Periconi, LLC

New York Brownfields Law Update: Denial of eligibility decisions mostly upheld

In 2003, the New York Legislature passed the Brownfield Cleanup Program, ECL § 27-1401 et seq. The benefits of the Brownfield Cleanup Program ("BCP") are many: the developer receives a liability release from the State following DEC oversight during the cleanup of the property. The most coveted benefit, however, is a tax credit of up to 22% based not merely on the cost of cleanup but also on the cost to redevelop the site. A few New York City developers have reaped enormous rewards on $100+ million developments.

The New York State Department of Environmental Conservation, which is in charge of administering the Brownfield Cleanup Program ("BCP"), promulgated regulations in 2006 that focused, in part, on application and criteria for determining acceptance into the BCP.

According to the regulations, eligibility to participate in the BCP depends on the subject property being deemed a brownfield site. A "brownfield site" must have the following two elements:

(i) there must be confirmed contamination on the property or a reasonable basis to believe that contamination is likely to be present on the property; and

(ii) there must be a reasonable basis to believe that the contamination or potential presence of contamination may be complicating the development, use or re-use of the property.
6 NYCRR Part 375-3.3(a)(1)

The regulations also provide lists of what DEC may and may not consider in making a determination of eligibility.

There is a paucity of cases, however, challenging a DEC determination of eligibility under these regulations since they were promulgated. Two particular cases that we found upheld DEC's denial of applications for participation in the BCP. See 377 Greenwich LLC v. New York State Department of Environmental Conservation, Index No. 2006/101617 (Sup. Ct., New York Cty., Nov. 15, 2006); Jopal Enterprises LLC v. Sheehan, Index No. 2006-0803 (Sup. Ct., Suffolk Cty., July 31, 2006). In the first case, DEC's reason for denial was that the on-site contamination would not sufficiently complicate redevelopment where prior uses of the property did not include processes which generate hazardous substances and that project financing was approved prior to the owners' discovery of contamination. In the second, DEC's made the same determination, but the court does not provide the specific facts upon which DEC made this decision. There, the court noted that the regulations are to be used, not as fixed principles, but as guidelines in a case-by-case analysis of the facts.

Indeed, the BCP has been criticized for being too restrictive in which sites it allows into the program. These courts relied on the principle that a court should defer to an agency's decision when that decision relies on factual investigation into the area of the agency's expertise, such as DEC's expertise in environmental matters. Both courts also concluded that there was enough evidence in the record to support DEC's determinations.

Nonetheless, the recent Lighthouse Pointe decision may change the landscape of acceptance into the BCP. See Lighthouse Pointe Property Associates LLC v. New York State Department of Environmental Conservation, et al., Index No. 2007/9731 (Sup. Ct., Monroe Cty., Dec. 20, 2007). In this case, in which applicant sought to develop a former solid waste site, the Court held that DEC arbitrarily and capriciously failed to admit the applicant into the BCP. In that case, tests revealed that the property exceeded the DEC's Soil Cleanup Objectives (SCOs) for fifteen different contaminants. The DEC argued that its SCOs should not be used to determine eligibility into the BCP (even though these same standards are used to determine whether a BCP participant receives a liability release after the site has been cleaned up). However, the court struck down that argument and held that the SCOs should be used as a benchmark to determine eligibility, injecting its own reasoning into DEC's decision making process, contrary to the 377 Greenwich and Jopal Enterprises courts' holdings.

Furthermore, the court construed the statutory definition of brownfield site - "any real property, the redevelopment or reuse of which may be complicated by the presence or potential presence of a contaminant", ECL § 27-1405(2) - as indicative of the legislature's intent that there be a low threshold for admission in the BCP. Under this interpretation, any site on which even one potential contaminant may complicate redevelopment should be included in the program. It remains to be seen whether other courts will interpret the statute similarly, allowing for a harder look at DEC determinations.

Nonetheless, subsequent courts may not be given the chance to address this issue before the BCP regulations are revised, a project on which DEC is currently working. Recent proposals suggest that any site with contamination above the SCOs will be allowed into the program, but only to the extent that the developer will receive a release of liability for meeting clean up standards. Eligibility for whether a developer in the BCP qualifies for tax credits will be determined by the need to use tax credits to promote redevelopment. Whether new criteria for BCP and tax credit eligibility will actually be developed and promulgated remains to be seen. Former Governor Spitzer had promoted a proposed amendment that would have restricted tax credits to the cleanup, not redevelopment costs. We expect that some form of a revision will be introduced or re-introduced by Governor Paterson that will also restrict the overly generous tax credits of the original bill.

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