167 Ohio App. 3d 64 | Ohio Ct. App. | 2006
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *66 {¶ 1} Mercomp, Inc. appeals from an order of the trial court granting summary judgment in favor of the state of Ohio. It claims that the court erred in granting summary judgment and piercing its corporate veil, by finding individual liability of the company's sole shareholder, by finding Mercomp subject to injunctive relief, and by refusing to conduct an in camera inspection of documents that the state of Ohio claimed were privileged. We affirm.
{¶ 2} The record reveals that in the early 1950s, Harry Rock formed Harry Rock Co. ("HRC") to buy and sell scrap metal. Several years later and in February 1965, Cleveland Land Development Company ("CLD") was formed and incorporated as a separate entity, but apparently had little responsibility through HRC.
{¶ 3} In the late 1970s, HRC diversified into the landfill business by buying property located at 1329 East Schaaf Road in Brooklyn Heights, Ohio ("the landfill"). The landfill was completed in 1980 and the property was deeded and titled to HRC. Following the completion of the landfill, CLD finally became fully functional and operated to lease the landfill from HRC. CLD, owned jointly by Manny Rock and Howard Bahm, operated the landfill from 1980 through May 1994.
{¶ 4} Shortly before the landfill ceased accepting solid waste and in December 1993, HRC sold all of its assets, with the exception of the landfill and two other properties, and changed its name to Mercomp, Inc. On May 31, 1994, CLD stopped accepting waste at the landfill. From this time forward, the sole function of Mercomp and CLD was to facilitate the closure of the landfill under R.C. Chapter 3734 and Ohio Adm. Code 3745-27.
{¶ 5} During this time period, and actually by 1990, Rock was the sole shareholder of CLD, HRC and Mercomp. By December 1996, CLD was merged into Mercomp, leaving Mercomp as the sole remaining and operational company.
{¶ 6} To facilitate closure of the landfill, Mercomp requested several extensions in order to properly close the landfill. Mercomp's first extension requested until June 30, 1995 to close the facility. Shortly thereafter, however, Mercomp requested a second extension, citing wet weather conditions in both the spring and summer of 1995. The Ohio Environmental Protection Agency ("Ohio EPA") denied the request, but informed both Mercomp and Rock that it would not implement escalated enforcement activities if closure was completed by December 31, 1995.
{¶ 7} Three years after this extended closure deadline, and on April 22, 1998, Mercomp submitted its first Closure Certification Report to the Ohio EPA. The *68 Ohio EPA informed Mercomp of several deficiencies in this report, and Mercomp submitted an amended closure report on August 30, 1998.
{¶ 8} Mercomp was again informed of deficiencies in its amended report and on February 16, 1999, Mercomp submitted an addendum to its previously submitted report. Due to remaining deficiencies, the Ohio EPA sent Mercomp a Notice of Violation letter advising it of 11 violations of Ohio Adm. Code Chapter 3745-27, citing specifically Mercomp's failure to properly fund a financial assurance instrument, which would provide for the continued postclosure monitoring of the landfill.
{¶ 9} In June 2000, Mercomp submitted a revised Ground Water Sampling and Analysis Plan to the Ohio EPA. After several notices of deficiencies in this plan and in September 2000, the Ohio EPA determined that the revised program was in compliance with Ohio Adm. Code
{¶ 10} In November 2000, the Ohio EPA notified Mercomp that based on its submitted reports and follow-up investigations by the Ohio EPA, closure construction activities had been completed in accordance with Ohio's solid waste rules, and that the postclosure period of the landfill officially began on September 7, 2000.
{¶ 11} The Ohio EPA continued to monitor Mercomp's reports and conduct its own investigations. The Ohio EPA repeatedly submitted notices of violations to Mercomp for environmental and human hazards, and its failure to properly fund a financial assurance program for the landfill.
{¶ 12} On July 18, 2001, the state initiated an enforcement action against Mercomp as a corporation and against Manny Rock as its sole shareholder. The complaint alleged violations of Ohio's solid waste regulations as set forth in Ohio Adm. Code Chapter 3745-27 and governed by R.C. Chapter 3734. The claims were brought specifically against Mercomp and Rock for their failure to (1) establish a financial assurance instrument for the landfill, (2) timely close the landfill, (3) conduct necessary ground water detection at the landfill, and (4) conduct ground water assessment monitoring at the landfill.
{¶ 13} Rock and Mercomp filed a counterclaim for abuse of process, which the trial court later dismissed. The state then voluntarily dismissed two remaining counts of its original complaint and proceeded on the first four claims. Both parties moved for summary judgment on the issue of Rock's individual liability, *69 and Mercomp and Rock moved for summary judgment on a selective-enforcement claim.
{¶ 14} In February 2003, the trial court granted the state's motion for summary judgment regarding Rock's individual liability and denied Mercomp's selective-enforcement claim, finding that it failed to meet the necessary elements to sustain such a claim. The court also denied Mercomp's motion for an in camera inspection of documents contained in the state's privilege log. In March 2003, Mercomp appealed the denial of summary judgment on the selective-enforcement claim, which this court dismissed for lack of subject-matter jurisdiction.
{¶ 15} In February 2004, a two-week hearing was conducted, and two months later, the trial court issued its findings of fact and conclusions of law, setting forth nine compliance orders and granting injunctive relief and a civil penalty. Mercomp again appealed. This court dismissed the case for lack of a final, appealable order due to the omission of a stated amount of attorney fees.
{¶ 16} The parties collectively resolved the omitted issue of attorney fees and Mercomp filed the instant appeal asserting the assignments of error set forth in the appendix to this opinion.
I. PIERCING THE CORPORATE VEIL
{¶ 17} In its first assignment of error, Mercomp asserts error in the trial court's grant of summary judgment and claims that there are genuine issues of material fact as to the elements necessary to pierce the corporate veil and find Manny Rock individually liable.
{¶ 18} We review the grant of summary judgment de novo, using the same standard as the trial judge, which requires granting the motion if there is no dispute of material fact and the moving party is entitled to judgment as a matter of law. Civ.R. 56(C); Bonacorsi v. Wheeling Lake Erie Ry. Co.,
{¶ 19} Under Civ.R. 56, summary judgment is appropriate when (1) there is no genuine issue of material fact, (2) the moving party is entitled to judgment as a matter of law, and (3) reasonable minds can come to but one conclusion and that conclusion is adverse to the nonmoving party, who is entitled to have the evidence construed most strongly in his or her favor.Horton v. Harwick Chem. Corp. (1995),
{¶ 20} A fundamental rule of corporate law is that, normally, shareholders, officers, and directors are not liable for the debts of the corporation. *70 Belvedere Condominium Unit Owners' Assn. v. R.E. Roark Cos.
(1993),
{¶ 21} Successfully piercing the corporate veil places personal liability on individual shareholders for the corporation's liabilities. Yo-Can, Inc. v. Yogurt Exchange,Inc.,
{¶ 22} In Belvedere, 67 Ohio St.3d at syllabus,
{¶ 23} As to the first prong of the Belvedere test, the record is replete with evidence of Rock's sole control over Mercomp. From 1990, Rock was the *71 sole shareholder of every corporation associated with the landfill. The admitted tax returns also showed that between 1990 and 1993, Rock was the sole shareholder and director of HRC immediately prior to its reorganization into Mercomp.
{¶ 24} Since Mercomp was created solely to facilitate the closure of the landfill, Rock's "role as the remaining director and officer of the companies has effectively been to serve as a steward winding-up the corporation's affairs." Rock's own testimony was that the name "Mercomp" was formed from his initials, "M," "E" and "R" and "Comp" for company.
{¶ 25} Even in 1996, when CLD merged with Mercomp, CLD was also wholly owned by Manny Rock. Further, Rock has been the sole shareholder, director, and corporate officer of Mercomp through its entire existence.
{¶ 26} Mercomp cites Carter-Jones Lumber Co. v. LTV SteelCo. (C.A.6, 2001),
[The shareholder's] argument, if we adopted it, would straightjacket the courts in situations where equity demands that the fiction of corporate personhood be ignored. Consider, for example, a case in which a corporation with a single shareholder kept immaculate corporate records, observed all the formalities required by corporate law, and was adequately capitalized. The shareholder never commingled funds, and never held himself out as personally liable for the corporation's debts. The corporation even does some legitimate business. Can it be that the shareholder is immunized from personal liability if he causes the corporation to commit an illegal act, no matter the degree of his control over the corporation with regard to the illegal act, no matter the harm to third parties, and no matter the other equities? Neither we nor the Ohio courts hold that such immunity exists.
{¶ 27} The second prong of the Belvedere test requires that the state of Ohio show that control over the corporation was exercised in such a manner as to commit fraud or an illegal act against the person seeking to disregard the corporate entity. Mercomp alleges that the trial court's entry determined that mereallegations of violations were sufficient to satisfy this prong of Belvedere. We disagree. *72
{¶ 28} In its February 11, 2003 journal entry, the trial court found that "[t]he court, being satisfied that the requirements of Belvedere have been met, finds that at trial Manny Rock may be held individually liable." (Emphasis added.) The trial court then entered a second journal entry further clarifying the first and finding that "[a]s indicated by the 2-11-03 entry, the court found in the affirmative and that at trial, should plaintiff establish their case, Manny Rock would be found liable. The court did not find that Manny Rock is liable at this time and thus granted Plaintiff's motion in part." (Emphasis added.) It was only after a full trial in February 2004 that the trial court found that Mercomp and Rock had actually committed the acts that the state had alleged.
{¶ 29} Mercomp also urges this court to reverse the trial court's determination since "no trial court in Ohio has held that mere regulatory violations by a corporation, absent affirmative wrongful conduct by the shareholder, is sufficient to satisfy the second prong of Belvedere." We find the state's authority that this is not the case to be persuasive.
{¶ 30} In State ex rel. Celebrezze v. Dearing (Nov. 13, 1986), Cuyahoga App. Nos. 51209, 51220, and 51221,
Finally, appellants contend that the trial court arbitrarily pierced the corporate veil in assessing civil penalties against the appellants individually. Appellants cite as authority for this proposition the case of State ex rel. Brown v. Dayton Malleable Inc. [(1982),
1 Ohio St.3d 151 ,1 OBR 185 ,438 N.E.2d 120 ]. (citation omitted.) A review of that decision does not reveal any basis for concluding that civil penalties may not be assessed against individuals. Under the relevant enabling statute in this case, R.C.3734.13 (C), the trial court is authorized to impose a civil penalty upon the person found to have violated Chapter 3734. See also, Centennial Ins. Co. v. Vic Tanny Int'l. (1975), 46 Ohio App.2d 137, 141 [75 O.O.2d 115,346 N.E.2d 330 ] (noting that corporate officers may be held personally liable for fraud even though the corporation may also be liable). Accordingly, it was not error to assess civil penalties against the appellants individually for their participation in the Northway operation.
{¶ 31} We therefore find that based upon the evidence submitted in this specific case, a sole shareholder or corporate officer may be held individually liable for a violation of R.C. Chapter 3734 and that under the facts of this case, the state of Ohio has satisfied the elements under the second prong of theBelvedere test.
{¶ 32} Under the third prong of Belvedere, the state must prove that as a result of Rock's control over Mercomp, it has suffered injury. Mercomp alleges, *73 similarly, that the trial court relied on the mere allegation of a threat posed by the landfill to meet this third requirement. However, Ohio's environmental statutes are clear that even a threat of danger is an actionable offense.
{¶ 33} R.C.
The attorney general * * * where a violation has occurred, is occurring, or may occur, * * * is occurring, or may occur, * * * shall * * * bring an action for injunction against any person who has violated, is violating, or is threatening to violate any section of this chapter, rules adopted under this chapter, or terms or conditions of permits, licenses, variances, or orders issued under this chapter. * * * The court of common pleas in which an action for injunction is filed has the jurisdiction to and shall grant preliminary and permanent injunctive relief upon a showing that the person against whom the action is brought has violated, is violating, or is threatening to violate any section of this chapter, rules adopted thereunder, or terms or conditions of permits, licenses, variances, or orders issued under this chapter.
{¶ 34} In its April 29, 2004 journal entry, the trial court found that "[e]nforcement of the [sic] Ohio's laws governing solid waste landfills is necessary to ensure the protection of human health and the environment." The court further found that since a risk to human health and the environment remained, it must be guarded against.
{¶ 35} When faced with a similar argument regarding the necessity of proof of actual harm, in Ackerman v. Tri-CityGeriatric Health Care, Inc. (1978),
{¶ 36} In its findings of fact and conclusions of law, the trial court found that Mercomp had failed to provide adequate financial assurance, that it had failed to provide for groundwater monitoring, and that with no proper leachate collection, outbreaks have occurred showing volatile organic compounds such as ethylbenzene, barium, and thallium levels, which pose a risk to human health. Not only do such actions threaten both public and environmental health, but by failing to properly address these issues, the Ohio EPA would be responsible for the cost of the clean-up. In accord with the trial court, we find that the injury necessary for the third prong of theBelvedere test is the continued failure to protect and monitor the landfill. *74
{¶ 37} For these reasons, we find that the state submitted sufficient proof of the elements necessary to pierce the corporate veil and obtain judgment against Manny Rock individually.
{¶ 38} Mercomp's first assignment of error lacks merit.
II. STRICT LIABILITY
{¶ 39} In its second assignment of error, Mercomp alleges error in the trial court's holding that once the corporate veil has been pierced, strict liability flows from a corporation to an individual shareholder. Mercomp asserts that such relief is equitable, not statutory. The state, however, contends that Rock is directly liable, as both a "person" and an "operator" who was in violation of R.C. Chapter 3734 and also due to his liability as previously established under the Belvedere test.
{¶ 40} The trial court, in its April 29, 2004 "Findings of Fact and Conclusions of Law," determined that R.C. Chapter 3734 is a public welfare statute providing strict liability for anyone who violates it. It went on to determine that Mercomp is the "owner" of the landfill and that both Manny Rock and Mercomp are "operators" of this same landfill. As an owner of the landfill, Mercomp is liable for all R.C. Chapter 3734 violations at the landfill. Kays v. Schregardus (2000),
{¶ 41} Mercomp's assertion that the trial court should have fashioned an equitable remedy is also unpersuasive. In State v.Tri-State Group, Inc., Belmont App. No. 03 BE 61,
{¶ 42} We therefore find that the trial court's order properly issued injunctions to both Mercomp and Manny Rock individually.
{¶ 43} Mercomp's second assignment of error lacks merit. *75
III. GROUNDWATER DETECTION
{¶ 44} In its third assignment of error, Mercomp contends that the trial court erred in awarding injunctive relief to the state of Ohio on the basis of the Ohio EPA's allegation that Mercomp failed to properly implement groundwater detection, assessment, and monitoring programs. It further alleges that the Ohio EPA's interpretation and application of the groundwater monitoring regulations made compliance impossible.
{¶ 45} Mercomp contends that it began its own groundwater detection monitoring program in 1996. Throughout the course of its inspections, Mercomp maintained that it conducted 14 separate sampling events, which produced over 150 individual samples, but that in spite of this effort, the Ohio EPA refused to accept the conditions or grant a variance from certain monitoring requirements that would allow them to account for other effects. It therefore claims that as both a legal and practical matter, the trial court cannot enjoin them to comply with a groundwater detection and assessment monitoring regulations when compliance cannot be achieved.
{¶ 46} Mercomp cites Ohio Adm. Code
{¶ 47} In the trial court's findings of fact, it noted that groundwater assessment monitoring had not been conducted at the landfill since April 2002. It further noted that Mercomp's own consultant, Dan Brown, testified that under the regulations, Mercomp should currently be conducting assessment monitoring at the landfill. The trial court went on to find that:
Under the ground water proposal submitted by [Mercomp's] consultant, Dan Brown, [Mercomp] would only perform one monitoring event per year at the Landfill, even though Dan Brown agreed that the regulations require semiannual monitoring events.
* * *
Since July 2000, [Mercomp has] not submitted an alternate source demonstration request per Ohio Adm. Code
3745-27-10 (D)(7)(c) [Ohio Admin. Code3745-27-10 (D)(7)(c)(ii) under the 2003 solid waste rules] or Ohio Admin. Code 3745-27-10(E)(7)(b)[Ohio Admin. Code 3745-10(E)(9)(b) under the 2003 solid waste *76 rules] to demonstrate that statistically significant constituents detected in ground water underlying the Landfill are due to a source of contamination other than the Landfill.* * *
Since 2000, Defendants have not submitted a written request to the Director of the Ohio EPA for a variance or exemption related to ground water monitoring.
{¶ 48} It is clear from the evidence presented, and from the trial court's findings of fact, that Mercomp did not even attempt to comply with the regulations. Mercomp's own expert even found that its submitted monitorings were insufficient for compliance. While Mercomp has repeatedly claimed an impossibility of compliance, the Ohio Supreme Court in Quality Ready Mix, Inc. v.Mamone (1988),
{¶ 49} Compliance with the statute is mandatory. Further, and even in light of this mandatory compliance, there is no evidence to indicate that compliance was an impossibility as Mercomp simply failed to adhere to the outlined requirements and adopted its own, less stringent, testing system. We therefore find that the trial court's order of injunctive relief was appropriate.
{¶ 50} Mercomp's third assignment of error lacks merit.
IV. IN CAMERA INSPECTION
{¶ 51} In its final assignment of error, Mercomp submits error in the trial court's refusal to conduct an in camera inspection of certain documents.
{¶ 52} The state of Ohio asserts that this assignment of error is moot because it relates to Mercomp's defunct selective-enforcement counterclaim, which was dismissed in February 2003. Mercomp admits that its selective-enforcement claim was dismissed and that it did not appeal this dismissal, but that since it waived selective enforcement as an affirmative defense, the claim for an in camera inspection is nonetheless valid.
{¶ 53} We first note that under Ohio law, it is well established that the trial court is vested with broad discretion when it comes to matters of discovery, and that the "standard of review of a trial court's decision in a discovery matter is whether the court abused its discretion." Mauzy v. Kelly Serv.,Inc. (1996),
{¶ 54} Mercomp alleges that both memorandum infer that the state used Rock's advanced age as a factor in deciding to sue Rock individually. A vague reference that these documents may or may not contain information that Mercomp believes relevant, on a claim that the trial court had previously determined, fails to meet the required elements for selective enforcement under Statev. Flynt (1980),
{¶ 55} Mercomp's fourth and final assignment of error lacks merit.
{¶ 56} The judgment of the trial court is affirmed.
Judgment affirmed.
FRANK D. CELEBREZZE JR., P.J., and ANTHONY O. CALABRESE, JR., J., concur.
II. The trial court erred in holding that strict liability flows from a corporation to an individual shareholder once the corporate veil has been pierced.
III. The trial court erred in holding that appellants-defendants are subject to injunctive relief on the basis of Ohio EPA's allegation that appellants-defendants failed to properly implement a groundwater detection monitoring program and failed to implement a groundwater assessment monitoring program. *78
IV. The trial court erred in denying appellants-defendants' motion requesting that the trial court conduct an in camera inspection of documents the state of Ohio has asserted are privileged.