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HomeMy WebLinkAboutCC RESO 16,247RESOLUTION NO. 16,247 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NATIONAL CITY SUPPORTING CALIFORNIA STATE DEPARTMENT OF HEALTH SERVICES TOXIC SUBSTANCES CONTROL PROGRAM REGARDING DENIAL OF NELCO OIL REFINING CORPORATION HAZARDOUS WASTE FACILITY REPORT WHEREAS, Nelco Oil Refining Corporation, 600 West 12th Street, National City, has submitted a request for a hazardous waste facility permit to be issued by the State Department of Health Services Toxic Substances Control Program, hereafter called the Department; and WHEREAS, this permit requires that Nelco provide documentation to the Department confirming liability coverage for sudden accidental occurrences in the amount of $1,000,000 per occurrence per facility with $2,000,000 annual aggregate as required by 22 CCR 67027; and WHEREAS, this permit also requires that Nelco provide documentation to the Department of Financial Assurance for the closure costs as required by 22 CCR 67003; and WHEREAS, the City of National City recognizes the State Department of Health Services Toxic Substances Control Program as the agency with the primary authority and responsibility to regulate those facilities, which handle hazardous waste. NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of National City agrees with the findings of the Department of Health Services Toxic Substances Control Program and the decision of M. Amanda Behe, Administrative Law Judge, Office of Administrative Hearings, State of California, to require Nelco to meet all requirements to ensure that the public's health, safety and welfare is properly addressed and that the City Council fully supports the denial of Nelco's hazardous waste facility operating permit until all requirements are fully complied with to the satisfaction of the State Department of Health Services. PASSED and ADOPTED this 22nd day of May, 1990. ATTEST: 6'Ll T, LOR ANNE PEOPLES,TY ERK APPROVED AS TO FORM: ar GEORGE H. EISER, III -CITY ATTORNEY GEORGE H. WATERS, MAYOR BEFORE THE HEALTH AND WELFARE AGENCY DEPARTMENT OF HEALTH SERVICES TOXIC SUBSTANCES CONTROL PROGRAM STATE OF CALIFORNIA In the Matter of: ) ) NELCO OIL REFINING CORPORATION ) 600 West 12th Street ) National City, CA 92050 ) ) EPA ID# CAD008352890 ) ) ) Respondent. ) ) Docket No. HWCA 88/89-042 OAH No. L-46155 DECISION On December 27, and 28, 1989, in San Diego, California, M. Amanda Behe, Administrative Law Judge, Office of Administrative Hearings, State of California, heard this matter. at Law. Vincent Nafarrete, Staff Counsel, represented complainant. Respondent was represented by Steven F. Wingfield, Attorney Evidence was received and the record remained open for the receipt of briefs. Complainant's letter brief was received. by FAX on January 29, 1990 and marked for identification as Exhibit 26. Respondent's letter brief was received by FAX on January 29, 1990 and marked for identification as Exhibit L. The original letter brief of complainant followed as ordered at hearing; it was received on January 30, 1990 and marked for identification as Exhibit 27. The original letter brief of respondent followed as ordered at hearing; it was received on February 7, 1990 and marked for identification as Exhibit M. Thereafter the record was closed and the matter was submitted. FINDINGS OF FACT I On March 1, 1989, a Corrective Action Order and Complaint for Penalty was issued by complainant Department of Health Services, Toxics Substances Control Division (hereinafter "the Department"), to Nelco Oil Refining Corporation (hereinafter "respondent"). A timely and proper Notice of Defense was filed by respondent on March 20, 1989. On March 23, 1989, a Notice of Hearing was served on respondent 1 setting the matter for hearing on June 5, 1989. That scheduled hearing was later continued because the parties were engaged in settlement negotiations. On August 7, 1989, the matter was reset for hearing on October 26, 1989. The hearing was again continued on October 9, 1989 at the request of respondent. The matter was thereafter reset for hearing on December 27 and 28, 1989. II Brothers Roger E. and Steven B. Humphrey are equal partners and the sole shareholders of respondent, a California corporation. Respondent, previously known as "Nelson Oil Company" was purchased by their father in 1965. On a date not established by the record Roger and Steven Humphrey purchased respondent corporation from their parents. In 1965 and thereafter respondent treated used or waste oil collected from car dealers and industrial users to produce usable motor lubrication oil. Extensive treatment of the waste oil with sulphuric acid was necessary to cause the suspended metals (lead, zinc, barium, cadmium, etc.) to separate from the oil molecules. The process resulted in the production of "clean" i.e. reusable oil, and an acid sludge. The acid sludge was a tar -like substance containing acids, the stripped metals, and other contaminants in the oil. From 1965 until respondent started stockpiling barrels of acid sludge as described hereinbelow, respondent disposed of the acid sludge created by its oil treatment process at a dump site. On a date not established by -the -record respondent and the Humphrey brothers as officers of respondent were sued in the Superior Court of the State of California for the County of San Diego, Civil Case No. 523415, by the State of California and the District Attorney of the County of San Diego for various violations of law including respondent's maintenance of acid sludge and other hazardous wastes at respondent's facility. Steven Humphrey testified that barrels of acid sludge were accumulated at respondent's facility because respondent lacked the financing and equipment to recycle that material to produce usable products. He testified that respondent had devised or obtained a pro- cess to separate the acid portion of the sludge from the "hydrocarbon phase". That treatment would separate acid which could be reused to make fertilizer. The hydrocarbon material, a substance like "coke", could power the recycling unit in a manner not specified in the record. Respondent's plans to recycle acid sludge were thwarted by an unspecified "structural failure" and a fire on respondent's property. At hearing Humphrey expressed his pique that "government agencies would not give us money to rebuild the machine and finance the process", and stated that respondent could not find the necessary funding to implement the planned recycling process. Steven Humphrey testified that barrels of acid sludge were stockpiled at its facility because respondent "couldn't haul the barrels to the dump at the outrageous fees the dumps were charging. 2 It would have bankrupted us.". The -lawsuit was-resolved_by-a Per--. manent-Injunction Pursuant to Stipulation -of the -Parties (hereinafter ";the--Injunction")--which-was- filed June 26� '1984-. The Injunction required that respondent remove all acid sludge, hazardous waste, and contaminated soil and materials -which respondent had accumulated or permitted at its facility. The approximately $500,000 cost of removing approximately 1,500 barrels of such hazardous waste was borne by respondent's two insurance carriers. The Injunction further required that respondent apply for a hazardous waste facility permit pursuant to Health and Safety Code section 25200, and that pending the Department's review of that permit respondent shall operate its business "in accordance with the terms of any Interim Status Document which may be issued by the State Department of Health Services pursuant to Health and Safety Code sec- tion 25200.5.". Pursuant to the Injunction respondent applied for an Interim Status Document (hereinafter "ISD") permit. Steven Humphrey testified that respondent had not previously applied for a permit because "we thought we were not part of the permitting system because the federal government was not interested in regulating waste oil". His testimony is not credible; the lawsuit provided notice to respon- dent of the state regulation of its activities. Respondent filed an application with the Department for a facility permit on April 17, 1984 requesting authorization to treat, store and dispose of hazardous waste. The application described respondent's type of operation as "oil & solvent & thinners recycled" with a present capacity of "2 mil gal yearly input". The application included a single page roughly drawn sketch labeled "operational flow diagram" which apparently was intended to depict the acid treatment of waste oil described hereinabove. The sketch contained the notation "sludge recycled proprietory procedure" apparently a reference to the process of recycling of acid sludge described above. By letter of December 18, 1984 the Department requested corrections, clarifications and additional information necessary to process respondent's application. various sections of the application document had not been completed by respondent when first submitted. The letter also notified respondent that "The ISD will cover only your current business of processing waste oil". Respondent's testimony at hearing that it believed that it was permitted to recycle or process solvents is consequently not credible. By its letter of January 15, 1985 respondent sent additional information to the Department in sup- port of its application. On March 22, 1985 the Department issued ISD No. CAD008352890 which authorized respondent to manage hazardous waste. The ISD clearly and specifically limited respondent to the processing of waste oil. The ISD also required that respondent continue to implement the described Injunction and "provide financial responsibility in accor- dance with Article 17, Chapter 30, Division 4 of the CAC.". Respondent was required to submit "Documentation of financial respon- sibility" to the Department within thirty days of March 22, 1985; respondent did not submit such documentation as required. 3 1' III Respondent generates, handles, treats and stores hazardous waste at its facility at 600 West 12th Street in National City, California. The facility consists of two parcels of land separated by a city street which together comprise approximately one acre. The facility is located in a mixed industrial -residential area, and the Department has received complaints from area residents regarding the materials which respondent receives and maintains on the site. The smaller parcel of facility land is a roughly triangular area adjacent to a raised freeway; abandoned and unused equipment and containers are stored there. The main parcel of the facility contains a warehouse with an office, a tank farm, and various free-standing equipment. The tank farm is a large collection of above -ground stor- age tanks. In December 1989 Steven Humphrey admitted to Department staff that the tanks contained used oil from vehicle crankcases and other sources, and used anti -freeze (ethylene glycol) contaminated with oil. Such substances are hazardous wastes. In December 1989 the equipment on site included a "dissolved air flotation device" used to treat waste oil as described in Finding II hereinabove. Humphrey represented that the device had not been used since March 1989. In December 1989 Department staff observed that respondent received waste oil delivered by tanker truck to the facility, and pumped the waste oil into storage tanks in its tank farm. Staff also observed waste oil pumped from respondent's storage tanks into tanker trucks which removed that hazardous waste from the facility. Humphrey represented that respondent uses hazardous waste manifests in shipping used oil off site; and that waste oil is shipped off site to "someone who is properly permitted" because respondent did not conduct its "oil refining process anymore". The statements indicate respondent's knowledge of the hazardous waste characteristic of used oil, and the requirement of proper permitting. From approximately March 1989 to the date of the instant hearing respondent has treated oil or antifreeze contaminated with waste oil or waste oil contaminated with antifreeze obtained by respondent's fleet of trucks from service stations, car dealers and industrial users. The listed hazardous wastes are treated by the pro- cess of gravity separation which commences with pumping the substance into a tank or container. Over a period of time not quantified in the record the various materials (oil, water, antifreeze, etc.) which have different molecular weights separate out by the force of gravity. The materials can then be separately pumped off into trucks or other tanks. Respondent has a local permit to release the water portion to the municipal sewer. Respondent resells the oil which has been separated and oil which it accumulates and can resell "as is". Respondent tests the waste oil which it obtains for water content; apparently waste oil with little water content can be resold "as is". Respondent's gravity separation process is clearly "treatment" within the meaning of the statute and regulations. The used oil, contaminated antifreeze and contaminated oil are hazardous 4 wastes; the gravity separation of the hazardous wastes alters their physical and chemical characteristics. The Department has refused to exempt respondent's gravity separation process from the ISD. In conse- quence respondent has at all times been aware that this form of treat- ment is within the scope of the-ISD and the insurance and closure cost requirements discussed hereinbelow. The Department has uniformly con- sidered gravity separation to be treatment. Other California oil recyclers including Gibson Oil Refining and Petroleum Recycling which engage in this form of treatment are regulated by the Department. IV At all times since the issuance of the ISD respondent has not maintained financial liability coverage for bodily injury and property damage to third parties caused by sudden accidental occurrences as required by 22 CCR 67027. On-December-3; 1986;7 the Department con- ducted a review of its internal file concerning respondent's financial responsibility and determined that respondent had not filed proof of such liability coverage. Such proof was required by the Injunction, the ISD and the cited regulation. On-December-17; 1986, the Department served respondent with a Notice of -Violation -advising respondent of its determination and requiring that respondent imme- diately submit "A certificate of insurance, financial test, or alter- native mechanism to demonstrate liability coverage for sudden accidental occurrences ($1,000,000 per occurrence per facility with a $2,000,000 annual aggregate per facility)." Respondent did not fur- nish the proof of liability coverage or otherwise respond to the Notice of Violation. A further Department file review -on -June 9; 1988 established that respondent had not filed proof of liability coverage by that date. In consequence, a.Report-of-Violation-was-issued-on-June-22, 1988 to respondent. The Report of Violation stated the Department's determination that respondent was in violation of 22 CCR 67027 and directed respondent to submit a "certificate of insurance, financial test, or alternative mechanism to demonstrate liability coverage for sudden accidental occurrences ($1,000,000 per occurrence per facility with a $2,000,000 annual aggregate per facility)." Respondent did not furnish the proof of liability coverage or otherwise respond to the Report of Violation. In consequence, on -January 30,-1989 the Department's Financial Responsibility Unit referred the matter to the Department's Office of -Legal -Services -for -administrative -action. The Corrective Action Order -and -First -Amended -Corrective -Action -Order -were issued"as described hereinabove. In July 1989, substantially after the Corrective Action Order was served on respondent, respondent's counsel provided the Department with a copy of a letter from Hartley, Scott & Knierim Insurance Services was sent to respondent on June 28, 1989 which stated: "Our prior efforts regarding comprehensive general liability insurance for Nelco have not had produc- tive results. I have again been unable to obtain 5 an insurance quotation from the twenty-three com- panies I represent. Nelco's loss history precludes the offering of coverage from an acceptable company and such coverage would be prohibitively expensive were I able to obtain it. Should you have further questions regarding this matter please don't hesi- tate to contact me." Respondent asserts that the letter proves the impossibility of obtaining a certificate of insurance for liability coverage of sud- den accidental occurrences. The argument is not persuasive, in major part because the cited letter pertains to comprehensive general liabi- lity insurance rather than the specific pollution liability coverage required by the regulation. The language of the letter establishes that the author's "efforts" were limited to those companies which he represented; no evidence suggests that those providers write such insurance. In discussions with respondent's counsel the Department provided the names of the three largest companies which wrote the required insurance in California; no competent, i.e. nonhearsay, evi- dence establishes that respondent's Insurance agent contacted all of those businesses to apply for coverage.. As of the date of hearing respondent, per the testimony of Steven Humphrey, has made only one application to an insurer and is awaiting an insurance quotation. His testimony that respondent in the period since the ISD was issued has had only one opportunity to obtain the required coverage "for a million dollar annual premium with a million dollar annual deductible" is wholly lacking in credibility. In 1988 and 1989, approximately fifteen to twenty qualified companies offered the required insurance in California. Various com- panies which treated petroleum products did file proof of liability coverage in the insured amounts of $1,000,000 per occurrence per faci- lity with a $2,000,000 annual aggregate per facility as required by the Department's regulations. At least two such companies, Petroleum Recycling and Gibson Oil Refining, engage in the same gravity separa- tion of waste oil process utilized by respondent. As of the date of the instant hearing respondent has failed to provide the required cer- tificate of insurance. Persuasive testimony at hearing established that the cost of such coverage during 1988 or 1989 would be approxi- mately $30,000 to $50,000 per year. Respondent did not establish that the cost of such insurance was or is beyond its financial abilities, despite Steven Humphrey's testimony of a "negative cash flow" and that it would be "very, very hard" to pay the premium. As found herein - below respondent has had sufficient funds available but has chosen to invest such monies in a Mexican subsidiary. The Department's regulation permits a demonstration of finan- cial responsibility through a financial test or alternative mechanism in lieu of a certificate of insurance. Respondent has not sought or obtained Department approval of either method of compliance. Respondent argued at hearing that sudden accidental coverage was included in general liability insurance policies -in California and the 6 separate coverage required by the regulation is unnecessary. The argument is not persuasive; such sudden incidents are not covered. Moreover, Steven Humphrey admitted at hearing that since the court - ordered cleanup described in Finding II respondent has not had even general comprehensive liability -insurance. v At all times since the issuance of the ISD respondent has not had financial assurance for closure of the facility in the form of a trust fund, surety bond, letter of credit, closure insurance, finan- cial test/corporate guarantee or alternative mechanism as required by 22 CCR 67003. On December 3, 1986, the Department reviewed its inter- nal file regarding the respondent's financial responsibility. The Department determined that respondent had not filed any of the acceptable proofs of financial assurance for closure. On December 17, 1986, the Department served respondent with a Notice of Violation advising respondent of its determination and requiring that respondent immediately submit "Financial assurance of closure costs. The finan- cial documents must be in the form of a trust fund, surety bond, letter of credit, closure insurance, a financial test/corporate guarantee, or alternative mechanism.'" Respondent did not furnish the required financial assurance of closure costs or otherwise respond to the Notice of Violation. The testimony of Steven Humphrey that he thought only a fully permitted TSD facility rather than ISD facilities were required to fund closure costs is not credible. When asked on what he based that understanding Humphrey answered "I don't know"; the evidence clearly establishes that respondent was repeatedly notified of the requirements of the regulation. On June 9, 1988, the Department conducted another review of its internal file and determined that respondent had not filed finan- cial assurance of closure costs. A Report of Violation was issued on June 22, 1988 which stated that respondent was in violation of 22 CCR 67003. Respondent was ordered to immediately provide "Financial docu- ments for closure care costs in the form of a trust fund, surety bond, letter of credit, closure insurance, a financial test/corporate guarantee, or alternative mechanism." Respondent did not furnish the required documentation or otherwise respond to the Report of Violation; the instant enforcement action followed. By letter of August 9, 1989, the Department in response to information that underground storage tanks at respondent's facility were leaking required that respondent submit a closure plan in compliance with 22 CCR 67212. The letter warned respondent that until closure was certified complete by the Department respondent must comply with the ISD terms, which include financial assurance of clo- sure costs. On a date not clearly established by the record respondent submitted a document entitled "Closure Plan" which Steven Humphrey described as written by respondent's consultants. The document con- tains numerous contradictions, e.g. the representation that no underlying soils are contaminated (Exhibit 15, p.1) is refuted by the 7 1 $1,000 cost to dispose of "oil -stained dirt" (p.3, #5). The document is disorganized, simplistic, and written in lay language, e.g. "contamination from waste oil on unpaved roadways is virtually nil" (emphasis supplied, p.1). Other portions of the document are unin- telligible, e.g. "There are no known waste decomposition productrs jsic] of the waste oil" (p.1, II. D) and "Another is if the company went out of business, was unable to sell the facility, and simply went out of business." (p.1, II. A). Respondent's closure plan proposes that costs of closure would be met by the salvage of tanks and equipment on the site; such a scheme does not meet the requirements of 22 CCR 67003 and would not provide sufficient funds for closure. Closure costs are properly calculated on the worst case eventuality of a site full to capacity, abandoned, and cleaned up by a third party. Respondent's plan would require the outlay of funds to realize the sales, if any, of tanks and equipment. Steven Humphrey admitted that respondent has not sold any of its tanks, that most of the tanks are more than fifteen years old, and that respondent has never received an offer to buy such tanks. His assertion that fifteen tanks could be sold at closure for $800 to $2,500 "just because they're a usable container" is baseless. He admitted that such tanks have held waste oil; such containers may require proper disposal rather than be available for sale. Respondent's experience in the prior cleanup of acid sludge is instructive; respondent's assertion that the closure may yield a pro- fit through sale of used containers and equipment is not credible. Humphrey further attempted to demonstrate that respondent's assets could fund closure with testimony that there is "about $40,000" equity in the larger parcel of land and the triangular parcel which respondent owns. The value of land with admittedly "contaminated soils" was not established. More importantly, Humphrey admitted to considerable other debts of respondent which may have claims to respondent's assets. Respondent has not paid its facility fee to the State of California, Board of Equalization, from July 1988, including penalties and interest. On November 15, 1989, the Board of Equalization made a demand for delinquent fees, penalties and interest totaling $68,967.27. Additional interest of $676.08 accrues each month. Although respondent represents that it cannot pay the overdue fee and has lost $230,000 in 1989 the evidence establishes that respondent has chosen to invest available funds in creating a Mexican subsidiary rather than pay its debts to the state and comply with the regulations. Approximately three years prior to the date of the instant hearing respondent established its wholly owned business, a "maquilladora", in Mexico named "Nelmex S. de R.L." Humphrey admitted that in the past three years respondent has invested approxi- mately half a million dollars in its Mexican company which recycles oil filters, recycles oil, etc. for profit. Humphrey testified that according to Mexican law respondent need not account for profits and losses. 8 VI Respondent's lack of good faith is considered in the penalty herein. The evidence establishes that respondent has chosen to invest funds to create a for -profit company in Mexico rather than expend funds to pay for requisite insurance, closure costs, and facility fees. Respondent's repeated representations that it could not "afford" insurance premiums demonstrate its lack of credibility and intention to disregard the requirements of laws and regulations intended to protect the California environment. The economic benefit to respondent from its noncompliance is considered in the penalty; the evidence establishes that less severe measures including urging compliance are disregarded by respondent. The penalty for violation of insurance requirements is based on the testimony at hearing of an average monthly premium for coverage of $2,500 multiplied by the forty-three months respondent had been out of compliance prior to the Corrective Action Order, for a total of $107,500. The penalty of $5,000 proposed by Department as a deterrent is unreasonably lenient in light of the facts detailed hereinabove; it is increased to $10,000. The Department's proposed penalty of $10,000 for economic benefit to respondent for not securing financial assurance for closure costs and the proposed penalty of $10,000 as a deterrent to non- compliance are reasonable. ORDER I Within ninety calendar days of the effective date of this Order respondent shall provide documentation to the Department of liability coverage for sudden accidental occurrences in the amount of $1 million per occurrence per facility with a $2 million annual aggre- gate as required by 22 CCR 67027. II Within forty-five calendar days of the effective date of this Order respondent shall provide documentation to the Department of financial assurance for closure costs as required by 22 CCR 67003. III All financial submittals from respondent to the Department pursuant to this Order shall be sent to: Chief, Hazardous Waste Management Section Toxic Substances Control Program Department of Health Services 714/744 P Street Post Office Box 942732 Sacramento, CA 94234-7320 9 IV All approvals and decisions of the Department made regarding i~-ncial submittals and notifications will be communicated to respon- le_ in writing by the Chief, Hazardous Waste Management Section, roxic Substances Control Program or her/his designee. No informal advice, guidance, suggestions, or comments by the Department regarding reports, plans, specifications, schedules or any other writings by respondent shall be construed to relieve respondent of the obligation to obtain such formal approvals as may be required. If the Department determines that any report, plan, schedule or other document submitted for approval pursuant to this Order fails to comply with the Corrective Action Order and First Amended Corrective Action Order the Department may modify the document as deemed necessary and approve the document as modified or return the document to respondent with recommended changes and a date by which respondent must submit a revised document incorporating the recom- mended changes. V Respondent shall carry out this Order in compliance with all local, State and Federal requirements, laws and regulations. VI Nothing in this Order shall constitute or be construed as a satisfaction or release from liability for any conditions or claims ,arising as a result of past, current or future operations of respon- dent. Notwithstanding compliance with the terms of this Order, respondent may be required to take further actions as are necessary to protect public health or welfare or the environment. The State of California shall not be liable for injuries or damages to persons or property resulting from acts or omissions by respondent in carrying out activities pursuant to this Order. VII By issuance of this Order the Department is not barred from or precluded from waiving the right to take further enforcement actions. VIII Cause for imposition of a total penalty of $117,500 for violation of 22 CCR 67027 was established. 10 IX Cause for imposition of a total penalty of $20,000 for viola- tion of 22 CCR 67003 w asn established. Dated: M . 'AMANDA' B Administrative Law Judge Office of Administrative Hearings 11 1