Opinion ID: 1746375
Heading Depth: 2
Heading Rank: 1

Heading: substantial evidence/error of law

Text: EnviroClean argues the decision to revoke its permit is not supported by substantial evidence and is contrary to the concepts of corporate law. Specifically, EnviroClean contends that the sale of 100% of its stock did not result in a transfer of the permit. In support of this argument, EnviroClean relies on Atkinson v. Reid, 185 Ark. 301, 47 S.W.2d 571 (1932) and Red Bird Realty Co. v. South, 96 Ark. 281, 131 S.W. 340 (1910). Atkinson stated that the distinct identity of a corporation, separate from its shareholder, is not lost due to the fact that a single shareholder owns all of the corporation's stock. Red Bird Realty held that title to corporate property remains with the corporation regardless of who owns the stock. EnviroClean's argument continues with the assertion that ADPC & E erroneously pierced the corporate veil in concluding the permit was transferred. ADPC & E responds with the claims that there is substantial evidence to support its actions without applying concepts of corporate law, and alternatively, that the form of the corporate entity may be disregarded on the facts of this case. We agree with the foregoing rules of corporate law enunciated in Atkinson and Red Bird Realty , regarding the separate ownership of property by a corporation and its shareholders. However, corporate law is not the only area of law to be considered here. To the contrary, this is a case in which corporate law collides head-on with administrative law and its underlying public policies. ADPC & E administers the Arkansas Water and Air Pollution Control Act, which has a legislative intent of maintaining the purity of the air resources of the state so that the least possible injury should be done to human, plant or animal life consistent with the public enjoyment of the state and the state's economic and industrial well-being. Ark.Code Ann. § 8-4-301 (Repl.1991). As the agency charged with administering the Water and Air Pollution Control Act, ADPC & E is given authority to issue, modify, and revoke permits regulating the emission of air pollutants. Ark. Code Ann. §§ 8-4-203, -304 (Repl.1991). ADPC & E may revoke a permit for violation of any condition of the permit or when the permit is obtained by misrepresentation or failure to disclose fully all relevant facts. Ark.Code Ann. § 8-4-204 (Repl.1991). Moreover, Ark.Code Ann. § 8-4-217(a)(3) (Repl.1991) makes it unlawful to violate any provision of a permit. This court has stated that in special circumstances the court will disregard the corporate facade when the form has been illegally abused. Black and White, Inc. v. Love, 236 Ark. 529, 367 S.W.2d 427 (1963). Giving the evidence its strongest probative force in favor of the administrative agency as we are required to do, Arkansas Contractors Licensing Bd. v. Butler Constr. Co., 295 Ark. 223, 748 S.W.2d 129 (1988), our review of the record reveals there is substantial evidence that BioMed and EnviroClean sought to abuse the corporate form to achieve a transfer of the permitted facility in violation of paragraph 12 of the permit. The prohibition on transfers as stated in paragraph 12 of the permit enables ADPC & E to know who is responsible for the operational decisions of the permitted facility and thereby enables ADPC & E to prevent harm to the environment and the public. Thus, there is substantial evidence to support ADPC & E's disregarding the corporate facade and concluding the permitted facility was transferred. In other words, there is substantial evidence to support the revocation of EnviroClean's permit. The record reveals EnviroClean was originally owned by Johnson as the sole shareholder. Upon the sale of EnviroClean stock, the four officers of EnviroClean resigned their offices and waived any rights to EnviroClean's assets or permits. BioMed and EAC had common officers and shareholders and after the purchase of EnviroClean, the officers and shareholders of BioMed and EAC were common with EnviroClean. BioMed and EAC had the same office, telephone number, and address in Boston, Massachusetts. Two of BioMed's shareholders, on behalf of BioMed, furnished all of the funds in acquiring EnviroClean. That BioMed was deceptive in its efforts to obtain a permit issued to another corporation (i.e., EnviroClean as it existed prior to the change in ownership and control) is evident in several of the documents surrounding the sale of EnviroClean to BioMed. The parties contemplated a sale of a permit with incinerator capacity of 1,0001,500 pounds per hour. EnviroClean only possessed a permit with a capacity of 250 pounds per hour. Thereafter, EnviroClean made application for increased capacity and the resulting permit was issued. The parties then contemplated a sale of stock in EnviroClean as well as the sale of the only assets of EnviroClean, which were described as the permit for 1,500 pounds per hour and an option to purchase 2.3 acres of real estate. BioMed had the option to purchase the real estate for the site of the incinerator and to acquire the stock of EnviroClean (and thereby to acquire the permit held by EnviroClean). The documents also indicated the transaction included complete control of the construction and operation by BioMed under the permit previously obtained by EnviroClean. That EnviroClean and BioMed sought to circumvent the permitting process and obtain a permit it could not otherwise obtain is also evident in the prospectus BioMed registered with the Securities and Exchange Commission for its initial public offering of common stock. The prospectus states in pertinent parts: BioMedical Waste Systems, Inc. is a development stage company organized to develop, construct, and operate medical waste incinerators and transfer stations.... On May 31, 1991[,] the Company's wholly owned subsidiary, EnviroClean Acquisition Corporation purchased the stock of EnviroClean, Inc., a company formed in 1990 to open and operate an 18 ton per day incineration facility in St. Francis County, Arkansas. (References in the Prospectus to the Company include the Company and its subsidiary EnviroClean Acquisition Corp.) EnviroClean has not commenced construction of any facilities and currently has no operations. However, it has been granted a permit by the Arkansas Department of Pollution Control and Ecology to construct and operate an incineration facility.... . . . . The Company, through the acquisition of EnvironClean [sic], has obtained a permit from the Arkansas Department of Pollution Control and Ecology for the construction of its first incinerator.... In addition, the permit for the St. Francis facility are [sic] subject to continued review by the Director of the Arkansas Department of Pollution Control and Ecology, and no assurance can be given that the permit will not be modified or even revoked in the future. The evidence also reveals that EnviroClean and BioMed sought to abuse the corporate form by misrepresenting the change in ownership and control to ADPC & E. On behalf of EnviroClean, Johnson wrote to the chief of ADPC & E's air division and requested ADPC & E's opinion as to the effect of a sale of stock on the permit. ADPC & E assured EnviroClean that a sale of stock would have no effect on the permit. However, EnviroClean's request did not fully disclose the particular sale of 100% of the stock and the accompanying change in control of EnviroClean that actually occurred in this case; rather, Johnson's written request referred to a mere change in shareholders. Without question, there was more than a simple sale of stock going on here. Even more significant, however, is the fact that the change in complete ownership and complete control was under negotiation at the very moment in time EnviroClean requested ADPC & E's opinion as to the effect of a change in shareholders and at the time EnviroClean was granted the increase in capacity of its permit. Equally significant is the intent of BioMed to acquire EnviroClean's existing permit, rather than to apply for a permit itself as required by paragraph 12 of the permit in question. The foregoing evidence of a transfer of the permitted facility from EnviroClean to BioMed along with the failure to disclose information as to the change in ownership and control of EnviroClean is substantial evidence in support of ADPC & E's revocation of the permit. Our conclusion that a transfer of the permit and permitted facility occurred is a conclusion we reach because of our required deference to an administrative agency's determination within its proper police power. We therefore hold there is substantial evidence to support ADPC & E's actions in revoking EnviroClean's permit and that no error of law was committed in the revocation.