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In this month’s edition of the Legal Institute Sidebar, we tackle a complex and unique series of legal proceedings with broad takeaways for North Carolina businesses. The facts involve hazardous waste contamination at the former Asheville Dye and Finishing Facility in Buncombe County and the appeal rights of a company, WASCO LLC, which acquired the facility years after the contamination occurred.

Contamination cases are hardly uncommon, of course. What sets the WASCO matter apart from others, however, is the unusual procedural assertion by the Superior Court judge who handled an appeal from the Office of Administrative Hearings (OAH) and the length of time the matter has been bumping through OAH, the Environmental Management Commission, and the court system.

WASCO LLC first came to its interest in the facility at the heart of these proceedings in 1998 through a series of acquisitions, more than a decade after a former operator’s removal of underground storage tanks resulted in contamination of the site with perchloroethylene. Legal proceedings commenced when, years after WASCO’s acquisition, the N.C. Department of Environmental Quality (DEQ) – at the time, the Department of Environment and Natural Resources – identified WASCO as the facility’s “operator,” even though the company had never conducted manufacturing operations at the site and had legally divested itself of any entities that had.

Nonetheless, DEQ required that WASCO bear the costly burden of remediation and either enter into an Administrative Order or apply for a post-closure permit under the North Carolina analog to the Resource Conservation Recovery Act (RCRA). What followed was a convoluted series of petitions, motions, claims, appeals, and legal maneuvers that stretched on for years.

Under North Carolina’s Administrative Procedures Act (APA), the jurisdiction over disputes involving a regulatory permitting agency and the rights, duties, and privileges of a person or business – so-called “contested cases,” as defined by the APA – rests initially with OAH. After DEQ’s action identifying WASCO as the “operator” of the Asheville site and the resulting determination that the company was liable for remediation, WASCO timely filed a petition for a contested case hearing with OAH to dispute the ruling. When OAH granted DEQ’s motion for summary determination, finding that WASCO was indeed an “operator” responsible for post-closure remediation requirements at the site, WASCO appealed the decision to the Superior Court in Buncombe Count y. The Superior Court upheld the OAH ruling, and this was later affirmed unanimously by the N.C. Court of Appeals.

It was at this point that the matter took a turn for the surreal. During and after the above proceedings, rules were amended which WASCO asserted changed the basis on which the OAH and Superior Court decisions had been made. In response to efforts by DEQ to enforce the Superior Court’s ruling, WASCO claimed the judgment was invalidated by this change in rules. At DEQ’s request, the Superior Court in Buncombe County issued an injunction and Order, requiring WASCO to submit an application for the permit, list itself as the operator of the facility, correct any deficiencies cited by DEQ, and abide by the permit’s terms.

The Order also stated that the Superior Court retained jurisdiction of the matter for the purpose of enforcement and resolution of any disputes arising during the Order’s implementation. In other words, the Superior Court put itself in the place of OAH and the Environmental Management Commission with respect to enforcement of the permit and remediation process. WASCO appealed this Order to the Court of Appeals, which again unanimously affirmed the Superior Court’s ruling. Responding to a motion for clarification filed by WASCO, the Superior Court left no doubt as to its position, stating unequivocally that any appeal of the permit’s terms could be made only to the Superior Court.

The APA clearly states that contested cases, including appeals of the terms of agency-issued permits, must first be heard by OAH. In fact, under the APA, failure by a person or business to timely petition for a contested case results in the permit becoming final and not appealable. It is remarkable – and deeply concerning – that the Superior Court was willing, if not eager, to unilaterally deny WASCO the ability to appeal the terms of a permit which, I must emphasize, has yet to be issued. These actions place WASCO wholly at the discretion of DEQ, which can impose terms without any thought of answering to OAH, where factual disputes are typically resolved during the permitting process.

Perhaps more concerning was the Court of Appeals’ decision to allow this deviation from the normal system of checks and balances. For the business community, there are some common lessons to be found in these uncommon proceedings:

• First, the acquisition of facilities, or the operating entities of facilities, at which hazardous substances have been used, produced, or disposed will always carry a certain risk of liability.
• Second, such acquisitions should not be undertaken without first conducting a thorough pre-purchase investigation, including an on-site survey and a careful review of regulatory agency records.
• Third, before preparing and filing applications for regulatory permits, it is prudent to always obtain competent professional advice regarding the potential ramifications of the obligations undertaken.

WASCO is an unusual case, factually and procedurally, and not likely to be replicated. Undoubtedly, however, it sets an uncomfortable precedent for North Carolina. For the state’s job creators, the overriding concern stems from the Superior Court’s decision to establish itself as sole arbiter over a party’s rights in a contested case and the allowance of this action by the Court of Appeals.

It does not appear that WASCO LLC has an appetite for further proceedings, so the N.C. Supreme Court will, unfortunately, not likely have an opportunity to weigh in. The NC Chamber Legal Institute will remain on guard for any indications that this style of overreach could expand beyond an isolated incident in our courts.

Sincerely,

Ray Starling
President
NC Chamber Legal Institute