reimbursement is sought:

1. The identification of the time period covered by the application.

2. The identification of a report of work performed which is on file with the Department, for the corrective action covered by the application.

3. A statement as to whether the application is the first request for reimbursement of corrective action expenses incurred in response to the release.

4. The number of previous requests for reimbursement that have been submitted relative to the Leaking Underground Storage Tank file number.

5. The total amount of all corrective action expenses, indicating which were previously reimbursed or previously submitted for reimbursement for this release.

6. The total amount of all costs for which reimbursement is requested and supporting documentation for all of the following categories of costs:

a. Personnel.

b. Excavation.

c. Drilling.

d. Field analysis.

e. Laboratory analysis.

f. Soil or aquifer tests.

g. Tank, piping, or UST system tests.

h. Vehicles.

i. Direct purchases, including, but not limited to, equipment purchases.

j. Lease or rental.

k. Purging, removal, transport, or disposal of UST systems.

l. Indirect costs for administrative or general expenses.

m. Professional services costs directly related to any required permit application.

n. Other expenses, directly related to the required corrective actions, except those described in subsection (D)(7).

o. Any required permit fees.

7. The total amount of costs incurred for professional services directly related to the preparation of the assurance fund application.

8. Documentation of the amount of the assurance fund deductible chosen and documentation of costs incurred for purposes of determining whether the deductible has been met.

9. The name and address of the person who performed, or who will perform, reimbursable services, including all of the following information:

a. Identification of the service provider as a consultant, contractor, or tester.

b. A statement as to whether the firm employed by the owner to perform corrective action holds prequalification status pursuant to R18-12-602.

c. The name and telephone number of the project contact person.

10. An estimate of the total cost of the project where either of the following occur:

a. The claim for reimbursement represents a phase of work.

b. The claim for reimbursement represents a request pursuant to R18- 12-607(B).

11. Where an estimate of the total cost is submitted under subsection (D)(10) above, a statement certifying that the estimate is accurate and complete to the applicant's best information and belief.

E. In addition to complying with subsections (A) through (D) and subsections (F) and (I), an applicant applying on behalf of a for- profit firm shall provide the Department with a copy of all of the following:

1. The most recent year federal and state income tax returns identified by firm name and address.

2. The most recent year-end financial statements for the firm, including profit and loss statement, balance sheet, and all prepared notes and schedules to the financial statements, including all of the following:

a. Total revenues and total expenses.

b. Profit after tax, if applicable.

c. Total assets and total liabilities.

d. Intangible assets.

e. Current year-end and prior year-end net worth.

3. For sole proprietorships, a personal financial statement of the owner.

4. For partnerships and S corporations, the personal financial statement and tax returns of owners of 20% or more of the firm.

5. Additional financial information determined by the Department as necessary to establish financial need.

***

[38] See testimony of Tara Rosie at Disc 2, 0:40:09; 1:04:46; 1:07:49; 1:11:00.

[39] See testimony of Tara Rosie at Disc 2, 1:35:25 and Exhibit 50.

[40] See Exhibits 1 and 13. Testimony of Dan Mardian, Jr. at Disc 1, 1:42:15, 1:44:14, 1:46:55, 1:47:53, 1:51:25, and 2:01:47. Not only do the invoices conflict one with another, they also conflict with an invoice that had been filed in 2000 by Marco Crane & Rigging Co. for the same tank removal; the 2000 invoice, submitted by Marco’s consultant on the project, Scott Burge, totaled only $18,275.00 for the removal of all seven tanks. (Testimony of Scott Burge, Disc 1, 0:58:57).

[41] The language and requirement was in effect at the time that the tanks were pulled.

[42] A.R.S. § 49-1005 was amended by Laws 1998, Ch. 181, § 1 and Laws 1998, Ch. 298, § 7, to, inter alia, add the language “reasonable, necessary, cost- effective, and technically feasible.”

[43] See Exhibit 33; testimony of Scott Burge at Disc 1, 0:41:52.

[44] See State v. Tucker, 205 Ariz. 157, 164-65, 68 P.3d 110, 118-19 (2003) (observing that Rule 803(1), Ariz. R. Evid., identifies a present sense impression as an exception to a hearsay preclusion because it ‘is that substantial contemporaneity of event and statement [that] negative the likelihood of deliberate or conscious misrepresentation.’ “We assume, as a general matter, that when the declarant has had little time to reflect on the event she has perceived, her statement will be spontaneous and therefore reliable.”).

[45] See testimony of Scott Burge at Disc 1, 0:49:20.

[46] Mr. Burge was questioned by Appellant’s Counsel about a photograph depicting a crushed UST situated on the back of a truck allegedly about to be hauled away. Counsel asserted that the UST in the photo was one of the three USTs reportedly filled with concrete. Mr. Burge could not identify the photo or the UST. However, Burge testified that the UST in the picture was a 1,000 gallon tank; UST 5 was a 5,000 gal. tank. See testimony of Scott Burge at Disc 1, 0:34:40; 0:35:05; 0:38:30; 0:39:45. Burge further questioned whether the photo could be that of either UST 6 or 7 because previously-filled tanks are not typically crushed when moved. Disc 1, 0:38:30.

[47] See A.R.S. § 49-1008 and 40 C.F.R. § 280.71.

§ 49-1008. Closure

The temporary closure, permanent closure and change in service of an underground storage tank shall be accomplished in a safe and secure manner which prevents releases of regulated substances. The director shall prescribe by rule standards for these activities. Any rules adopted pursuant to this section shall be consistent with the federal regulations in effect on the date on which the rules are adopted. Until the rules adopted pursuant to this section are in effect, a temporary closure, permanent closure or change in service shall be accomplished in a manner consistent with 40 Code of Federal Regulations parts 280.70 through 280.74.

*****

CFR 280.71

(b) To permanently close a tank, owners and operators must empty and clean it by removing all liquids and accumulated sludges. All tanks taken out of service permanently must also be either removed from the ground or filled with an inert solid material. (emphasis added)

[48] See testimony of Ms. Rosie at Disc 2, 1:34:21.

[49] See testimony of Ms. Rosie at Disc 2, 1:08:40, 1:38:01.

[50] See testimony of Dan Mardian, Jr. at Disc 1, 1:42:15, 1:44:14, 1:46:55, 1:47:53, 1:51:25, 2:01:47.

[51] See the discussion in note 21 above.

[52] See testimony of Michael O’Hara at Disc 1, 1:33:47.

[53] The two invoices are both dated 2002 and both total $95,695.06. However, many of the cost elements in the two invoices vary. See Exhibits 1 and 13.

[54] This is even more apparent when one considers that Mardian Industries was all along under an impression that the site remained open. Surely, the company would be jealous to safeguard its potential claim by creation of and preservation of its proof of costs incurred.

[55] See A.R.S. § 49-1054(C) (costs must be “actually incurred”).

[56] Id.

[57] A.R.S. §§ 49-104 and 49-1014, 49-1051, 49-1052. 41-1092.02, 41- 1092.07, and 41-1092.08.

[58] A.R.S. ( 41-1092.08 (the Director is authorized to adopt, modify, or reject any or all of the Administrative Law Judge’s Findings or Conclusions, or to allow certification of the DECISION AND RECOMMENDED ORDER by silence).

[59] See, A.R.S. §§ 49-1051(B)(1) and 49-1052(A)(5).

[60] A.R.S. § 40-1005(A).

[61] A.R.S. § 49-1005(D).

[62] Emphasis added.

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Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826