Bill Kettlewell Excavating, Inc. v. St. Clair County Health Department

Nos. 113350; 118031 (468 N.W.2d 326, 187 Mich. App. 633) (Mich. Ct. App. March 5, 1991)

The court holds that the lower court erred in ruling that the sale of the stock of a company operating a state-licensed landfill facility required the company to apply for a new license, or to seek approval from the Michigan Department of Natural Resources (DNR), before further importation and disposal of out-of-state waste. The sole stockholder of the company sold his stock to another Michigan corporation, and notified the DNR that he was no longer a shareholder in the operating company, or involved in the operation of the facility. Subsequently, the county health department notified a principal shareholder of the new operator that a new license naming another "responsible person to contact" was required for the continued operation of the facility and issued a cease and desist order pending compliance. The operator brought a successful suit to enjoin enforcement of the order, to which the county health department successfully counterclaimed to require the operator to obtain a new operating license for the landfill because of the sale of the stock and to prevent the landfill from importing and disposing of out-of-state waste. The court first holds that based on the Michigan Solid Waste Management Act (SWMA), the administrative rules promulgated under the Act, and general principles of corporate law, the trial court improperly ruled that the new operator was required to apply for a new license or get the DNR's approval for a transfer of its existing license before further importation and disposal of out-of-state waste could occur at the landfill. The record shows that the prior operator was granted a license by the DNR for its intended operation of the disposal area. However, SWMA § 13 does not specifically require an already licensed disposal area to obtain a new license when the stock of the corporation has been transferred. Moreover, because a corporation is a legal entity distinct from its shareholders, even though all of the stock is held by a single individual, the landfill company at all times retained its distinct legal existence apart from its prior and current shareholders. Thus, the landfill continued to be a fully licensed disposal area irrespective of the sale of its stock. The court notes that the SWMA provides county and state officials with considerable authority to oversee and ensure a licensee's compliance with the Act and rules promulgated thereunder. But, the administrative rules are not a factor in deciding whether a new license is required; rather, they relate to whether an existing licensee is in compliance with the Act.

[The lower court opinion is published at 20 ELR 21135.]

Counsel for Plaintiff-Counter-Defendant-Appellant
Robert A. Fineman, Daniel P. Perk
Honigman, Miller, Schwartz & Cohn
2290 First National Bldg., Detroit MI 48226
(313) 256-7800

Counsel for Defendant-Counter-Plaintiff-Appellee
Lawrence R. Ternan, Margaret B. Kiernan
Beier, Howlett
200 E. Long Lake Rd., Ste. 110, Bloomfield Hills MI 48304
(313) 645-9400

Frank J. Kelley, Attorney General; Gay S. Hardy, Solicitor General
Law Bldg., Lansing MI 48913
(517) 373-1110

Before McDONALD, P.J., AND HOOD and REILLY, JJ.

[22 ELR 20289]

PER CURIAM.

These consolidated appeals arose from plaintiff's operation of the Fort Gratiot Sanitary Landfill in St. Clair County. In Docket No. 113350, plaintiff appeals by leave granted from a circuit court order requiring it either to apply for a new operating license or to obtain approval from the Department of Natural Resources for the transfer of the existing license issued to plaintiff prior to the sale of its stock. In Docket No. 118031, defendants St. Clair County Health Department and Jon B. Parsons, its director, appeal as of right from the court's order dismissing their counterclaims initiated because of plaintiff's importation and disposal of out-of-state waste.

On September 1, 1987, the DNR granted an operating license to the Fort Gratiot Sanitary Landfill in Port Huron. Fort Gratiot is the assumed name for Bill Kettlewell Excavating, Inc., a Michigan corporation. William T. Kettlewell, the sole stockholder of his excavating company, was the "responsible person to contact" named on the operating license when issued.

In July 1988, Kettlewell Excavating's stock was sold to Stanwix Corporation, another Michigan corporation. Thereafter, William Kettlewell notified the DNR that he no longer was a shareholder in Bill Kettlewell Excavating, Inc., and that he no longer was involved in the operation of Fort Gratiot. Jon Parsons, director of the St. Clair County Health Department, notified representatives of Environmental Management Alternatives & Consulting, Inc., a principal shareholder of Stanwix Corp., that a new license naming another "responsible person to contact" was required for the continued operation of the Fort Gratiot Sanitary Landfill. In conjunction with this demand, Parsons issued a cease and desist order pursuant to § 17(2) of the Solid Waste Management Act (SWMA), M.C.L. § 299.401 et seq.; M.S.A. § 13.29(1) et seq.

Kettlewell Excavating commenced an action in circuit court against the St. Clair County Health Department, seeking to enjoin enforcement of the cease and desist order; a preliminary injunction was granted.

The St. Clair County Health Department and Jon Parsons counterclaimed, seeking (1) to require Kettlewell Excavating to obtain a new operating license for the landfill because of the sale of stock, and (2) to prevent Fort Gratiot from importing and disposing of out-of-state waste. The DNR intervened and also filed counterclaims against Kettlewell Excavating that requested the same relief. In addition, both the St. Clair County Health Department and the DNR requested a preliminary injunction on both claims in their counter-complaints.

Kettlewell Excavating's motion for summary disposition of the counterclaims was entertained by the trial court along with counter-plaintiffs' requests for preliminary injunctions. The trial court granted a preliminary injunction to prevent further importation and disposal of out-of-state waste by Fort Gratiot. The court also ruled that the sale of Kettlewell Excavating's stock required the corporation either to obtain a new operating license or to obtain the DNR's approval for a transfer of the existing license.

During the pendency of the counterclaims, the Solid Waste Management Act was amended to require explicit authorization for the importation and disposal of out-of-state waste to be included in the approved solid waste management plans of the importing and exporting counties. See M.C.L. § 299.413a; M.S.A. § 13.29(13a) and M.C.L. § 299.430(2); M.S.A. § 13.29(30)(2). Kettlewell Excavating moved to dismiss the counterclaims as moot on the basis of the amendments, but indicated that it intended to challenge the constitutionality of those amendments in federal court. In addition, Kettlewell Excavating informed the trial court that it would discontinue its importation and disposal of foreign waste pending resolution of its constitutional challenge. The trial court then dismissed the counterclaims with prejudice, and denied counter-plaintiffs' motion for reconsideration.

In Docket No. 113350, Kettlewell Excavating appeals by leave granted the circuit court's order requiring it either to apply for a new operating license or to obtain approval from the DNR to transfer its existing license. Plaintiff raises two independent bases for reversal: (1) that a change in stock ownership of a licensed landfill facility does not mandate the acquisition of a new operating license, and (2) that defendants failed to comply with the statutory prerequisites under the SWMA and the Administrative Procedures Act M.C.L. § 24.201 et seq.; M.S.A. § 3.560(101) et seq., for the suspension or revocation of its operating license.

We agree with plaintiff that the trial court erred in ruling, as a matter of law, that the sale of Kettlewell Excavating's stock required it either to apply for a new license or to seek approval from the DNR for a transfer of its existing license. We reach this conclusion on the basis of our reading of the SWMA, the administrative rules promulgated thereunder, and general principles of corporate law.

Section 13 of the SWMA¹ addresses the necessity of the acquisition of an operating license for solid waste disposal areas, and provides in part:

(1) A person shall dispose of solid waste at a disposal area licensed under this act unless a person is permitted by state law or rules promulgated by the department to dispose of the solid waste at the site of generation.

(2) Except as otherwise provided in this section or in section 22a, a person otherwise allowed under this act to own or operate a solid waste disposal area shall not conduct, manage, maintain, or operate a disposal area within this state without a license from the director, contrary to an approved solid [22 ELR 20290] waste management plan, or contrary to a permit, license, or final order issued under this act. A person who intends to conduct, manage, maintain, or operate a disposal area shall make a prior license application to the director through a certified health department. [Emphasis added.]

The SWMA specifically defines the term "person" to include a corporation. M.C.L. § 299.405(8); M.S.A. § 13.29(5)(8).² Consequently, Bill Kettlewell Excavating, Inc., doing business as Fort Gratiot Sanitary Landfill, is prohibited from operating the disposal area without a license issued by the DNR. It is undisputed that Fort Gratiot made a prior application and was granted a license by the DNR for its intended operation of the disposal area. However, § 13 does not specifically require an already licensed disposal area to obtain a new license when the stock of the corporation has been transferred. In fact, the entire act is silent on the effect of the sale of stock on the continued viability of a previously issued operating license. Unless such legislative intent can be discerned from the statutory language, we will not read such a requirement into the act.

Bill Kettlewell Excavating, Inc., was a viable and certified Michigan corporation when it was granted an operating license for Fort Gratiot in 1987. Defendants argue, however, that because William Kettlewell sold his entire interest in the corporation, Fort Gratiot was required to apply for a new license before the expiration of its existing license.³ Fundamental principles of corporate law reveal, however, that this claim is without legal support.

A corporation is a legal entity distinct from its shareholders, even though all of the stock is held by a single individual. Bourne v. Muskegon Circuit Judge, 327 Mich. 175, 191, 41 N.W.2d 515 (1950). Therefore, while the sale of stock will change the composition of the equity owners of the corporation, the sale does not alter the distinct legal existence of that corporation. O. D. Silverstein, M.D., P.C. v. Services, Inc., 165 Mich.App. 355, 359, 418 N.W.2d 461 (1987). This remains true even if the purchaser of the stock is another corporation. 18 Am.Jur.2d, Corporations, §§ 55, 57, pp. 860, 864. Consequently, we find that Bill Kettlewell Excavating, Inc., doing business as Fort Gratiot Sanitary Landfill, at all times retained its distinct legal existence apart from its prior and current shareholders. Fort Gratiot therefore, continued to be a duly licensed disposal area irrespective of the sale of its stock to Stanwix Corporation.

Defendants argue at length that, absent a requirement that plaintiff obtain a new license, neither the DNR nor the St. Clair County Health Department would be able to review and approve the qualifications of the "responsible individual." They claim that the act implicitly requires the acquisition of a new license and authorizes either entity to review the qualifications. Defendants rely on the rules promulgated pursuant to the act, specifically focusing on 1982 AACS, R 299.4315, which provides in part:

(2) A sanitary landfill operation shall be under the immediate direction of a responsible individual.

A "responsible individual" is defined as:

[A]n individual who is familiar with the requirements of the act and these rules as they relate to the daily operation and maintenance of the solid waste disposal area where he or she is employed and who has the capability and the authority to make decisions regarding the daily operation and maintenance of that disposal area which are necessary to comply with the act and rules. [1982 AACS, R 299.4104(1)(h).]

We do not agree with defendants that, absent a requirement that Fort Gratiot obtain a new license, they would be prohibited from reviewing and approving the qualifications of the "responsible individual," or that these rules implicitly recognize such a requirement. The act itself provides defendants with considerable authority to oversee and ensure a licensee's compliance with the act and rules promulgated thereunder.⁴

We believe that these provisions in the SWMA afford defendants comprehensive authority to require continued compliance with the act and rules. We do not believe that defendants are prohibited from demanding that plaintiff's landfill be under the operation of a responsible individual. If, in their determination, Fort Gratiot does not comply with the act or rules, defendants may resort to the various enforcement provisions delineated in the act. In sum, the administrative rules are not a factor in deciding whether a new license is required; rather, they relate to whether an existing licensee is in compliance therewith.

On the basis of the foregoing, we conclude that the trial court erred in requiring plaintiff to obtain a new license or a transfer of its existing license solely on the basis of the sale of Kettlewell Excavating's stock to Stanwix Corporation.

Although we agree with plaintiff that the trial court's order requires reversal, we do not accept its argument that defendants failed to comply with the requisite procedures under the SWMA and the APA for the suspension or revocation of its license.

Contrary to plaintiff's contention, defendants Parsons and St. Clair County Health Department issued a cease and desist order pursuant to § 17(2) of the SWMA.⁵ Kettlewell Excavating was the party that instituted the circuit court action to enjoin enforcement of that order. The director of the DNR had not issued a final order revoking plaintiff's license so that § 17(3) would have been implicated.

With respect to Docket No. 113350, we reverse the trial court's order that required plaintiff either to obtain a new operating license or to seek approval from the DNR for a transfer of the existing license. We are aware that plaintiff's license expired on September 1, 1989, pursuant to M.C.L. § 299.415(2); M.S.A. § 13.29(15)(2). Our resolution of this issue, however, permits plaintiff to seek renewal under § 15(2), rather than forcing it to initiate a formal application for a new license. Plaintiff's license must still be in compliance with the act and the rules, and defendants are still authorized to review the renewal request in order to ensure compliance.

III

In Docket No. 118031, defendants St. Clair County Health Department and its director, Jon Parsons, appeal as of right from the trial court's order dismissing with prejudice their counterclaim arising from Fort Gratiot's importation and disposal of out-of-state waste.⁶

Shortly after the issuance of the preliminary injunction, the SWMA was amended to specifically prohibit the importation of foreign waste as conducted by Fort Gratiot. See M.C.L. § 299.430(2); M.S.A. § 13.29(30)(2) and M.C.L. § 299.413a; M.S.A. § 13.29(13a). Plaintiff conceded that it could not support its defense in light [22 ELR 20291] of the amendments and informed the trial court that it would abide by the new law and discontinue importing foreign waste. Plaintiff moved to dismiss the counterclaim, arguing that no controversy continued to exist and thus the case was moot. Plaintiff then pursued its constitutional challenge of the amendments in federal court.

During the pendency of this appeal, however, the federal court ruled that the amendments of the SWMA regarding the importation and disposal of foreign waste did not violate the Commerce Clause. Bill Kettlewell Excavating, Inc. v. Michigan Dep't of Natural Resources, 732 F. Supp. 761 (E.D.Mich., 1990). This decision by the federal court is binding with respect to defendants' state court counterclaim. Therefore, res judicata bars further litigation of this issue. Ingham Co. Employees' Ass'n v. Ingham Circuit Court, 170 Mich. App. 118, 122, 428 N.W.2d 7 (1988). The trial court's order dismissing defendants' counterclaim is, therefore, affirmed.

We reverse the trial court's order in Docket No. 113350, and affirm the dismissal in Docket No. 118031.

1. M.C.L. § 299.413; M.S.A. § 13.29(13).

2. Prior M.C.L. § 299.405(4); M.S.A. § 13.29(5)(4).

3. Pursuant to M.C.L. § 299.415(2); M.S.A. § 13.29(15)(2), an operating license expires two years after the date of issuance.

4. See, e.g., M.C.L. § 299.413(2); M.S.A. § 13.29(13)(2); M.C.L. § 299.413a; M.S.A. § 13.29(13a); M.C.L. § 299.414(2); M.S.A. § 13.29(14)(2); M.C.L. § 299.415(3); M.S.A. § 13.29(15)(3); M.C.L. § 299.417(2), (3), (4); M.S.A. § 13.29(17)(2), (3), (4); M.C.L. § 299.433(1), (2); M.S.A. § 13.29(33)(1), (2).

5. M.C.L. § 299.417(2); M.S.A. § 13.29(17)(2).

6. Intervening defendant-counter plaintiff DNR also filed a countercomplaint requesting the same relief as the county health department. The DNR's countercomplaint was also dismissed with prejudice, however, the DNR has not filed a claim of appeal from this order. Consequently, we will not address the propriety of the trial court's order as it pertains to the DNR.