Case Nos. VPZ-0022 and VPZ-0023

March 9, 2001

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Interlocutory Order

Name of Case: State of Washington

Dates of Filing: February 15, 2001

February 26, 2001

Case Numbers: VPZ-0022

VPZ-0023

This decision will consider two motions for partial summary judgment that the Department of Energy (DOE) Office of Civilian Radioactive Waste Management (OCRWM) filed with the Office of Hearings and Appeals (OHA) on February 15 and 26, 2001, respectively, in connection with an appeal that the State of Washington Department of Revenue (DOR) filed on April 26, 1999.

1. Procedural Background

The underlying appeal, OHA Case No. VPA-0001, was filed under the Notice of Interpretation and Procedures (NOIP) implementing the "payments-equal-to-taxes" (PETT) provisions of the Nuclear Waste Policy Act of 1982, as amended (NWPA), 42 U.S.C. § 10101 et seq. Under the NOIP, the Department of Energy will grant, to a local jurisdiction in which a candidate site for a high-level nuclear waste repository is located, a payment equal to the amount that jurisdiction would receive if it were authorized to tax Federal site characterization activities at that site. See 56 Fed. Reg. 42314 (August 27, 1991). The payment authorized by the NWPA is known as a "PETT grant." The history of the PETT program and the Basalt Waste Isolation Project (BWIP) at the Hanford site is described at length in Benton County, Washington, 26 DOE ¶ 80,145 (1996), and will not be repeated here.

By letter dated March 23, 1999, DOE denied the State’s application for a PETT grant based on Washington’s Business and Occupation (“B&O”) Tax. The amount in controversy is substantial; with interest from a claimed PETT eligibility starting date of January 7, 1983 through September 30, 1998, the State calculated the value of its claim as $13,083,694. The fundamental dispute between the State and OCRWM can be summarized as follows for purposes of the present decision. The B&O tax is based on the taxpayer’s gross revenue. Since the BWIP did not have any gross revenue, the State based its PETT claim on “the most comparable surrogate, the amount of expenditures associated with site characterization at Hanford.” Petitioner’s Statement of Position at 7. In the Statement of Position that it filed in connection with this appeal, OCRWM reiterated that since the BWIP had no gross revenue, its site characterization activities cannot form the basis for taxation under the Washington B&O tax, and no PETT payment is due under the theory advanced by the State. OCRWM characterized the State’s PETT claim as depending on “a legal fiction,” and maintained that a similarly-situated private taxpayer would not owe any B&O tax. See generally Respondent’s Statement of Position. The present appeal to OHA challenges OCRWM’s denial of the State’s PETT claim based on the B&O tax.

OHA and the parties have held many telephonic conferences on procedures, completed discovery, exchanged witness lists and written reports from some witnesses, and set a hearing date for March 28-29, 2001 in Seattle, Washington. The hearing site was chosen for its accessibility to the witnesses, all of whom are current or former employees of the DOR.

On January 30, 2001, OCRWM sought leave to file a motion for partial summary judgment. In a conference call held on February 2, 2001, we granted OCRWM leave to file the motion by February 15, and permitted the State to file a response by March 6. The first motion for partial summary judgment was filed on February 15. In addition, on February 26, OCRWM filed a second motion for partial summary judgment regarding an additional issue not mentioned in the first motion. The exchange of pleadings was completed when the State filed a response to the OCRWM’s second motion on March 9, 2001. We now address the motions.

The OHA regulations governing appeals in 10 CFR Part 1003, Subpart C, do not prescribe procedures and standards governing summary judgment motions. The Federal Rules of Civil Procedure provide that such a motion shall be granted “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). Though the Federal Rules do not govern this proceeding, they may be used for reference, and Rule 56 presents a logical framework for evaluating the present motions. Thus, OHA will not grant the motions absent a showing by OCRWM that, upon the undisputed facts in the record, it is entitled to prevail as a matter of law upon the issue presented.(1) For the reasons discussed below, because we do not find clear and convincing evidence that OCRWM is entitled at this point in the proceeding to prevail as a matter of law, we deny the motions for partial summary judgment.

2. The First Motion for Summary Judgment

In its first motion, OCRWM requests that OHA grant partial summary judgment with respect to the following legal proposition:

That a private taxpayer, operating in a similar factual context, would not be subject to B&O tax under Washington law.

Motion at 1. According to OCRWM, the responses of the State’s witnesses David J. Wiest and Kenneth Capek to hypothetical questions posed to them in depositions by OCRWM’s counsel, and the State’s answers to OCRWM’s requests for admissions, prove that a private taxpayer, “operating in a similar factual context,” would not be subject to B&O tax under Washington law. First Motion at 1, 3-4 (admissions), 5-9 (Wiest and Capek depositions).

The State’s response concedes the validity of the legal proposition underlying OCRWM’s first motion, but argues, in essence, that it begs the question in this case. Response at 1-2. The State maintains that “there is not now and never has been a private taxpayer in the State ?in a similar factual context’ to BWIP, i.e. subject to § 116(c)(3) of the [NWPA], mandating that PETT for BWIP be calculated as if BWIP were ?industrial activity’ in the State, virtually all of which pays the State’s B&O tax.” Id. at 1. According to the State, the requested finding “places in issue what is a ?similar factual context.’” State’s Reply to Respondent’s Rejoinder. The State disputes OCRWM’s characterization of the BWIP project as “a private taxpayer in Washington who, on its own behalf and using its own money, does site characterization work in its own backyard to determine the yard’s suitability for some future purpose,” pointing out that under an equally plausible characterization of the BWIP, “gross revenues derived by a company performing site characterization activities for another are indisputably subject to B&O tax” under Washington law. Response at 2, citing the attached Declaration of David J. Wiest, ¶ 4. The difference between these two characterizations of the facts makes it clear that the State disputes the aptness of the analogy of the BWIP to the fictional “New York corporation” in OCRWM’s hypothetical questions in the Wiest and Capek depositions. The State goes on to argue at length why, in its view, OCRWM’s interpretation of the PETT provision in the NWPA would produce a result, i.e. no PETT payment for B&O tax on industrial activity at the BWIP during site characterization, that is inconsistent with Congressional intent, and DOE’s own interpretation of the NWPA in the NOIP.

We agree with the State’s characterization of OCRWM’s first motion, and find that it misses the mark. OCRWM has postulated an analogy which would yield the result that it advocates, but its analogy does not comport exactly with the facts. No summary judgment is thus appropriate, even on the narrow issue carved out in the OCRWM first motion, since there is a material dispute whether that analogy is applicable to the BWIP. More fundamentally, there is a clear dispute over which party’s view of the legal consequences of the facts is more appropriate in the context of the PETT claim at issue in the present appeal. This dispute goes to the ultimate issues in the case.

OCRWM attempted to rescue its first motion in rejoinders it submitted after reviewing the State’s response. In its latest submissions, OCRWM emphasizes the narrow scope of its motion, which is that a private taxpayer, “operating in a similar factual context,” would not be subject to the B&O tax under Washington law. As indicated above, we find that this proposition begs the question at the heart of this case. The State vigorously disputes the proposition that the BWIP site characterization was “operating in a similar factual context” as the fictional “New York corporation” described in OCRWM’s hypothetical. For these reasons, the first motion does not form a basis for granting partial summary judgment in favor of OCRWM.

3. The Second Motion for Partial Summary Judgment

OCRWM’s second motion requests that OHA grant partial summary judgment with respect to the following:

That the time period for measuring the Petitioner’s entitlement for payments equal to taxes (PETT) under section 116(c)(3) of the Nuclear Waste Policy Act of 1982 (NWPA) commenced on May 28, 1986, and ended on December 22, 1987.

Motion at 1. This motion notes that the State’s original PETT claim for the B&O tax calculated its PETT entitlement by reference to an eligibility commencement date of January 7, 1983, rather than May 28, 1986 when the President approved the BWIP as a candidate site for site characterization as a potential repository. OCRWM correctly points out our determination in the Benton County decision that PETT eligibility did not begin until May 28, 1986 when the BWIP was approved as a candidate site under § 116(c)(3) of the NWPA. Motion at 2, citing 26 DOE ¶ 80,145 at 80,618 (1996).(2)

Unfortunately, OCRWM’s second motion got it only half right. On the very next page of the Benton County decision cited in the motion, we determined, sua sponte, that

the termination date of Benton County's PETT eligibility should be March 21, 1988, the effective termination date for BWIP site characterization activities figured according to the NWPA Amendments of 1987. 42 U.S.C. § 10172. In specifying that Benton County's PETT eligibility ended on December 22, 1987, the NOIP erred by failing to consider that the statute directed DOE to terminate all site characterization activities at the BWIP 90 days after December 22, 1987. Id. Section 116(c)(3) of the NWPA specifies that PETT grants ?shall continue until such time as all [site characterization] activities ... are terminated at such site.’

26 DOE ¶ 80,145 at 80,619. Thus, there is no predicate for granting partial summary judgment on this issue, since we have already considered the same facts in the previous PETT appeal, and held as a matter of law that PETT eligibility for the BWIP ended on March 21, 1988. The second motion will therefore be denied.

4. Final Thoughts Before the Hearing

This PETT case presents more difficult issues than the Benton County case, where the authority of the county to levy property taxes on the BWIP site characterization activities was not in dispute. It was clear that a private landowner would owe those taxes to the county. The Benton County PETT appeal concerned only the amount of those property taxes. The eligibility of the State to collect B&O tax from the DOE for the BWIP site characterization activities in the present case is more problematical because it does not follow automatically when we analyze the BWIP as if it had changed from a tax-exempt Federal activity to a fictional “private” business activity subject to taxation. The sticking point is how properly to characterize the political and corporate structure of the BWIP site characterization venture and analogize it to an “industrial activity” undertaken by private business entities subject to the B&O tax under Washington law within the policy context of the PETT provision in the NWPA. We have yet to find a perfect analogy. The positions espoused by both parties to the dispute have weaknesses. OCRWM clings to an interpretation that glosses over legislative policy considerations in order to deny the PETT claim altogether. The State resorts to a legal fiction in order to bootstrap itself into a position to capitalize on those same legislative policy considerations.

In all fairness to the parties, we recognize that this task is not an easy one. This is a case of first impression, where we are charged with finding a way to integrate NWPA policy with reality. It defies a facile solution. At the hearing and argument stages of this case, the parties should focus on giving further support for their respective views, and showing why we should reject the opposing points of view. To prevail in this appeal, the State has the burden of showing that OCRWM’s initial DOE determination was erroneous in fact or in law, or that it was arbitrary and capricious. 10 CFR § 1003.36(c)(1).

IT IS THEREFORE ORDERED THAT:

(1) The First Motion for Partial Summary Judgment filed by the Office of Civilian Radioactive Waste Management is hereby denied.

(2) The Second Motion for Partial Summary Judgment filed by the Office of Civilian Radioactive Waste Management is hereby denied.

(3) This is an interlocutory order of the Department of Energy.

George B. Breznay

Director

Office of Hearings and Appeals

Date: March 9, 2001

(1) In addition, prior OHA decisions caution that a motion dismissing a claim should only be granted if it is supported by “clear and convincing” evidence. Fluor Daniel Fernald, 27 DOE ¶ 87,532 at 89,163 (1999) (motion to dismiss should only be granted where there are clear and convincing grounds for dismissal); see also Boeing Petroleum Services, 24 DOE ¶ 87,501 at 89,005 (1994) (dismissal is "the most severe sanction that we may apply" and should be used sparingly).

(2) The State raised two points in its opposition to OCRWM’s second motion. First, the State argued that, in view of a reference to ongoing “site characterization activities” in the legislative history of the NWPA, the beginning date for PETT eligibility should be January 7, 1983. Second, the State argued that in Benton County, OHA determined the termination date for PETT eligibility was March 21, 1988. See Petitioner’s Response to Respondent’s Second Motion for Partial Summary Judgment. Regarding the starting date for PETT eligibility, the State has reargued a position that we previously considered and ultimately rejected in Benton County. In the prior PETT appeal, we held that the so-called “site characterization” activities that took place before the enactment of the NWPA did not constitute “site characterization by a candidate site” as that term was defined in the statute, notwithstanding the fact that the legislative history contained a reference to the “grandfather clause” sponsored by Sid Morrison, the Congressman whose District included Benton County. Benton County, supra, at 80,617-80,619. While we are willing to reconsider our previous holdings, the starting date for PETT eligibility is a settled area for purposes of the instant summary judgment motion. Finally, as noted in the text of this decision, we agree with the State on the termination date for PETT eligibility.