Opinion ID: 2347740
Heading Depth: 1
Heading Rank: 2

Heading: Pinegrove and Sherwood Developments

Text: Leroy Waycott has served as president of Saco Construction, Inc. from the formation of the corporation to the present time. His wife, Noreen, was the sole stockholder of the corporation from September 11, 1969 until October 12, 1971. On the latter date, Leroy Waycott became the majority and controlling stockholder of Saco Construction, Inc., with his wife retaining the remaining shares. On October 16, 1970, Saco Construction, Inc. purchased a 30-acre tract of land adjoining Hillview Heights Sections 1 and 2. The corporation subsequently divided the parcel into two 15-acre subdivisions entitled Pinegrove and Sherwood respectively. The plans for these subdivisions were given final approval by the Saco Planning Board and recorded in the York County Registry of Deeds in May, 1971. In the spring of 1971, Leroy Waycott formed two new corporations: Pinegrove Corporation and Sherwood Development Corporation. Saco Construction, Inc. then sold Pinegrove to the Pinegrove Corporation in exchange for 120 shares of its stock, and deeded Sherwood to Sherwood Development Corporation for 80 shares of its stock. As a result of these transactions, Saco Construction, Inc. became the controlling stockholder in these two newly-formed corporations. Since the formation of Pinegrove Corporation and Sherwood Development Corporation, Leroy Waycott has been the president and sole employee of both corporations. In spite of the conveyances of Pinegrove and Sherwood, Saco Construction, Inc. has remained the moving force in the development of the two 15-acre subdivisions. Pinegrove Corporation's only role in the development of Pinegrove has been to resell individual lots back to Saco Construction, Inc. The parent corporation would then assume exclusive responsibility for the construction of houses upon the lots, and for the eventual sale of the completed residences to the public. Pursuant to this arrangement, Saco Construction, Inc. has either completed or initiated the building of 17 new residences in Pinegrove. Although actual construction has not yet occurred on Sherwood, the defendants intended at the time of the formation of the Sherwood Development Corporation to employ a similar procedure for the development of that subdivision. The provisions of the Site Location Law apply to developments which may substantially affect the local environment, which the statute defines, in pertinent part, as any commercial or industrial development, including subdivisions, . . . which occupies a land or water area in excess of 20 acres . . .. 38 M.R.S.A. § 482(2) (Supp.1973). The defendants argue that, since Pinegrove and Sherwood each contain less than 20 acres of land owned by two separate and distinct corporations, the subdivisions are not subject to regulation under the statute. In response to the defendants' argument, the plaintiffs contend inter alia that the two subsidiary corporations were created for the purpose of circumventing the statute. The plaintiffs do urge this Court to disregard the separate identities of Pinegrove Corporation and Sherwood Development Corporation, and treat the two 15-acre subdivisions as a single development within the meaning of the Site Location Law. The underlying purpose of the Site Location Law is to control and regulate the location of fairly large land subdivisions and developments to minimize adverse environmental impacts which may result from the selection, for such subdivisions and developments, of land areas not suitable for the same without exposing the environment, and in consequence the public, to serious injury. In re Belgrade Shores, Inc., Me., 371 A.2d 413 (1977); In re Spring Valley Development, Me., 300 A.2d 736 (1973). As stated in In re Spring Valley Development, supra, at 752: The purpose, as we have said, was to control the locations of those commercial and industrial developments which could substantially adversely affect the environment. The Legislature evidently concluded that the size of a development has a distinct relationship to the amount of its potential adverse impact upon the environment and concluded that at this time the public interest could best be served by applying the admittedly severe restrictions of the new law to large developments. Since the Site Location Law is directed toward the regulation and control under the Board of Environmental Protection of land areas in excess of 20 acres to be used in commercial or industrial subdivisions or developments for the purpose of minimizing the likely adverse impact such projects may have on the environment, the defendants' deliberate choice to divide the single tract purchase into two distinct programs, labelled Pinegrove and Sherwood, gave rise to the plaintiffs' claim that this preliminary dissection of the area into two equal plots under the 20 acre restriction was but an ingenious attempt to avoid and evade the law. We recognize that courts have been reluctant to disregard the legal entity of corporations and will do so with caution and only when necessary in the interest of justice. See Bonnar-Vawter v. Johnson, 157 Me. 380, 173 A.2d 141 (1961); Maine Aviation Corporation v. Johnson, 160 Me. 1, 196 A.2d 748 (1964). It is well settled, however, that a court will disregard the fiction of a corporation's separate identity whenever the concept is asserted in an endeavor to circumvent a statute and defeat legislative policy. See Bangor Punta Operations, Inc. v. Bangor & Aroostook R. Co., 417 U.S. 703, 713, 94 S.Ct. 2578, 2584, 41 L.Ed.2d 418 (1974); People ex rel. Brown v. Illinois State Troop L. No. 41, 7 Ill.App.3d 98, 286 N.E.2d 524 (1972); Kavanaugh v. Ford Motor Company, 353 F.2d 710 (7th Cir.1965); Anderson v. Abbott, 321 U.S. 349, 362, 363, 64 S.Ct. 531, 538, 88 L.Ed. 793 (1944); Metropolitan Holding Co. v. Snyder, 79 F.2d 263 (8th Cir. 1935). Responding to the above line of cases, the defendants argue that Leroy Waycott did not form the two subsidiary corporations with the intention of circumventing the Site Location Law. Rather, the defendants allege that this particular corporate format was adopted in order to minimize financial risk, to protect corporate property from a New Hampshire suit pending against Leroy Waycott, and to create a more advantageous pension and profit sharing plan. We need not decide, however, whether the intention of the incorporators is a controlling element in such cases. True, the United States Supreme Court stated in Anderson v. Abbott, supra 321 U.S. at page 363, 64 S.Ct. at page 538, that the interposition of a corporation will not be allowed to defeat a legislative policy, whether that was the aim or only the result of the arrangement. Accord; Casanova Guns, Inc. v. Connally, 454 F.2d 1320, 1323 n.2 (7th Cir. 1972). But see People ex rel. Brown v. Illinois State Troop. L. No. 41, supra. The interposition of the corporate structure employed in the present case would exempt Pinegrove and Sherwood from the operation of the Site Location Law, thereby defeating the legislative policy that developments in excess of 20 acres should be subject to regulation under the statute. In the instant case, the presiding Justice rejected the defendants' allegation of a lack of intent to circumvent the statute, finding, as he did, as follows: The facts of this case lead irresistably to the conclusion that a substantial motivation for dividing the 30-acre tract into two 15-acre subdivisions each owned by a separate corporation, with each of the separate corporations being a subsidiary of the same parent corporation, and the entire corporate structure under the control of a single individual was to avoid and evade regulation under the Site Selection Law. We cannot say that this finding of fact is clearly erroneous. The formation of the two subsidiary corporations occurred well after the enactment of 38 M.R.S.A. §§ 481-488 (Supp.1973), which suggests that the corporate format was adopted for the purpose of avoiding the statute. The fact that Pinegrove Corporation and Sherwood Development Corporation have no real function other than to hold and supply lots to Saco Construction, Inc. makes this suggestion compelling, especially in view of the defendants' failure to explain why the other alleged business purposes for forming the two corporations could not have been satisfied by the creation of a single subsidiary corporation. Under the circumstances, the decision below must stand on appeal. The entry will be Appeal denied. Judgment affirmed. POMEROY, WERNICK and ARCHIBALD, JJ., concur. DELAHANTY, J., did not sit.