Direct Result of Disaster, Legal Responsibility–Private Entity

Appeal Brief

Appeal Letter

Appeal Analysis

Background

In September 2008, Hurricane Ike impacted the state of Texas, including Galveston County, where the Port of Galveston (Applicant) is located.  The Applicant suffered extensive damage, resulting in preparation of numerous project worksheets (PW), including several to address storm induced erosion at a number of piers.  On July 17, 2014, the Applicant submitted a proposed project, prepared by its consultant, seeking funding for repair of Pier 14 East (Facility). 

The Applicant stated that the storm surge’s uplift and rapid drawdown caused erosion damage, washing out the backfill under the concrete slab supporting the Facility and undermining its structural integrity.  Because access to the Facility was limited, the Applicant’s engineering consultants were unable to use ground penetrating radar studies to document or quantify specific damage, as done at other piers.  The Applicant explained, however, that these studies were performed on Pier 14 West, and could be used as a basis for estimating damage at Pier 14 East.  The Applicant proposed a scope of work (SOW) that consisted of demolishing and excavating the existing facility and installing new sheet piling, concrete, and flowable fill, at an estimated cost of $796,800.00.[1]

On August 4, 2014, the Federal Emergency Management Agency (FEMA) issued a request for information (RFI), stating that the Applicant had not provided any quantifiable description of the disaster related damage.  It noted that the Pier 14 T-Head, which joined Pier 14 East and West on the north side, had been determined to be unsafe and closed prior to the storm, and pre-disaster aerial images of the Facility suggested that that the pier was not in active use and that the surface was already failing.  Accordingly, the RFI requested documentation clarifying whether the Facility was in active use, establishing that it was properly maintained, and quantifying specific damages that were a direct result of the disaster. 

The Applicant responded on January 20, 2015, submitting a vessel activity report showing that the Facility was used for dockage up until the date of the disaster.  On February 8, 2016, FEMA determined that, while it would proceed with funding some projects to address storm induced erosion at other piers, the Facility was not eligible for Public Assistance (PA) because the Applicant had not established that the Facility was in active use at the time of the disaster, and because the repair of the pre-existing condition of the Facility was ineligible for funding.  In conjunction with this determination, FEMA prepared PW 15838, which it obligated in the amount of zero dollars.  The Texas Department of Public Safety (Grantee) informed the Applicant of FEMA’s determination in a letter dated March 3, 2016, which the Applicant received on March 16, 2016.

First Appeal

The Applicant appealed FEMA’s determination that the Facility was ineligible for PA funding in a letter dated May 11, 2016.  The Applicant argued, first, that the Facility was in use at the time of the disaster.  It resubmitted the vessel activity report showing the vessels that docked at the pier up to the time when Hurricane Ike made landfall.  With respect to the pre-disaster condition of the Facility, the Applicant asserted that FEMA had already deemed it to be eligible.  It pointed to two PWs (PW 13294 for emergency work and PW 15804 for permanent work), that FEMA previously obligated.[2]  The Grantee forwarded the Applicant’s appeal in a letter dated May 19, 2016, supporting the appeal.

On October 4, 2016, FEMA sent a final RFI to the Applicant expressing concern that the administrative record was insufficient to establish eligibility for PA funding.  It noted that the record indicated that the Facility was leased at the time of the disaster and requested an executed copy of the lease, along with any sub-lease that was in place.  FEMA also reiterated its prior statement that the pre-existing condition of the Facility could render it ineligible for PA funding, and requested maintenance records, inspection reports, and any other available documentation that could establish the condition of the Facility prior to the disaster.

The Applicant responded to the final RFI on November 4, 2016, attaching a copy of the lease agreement between itself and Malin International Ship Repair & Drydock Inc. (Malin), as well as the sublease agreement between Malin and BJ Services Company, U.S.A. (BJ).  With respect to the request for maintenance documents, the Applicant attached a letter from the Construction Services Manager (prepared in response to a different PW), stating that all service records had been lost in the storm, but explaining that the Applicant’s engineering and maintenance departments received reports of damage from individuals who had access to the pier system and, upon receipt of these reports, the Applicant immediately issued a work order to address the damage.  The letter further explained that, due to the nature of maritime business, repairs were performed as quickly as possible to ensure public health and safety.  The Applicant also attached satellite images of the Facility prior to Hurricane Ike and photos of the damage to the Facility after the disaster.

On February 16, 2017, the FEMA Region VI Regional Administrator (RA) determined, first, that the Applicant had demonstrated that the Facility was in active use.  The RA found, however, that the Applicant did not have legal responsibility for repairing the Facility.  The RA noted that the lease agreement with Malin provided that the lessee must repair the Facility if it was partially damaged or destroyed by a hurricane.  Second, the RA found that the pre-existing condition of the Facility prohibited FEMA from providing assistance.  The RA noted that the sublease agreement with BJ described the Facility as being in poor condition, with concrete fallen in due to washing out underneath the concrete slab.  Accordingly, the RA denied the first appeal.

Second Appeal

In its second appeal, dated April 24, 2017, the Applicant argues that it does have legal responsibility for repairs to the Facility.  It notes that another portion of the lease provides that, if the Applicant determines, in its sole discretion, that the pier is totally destroyed, it may terminate the lease, in which event it would be entitled to all insurance proceeds.  The Applicant asserts that the Facility was totally destroyed because it was no longer operable, and that it terminated the lease when it amended the agreement in 2009 to move Malin to another pier.  It also argues that it was in the process of relocating Malin to another pier prior to the disaster, as evidenced by repairs being made to the other pier.  Regarding the pre-disaster condition of the Facility, the Applicant points to the satellite images of the pier prior to the disaster and contrasts them with the photos taken of the damage to the pier after the disaster.  The Grantee forwarded the Applicant’s second appeal on April 25, 2017.

Discussion

Direct Result of Disaster

In order to be eligible for PA funding, an item of work must be required as a result of a major disaster.[3]  Damage that results from a cause other than the designated event, or work to correct inadequacies that existed prior to the disaster, is not eligible.[4]  Work required to correct damage from deferred maintenance is not eligible because it does not meet the requirement of being disaster related.[5]

The Applicant provided a statement from its Construction Services Manager to illustrate the maintenance procedures that were in place prior to the disaster.  The record demonstrates, however, that the Facility was already in a state of disrepair prior to the disaster.  Exhibit D attached to the sublease agreement between Malin and BJ, which was dated January 1, 2007, stated that the bulkhead and concrete pad was in very poor condition, there was at least one area where the concrete had fallen in due to a washout, washout under the concrete slab was occurring due to the poor condition of the sheet pile bulkhead, and erosion was occurring all along the pier.[6]   This is the same type of damage for which the Applicant now seeks funding to repair.  Work necessary to correct the Facility’s predisaster inadequacies is not eligible for PA funding, and the Applicant has not established that the proposed work was required as a direct result of the disaster.[7]  Therefore, the Applicant’s proposed SOW is ineligible.

Legal Responsibility

In order to be eligible for PA funding, an item of work must be the legal responsibility of an eligible applicant.[8]  To meet this requirement, both the facility and the work must be the legal responsibility of the applicant.[9]  This requirement applies at the time of the disaster.[10]  Ownership of a facility is usually sufficient to establish legal responsibility for repair work, but where a facility is under a lease agreement, a tenant will be responsible if the terms of the lease specifically make the lessee responsible for disaster related damage.[11]  FEMA will sometimes approve the transfer of legal responsibility from one eligible applicant to another after a disaster, but if an eligible applicant did not have legal responsibility at the time of the disaster, the project is ineligible for assistance.[12]

Here, the lease agreement specifically made Malin (the lessee), a for profit entity not eligible for PA, rather than the Applicant (the lessor), legally responsible for the Facility in the event that it was damaged or partially destroyed by a hurricane.[13]  The lease also made Malin legally responsible in the event that the Facility was totally destroyed, unless the Applicant later elected to terminate the agreement.[14]

Under the terms of the lease, Malin was legally responsible for the repair of damage to the Facility at the time of the disaster.  While the lease gave the Applicant the discretion to terminate the lease at some point after the disaster, thereby assuming legal responsibility for the repair of damages to the Facility, this lessor right has no bearing on FEMA’s PA eligibility determination.  As FEMA’s Public Assistance Guide explains, a post-disaster transfer of legal responsibility from an ineligible applicant to an eligible applicant does not make the Facility eligible for assistance.[15]

Conclusion

The Applicant has not established that the repair work for which it sought PA funding was required as a direct result of the disaster.  Moreover, it did not have legal responsibility for repairs to the Facility at the time of the disaster.  Accordingly, the project is ineligible.