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Recoupment of a Tank Fund Payment

August 25, 2014

In an interesting recently reported Commonwealth Court case, an owner petitioned for review of a Decision and Order entered by the Underground Storage Tank Indemnification Board ("Board") which adopted the Report and Recommendation ("Report") of the Presiding Officer of the Underground Storage Tank Indemnification Fund ("Fund") and dismissed the owner's Exceptions to the Report.  The Board upheld the Presiding Officer's conclusion the owner engaged in fraudulent conduct in concealing material information and in failing to cooperate with the Fund during removal of underground storage tanks (USTs) on contaminated property the owner owned.  The Board concluded under the Storage Tank and Spill Prevented Act of 1989 (the "Tank Act") and applicable Regulations, the Fund was entitled to recoup $319,738.57 it had previously paid to the owner for remediation expenses.  The Commonwealth Court affirmed the Board.

The facts and history are as follows:

The owner purchased the property in 1995 from Gulf Oil.  When the property was purchased, 5 USTs were registered for the site.  Four registered gasoline tanks were located in one tank field 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 8 additional abandoned and unregistered USTs.  Four of the abandoned unregistered tanks were just south of the dispenser islands near the center of the property and the other 4 were north of the dispensers.  Those tanks were the type used in the 1950s and 1960s and all had been taken out of service sometime before 1970.  The owner was aware of them.

When the owner purchased 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.  Two borings showing contamination was near the northern abandoned unregistered tanks.  The environmental contractor dug out an area around the boring of registered contaminated tanks which struck a product line, removed a small amount of soil, made a repair to the line and backfilled everything.  The area around the two other contaminated borings was not addressed and the sale was completed.

After purchasing the property from Gulf, the owner operated the site as a convenience store and service station until 2007 when he was in the process of selling the site to a land developer.  As part of the sale, a site assessment was conducted by the buyer.  The assessment indicated contamination.  Because the sale was contingent on the site being free of contamination, the owner engaged an environmental company ("EC") which performed the owner's environmental work for years.  The EC on behalf of the owner timely reported the contaminated release from 2 of the borings to the DEP and to the Fund.  When the report was made the contamination source was listed as unknown.  The Fund engaged another company to investigate and administer the claim.  After an initial investigation, eligibility of the claim was approved but indicated any corrective action costs attributable to the contamination found to have been released prior to February 1, 1994 would not be covered by the Fund.  Upon removing four of the registered tanks, encountered was contamination in the tank pit.  Contaminated soil and water were removed.  A cracked tank was determined to be the source even though the system had passed tightness testing.  Upon further excavation, additional contamination was discovered and the EC provided an invoice for its work which was paid by the Fund.  Eventually, the EC encountered the abandoned unregistered tanks which were riddled with holes and were filled with water.  The EC removed the contaminated water from those tanks and disposed of it off site.  Soil was also visibly contaminated under and around the abandoned unregistered tanks.  The owner was notified when the EC encountered the first set of abandoned unregistered tanks and again when the EC encountered the second set in the northern portion of the property.  The owner was informed there was contamination around 4 of the abandoned  unregistered tanks.

The EC issued an invoice to the owner rather than the Fund for removal of the contamination and contaminated water from 2 of the abandoned unregistered tanks.  Photographs were taken which showed obvious contamination of soil in the vicinity of those tanks.  Various reports were submitted evidencing contaminated soil had been removed and no other remedial activity had occurred other than the removal of ponded water.  However, again the abandoned unregistered tanks and surrounding contamination were not mentioned to the Fund.  The EC issued invoices narrating and mapping the general area of excavation.  Only the registered tanks were shown on the site mapping and narrative, and the narrative did not mention encountering the unregistered abandoned tanks nor the contamination from them.  Unlike the invoices and supporting narratives prior to discovering of the abandoned unregistered tanks, the EC's subsequent invoices and supporting narrative did not indicate work was performed which was billed to the owner involving the removal of those tanks and disposal of contamination.  Clearly, no abandoned unregistered tanks were described nor was contamination from them in any narrative or depicted in any photographs in the reports to the Fund.

Finally, a closure report was submitted to the Department of Environmental Protection which, as indicated, did not mention the abandoned unregistered tanks but merely showed the excavation of the registered tanks.  Clearly, the report failed to disclose the discovery of the abandoned unregistered tanks and associated contamination.  The Fund concluded it did not have enough information to deny payment of the invoices nor enough information to approve full payment.  The Fund determined, because the site had been backfilled previously, and, there were no other sources of evidence of what may have happened to cause a problem, it would offer to pay 70% of the soil removal invoices.  The 70% totaled $319,738.57 was paid to the owner.

The owner filed exceptions to the Fund's Conclusions to the Commonwealth Court seeking full 100% payment.  As a matter of first impression, the Court concluded evidence supported the determination the owner actively concealed evidence of the abandoned unregistered underground storage tanks and contamination from them was an attempt to deceive.  The owner had, the Court said, a legal duty to disclose the abandoned unregistered tanks and where they were located.  The Court held the owner's concealment constituted fraud.  The Court held good faith imposes an obligation not to purposely conceal material facts; that the evidence determined the owner actively concealed the existence of unregistered abandoned underground storage tanks with intent to deceive during the cleanup of its contaminated property which included only the 4 registered tanks.  Therefore, the Fund concluded it was entitled to recoup the funds it paid to the owner even though the owner reasonably believed it was not required to disclose the existence of the unregistered abandoned tanks.  The owner had removed the unregistered tanks and soil and backfilled the excavated area without informing the Fund it discovered them.  Obviously those tanks caused environmental concerns which needed addressing.

Regulations governing participant cooperation and claims under the Underground Storage Tank Indemnification Fund imposes upon an owner a legal duty to disclose unregistered and abandoned underground storage tanks and their location on contaminated property.  Failure to make such a disclosure constitutes concealment and fraud.  In this case, the Fund sought to recoup funds paid to the owner because of fraudulent conduct with respect to non-disclosure of the unregistered abandoned tanks prior to the Fund learning of them.

The morale of this complicated case is if there is a contamination problem that calls into play the Fund's involvement and payment for cleanup, the owner must disclose every detail it may know about the property including all tanks located on the property even if they had caused no perceived problems.

This article was written by Norman P. Zarwin, Esquire and published in the Alliance of Automotive Service Providers of Pennsylvania and Delaware magazine. 

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