Despite net worth, corporation can receive counsel fees

Corporate plaintiffs that prevailed in an administrative proceeding involving pollution charges could recover counsel fees without first establishing a net worth under $500,000, a Rhode Island Superior Court judge has ruled.

The Rhode Island Department of Environ-mental Management argued that the Equal Access to Justice Act does not allow fees to be awarded to prevailing parties with a net worth of $500,000 or more.

Judge Patricia A. Hurst disagreed, finding the statute’s net worth requirement to be applicable only to individuals, not corporations.

“General Laws §42-92-2 allows an individual to recover fees if his or her net worth is less than $500,000, and a corporation to recover if it does business in the state, is located in the state, is independently owned and operated, not dominant in its field, and employs fewer than 100 persons at the time the adversary adjudication was initiated,” Hurst wrote.

The 12-page decision is Rollingwood Acres, Inc., et al. v. Rhode Island Department of Environmental Management, et al.

Providence attorneys Michael A. Kelly and Joelle C. Sylvia represented the corporate plaintiffs. Marisa A. Desautel of Providence was counsel for the DEM.

Environmental proceeding

Plaintiff Rollingwood Acres is the owner of property located at 961 Douglas Pike in Smithfield, R.I.. Plaintiff Smithfield Peat Co. operates a leaf and yard-waste composting facility, while plaintiff Smithfield Crushing Co. operates a rock crushing facility.

In 1982, the DEM issued a freshwater wetlands permit to Smithfield Peat and John D. Despres, authorizing Smithfield Peat to alter freshwater wetlands on the site by excavating, filling and grading within 50 feet of an unnamed swamp for the purpose of peat removal, construction of two storm water detention basins, installation of a sewer line and construction of a road.

Smithfield Peat constructed a drainage structure under that approval, which consisted of two basins, a control structure, a 15-inch pipe and two catch basins.

From 1996 to 1997, the state engaged in a project to improve Route 7 in Smithfield immediately adjacent to the plaintiffs’ property. The state’s Department of Transportation, without the plaintiffs’ permission, removed the plaintiffs’ drainage structure.

The new structure, altered without the knowledge of the plaintiffs or permission from the DEM, caused the system to discharge increased sediment — that is, caused turbidity — into the nearby unnamed stream.

In 2006, the DEM issued a notice of violation, alleging that the plaintiffs had violated the Rhode Island Water Pollution Act, the DEM’s water quality regulations, the Rhode Island Oil Pollution Control Act, the DEM’s oil pollution control regulations and its regulations for the Rhode Island Pollution Discharge Elimination System.

The plaintiffs appealed the notice of violation to the Administrative Adjudication Division of the DEM. The chief hearing officer issued a decision dismissing a substantial portion of the allegations against the plaintiffs and all but approximately 7 percent of the fine imposed against plaintiffs.

The chief hearing officer concluded that the DEM had failed in its burden of proving any violation of the Rhode Island Water Pollution Act or the DEM’s water quality regulations.

The hearing officer, however, denied the plaintiffs’ request for counsel fees and costs. That decision was based entirely on the conclusion that the plaintiffs failed to qualify as a “party” within the meaning of the EAJA.

Statutory definitions

The plaintiffs argued that the decision of the Administrative Adjudication Division was affected by an error of law because it erroneously required the plaintiffs to establish that their net worth was less than $500,000 at the time the adjudicatory proceeding was initiated. They contended that the net worth requirement was inapplicable to them — as Rhode Island corporations—and could only be applied to individuals seeking to claim party status under the statute.

In contrast, the DEM argued that the statute requires that any entity seeking an award under the statute must demonstrate its net worth.

The EAJA defines “party” as: “any individual whose net worth is less than five hundred thousand dollars ($500,000) at the time the adversary adjudication was initiated; and, any individual, partnership, corporation, association, or private organization doing business and located in the state, which is independently owned and operated, not dominant in its field, and which employs one hundred (100) or fewer persons at the time the adversary adjudication was initiated.”

Hurst found that the Administrative Adjudiction Division hearing officer’s conclusion that the plaintiffs did not qualify as parties within the meaning of the EAJA rested on a ruling of law.

“Specifically, that conclusion rested on the determination that the EAJA required that Plaintiffs show that ‘they had a “net worth of less than Five Hundred Thousand Dollars ($500,000) at the time of [sic] the adversary adjudication was initiated,”’” the judge said.

The “plain and unambiguous” meaning of the statute, she found, is that an entity can qualify as a party under the statute under two separate categories.

“In fact, in 1993, in In re Truk-Away of Rhode Island, Inc., [the Administrative Adjudication Division] for the DEM itself held that for Truk-Away, a Rhode Island Corporation, to be a ‘party’ it need only show: ‘1. That Truk-Away is a corporation doing business and located in RI. 2. That the business is independently owned and operated. 3. That Truk-Away is not dominant in the field. 4. That the waste hauler employed no more than 100 people at the time of the adversary adjudication,’” Hurst said. “In that case, the DEM did not discuss, or require, Truk-Away’s net worth.”

After reviewing the record, Hurst found that the Administrative Adjudication Division’s decision was affected by error of law. She said it incorrectly determined that the plaintiffs were not a “party” within the meaning of the EAJA “by reason of the net worth requirement. [T]he AAD shall make findings of fact adequate to support conclusions of law on whether Plaintiffs were a prevailing party in the underlying adjudicatory proceedings; whether the DEM instituted the underlying adjudicatory proceeding without substantial justification; and the extent of reasonable litigation expenses.”