Property Owner Hit With $137,778 Civil Penalty, Appeals, And (Without Adequate Notice) Ends Up A $1,148,200 Penalty! Court Reverses for Lack of Due Process.

By Glen C. Hansen

In Tafti v. County of Tulare (2011) 198 Cal.App.4th 891, the Court of Appeal for the Fifth Appellate District held that a local enforcement agency violated the due process rights of a property owner when it failed to provide adequate notice of the nature of an administrative appeal hearing where an administrative law judge recalculated a civil penalty in an amount that was over eight times the penalty amount stated in the original enforcement order that the owner appealed from.

In Tafti, the plaintiff was an owner of a small gasoline station. From December 2003 through September 2006, the County of Tulare and Tulare County division of Environmental Health Services (“County”) notified the owner of the station’s noncompliance with laws related to underground storage tanks (“UST”), and sought to have the owner take steps to correct the violations. County then issued an administrative enforcement order against the owner, assessing a civil penalty of $137,778. The enforcement order stated that the owner may request a hearing “to challenge the Order.” The owner filed a notice of defense requesting a hearing to challenge the order. At the hearing, the administrative law judge (“ALJ”) first found that the owner had violated the applicable UST regulations, and then recalculated the civil penalties in the total amount of $1,148,200. County adopted those findings and imposed penalties against owner in that significantly higher amount. The Superior Court denied the owner’s petition for writ of mandate. The owner appealed.

On appeal, the owner argued, inter alia, that he was not provided fair or adequate notice of the nature of the administrative hearing on the question of the amount of civil penalties that could be decided in that hearing (i.e., whether the hearing would merely test the merits of the enforcement order or decide anew the amount of appropriate penalties such that the post hearing penalties could greatly exceed the amount determined in the enforcement order). The Court of Appeal agreed with the owner. The enforcement order’s description of the appeal rights gave the misleading notion that the hearing, if requested, would be limited to the factual issues set forth in the enforcement order; and nothing in the order alerted the owner to the fact that if he requested a hearing, it would reopen the civil penalty issue and allow the administrative judge to determine anew, without any limitation to the amount set forth in the enforcement order, the total assessment of civil penalties, thereby exposing the owner to a potential of vastly expanded monetary liability. The Court therefore held that the portion of the civil penalties imposed by the County in excess of the amount it previously determined in the enforcement order must be vacated. Since the portion of the civil penalties that were in violation of due process were those exceeding the originally determined sum of $138,824, they are readily severable from the remainder of the penalties. The remaining civil penalties of $138,824 were not affected by the notice defect and were accordingly affirmed by the Court.

In its analysis, the Court explained that there are two ways that an administrative appeal or hearing to review an agency’s order imposing civil penalties might logically be handled. One approach would be that the evidentiary hearing would provide an opportunity for the accused party to challenge the factual basis or the merits of the violations and penalties set forth in the order. In that case, if the violations are found to exist, the amount of the civil penalties previously determined by the agency would presumably be affirmed, unless evidence of statutory factors relevant to imposition of civil penalties persuaded an ALJ that a lesser penalty was appropriate. Thus, under this first approach, the amount of civil penalties might be reduced by an ALJ, but they would not be increased. A second approach to such an appeal hearing would be that an ALJ would determine everything anew, including the amount of civil penalties. Under this scenario, which was the one used by the ALJ in the Tafti case, if the violations are found, an ALJ could then make an entirely new determination of the amount of civil penalties under all the circumstances and evidence presented at the hearing, including the imposition of substantially greater civil penalties than were determined by the agency in its enforcement order.

In light of those two possible approaches, the Court outlined a due process rule regarding the content of notices of administrative appeals that involve civil penalty orders: “We think that basic fairness requires that when a party is ordered by an agency to pay substantial civil penalties, but is given a right to request an administrative hearing concerning said order, the party should be informed of which type of hearing is contemplated so that he or she will be able to ascertain what is at stake and intelligently decide on whether or not to request the hearing. That is particularly the case where, as here, the statute authorizing the civil penalties sets forth an expansive range of financial penalties that might be imposed per violation, per day.”

Every local agency that provides an administrative appeal process involving the assessment of civil penalties should take note of that due process rule announced by the Court of Appeal in Tafti.

Glen C. Hansen is an attorney at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, or the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.

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