Court Opinion

ID: 4378485
Source: CourtListenerOpinion
Date Created: 2019-03-19 19:02:52.327574+00
Date Added: 2024-06-11T14:49:32.709225
License: Public Domain

FIRST DISTRICT COURT OF APPEAL
                 STATE OF FLORIDA
                 _____________________________

                         No. 1D17-5096
                 _____________________________

KANTER REAL ESTATE, LLC,

    Appellant,

    v.

DEPARTMENT OF
ENVIRONMENTAL PROTECTION,
CITY OF MIRAMAR, and BROWARD
COUNTY, FLORIDA,

    Appellees.
                 _____________________________

On appeal from the State of Florida Department of Environmental
Protection.
Noah Valenstein, Secretary.

                         March 19, 2019

 OPINION ON MOTION FOR REHEARING, REHEARING EN BANC, AND
     TO CERTIFY A QUESTION OF GREAT PUBLIC IMPORTANCE

B.L. THOMAS, C.J.

     We deny Appellees’ motions for rehearing, rehearing en banc,
and to certify a question of great public importance. To clarify our
holding regarding our standard of review of the agency’s
conclusions of law, we withdraw our prior opinion and substitute
the following in its place.

     Appellant, Kanter Real Estate, LLC, challenges a Final Order
of the Department of Environmental Protection denying a permit
to drill an exploratory oil well, which complied with all
environmental-protection requirements, in an “environmentally
degraded” property located in the Florida Everglades. This Court
has jurisdiction. Fla. R. App. P. 9.030(b)(1)(C). For the reasons
set forth below, we reverse the Final Order and remand for entry
of an order consistent with the Administrative Law Judge’s
Recommended Order, and we direct the Department to issue the
requested oil and gas permit.

     Appellant owns in fee simple the surface rights and
subsurface mineral rights of a 20,000-acre parcel of land located in
Broward County. The property, which is located in Water
Conservation Area 3 of the Florida Everglades, is encumbered by
a flowage easement held by the South Florida Water Management
District. The easement reserved rights of ingress and egress to the
grantor, including access “for the exploration or drilling for, or the
developing, producing, storing or removing of oil . . . in accordance
with sound engineering principles.”

     In 2015, Appellant applied to construct and drill an
exploratory oil well on five acres of the property. The Department
granted Appellant an Environmental Resource Permit that
defined and approved the design of a stormwater management
system at the site to protect offsite lands from any stormwater
discharges. Appellant also committed to a number of pollution
prevention measures, including spill prevention and cleaning
plans, a hydrogen sulfide plan, a construction pollution prevention
plan, proposals for wildlife management, and a safety manual.

     The Department sent Appellant three requests for
information about issues such as the aquifer, the project site
design, and protections for the surrounding area.           After
responding, Appellant demanded that the Department process the
oil and gas permit application. The Department issued a Notice of
Denial, stating that Appellant failed to provide information
showing a balance of considerations in favor of issuance under
section 377.241, Florida Statutes. Section 377.241 sets forth the
following relevant criteria for the Department to consider when
deciding whether to issue an oil and gas permit:

    (1) The nature, character and location of the lands
    involved; whether rural, such as farms, groves, or
                                  2
    ranches, or urban property vacant or presently developed
    for residential or business purposes or are in such a
    location or of such a nature as to make such
    improvements and developments a probability in the
    near future.

    (2) The nature, type and extent of ownership of the
    applicant, including such matters as the length of time
    the applicant has owned the rights claimed without
    having performed any of the exploratory operations so
    granted or authorized.

    (3) The proven or indicated likelihood of the presence of
    oil, gas or related minerals in such quantities as to
    warrant the exploration and extraction of such products
    on a commercially profitable basis.

§ 377.241, Fla. Stat. (2018).

     To challenge the Department’s decision, Appellant filed a
petition for an administrative hearing, which was referred to the
Division of Administrative Hearings. The parties stipulated that
Appellant’s application met the minimum design standards for a
permit and did not violate statutory setback requirements. Thus,
the only issue for the Administrative Law Judge (ALJ) to
determine was whether the statutory criteria of section 377.241
weighed in favor of or against issuance of an oil and gas permit.

    Appellant presented evidence that the project site lies in an
area called “the pocket,” notable for its degraded natural habitat
and lessened environmental values. Appellant also presented the
environmental resource permit that was granted by the
Department in acknowledgment of Appellant satisfying all
necessary environmental precautions. Appellant also introduced
evidence that the Department had allowed other oil wells in the
Everglades, including one approximately twenty-four miles west
of Appellant’s project site that began operation in the late 1970s.

     Appellant’s expert testified that there was a 23% chance of
discovering oil at the project site, and that in the oil exploration
industry, a 23% chance of discovering oil constitutes a very good
prospect. The expert further testified that Appellant’s well would

                                 3
be commercially self-supporting at $50 per barrel of oil if only
100,000 barrels were discovered, and opined that the proposed well
would generate between 180,000 to 10,000,000 barrels of oil if oil
were discovered.

     The ALJ concluded that the first statutory factor, the nature
of the lands involved, did not weigh against issuance, as the factor
was intended to address and balance the interests of subsurface
mineral rights owners against any competing interests of surface
owners, and that “[g]iven the unified title to the Well Site in
Kanter, balancing of the interests of the fee simple owner against
the interests of the mineral rights lessee is neither necessary nor
appropriate.” The ALJ cited a series of Whereas clauses to
illustrate the legislature’s concern over divided ownership
interests. In addition, the ALJ found that even if the first factor
was relevant in the absence of divided ownership interests, “[t]he
property upon which the Well Site is to be located has no special
characteristics that would make it susceptible to pollution.”

     The ALJ then concluded that the second statutory factor, the
nature of ownership, including the length of time in which
Appellant delayed exercising oil rights, did not weigh against
issuance in this case, as Appellant owned both surface and mineral
rights. As to the third factor, the likelihood of discovering oil on a
profitable basis, the ALJ found there was a strong chance (17%) of
Appellant discovering oil, meaning the third factor weighed in
favor of issuance.       Balancing the three factors, the ALJ
recommended granting Appellant’s permit request.

     The Department filed twelve exceptions to the ALJ’s
Recommended Order, stating that there was no competent,
substantial evidence to support the likelihood of discovering oil in
sufficient quantities to be profitable, and that Appellant’s delay in
applying for a permit should have been considered. ∗ The Secretary
entered a Final Order denying Appellant’s request for an oil and
gas permit.

    ∗
      Broward County also filed exceptions to the Recommended
Order, but the county’s exceptions were untimely filed and the
merits of the exceptions were not considered by the Department.

                                  4
     As to the nature of the land, the Final Order states that
section 377.241, Florida Statutes, requires an evaluation of the
lands themselves, rather than a risk analysis of possible discharge,
concluding:

    The lands proposed for the Well Site are located in the
    endangered Everglades ecosystem, which is world
    renowned for its unique environmental characteristics.
    In accordance with the Everglades Forever Act, the
    Florida Legislature has dedicated the Everglades to long
    term restoration.

     As to the second statutory factor, the Secretary reversed the
ALJ’s conclusions, declaring that Appellant’s delay in seeking a
permit was relevant to the balancing test and weighed against
issuance. As to the third statutory factor, the Secretary accepted
the ALJ’s determination that there was a reasonable likelihood of
discovering oil in commercially profitable quantities.          The
Secretary then concluded that, “using the same criteria in Section
377.241, Florida Statutes, the balance tips against issuance of an
oil and gas permit to drill an exploratory well in the
environmentally sensitive Everglades.” The Secretary compared
the facts to a case in which the statutory balancing test weighed
against issuing a permit to drill in an environmentally sensitive
location. See Coastal Petroleum Co. v. Florida Wildlife Fed’n, Inc.,
766 So. 2d 226, 228 (Fla. 1st DCA 1999).

    The Final Order discussed the Department’s history of
denying oil and gas permits in the Everglades, declaring:

    [The Department] has not issued an oil and gas
    exploration permit since 1967 within the Everglades
    lands subject to conservation and restoration under §
    373.4592, Florida Statutes. Thus, the last oil and gas
    exploration permit within such lands was 50 years ago,
    well before Section 373.4592 known as the Everglades
    Forever Act, was enacted by the Florida Legislature in
    1991. The Florida Legislature has not amended its
    position regarding the need to preserve and restore the
    Everglades since 1991, nor has [the Department] issued
    an oil and gas exploration permit within this boundary of

                                 5
    the Everglades once such lands became subject to
    restoration under the Everglades Forever Act.

(Internal citations omitted). The Secretary stated in a footnote
that “this specific information did not form the basis of the agency's
decision, but merely reflects that DEP has not changed its long-
standing policy to deny oil and gas permits within lands subject to
Everglades restoration.”

                              Analysis

     Section 120.57(1)(l), Florida Statutes, authorizes an agency to
reject or modify an ALJ’s conclusions of law and interpretations of
administrative rules. Barfield v. Dep’t of Health, 805 So. 2d 1008,
1010 (Fla. 1st DCA 2001).           Before the recent passing of
Amendment Six to the Florida Constitution, this Court afforded
considerable deference to agency interpretations of statutes and
rules, affirming such interpretations unless clearly erroneous.
E.g., Falk v. Beard, 614 So. 2d 1086, 1089 (Fla. 1993); Addison v.
Agency to Persons with Disabilities, 113 So. 3d 1053, 1056 (Fla. 1st
DCA 2013). Amendment Six declares that appellate courts may
no longer defer to an agency’s statutory interpretation, and must
instead apply a de novo review. Amend. VI, Art. V, § 21, Fla.
Const.

     For factual findings, “[a]n agency must accept the
administrative law judge’s factual findings unless they are not
supported by competent substantial evidence.” Stinson v. Winn,
938 So. 2d 554, 555 (Fla. 1st DCA 2006); see also § 120.57(1)(l), Fla.
Stat. (declaring that an agency may not reject or modify an ALJ’s
findings of fact “unless the agency first determines from a review
of the entire record, and states with particularity in the order, that
the findings of fact were not based upon competent substantial
evidence or that the proceedings on which the findings were based
did not comply with essential requirements of law”). In fact, “[i]f
the ALJ’s findings of fact are supported by competent, substantial
evidence, the agency cannot reject them even to make alternate
findings that are also supported by competent, substantial
evidence.” Lantz v. Smith, 106 So. 3d 518, 521 (Fla. 1st DCA 2013).
Likewise, an agency may not “reject a finding that is substantially
one of fact simply by treating it as a legal conclusion.” Abrams v.
Seminole Cty. Sch. Bd., 73 So. 3d 285, 294 (Fla. 5th DCA 2011).
                                  6
     Moreover, an agency is not permitted to consider evidence
outside the record when reviewing exceptions to a recommended
order. Walker v. Bd. of Prof’l Engineers, 946 So. 2d 604, 605 (Fla.
1st DCA 2006). In addition, an agency “may not base agency action
that determines the substantial interests of a party on an
unadopted rule . . . .” § 120.57(1)(e)1., Fla. Stat. (2018). This “does
not preclude application of valid adopted rules and applicable
provisions of law to the facts.” Id.

     Section 377.241, Florida Statutes, governs the Department’s
decisions on oil and gas permits. In Coastal Petroleum, this Court
held that the Department “correctly determined” that section
377.241 stated a multi-factor balancing test that “requires the
agency to ‘weigh’ the criteria of section 377.241, balancing
environmental interests against the right to explore for oil.” 766
So. 2d at 228. Under that balancing test, this Court affirmed the
Department’s denial of a permit to drill for oil off St. George Island,
rejecting an ALJ’s recommendation to grant the permit. Id.

     Whether we afford deference to the Department’s statutory
interpretation, as we did when Coastal Petroleum was decided, or
apply a de novo review, we hold that the Department and this
Court were correct that the statute states a list of factors to be
weighed, as opposed to a checklist of minimum requirements. See
§ 377.241, Fla. Stat. (2018) (declaring that the Department “shall
give consideration to and be guided by” the listed criteria). The
issue presented here is whether the Department correctly applied
that balancing test in its Final Order, under the facts found by the
ALJ. We hold that it did not.

                    The First Statutory Factor –
      The Nature, Character, and Location of the Lands Involved

    Paragraph 109 of the Recommended Order reads:

    109. The property upon which the Well Site is to be
    located has no special characteristics that would make it
    susceptible to pollution. Although the Well Site is in
    WCA-3, it is located in the Pocket, an area with existing
    road access that is hydrologically isolated from both
    surface and groundwater and is environmentally
    degraded and overrun with cattails. The area is far less
                                  7
    likely to impact natural resources than other
    Department-permitted wells, notably those at Raccoon
    Point which exist in the Big Cypress National Preserve,
    in a far more ecologically intact area than here.

(Emphasis added.) Despite these findings, the Final Order
denying Appellant’s permit application stated that the first factor
weighs against issuance because the project site lies within the
Everglades ecosystem, which “is world renowned for its unique
environmental characteristics.” Appellant argues that it was
reversible error for the Secretary to substitute its factual findings
for the ALJ’s factual findings.

     The Department asserts it did not reject the ALJ’s factual
findings, but rather rejected the ALJ’s legal conclusion that the
land had no “special characteristics,” and then gave more weight
to the nature of the land factor when re-applying the balancing
test. Appellees admit, however, that although the Secretary
characterized Paragraph 109 as a conclusion of law, its second and
third sentences are factual findings. Cf. Abrams, 73 So. 3d at 294
(an agency may not “reject a finding that is substantially one of
fact simply by treating it as a legal conclusion.”). Appellant
correctly asserts that Paragraph 109 is made up entirely of factual
findings and that the Secretary improperly relied upon or created
an unadopted rule by basing its decision on a “long-standing policy
to deny oil and gas permits within lands subject to Everglades
restoration.”

     Appellees insist that the Secretary’s “longstanding policy”
comment was merely meant to illustrate how rarely permits are
issued in these circumstances, and that the Secretary’s decision
was made simply by reweighing the balancing test of section
377.241 to conclude that the sensitive nature of the land and
Appellant’s delay in seeking a permit outweighed the prospects of
finding oil on a profitable basis. We disagree.

    Appellees’ argument fails to adequately explain how the
Secretary could have accepted the ALJ’s factual findings about the
land and still concluded that the land was of such a sensitive
nature that the first factor weighed against Appellant. We hold,
therefore, that the Secretary improperly relied on an unadopted

                                 8
rule which would in practice prohibit all exploratory oil drilling in
the Everglades, without statutory authority, as we note below.

     Every sentence in Paragraph 109 is a factual finding. See J.J.
Taylor Cos., Inc. v. Dep’t of Bus. & Prof’l Reg., Div. of Alcoholic
Beverages & Tobacco, 724 So. 2d 192, 193 (Fla. 1st DCA 1999)
(declaring that to assess whether a statement is a factual finding
or conclusion of law in order to determine what level of review to
apply, “it is the true nature and substance of the determination or
ruling by the ALJ that controls the Department’s ability to reject
the ruling.”). In Goin v. Commission on Ethics, the hearing officer
stated that “there is not sufficient evidence to persuade me that,
as a typical consumer in such a transaction, he knew or should
have known that it was such a good deal that he must have been
receiving a break on the price because of his public position.” 658
So. 2d 1131, 1137 (Fla. 1st DCA 1995). The parties disagreed over
whether this statement was a factual finding or a conclusion of
law. Id. This Court held that the hearing officer’s statement was
an ultimate finding of fact, as it stated violations of a rule or
statute. Id. at 1138.

     Here, the ALJ’s ultimate finding of fact was that the land in
question did not have any qualities that would make it vulnerable
to pollution of the land, aquifer or surface waters, a finding the
ALJ supported with examples and facts introduced as evidence.
This was a factual finding, because the “true nature and
substance” of the statement was to provide a factual basis for the
legal conclusion that the first statutory factor did not weigh
against issuance of a permit. Because Paragraph 109 consisted of
factual findings supported by competent, substantial evidence, we
agree with Appellant that the Secretary improperly rejected these
factual findings. See Stinson, 938 So. 2d at 555.

     In addition to rejecting factual findings supported by
competent, substantial evidence, the Secretary also erred in
relying on facts from outside the record by considering language
from the Everglades Forever Act and inferences derived therefrom.
Cf. Gen. Dev. Utils., Inc. v. Hawkins, 357 So. 2d 408, 409 (Fla.
1978). Although the Secretary commented that the Everglades
Forever Act demonstrates a legislative dedication to long-term
Everglades restoration, the Everglades Forever Act does not

                                 9
prohibit exploratory-oil drilling. See generally § 373.4592, Fla.
Stat. Moreover, language from the Everglades Forever Act was
never discussed in the proceedings until the Final Order.

      In Hawkins, an agency issued an order that applied a debt to
equity ratio of 62% to 38%; the agency stated that this ratio, which
did not appear in the record, was consistent with typical water
company stocks and average ratios. 357 So. 2d at 409. The
supreme court held that “[t]he arbitrary selection of this ratio as a
‘fact’ comes from outside the record of the proceeding and plainly
violates the notions of agency due process which are embodied in
the administrative procedure act.” Id. The supreme court declared
that “[t]he Commission is not obliged to accept either the
company’s suggested hypothetical or its actual equity/debt ratio if
there are valid reasons for rejecting them, but it is required to
allow the company to know in advance and to challenge the data
on which it chooses to rely.” Id.

     Similarly, in Lawnwood Medical Center, Inc. v. Agency for
Health Care Administration, an agency reopened the record,
reweighed evidence, and recast findings of fact as policy questions
to be weighed. 678 So. 2d 421, 425 (Fla. 1st DCA 1996). This Court
declared that “[o]fficial recognition is not a device for agencies to
circumvent the hearing officer’s findings of fact by building a new
record on which to make new findings.” Id. This Court also noted
the distinction between rebalancing statutory factors and
recasting facts, stating: “Perhaps in a proper case [the agency]
might attribute greater weight to certain of the review criteria
than that attributed by the hearing officer. The fact is, however,
that in this particular case [the agency] did not merely reprioritize
the criteria; it recast the facts.” Id. at 426.

     Like in Lawnwood, the Final Order here goes beyond simply
affording more weight to one statutory factor; rather, the Secretary
completely set aside the ALJ’s factual findings about the nature of
the land. See § 120.57(1)(l), Fla. Stat. (“The agency may not reject
or modify the findings of fact unless the agency first determines
from a review of the entire record, and states with particularity in
the order, that the findings of fact were not based upon competent
substantial evidence or that the proceedings on which the findings
were based did not comply with essential requirements of law.”).

                                 10
The Secretary described the lands completely differently, using
facts from outside the record and without even suggesting that the
ALJ’s factual findings were unsupported by competent,
substantial evidence. In so doing, the Secretary improperly recast
factual findings to reach a desired outcome, contrary to law.

                The Second Statutory Factor –
 The Nature of Ownership, Including Delay in Exercising Rights

     As to the second statutory factor, the Secretary did not
disagree with any of the ALJ’s factual findings. Instead, the
Secretary disagreed with the ALJ’s interpretation of section
377.241(2), Florida Statutes, and with the ALJ’s legal conclusion
that the second factor had little to no weight in the balancing test
because Appellant owned both the surface and mineral rights to
the land. The Secretary stated that its interpretation – that the
second factor weighs against an applicant who sits on his mineral
rights, even when there is no divided ownership – was more
reasonable than the ALJ’s interpretation.

     Whether we review the Secretary’s interpretation under a de
novo standard, as required by Amendment VI, Article V, section
21, Florida Constitution, or with the deference required by our
prior decisions, we reach the same conclusion: we reject the
Secretary’s interpretation of section 377.241(2), as it was both
incorrect and clearly erroneous. See Addison, 113 So. 3d at 1056.
The Whereas clauses cited in the Recommended Order
demonstrate the legislature’s overriding concern with divided
ownership interests. See Act Relating to Conservation of Oil, Gas
and Mineral Resources and to the Protection of Surface Rights of
Landowners, Ch. 61-299, Laws of Fla. (1961) (“WHEREAS, the
owners of fee simple titles to the surface rights in granting
undivided fractional oil, gas and mineral rights had no intention
that such grants should give their grantees the rights to unduly
interfere with the potential surface development and use of such
lands for farms, groves and ranches, or the building of homes,
commercial buildings or other proper and appropriate use as might
be indicated by the character or location of the land”); S. Fla.
Racing Ass’n v. State, Dep’t of Bus. & Prof’l Reg., Div. of Pari-
Mutuel Wagering, 201 So. 3d 57, 64 (Fla. 3d DCA 2015) (rejecting
an agency’s interpretation of a statute in part because “the
whereas clauses in the 1980 enactment evince a legislative intent
                                11
to allow a struggling entity to remain in business during the
summer, thereby increasing tax revenues and tourism.”).

     The very purpose of section 377.241, Florida Statutes, “was to
institute a permit process in order to protect landowners from
undue burdens from mineral leases.” Thomas G. Mosher &
Matthew Schwartz v. Dan A. Hughes Co. & Dep’t of Envtl. Prot.,
Case Nos. 13-4254, 13-4920 (DOAH June 3, 2014) (application
withdrawn by stipulation July 17, 2014) (internal citation
omitted). Although section 377.241(2) does not explicitly mention
divided ownership interests, the statute must be “construed in
light of the evil to be remedied and the remedy conceived by the
Legislature to cure that evil.” Orlando Sports Stadium, Inc. v.
State ex rel. Powell, 262 So. 2d 881, 885 (Fla. 1972). Here,
Appellant’s delay could not interfere with any landowner’s surface
rights, because Appellant is the owner of the surface rights. There
is no rational reason to be concerned about an applicant sitting on
his drilling rights when there is no competing surface interest.
Because the delay in exercising drilling rights served as the sole
basis for the Secretary’s conclusion that the second factor weighed
against issuance, and because this conclusion was based on a
misinterpretation of section 377.241(2), Florida Statutes, we
reverse the Secretary’s conclusion as to the second statutory factor.

                  The Third Statutory Factor –
    The Likelihood of Discovering Oil in Profitable Quantities

     The third statutory factor requires the Department to assess
the “indicated likelihood of the presence of oil . . . in such quantities
as to warrant the exploration and extraction . . . on a commercially
profitable basis.” § 377.241(3), Fla. Stat. (2018). As the Secretary
wholly accepted the ALJ’s factual findings and conclusions, there
is no basis for reversal on the third factor.

                              Conclusion

     We hold that the Secretary improperly rejected the ALJ’s
factual findings on the first statutory factor, recast the facts, and
relied on information from outside the record. It was an abuse of
discretion to reject, modify, or substitute the ALJ’s factual
findings, and when ““the reasons for the change are legally
insufficient, it is entirely appropriate to remand with instructions

                                   12
to approve the hearing officer’s recommendations.’” Resnick v.
Flagler Cty. Sch. Bd., 46 So. 3d 1110, 1113 (Fla. 5th DCA 2010)
(quoting Dep’t of Prof’l Regulation v. Bernal, 531 So. 2d 967 (Fla.
1988)). Moreover, we hold that the Secretary misinterpreted
section 377.241(2), Florida Statutes, which the ALJ correctly
determined is inapplicable when there is no divided ownership
interest. Thus, there was no basis for the Secretary to conclude
that the first or second factor weighed against issuance of
Appellant’s oil and gas permit. Accordingly, we reverse and
remand for entry of a final order consistent with the Recommended
Order and direct the Department to grant Appellant’s permit
application.

    REVERSED and REMANDED.

JAY, J., and LONG, JR., ROBERT E., ASSOCIATE JUDGE, concur.

                 _____________________________

    Not final until disposition of any timely and
    authorized motion under Fla. R. App. P. 9.330 or
    9.331.
               _____________________________

Douglas P. Manson, Brian Bolves, William S. Bilenky, Paria
Shirzadi Heeter and Christine Senne of Manson Bolves Donaldson
Varn, P.A., Tampa, for Appellant.

Robert A. Williams, General Counsel, Jeffrey Brown, Office of
General Counsel, State of Florida Department of Environmental
Protection, Tallahassee, for Appellee Florida Department of
Environmental Protection.

Daniel L. Abbott, Jamie A. Cole, Richard B. Rosengarten, and
Adam A. Schwartzbaum of Weiss Serota Helfman Cole & Bierman,
P.L., Fort Lauderdale, for Appellee City of Miramar.

Andrew J. Meyers, Broward County Attorney, Michael C. Owens,
Senior Assistant County Attorney, and Rocio Blanco Garcia,

                                13
Assistant County   Attorney,    Fort Lauderdale,   for   Appellee
Broward County.

Roy D. Wasson of Wasson & Associates, Chartered, Miami, and
Mara Shlackman of Law Offices of Mara Shlackman, P.L.,
Fort Lauderdale, for Amicus Curiae South Florida Wildlands
Association, Inc.

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