Kinzua Res., LLC v. Or. Dep't of Envtl. Quality

295 Or.App. 395

434 P.3d 461

KINZUA RESOURCES, LLC, an Oregon Limited Liability Company; Frontier Resources, LLC, an Oregon Limited Liability Company; ATR Services, Inc., an Oregon Corporation; and Gregory M. Demers, an Individual, Petitioners,

v.OREGON DEPARTMENT OF ENVIRONMENTAL QUALITY, an Agency of the State of Oregon, and Oregon Environmental Quality Commission, an Agency of the State of Oregon, Respondents.

A161527

Court of Appeals of Oregon.

Argued and submitted August 8, 2017.

December 12, 2018

Julie A. Weis, Portland, argued the cause for petitioners. Also on the opening brief were Michael E. Haglund and Sara Ghafouri. Also on the reply brief was Michael E. Haglund.

Denise G. Fjordbeck, Assistant Attorney General, argued the cause for respondents. Also on the brief were Ellen F. Rosenblum, Attorney General, and Benjamin Gutman, Solicitor General.

Before DeHoog, Presiding Judge, and Egan, Chief Judge, and Aoyagi, Judge.

DEHOOG, P. J.,

Petitioners seek judicial review of a final order of the Environmental Quality Commission relating to property owned and previously operated as a landfill by petitioner, Kinzua Resources, LLC (Kinzua). Petitioners contend that the commission lacked authority to impose fines against petitioner Demers, an individual who met and corresponded with the Department of Environmental Quality (DEQ) regarding Kinzua’s land disposal site, or against petitioners ATR Services, Inc. (ATR), and Frontier Resources, LLC (Frontier), two entity members of Kinzua. Acting under ORS 459.205 and ORS 459.268, the commission fined each of those parties on the theory that they were persons "controlling" a landfill site within the meaning of those statutes and were, therefore, required to comply with the applicable landfill permit and OAR 340-095-0090. In light of the text, context, and legislative history of ORS 459.205 and ORS 459.268, we conclude that the statutory term "controlling" means actually exercising "restraining or directing influence" over a landfill site or the property on which it is located, and not merely having the authority to do so or communicating on behalf of an entity exercising such control.¹ Because the commission’s decision relied on an erroneous interpretation of those provisions of law, we reverse and remand the final order.

We begin by reciting the relevant aspects of the administrative law judge’s (ALJ) findings of fact, most of which were adopted by the commission and are not challenged on appeal.

Kinzua is a limited liability company registered in Oregon. Kinzua has only two members, Frontier and ATR, both of which are entities registered to conduct business in Oregon. Demers is a member of Frontier, as well as a shareholder in, and the president of, ATR. Demers is neither the sole member of Frontier nor the sole shareholder of ATR.

In 1996, Kinzua acquired a sawmill and wood waste landfill located on adjacent parcels in Pilot Rock, Oregon. Kinzua also acquired approximately 300,000 acres of timberland. Kinzua operated the sawmill and landfill until at least 2010. The landfill’s sole purpose was to accept wood waste from the adjacent sawmill. Kinzua sold the marketable timberland in 1998 but retained ownership of the sawmill and landfill until February 2006, when Kinzua sold the properties on which those facilities were located to LeeLyn, Inc. and Wiley Mt., Inc. For some time after that sale, Kinzua continued to operate the sawmill and landfill.

In late February 2005, Kinzua applied for a renewal of its solid waste permit, and, in May 2006, DEQ issued a solid waste disposal site permit identifying Kinzua as the permittee, property owner, and facility operator. The permit, which expired on February 28, 2016, authorized Kinzua to accept wood waste and related debris at the landfill from the onsite activities of the adjacent sawmill.

Among other things, Kinzua’s permit required the permit holder to maintain continuous financial assurance for the costs of closing down the landfill and post-closure maintenance and related activities. See ORS 459.205 ; ORS 459.268 ; OAR 340-095-0090. In October 2006, Kinzua provided DEQ with a financial assurance plan that estimated certain per-acre closure and post-closure costs. DEQ found the estimated per-acre costs to be reasonable but determined that the plan failed to account for the total acreage of the landfill. Using Kinzua’s plan, DEQ recalculated the estimated costs and determined that the total costs associated with closure and post-closure activities would be $1,445,040.

In December 2009, LeeLyn and Wiley Mt. quitclaimed the landfill site back to Kinzua as part of a larger plan to sell the sawmill to Boise-Cascade. Following its acquisition of the sawmill, Boise-Cascade delivered 40,000 cubic yards of wood waste to Kinzua’s landfill. Since that delivery in September 2010, Kinzua has not accepted any waste at the landfill. As of the hearing date in late 2014, however, Kinzua had not closed the landfill.²

In summer 2010 and again in summer 2011, one or more surface fires erupted at the landfill. In 2010, Demers and other members and shareholders of Frontier and ATR agreed that Demers would respond to DEQ’s inquiries regarding issues related to the landfill site. From that time on, DEQ exclusively communicated with Demers regarding such issues, including fire-control efforts at the site and the financial assurance requirements of the permit.

On July 17, 2010, DEQ issued a Notice of Civil Penalty Assessment and Order alleging that Kinzua had violated certain administrative rules and the requirements of its permit by failing to maintain financial assurance in an amount sufficient to cover the costs of closure and post-closure maintenance. Following a default by Kinzua, DEQ issued a final order in March 2011, in which it found that Kinzua had failed to maintain the required financial assurance and assessed a civil penalty against Kinzua in the amount of $25,075. The order also directed Kinzua to secure the financial assurance required by its permit. Kinzua has not complied with that order.

In August 2013, DEQ issued the amended notice at issue in this case, once again naming Kinzua as a responsible party, but also naming others, including Demers, Frontier, and ATR as persons "owning or controlling" the land disposal site. In its amended notice, DEQ proposed civil penalties totaling $790,062 against each of those parties, jointly and severally, in connection with Kinzua’s landfill site. DEQ alleged, among other things, that, between July 1, 2011 and August 23, 2013, petitioners had failed to notify DEQ of a surface fire at the site, failed to close the disposal site after it stopped accepting waste, and failed to maintain financial assurance.

In addition to adopting the foregoing factual findings as its own, the commission found—contrary to the ALJ’s findings—that Demers had exercised control over the landfill site. To support that finding of control, the commission made additional findings of fact.

The commission found, based on email communications between DEQ and Demers in 2010 and 2014, that Demers had provided for fire control measures at the landfill in response to DEQ’s requests, that he had been working with a consultant in an effort to resolve problems arising at the landfill, and that he had identified himself as a member of Kinzua. The commission also found that Demers had signed a contract engaging fire control services on behalf of Kinzua, identifying himself as Kinzua’s president in the process. Finally, the commission found that Demers had signed the registration form seeking reinstatement of Kinzua with the State of Oregon Corporation Division.

The commission, in part, based its findings regarding Demers’s control of the landfill site on his own, some-what inconsistent testimony at the hearing. For example, when asked what his relationship with Kinzua was, Demers stated, "I believe I'm the president and secretary. No, I take that back. I'm sorry. I personally don't believe I have a relationship. You mean me or one of my * * * I don't have a relationship to Kinzua."

The commission observed that the record contained "significant evidence" of Demers’s operational relationship with Kinzua. For example, Demers had exchanged an email with DEQ following up on a meeting between the two in which they had discussed Kinzua’s violation of the financial assurance requirement of its permit. In another email, Demers described operations "we" have taken at the landfill and referred to the landfill’s permit as "our permit." The commission found that such documentary evidence was consistent with the testimony of a DEQ representative that Demers had demonstrated his control of the landfill during the violation period alleged in the amended notice. Demers also testified that he and his "partners" had agreed in 2010 that he would be the one delegated to deal with the "whole DEQ thing" when it "came up." Accordingly, the commission found that Demers both had and exercised control over the landfill site. Based upon those findings, the commission concluded that Demers personally was liable for the violations of ORS 459.205 and ORS 459.268.³

The commission also concluded that Frontier and ATR were controlling persons under those statutes. In contrast to its assessment of Demers’s role, however, the commission made no specific findings regarding those entities' actions in connection with the landfill. Instead, the commission concluded as a matter of law that ATR and Frontier were liable based on their authority to control Kinzua and its property, including the landfill. The commission noted that, under Kinzua’s articles of organization, Kinzua was to be managed by its members, and that Kinzua’s only members were ATR and Frontier. And, according to the commission, ATR and Frontier had "presented no evidence to the contrary at the hearing." The commission therefore concluded that, as a matter of law, ATR and Frontier were persons "controlling" the landfill...