RESPONSE TO DRAFT DECISION ON LARABEE MUSSEL LEASE, NORTHPORT, MAINE
May 13, 2004 File 26,017.000
Mary E. Costigan
Maine Department of Marine Resources
P.O. Box 8
West Boothbay Harbor, Maine 04575
BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, FACSIMILE, AND E-MAIL
Re: In the Matter of the Application of Joe Larrabee for an Aquaculture Lease Located in Belfast Bay, Northport, Waldo County, Maine; Proposed Findings of Fact, Conclusions of Law and Decision (the "Proposed Decision")
Dear Officer Costigan:
I am attorney for the following Intervenors: Todd Park Merolla, Joseph J. Krulis, and William A. Sumner (collectively, my ³Client²). I submit the following comments and responses on behalf of my Client.
As I do not have the benefit of a transcript of the hearing, I am basing much of the information below on my notes and memory of what was said at the hearing. A transcript will be required for the purposes of an administrative appeal.
I. Great Eastern Mussel Farm
I respectfully submit that the Proposed Decision is flawed as a matter of law with respect to the issue of whether a de facto partnership, joint venture, or contract-farming/employment arrangement exists with Great Eastern Mussel Farms (³GEMF²) or one of its wholly-owned subsidiaries, Gem Mara Farms, LLC, or Aquaculture Harvesters, Inc.
The record shows that GEMF (or one of its wholly-owned subsidiaries) initiated the venture with Mr. Larrabee through its contract-growing program; helped Mr. Larrabee prepare the application; provides the rafts; provides financing for the rafts (estimated in the application to cost $216,000); insures the rafts; harvests the product free of charge with its own barge; purchases the product at a fixed price which GEMF controls; controls the flow of money by deducting sums owed from the purchase price and providing Mr. Larrabee with a net sum; and then markets and sells the product. Mr. Larrabee, by contrast, apparently used $10,000 of his own money for seed and an escrow account to start-up the experimental lease; apparently monitors the site from the land with his binoculars from time-to-time; and put his name on the lease application.
The relationship between Mr. Larrabee and one or more of the GEMF entities appears to be that of a de facto partnership, defined as ³an association of 2 or more persons [who] . . . carry on as co-owners a business for profit.² (31 M.R.S.A. § 286) In the alternative, they have formed a joint venture, defined as an ³association between two or more individuals or entities who agree to pool their efforts and resources to jointly seek profits. . . [joint venture] is similar to partnership,¹ although generally more limited in scope and duration.² Nancy W. Bayley, Inc. v. Maine Employment Sec. Com¹n, 472 A.2d 1374 (Me. 1984).
As I mentioned in my written testimony, the intent of the parties is not determinative of the existence of a partnership or joint venture,[1] <#_ftn1> nor is the presence or absence of a written agreement.[2] <#_ftn2> Rather, the Court will look to a number of factors, as set out by statute and case law, including ³evidence of an agreement, either express or implied, to place their money, effects, labor, and skill or some or all of them, in lawful commerce or business with the understanding that a community of profits will be shared. . . . No one factor is alone is determinative of the existence of a partnership.² Lupien, 477 A.2d at 748.
In the alternative, the relationship between Mr. Larrabee and any of the GEMF entities may amount a form of agency such as contract farming. If this is the case, given that Mr. Larrabee appears to act as agent on behalf of potentially any of the GEMF entities as principal, the application was submitted in the wrong name.
It is also possible that the relationship amounts to a hybrid of any of the above.
In order to make a proper determination as a matter of law as to the nature of the relationship between Mr. Larrabee and the various GEMF entities, it is necessary to review and interpret the transaction documents.
Apparently, the DMR neither reviewed nor even requested copies of these documents in making its determination. Further, as set out in (V) below, the DMR failed to request the basic financial information an applicant is required to submit pursuant to DMR Reg. 13-188, Chapter 2.10(3)(9). In this respect, the DMR failed to conduct even the most basic due diligence to properly address the concerns raised over the relationship between Mr. Larrabee and the GEMF entities. As such, it lacked the ability to draw a well-founded conclusion of law.
The consequence of this failure is that GEMF or its entities are able to circumvent the provisions of DMR Reg. 13-188, Chapter 2.12 which concerns specific information to be included for partnership applicants.
The cumulative effect of this practice is to create an unfair playing field for bona fide small, independent shellfish farmers. It also creates the impression of a small-scale, local venture when, in fact, is run by a large corporation that operates out of Tenants Harbor.
The Decision concludes: ³Based on the evidence presented by Ms. Mills and Mr. Peterson [of GEMF and Gem Mara], I do not find that Mr. Larrabee is either a de-facto employee or partner Great Eastern Mussel Farms [sic]. Mr. Larrabee is independent of Great Eastern Mussel Farms in that he is solely responsible for the lease and makes all decisions relating to the lease activities. For the experimental lease, Mr. Larrabee established an escrow account for the lease, he purchased mussel rafts and mussel seed, and he seeded, monitored and maintained the rafts. He made a business decision regarding how the rafts would be purchased and paid for. His arrangement with Great Eastern Mussel Farms regarding the rafts does not create an employer/employee relationship or partnership. Therefore, the lease application is appropriately only in the name of Joe Larrabee.²
It is circular to say that Mr. Larrabee is ³solely responsible for the lease.² This statement may be true in the sense that it is his name alone that will appear on the lease. At issue, however, is whether his name should stand alone on the lease. If, in practice, GEMF or one of its entities exercises substantial control over the site, their name should be included on the lease so that they may be held accountable for the venture and the arrangement is clear on its face.
The record demonstrates that the Proposed Decision is inaccurate in stating that Mr. Larrabee ³makes all decisions relating to the lease activities.² As explained below, it is Aquaculture Harvesters/Gem Mara who conduct and control the harvesting portion of the venture. Further, as Mr. Larrabee testified, it is GEMF that controls the price at which he must exclusively sell to them in order to pay off his rafts. Mr. Larrabee may be the marionette who purports to make decisions about the site, but in practice, it is GEMF (or one of its entities) that pulls most, if not all, of the strings.
It is also incorrect to state that Mr. Larrabee ³purchased² rafts from Gem Mara; at the heart of this venture is a practice whereby Mr. Larrabee leases rafts from Gem Mara and pays-off his debt by selling back the product exclusively to GEMF.
Whereas the Proposed Decision draws a conclusion with respect to the existence of an employer/employee relationship or partnership relationship with GEMF, it fails to draw a conclusion with respect to the other possible arrangements I raised, such as a contract farming relationship, or joint venture. In addition, it fails to draw a conclusion with respect to the possibility of an agency relationship between Mr. Larrabee and Gem Mara, or Aquaculture Harvesters.
It further appears that the DMR failed to take into consideration the entire body of factual evidence presented at the hearing. In particular, the Proposed Decision fails to mention or emphasize the following factual points:
(a) Mr. Larrabee became interested in growing mussels after attending a presentation by GEMF about its contract-grower program.
(b) According to Mr. Larrabee, GEMF finances its rafts through Gem Mara. Mr. Larrabee indicated that he is obligated to sell his product exclusively to GEMF, a fact which Mr. Peterson disputed. Mr. Peterson stated that GEMF purchases mussels from Mr. Larrabee for ³an agreed to price. The agreed to price is not based on profit, but is an absolute figure.² Mr. Larrabee indicated that GEMF solely controls this ³agreed to price² and will continue to do so until the rafts are paid off (which he estimated would take from 5-7 years). Mr. Larrabee is paid a net figure with deductions for his debt for the rafts. GEMF then markets and sells the product, presumably at a profit. Although the details of the entire arrangement remain unclear, it appears that Mr. Larrabee does not receive a further cut of these profits.
When questioned, Mr. Peterson indicated that the contract documents that set out the relationship between Mr. Larrabee and the GEMF entities would not be made available to clarify the details of the arrangement. The DMR did not exercise its own authority to request copies of these documents, even in a redacted form.
(c) Mr. Larrabee and Mr. Peterson both testified that GEMF assisted Mr. Larrabee in preparing his application for the lease.
(d) Mr. Peterson testified that Gem Mara has a liability insurance policy on the rafts.
(e) The Proposed Decision states that Mr. Peterson testified that I was incorrect in my conclusions regarding the relationship between GEMF and the applicant: ³[Mr. Peterson] stated that Great Eastern Mussel Farms only purchases mussels from the applicant. According to Mr. Peterson, Gem Mara Farms leased the rafts to the applicant and Aquaculture Harvesters operates the barge. Both companies are wholly owned by Great Eastern Mussel Farms. In order to pay off the rafts, the applicant has agreed to sell his mussels to Great Eastern Mussel Farms.² Further, in his written testimony submitted prior to the hearing, Mr. Peterson stated, ³Great Eastern Mussel Farms does not harvest mussels from this location, we simply purchase harvested mussels.² When questioned under oath, however, Mr. Peterson indicated that Aquaculture Harvesters, a wholly-owned GEMF subsidiary, harvests the site free of charge, and Gem Mara, another wholly-owned GEMF subsidiary, provides the harvesting vessel, Mumbles, again free of charge.
(f) The Proposed Decision states that, according to me, ³the applicant is a contract farmer and thus a de facto employee of Great Eastern Mussel Farms. Alternatively, [Ms. Mills] states that it is a partnership and the application should have been submitted jointly.² This mis-states my argument which is set out in my letter to the DMR dated February 12, 2004, and incorporated as written testimony. As I conclude in my letter, ³. . . irrespective of the parties¹ intent, there is substantial evidence that, as a matter of law, Mr. Larrabee is a contract farmer for or de facto employee of GEMF/Gem Mara. If this is the case, the application has been submitted in the wrong name. In the alternative, the parties have formed a de facto partnership or joint venture, in which case the application should properly have been submitted in joint names and should be amended to comply with the procedures for partnership applicants set out DMR Reg. 13-188, Chapter 2.12. At the very least, the relationship should be made apparent on the face of the application in the interest of public disclosure.² The disclosures made by Mr. Peterson during his testimony also point to the possibility of one such relationship (or a hybrid) existing between Mr. Larrabee and Aquaculture Harvester, Inc.
The Proposed Decision states that, in raising the issue of the nature of the relationship between Mr. Larrabee and GEMF, I relied on an article in Working Waterfront. While it is true that the Working Waterfront article initially alerted me to the issue, my concerns were further compounded by the testimony of Mr. Larrabee and Mr. Peterson.
II. Navigation
I respectfully submit that the Proposed Decision is flawed with respect to navigation as a matter of law in that it considered irrelevant testimony. In particular, on the face of the Proposed Decision, the DMR allowed evidence as to whether or not the site amounts to a ³navigational hazard² when the only relevant criteria is whether or not it ³unreasonably interferes with navigation.² I submit that it is possible for an obstruction to unreasonably interfere with navigation, but fall short of being a navigational hazard. At the same time, evidence of the existence of a navigational hazard is proper in the context of demonstrating the presence of an unreasonable interference with navigation.
In other words, evidence that the site presents a navigational ³hazard² is relevant in that it points towards the possibility of an ³unreasonable interference with navigation.² It is, however, improper to conclude that a site does not unreasonably interfere with navigation on the basis that it does not amount to the level of a ³hazard.²
In particular, the DMR should properly have discounted the following testimony as irrelevant:
(a) The following conclusion of Department¹s Aquaculture Environmental Coordinator (AEC) as cited in the Proposed Decision: ³[T]he proposed lease activities would not pose a navigational hazard to the prudent mariner.² This statement is irrelevant; the question is whether or not a site unreasonably interferes with navigation, not whether it constitutes a ³hazard² to the ³prudent marine.²
(b) Shawn Mahaney of the U.S. Army Corps of Engineers who, according to the Proposed Decision, testified that, ³the proposed lease does not pose a navigational hazard because it is located in open water and not a navigational channel. Mr. Mahaney testified that, worst case, the proposed lease may be an inconvenience, but not a hazard.² Again, this testimony is irrelevant; it draws a conclusion based on the wrong standard. By the same token, an ³inconvenience² may well rise to the level of an unreasonable interference with navigation and other uses of the area.
The AEC¹s testimony should also have been properly discounted as the site visit that formed the basis of his testimony was conducted on November 11, 2003, when navigational traffic was at a minimum. The direct testimony of the numerous people who regularly sail or look out at the area should properly carry more weight than the observations of a DMR official, however competent, who only had the benefit of visiting the site once in the Fall.
According to the Proposed Decision, ³the applicant testified that he has monitored activity near the rafts and, other than one boat that became caught up in the mooring lines, he has not observed anyone come close to the rafts. With regard to the one incident, the applicant testified that a boat headed to Castine became caught up on the rafts. He stated that he went out to the lease site with a diver and untangled the boat.² [3] <#_ftn3> This incident was also reported by the AEC. This incident alone points to the existence of an unreasonable interference with navigation and other uses of the area.
Given the testimony of one actual collision and at least four additional near misses,[4] <#_ftn4> the Proposed Decision also fails to discount the testimony of Northport Harbormaster Mike Brown who, as the Proposed Decision notes, stated that ³since the mussel rafts were placed on the experimental lease, there have been no collisions with the rafts reported to him.² In addition, Mr. Brown did not attend the hearing and, so, it was not possible to question him about his testimony. Intervenors were told that, since Mr. Brown was unavailable for questioning, they could respond to his testimony by submitting written comments. I am aware of at least two such responses: one by Todd Park Merolla dated March 2, 2004, the other by William A. Sumner dated February 28, 2004. The Proposed Decision fails to address the concerns raised by these responses and to discount the testimony of Mr. Brown accordingly.
The evidence provided by local residents and Town officials with direct knowledge of the character of the area throughout the year should properly have carried more weight than that of an official, however skilled, who only visits the site once in the Fall. Such local evidence includes the following:
(a) Captain Galen Plummer testified that he is amply familiar with the area. He expressed concern for small craft safety. He estimated that approximately 50-60 boats go by his house on the weekend. He presented a chart. According to him, ³the lease site presents an obstruction to the normal tracks used by boaters going to and from Belfast and Bayside and is a serious hazard to navigation.² (In this case, evidence of a ³hazard² is relevant and useful in that it suggests that the lesser state of an ³unreasonable interference with navigation² is also present.) He further noted that, ³the majority of small craft do not have radarif a person knows the rafts are there, they would likely get around them, but an unaware seaman could get into trouble in foul weather.² He concluded, ³In my opinion, it is just a matter of time that an unsuspecting seaman will collide with the farm as apparently occurred last summer, but the next time we might not be as lucky and lose some lives.²[5] <#_ftn5>
(b) Selectman John Burgess on behalf of the Town of Northport also testified to the fact that the proposed site was in the wrong location because it is a, ³heavily trafficked leisure boating area.²
(c) Bill Haverty, Commodore of the Northport Yacht Club on behalf of the Yacht Club, testified that the experimental lease is a, ³detriment to the existing use of the area as well as a substantial navigational hazard.² He pointed out that the Northport Yacht Club has held weekly sailboat races in the specific area for well over 50 years. He explained, that the existing experimental mussel platforms ³are low lying and are held in place by inch-and-a-half poly-steel cables which extend hundreds of feet, creating a dangerous web; thus presenting the very real possibility of disaster to any boat in the area. With this area of our coastline being used by hundreds of boaters yearly, it is just a matter of time before a serious accident occurs.²[6] <#_ftn6>
(d) The Northport Harbor Committee also testified that the location represents an ³unreasonable interference with safe navigation and restricts fishable bottom to local lobstermen.²
(e) Finally, according to the Proposed Decision, at least three other residents of Northport testified that the lease ³is an obstruction in the middle of a lot of boat traffic.²
At the very least, we submit that there should be an express condition of the lease that the applicant maintain a suitable policy of liability insurance in the event of loss or damage to life or property. Mr. Larrabee testified that he maintains such a policy for $300,000. This policy should be made part of the record and the amount should be increased significantly in accordance with the testimony of one of the members of the public.
Finally, pursuant to Chapter 2.31(1)(A)(2) of the DMR Regulations, the Commissioner ³shall consider the current uses and different degrees of use of the navigational channels in the area in determining the impact of the lease operation² The Proposed Decision states that, ³the proposed lease site is not located within a marked navigational channel . . . . Navigation in the immediate area of the lease consists of local commercial and recreational boaters traversing to and from Belfast and Bayside. The larger tankers and barges travel in the navigational channel.² The fact that the proposed site is not in a ³marked² channel does not mean that it is not in a channel.² According to the testimony of Northport Selectman John Burgess, the Northport Harbor Committee, Captain Galen Plummer, the Northport Yacht Club, and others, the proposed lease site is situated in a ³fairway.² As explained at the hearing, a fairway is a frequently used course or channel to go from one point to another, and a channel may be designated by any means, not necessarily by markers or a designation on a chart.
The Proposed Decision acknowledges that, ³[t]he area of the proposed lease is heavily trafficked in the summer months with recreational boaters,² and that, [o]ther uses of the area include canoeing, kayaking, swimming and sailboat racing.² Therefore, since such traffic occurs in a fairway, a form of channel, this factor should have been accorded more weight in consideration of the current uses and different degrees of use of all navigational channels in the area.
III. Navigation and Damage to the Rafts
We respectfully submit that the Proposed Decision is flawed as matter of law with respect to its conclusion that the proposed lease will not unreasonably interfere with navigation on the further grounds that the record shows that debris from the rafts poses in itself an unreasonable interference with navigation.
The Proposed Decision states that, ³[t]he record contains no evidence that the conditions of the rafts and supporting equipment have caused interference in the area with navigation, riparian access or other uses of the area.² Whether or not there is evidence of actual incidents at the experimental site may be useful, but is not determinative as to whether or not the proposed site under the application will unreasonably interfere with navigation or other uses. In addition, the record contains evidence that there is significant potential for such unreasonable interference.
According to the Proposed Decision, ³[t]he applicant testified regarding damage to the rafts that occurred over the winter. He testified that he lost 8 planks and 7 floats from three rafts, due to winter storms and rough seas. The planks were empty and did not have ropes attached. He stated that it took 21/2 months to repair the rafts because the boat he hired to do the work was being repaired. The applicant testified that he did not see any urgency this winter to repair the rafts, but if it occurred in the summer or it was an emergency he would repair the rafts right away. Todd Park Merolla testified as to damage to the rafts he observed from the shore and introduced photographs of the rafts from January and December 2003. Additionally, Joseph Krulis testified that he observed 2 floatation tanks break free of the rafts,² and reported this to the Coast Guard Station in Rockland. When questioned, the AEC stated that debris may pose a hazard to navigation. In addition, when questioned about whether debris would pose a hazard to navigation, Shawn Mahaney of the US Army Corps responded, ³It would be if you ran into it,² and expressed concern if necessary repairs to the rafts did not occur in a timely fashion.
We contend that debris from the site does, in fact and in law, create an unreasonable interference with navigation and other uses of the area.
IV. Unreasonable Impact from Noise at the Boundaries of the Lease Site
William Sumner, the closest neighbor to the rafts, asked Mr. Larrabee how he is supposed to get his new granddaughter to take a nap with the blasting rock music coming from the site. Mr. Larrabee said that he would simply have to ask him to stop playing the radio and he agreed that he would. The Proposed Decision cites this agreement: ³When questioned regarding loud music that is played on the barge, the applicant stated that he would have the music turned off.² The AEC also indicated that the loud music is a serious problem.
The Findings of Fact state: ³When harvesting the mussels on the experimental lease site, loud music on the barge was heard from the shore. The applicant agreed that, when the barge is used on the proposed lease site, the music will be turned off. . . . I find that the proposed lease will not result in an unreasonable impact from noise and lights at the boundaries of the lease site, as long as the music on the barge is turned off.²
Since the hearing, but prior to the date of the Proposed Decision, a local resident reported to the DMR that loud music continued to be played from the site. This represents a serious hardship on the neighborhood at large, and my Client in particular. It indicates that Mr. Larrabee has no intention of upholding the promise he made at the hearing to keep the music turned off.
We respectfully ask that an express condition be included in any lease that the lease activities will not create an unreasonable impact from noise at the boundaries of the lease site and that music will not be played at the site.
V. Defects in Application
The Proposed Decision fails to address my concern set out in my written testimony that the application is incomplete for failure to provide the required financial information under the DMR Regulations. As I note in my testimony, Pursuant to DMR Reg. 13-188, Chapter 2.10(3)(9), in order for an application to be considered complete, the applicant, ³at a minimum,² ³shall prove that it has obtained all of the necessary financial resources to operate and maintain all aspects of the proposed aquaculture activities. Each applicant shall submit accurate and complete cost estimates of the planned aquaculture activities. The following submissions are acceptable as indicating adequate financial capacity.
A. a letter from a financial institution or funding agency showing intent or willingness to commit a specified amount of funds, or
B. the most recent corporate annual report and supporting documents indicating sufficient funds to finance the aquaculture activities, or
C. copies of bank statements or other evidence indicating availability of the unencumbered funds or proof that equipment and seed stock are available to the applicant.
The applicant appears to have failed to comply with any of these requirements. In Part 9(a) of his application, he refers to an attached ³lease agreement from Gem Mara Farms, LLC, Inc for the mussel rafts,² yet fails to attach any such lease agreement. There is only a letter from Mark Peterson of Gem Mara, dated May 23, 2002, indicating Gem Mara¹s ³willingness to help [the applicant] obtain mussel aquaculture rafts for [his] pending operation.²
Further, the applicant lists certain cost estimates in 9(b) of his application, yet fails to mention at least the following:
- the salaries of the 3-5 (and later 4-6) part-time employees the applicant plans to hire for the seeding and harvesting phase according to Part 11 of his application;
- the expense of insuring the site;
- the expense of predator nets;
- the expense of hiring ³Thunder Bay² (referred to in the attached article) to ³pull the net, shake off mussel seed, sort and sock it, reseed the raft and replace the nets.² According to the article, ³Because hiring Thunder Bay involves extra expense, Larrabee is having a barge built and plans to buy equipment for sorting and socking, and he also anticipates finding a site to grow his own seed.²
When questioned about such missing financial data, Mr. Larrabee responded, ³What business is it of yours?² The DMR should properly have requested this information.
Thank you for your attention.
Very truly yours,
Sally N. Mills
SNM:sm
email: sally@halehamlin.com
http://www.halehamlin.com
END OF RESPONSE TO DRAFT DECISION BY SALLY MILLS, ATTY