State of New York

Supreme Court, Appellate Division

Third Judicial Department

Decided and Entered: December 1, 2016 522518 

________________________________

In the Matter of SUPREME 

ENERGY, LLC, et al.,

Petitioners,

v MEMORANDUM AND JUDGMENT

JOSEPH J. MARTENS, as

Commissioner of Environmental 

Conservation, et al.,

Respondents.

________________________________

Calendar Date: October 18, 2016

Before: Peters, P.J., Garry, Devine, Clark and Aarons, JJ.

__________

Cohen & Cohen, Utica (Daniel S. Cohen of counsel), for

petitioners.

Eric T. Schneiderman, Attorney General, Albany (Meredith G.

Lee-Clark of counsel), for respondents.

__________

Aarons, J.

Proceeding pursuant to CPLR article 78 (transferred to this

Court by order of the Supreme Court, entered in Albany County) to

review a determination of respondent Commissioner of

Environmental Conservation finding, among other things, that

petitioners failed to obtain a license for an onshore major

petroleum storage facility.

Alaskan Oil, Inc. operated and owned an onshore major

petroleum storage facility located in the Village of

Baldwinsville, Onondaga County. In 2003, petitioner Supreme

Energy, LLC, of which petitioner Frederick Karam was the sole
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owner and member, entered into a land contract with Alaskan Oil

to purchase the facility. While Supreme Energy did not

officially take title until 2006, it had assumed operational

control over the facility in 2004. After Supreme Energy failed

to comply with deficiencies delineated in separate notices of

violations, respondent Department of Environmental Conservation

(hereinafter DEC) commenced an enforcement proceeding in 2008

alleging that, as relevant here, petitioners operated a major

petroleum storage facility without a license, petitioners failed

to pay required licensing fees and submit monthly certifications

and petitioners failed to maintain an adequate secondary

containment area for the storage tanks. After a hearing, the

Administrative Law Judge (hereinafter ALJ) issued a report in

which he recommended, among other things, that petitioners be

held liable on these charges and that Karam bear personal

liability for the charges relating only to operating a facility

without a license and failing to maintain an adequate secondary

containment area. Respondent Commissioner of Environmental

Conservation (hereinafter respondent) largely adopted the ALJ's

recommendation and fined petitioners $234,900 for operating a

facility without a license, $564,817 for failing to pay the

required licensing fees, and $469,800 for failing to maintain

adequate secondary containment – for a total of $1,269,517. 

Respondent, however, imposed personal liability upon Karam for

all of the charges. Petitioners commenced this CPLR article 78

proceeding seeking annulment of respondent's determination. 

Supreme Court thereafter transferred the matter to this Court. 

We confirm.

The applicable standard of review is whether substantial

evidence supports respondent's determination (see CPLR 7803 [4];

Matter of Al Turi Landfill v New York State Dept. of Envtl.

Conservation, 98 NY2d 758, 760 [2002]; Matter of Protect the

Adirondacks! Inc. v Adirondack Park Agency, 121 AD3d 63, 69

[2014], lv dismissed and denied 24 NY3d 1065 [2014]). Under this

standard, "it is the responsibility of the administrative agency

to weigh the evidence and choose from among competing inferences

therefrom and, so long as the inference drawn and the ultimate

determination made are supported by substantial evidence, it is

not for the court to substitute its judgment for that of the

administrative agency" (Matter of Murtaugh v New York State Dept.
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of Envtl. Conservation, 42 AD3d 986, 987 [2007] [internal

brackets, quotation marks and citation omitted], lv dismissed 9

NY3d 971 [2007]). Respondent is not bound by the ALJ's factual

findings and is entitled to make his own findings (see Matter of

Jackson's Marina v Jorling, 193 AD2d 863, 865-866 [1993]). To

that end, respondent's determination will not be disturbed so

long as it is supported by substantial evidence (see Matter of

Carney's Rest. Inc. v State of New York, 89 AD3d 1250, 1252

[2011]).1 

We find that respondent's determination that Supreme Energy

operated a major petroleum facility without a license was

supported by substantial evidence. Under New York's Navigation

Law, a person is prohibited from operating a major petroleum

storage facility in the absence of a license (see Navigation Law

§ 174 [1] [a]; [9]). By the time Supreme Energy assumed control

over the facility in 2004, Alaskan Oil's license, which was nontransferable, had already expired in 2002. Supreme Energy, in

fact, submitted an application for a license in 2004, but DEC

deemed that application incomplete and another license

application was never submitted. Furthermore, even if we agreed

with petitioners' assertion that Supreme Energy was permitted to

operate the facility pursuant to the terms of a 2004 consent

order, a notice of violation dated April 27, 2007 from DEC and

addressed to Karam explicitly informed him that Supreme Energy's

"license information [was] not current and correct" and that this

deficiency needed to be rectified. Supreme Energy nevertheless

continued its operation of the facility without a license. 

Inasmuch as respondent found that Supreme Energy unlawfully

operated the facility without a license from May 2, 2007 to June

2009, which encompassed a period after the April 2007 notice of

violation explicitly advised Karam that Supreme Energy did not

have a valid license, we find no basis to upset this

determination (see Matter of Huntington & Kildare, Inc. v

1 Contrary to respondents' assertion, petitioners did not

abandon their argument that the determination was unsupported by

substantial evidence inasmuch as petitioners' brief incorporates

by reference such argument as set forth in the petition (see

Matter of Murphy Heating Serv. v Chu, 124 AD2d 907, 909 [1986]).
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Grannis, 89 AD3d 1195, 1197 [2011]).

We also conclude that substantial evidence exists in the

record supporting respondent's determination that petitioners

failed to pay license fees and submit timely certification

reports. Under the applicable statutory provisions and

regulations, Supreme Energy was obligated to submit monthly

certification reports (see Navigation Law §§ 172 [10]; 174 [5];

17 NYCRR 30.6 [c] [2]; 30.8 [a]), and, along with these reports,

Supreme Energy was required to submit full payment of any license

fees or surcharges (see Navigation Law § 174 [5]; 17 NYCRR 30.9

[b]). The hearing testimony and documentary evidence reveal that

31 out of the 47 monthly certification reports submitted between

August 2004 and June 2008 were deemed untimely because they were

not accompanied by the requisite license fee or surcharge

payments and, as a consequence, subjected Supreme Energy to

additional late fees (see 17 NYCRR 30.9 [e]). Taking into

account Supreme Energy's admission that it did not pay all of the

required licensing fees, substantial evidence exists to support

respondent's determination on this point (see generally 300

Gramatan Ave. Assoc. v State Div. of Human Rights, 45 NY2d 176,

181 [1978]).

Next, we discern no reason to disturb respondent's finding

that Supreme Energy failed to maintain an adequate secondary

containment area for the petroleum storage tanks. The regulatory

scheme requires that an aboveground petroleum storage tank with a

capacity of 10,000 gallons or more have around it a secondary

containment area to protect against petroleum leakage and the

release of petroleum (see 6 NYCRR 613-4.1 [b] [1] [v] [a]).2

Whether a facility maintains an adequate secondary containment

area for its tanks can be based on internal DEC guidelines (see

17 NYCRR 30.5 [e]), one of which is that the secondary

containment area be at least 110% of the capacity of the largest

tank in the facility. Karam testified that he was aware of this

particular 110% capacity requirement. Yet, DEC's numerous

2 6 NYCRR former 613.3 (c) (6) (i), which was repealed in

2015 but governed the time of the events here, similarly imposed

a secondary containment system requirement. 
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investigations of the facility conducted since Supreme Energy

assumed operational control in 2004 found that the 110% capacity

requirement had not been complied with, and, as of 2008, Supreme

Energy still had not satisfied this requirement. The record

evidence also supports respondent's determination that the

secondary containment area was unsatisfactory due to holes, rips

and tears in the urethane liners. While some of this damage was

caused by a DEC contractor, DEC advised Karam that Supreme Energy

could seek financial reimbursement for any damage caused by the

DEC contractor and, to the extent that Karam denies being told

this information, it presented a credibility issue for

respondent's resolution (see Matter of ELG Utica Alloys, Inc. v

Department of Envtl. Conservation, 116 AD3d 1200, 1205 [2014],

appeal dismissed 24 NY3d 929 [2014]). Furthermore, most of the

damage in the liner was unrelated or existed prior to the work

performed by the DEC contractor at the facility, and none of this

damage was addressed by Supreme Energy. We therefore find that

respondent's determination that Supreme Energy failed to maintain

an adequate secondary containment area for its tanks was

supported by substantial evidence. 

We also reject petitioners' contention that respondent

erred in piercing the corporate veil and imposing personal

liability upon Karam. "Generally . . . piercing the corporate

veil requires a showing that: (1) the owners exercised complete

domination of the corporation in respect to the transaction

attacked; and (2) that such domination was used to commit a fraud

or wrong against the plaintiff which resulted in [the]

plaintiff's injury" (Matter of Morris v New York State Dept. of

Taxation & Fin., 82 NY2d 135, 141 [1993]). Whether to pierce the

corporate veil involves a scrutiny of various considerations,

including "the overlap in ownership, officers, director and

personnel, the capitalization of the corporation, any commingling

of assets and the presence, or absence, of the formalities that

attend the corporate form" (Kain Dev. LLC v Kraus Props., LLC,

130 AD3d 1229, 1235 [2015]; see Austin Powder Co. v McCullough,

216 AD2d 825, 826-827 [1995]). Karam testified at the hearing

that not only did he own Supreme Energy, but he was also the sole

owner of Cold Springs Terminal, LLC, which operated a petroleum

storage facility next to the one operated by Supreme Energy. 

Notwithstanding the fact that Supreme Energy and Cold Springs
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Terminal were separate entities, Karam used a single checkbook

for both of them. Moreover, Karam commingled personal and

business finances in that he deposited payments that he

personally received for child support into the corporate account

and monies from that same account would be used for Karam's house

payments (see National Union Fire Ins. Co. of Pittsburgh, Pa. v

Bodek, 270 AD2d 139, 139 [2000], lv dismissed 95 NY2d 887 [2000];

Austin Power Co. v McCullough, 216 AD2d at 827; compare Heim v

Tri-Lakes Ford Mercury, Inc., 25 AD3d 901, 903 [2006], lv

dismissed and denied 6 NY3d 886 [2006]). Additionally, while

Karam admitted that Supreme Energy lacked funds to pay the

previously discussed license fees, Supreme Energy provided Cold

Springs Terminal with a monetary loan in 2007 of approximately

$74,000. To that end, Karam likewise admitted that Supreme

Energy passed the cost of the license fees by billing it to

clients, but the monies received from the clients were not used

to satisfy payment of the license fees owed to DEC. In view of

the foregoing, Karam failed to observe corporate formalities and

abused the corporate form to perpetuate a wrongdoing against DEC. 

As such, we find no error in respondent's determination to pierce

the corporate veil and to hold Karam personally responsible for

the imposed financial penalties. In light of this determination,

it is unnecessary for us to reach whether personal liability

attaches under the responsible corporate officer doctrine.

Finally, respondent was authorized to sanction petitioners

$25,000 per day (see Navigation Law § 192), which, in this case,

could have resulted in a financial penalty in excess of $19

million. Respondent, however, did not use this permissible rate

and instead used a fraction of that $25,000 daily rate in

calculating the overall fine. Accordingly, taking into account

petitioners' wrongdoing and the deference accorded to respondent

in determining an appropriate sanction, we conclude that the

assessed monetary fine of $1,269,517 does not shock the judicial

conscience so as to constitute an abuse of discretion (see Matter

of Pell v Board of Educ. of Union Free School Dist. No. 1 of

Towns of Scarsdale & Mamaroneck, Westchester County, 34 NY2d 222,

233 [1974]; State of New York v Williamson, 8 AD3d 925, 930

[2004]; Matter of Slemp v New York State Dept. of Envtl.

Conservation, 176 AD2d 1122, 1124 [1991]). 
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Petitioners' remaining contention, to the extent not

specifically addressed, has been examined and is found to be

without merit.

Peters, P.J., Garry, Devine and Clark, JJ., concur.

ADJUDGED that the determination is confirmed, without

costs, and petition dismissed.

ENTER:

Robert D. Mayberger

Clerk of the Court