author: James R. Van Dover, Special Justice. Per Curiam.

text:
    Billy V. HALL, Albert P. Dunagin, John R. Meade, and Hall Enterprises, Inc., an Arkansas Corporation v. Monte J. STAHA; Jimmy H. Hatfield; Med-Max Associates Limited Partnership; MJS, Inc.; RNI, Inc.; and Dunhall Pharmaceuticals, Inc, an Arkansas Corporation
    92-338
    858 S.W.2d 672
    Supreme Court of Arkansas
    Opinion delivered July 12, 1993
    [Supplemental Opinion on Denial of Rehearing September 27, 1993.]

      Hilburn, Calhoon, Harper, Pruniski & Calhoon, Ltd., by: John E. Pruniski and Dorcy Kyle Corbin, for appellant.

      Stephen E. Adams, Ltd., and Estes, Estes & Gramling, by: Peter G. Estes, Jr., for appellee.

      Corbin & Brown, JJ., not participating.

   James R. Van Dover, Special Justice.

This is the second appeal of two consolidated actions of which a shareholders derivative action, filed by appellants under Rule 23.1, ARCP, remains.

Appellants, led by Dr. Billy Hall, are minority shareholders of Dunhall Pharmaceuticals, Inc. (“Dunhall”), a privately traded Arkansas corporation. Dr. Hall is one of Dunhall’s organizers and the only member of its three man board of directors not involved in its daily management. The appellees/ cross-appellants are Dunhall; Monte J. Staha and Jimmy Hatfield, Dunhall’s President and Sales Manager, respectively; MJS, Inc. and RNI, Inc., corporations they own; and Med-Max Associates Limited Partnership (Med-Max), which they control. Staha and Hatfield are the other board members.

Through MED-MAX, Staha and Hatfield gained control of 50.5% of Dunhall’s stock during the summer of 1987. Control was acquired while they were aware that Jones Medical Industries, Inc. (“JMI”) was interested in acquiring “all or substantially all” of Dunhall’s capital stock and that a JMI acquisition would jeopardize the continuation of their executive positions and compensation. The Chancellor found their compensation to be excessive.

A sufficient history of this case appears in the first opinion. It will not be repeated here, except where required. See Hall v. Staha v. Dunhall Pharmaceuticals, Inc., 303 Ark. 673, 800 S.W.2d 396 (1990). In that earlier opinion, three issues were remanded for further development and decisions. The Chancellor conducted a second hearing in June 1991. His three decisions, together with orders incidental to them, are now here.

I. WAS STAHA AND HATFIELD’S CONDUCT, CONCERNING JMI’S OFFER OF JULY 13,1987, TO PURCHASE “ALL OR SUBSTANTIALLY ALL” OF DUNHALL’S STOCK IN THE BEST INTEREST OF DUNHALL AND IF NOT, TO WHAT EXTENT WERE APPELLANTS DAMAGED?

Appellants sought judgment against appellees for profits lost from being deprived of an opportunity to sell their shares to JMI, pursuant to JMI’s “offer” of July 13, 1987. They attribute that loss to Staha and Hatfield’s failure to actively pursue or become informed about JMI’s proposal and to undertake board action concerning it. Protecting their employment contracts was Staha and Hatfield’s alleged motive. The Chancellor denied the judgment after determining that Staha and Hatfield acted in Dunhall’s best interest regarding the purchase proposal; that no evidence of JMI’s continuing interest had occurred through December 1989; and that appellants failed to prove that Staha and Hatfield’s conduct caused any damages. The Chancellor also found that “the actions of Staha and Hatfield in their continuation to purchase stock through MED-MAX was not, in and by itself, inherently in bad faith to the interest of the corporation or the shareholders and not in conflict with Staha’s efforts to communicate with [JMI’s executive officer].” (Emphasis added.)

JMI conditioned their proposal upon its own representatives obtaining basic information from Dunhall’s financial and business records. That work having not been done, the conditions were not satisfied. The July 13 proposal lacked the formalities of an “offer” to any shareholder and appellants cannot successfully say they suffered deprivation. We therefore affirm the Chancellor’s dismissal of Count IV.

Our acceptance of the Chancellor’s ultimate ruling is not an approval of the activities — imputed to Staha and Hatfield — that preceded and followed receipt of the July 13,1987 letter. The Chancellor’s decision that Staha and Hatfield sustained their heavy burden of proving their conduct was inherently fair and a service to the best interests of Dunhall and all its shareholders is clearly erroneous.

Although both Staha and Hatfield had acquired a substantial number of shares prior to April 1987, having absolute control of Dunhall was not essential. However, their attitudes changed and the need to secure that control became imperative when JMI expressed an interest in purchasing the effective control of Dunhall in April 1987, and it was made known that neither they nor their positions would be retained under JMI ownership. In the face of Hall’s competing efforts, Staha and Hatfield retained New York counsel, and organized MED-MAX under Delaware law, serving as its general partners. They then personally funded a trust account from which Dunhall’s sales staff drew purchase money funds for Dunhall stock. The salesmen traded their shares to MED-MAX to become its limited partners. Immediately after MED-MAX had 50.5% of the shares, Hatfield and Staha directed that no additional shares be purchased, convened a special shareholders meeting and restored their domination of the board by reducing it from seven to three members. Without securing outside review or seeking to determine comparable salaries being paid in the pharmaceutical industry, the salaries were continued at 4 % of net sales after September 30, in spite of the minority’s protests of excessive compensation.

JMI’s letter of July 13, 1987, arrived in the midst of these efforts to gain control of Dunhall. It followed by only six weeks, JMI’s withdrawal of the April 1987 overture. After July 13, Staha made several phone calls in an effort to communicate with JMI. On August 31, 1987, after he had control, he addressed a certified letter to JMI’s chief executive. It documented Staha’s lack of concern. Staha and Hatfield attempted to excuse their failure to take affirmative action by pointing to JMI’s failure to begin the “satisfactory review and inspection of the book and records and the due diligence examination by JMFs accountants and lawyers.” Staha also complained that JMFs chief executive officer was unavailable during the intervening six week period of July 13 — August 31.

Attributing increased corporate profits to the preservation of the Staha and Hatfield management team and equating those profits as serving Dunhall’s best interest, the Chancellor failed to recognize the distinction between the community of shareholders and Dunhall, the corporate entity. Because an acquisition by JMI presented personal adversity to Staha and Hatfield, we cannot naively accept profit, a corporate achievement, as being necessarily beneficial to the shareholders. Corporate profits become beneficial to a shareholder only when they are distributed as dividends or cause appreciation in market value. Neither occurred here.

Deciding the proper reaction to a buy-out or takeover is not a decision routinely made in the normal course of every day business. Its impact on shareholders deserves evaluation. Such an opportunity involves the corporation/shareholder relationship to a greater degree. Here, no ready market for Dunhall stock existed. A shareholder, especially one in disfavor with management, was unable to transfer his risk capital to another investment. Staha and Hatfield owed all shareholders an affirmative duty to investigate thoroughly any buy-out opportunity that was made in apparent good faith, to seek an independent appraisal of its consequences, and to refrain from any conduct designed or allowed to thwart it.

We do not separate the activities of MED-MAX from Staha and Hatfield. Staha and Hatfield were responsible for its formation and enjoyed the fruits of control that it provided. MED-MAX was their alter ego. Its activities are imputed to Staha and Hatfield. MED-MAX’s acknowledged purpose was to gain and exercise control over Dunhall and to assure that it was operated as it had been in the past. It was designed to frustrate appellants’ efforts to achieve change and perpetuate management, and it did so. A MED-MAX accomplishment was a Staha/Hatfield accomplishment. When resisting takeover attempts and dealing with other shareholders, the directors’ sole or primary motivation cannot be to entrench themselves in office. Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985). The facade of MED-MAX will not be allowed to shield Staha and Hatfield’s genuine motives.

In the search for inherent fairness and good faith to a corporation and shareholders, conduct of directors must be subjected to “rigorous scrutiny” when conflicting self-interest is shown. Pepper v. Litton, 308 U.S. 295, 60 S. Ct. 238, 84 L. Ed. 281 (1939). As officers and directors, Staha and Hatfield are held to an even higher than the normal and demanding standards that apply to a fiduciary. Raines v. Toney, 228 Ark. 1170 at 1178, 313 S.W.2d 802 (1958). Applying these stricter standards, we draw a conclusion that is clearly contrary to the Chancellor’s.

II. WAS STAHA AND HATFIELD’S COMPENSATION AFTER OCTOBER 1, 1987, INHERENTLY FAIR TO ALL SHAREHOLDERS AND FIXED IN GOOD FAITH, AND, IF NOT, DETERMINE THE EXTENT OF EXCESSIVENESS.

Throughout their employment with Dunhall, Staha and Hatfield’s annual compensation was fixed with reference to annual net sales. Since October 1982, that level was 4 %, with the contract being renewed annually until the board and the officers failed to agree. No insurance, pension plans or stock options were added. At the May 1987 shareholders’ meeting, Hall made known his resistance to continuing that arrangement. Once in control, Staha and Hatfield continued their pay at 4% of net annual sales. Each one received $248,887 in 1987, $267,841 in 1988, $500,685 in 1989 and $387,450 in 1990.

After hearing the testimony of two compensation experts, the Chancellor held that the compensation was inherently unfair and excessive and set reasonable compensation in 1987 at $230,000 each ($150,000 salary plus $80,000 as compensation for the lack of retirement, health, disability and life insurance plans). Automatic 6% annual increases were ordered. Dunhall was granted judgment for $769,072, against Staha and Hatfield, jointly and severally, plus post-judgment interest from the date of the second hearing.

Appellants complain that the judgment was inadequate. In a cross-appeal, appellees argue that their 4 % compensation should be continued, if not increased.

Each expert carefully chose supporting data to justify his client’s position. Both attempted to quantify the compensation required to persuade other similarly qualified executives to accept Dunhall’s top two management positions.

Because salaries were Staha and Hatfield’s only remuneration, appellants’ expert looked for comparable compensation being paid the top two executives by companies that had annual sales under $30 million. (Dunhall’s were less than one-third of the amount.) His view of the required salary began at $93,000 in 1987 and extended to $139,000 in 1990. He fixed the average cost of supplementary fringe packages at 25 % -30 % of the salaries, while appellees’ expert fixed it at 25%-35%.

The data chosen by appellees’ expert was retrieved from information filed with the Securities and Exchange Commission by twenty-two publicly traded pharmaceutical companies. All had annual sales of less than $100 million, and all but two had stock option plans in effect. His total package was broken into the four categories of cash salary, annual merit bonuses, and health/ other insurance and retirement security plans, plus stock options, the latter intended to encourage management to increase shareholder values. Because Dunhall was not publicly traded, he calculated profits realized by executives as they sold stock acquired under stock option plans and included the annualized result as a part of his compensation he thought was required. Substantial portions — 72% of chief executive officer’s cash compensation and 57 % of the second officer’s — of his total were profits earned in this manner. Removing these profits from his final figures, the average annual direct pay (salary plus merit bonuses) totals were $146,440 (28 % of $523,000) for the twenty-two CEOs and $110,460 (42% of $263,000) for the second officer. Apparently, the Chancellor chose to disregard his view that cash was a logical substitute for stock option profits, as his award consisted of salaries and fringe benefit supplements only. He left consideration of stock option plans to the future and assigned it to the Compensation Committee discussed in Point IV. That delegation being determined to be proper, our review is of the Chancellor’s award of direct pay and fringe benefits.

The Chancellor erred when he fixed the cost of the fringe benefit package at $80,000, or 53% of $150,000. That finding is not supported by the evidence. Neither expert fixed it at greater than 35% of salary, the middle point being 30%.

Neither is there any evidence that supports the Chancellor’s finding that 1987 direct pay should be $150,000, or that successive salaries should be increased annually at a fixed rate. In the survey conducted by appellees’ expert, the average direct pay for CEOs was $113,000 in 1987, $134,000 in 1988, $174,000 in 1989 and$173,000in 1990. For thesecond officer, it was $89,000 in 1987, $101,000 in 1988, $120,000 in 1989 and $144,000 in 1990. Appellants’ suggested averages were $93,000 in 1987, $106,000 in 1988, $111,000 in 1989, and $139,000 in 1990 for each officer.

While the record does not support the Chancellor’s findings, it is sufficient to allow us to make findings on which the Chancellor can base an amended judgment. If Staha and Hatfield had called upon the expert they used at trial in 1987, we assume he would have provided them with the same information that he relayed to the Chancellor. Without showing why larger than industry averages should have been paid them, which was not given on record, Staha and Hatfield are entitled to no more than the annual averages assigned by their expert to their respective positions. Staha is entitled to base salaries of $113,000 in 1987, $134,000 in 1988, $174,000 in 1989 and $173,000 in 1990, plus 30% thereof for the absent insurance and retirement supplements. Hatfield is entitled to be paid $89,000 in 1987, $101,000 in 1988, $ 120,000 in 1989 and $ 144,000 in 1990, plus the same 30 % supplement.

The Chancellor did not explain why the judgment was imposed on Staha and Hatfield, jointly and severally, when one served as the superior to the other and was presumably entitled to receive greater remuneration for his services. In each set of executive salaries surveyed, appellees’ expert reported a disparity between the highest paid executive and his immediate subordinate. A liability of one for excessive compensation is not imputed to the other. Their liabilities must be distinguished. One judgement should be entered against Hatfield, RNI, Inc. and MED-MAX and another judgment should be against Staha, MJS, Inc. and MED-MAX. Only MED-MAX has joint and several liability. The amended difference between the amounts of the separate judgments is the extent that the salary paid to one contrasts with the salary paid to the other.

The Chancellor is ordered to enter revised judgments consistent with these conclusions and to award post-judgment interest on the increase from the date of the Mandate.

III. SHOULD THE JUDGMENT FOR EXCESSIVE COMPENSATION BE AWARDED TO DUNHALL OR TO APPELLANTS PRO-RATA?

The whole of the Chancellor’s excessive compensation judgment was awarded to Dunhall. Appellants argue that a pro-rata portion should have been given to them.

This action is not to correct improprieties allowed by a board of directors consisting of independent persons. The absolute control acquired and continued by Staha and Hatfield cannot be ignored. The Dunhall board and its treasury cannot be separated from the will of its management. The board remains insensitive to its responsibilities to all shareholders. While shareholder equity has increased over the course of this litigation, no dividend has been declared and no legitimate corporate reason for retaining the profits was shown. Appellees continue to regard Dunhall as a personally owned company and are operating it for their exclusive gain. A special rule, applicable when a board lacks sufficient independence from management, is proper. That rule diverts to appellants a pro-rata portion of the excessive compensation judgments against Staha and Hatfield.

In Lynch v. Patterson, 701 P.2d 1126 (Wyo. 1985), the court borrowed language from Backus v. Finkelstein, 23 F.2d 357 (D. Minn. 1927) and said:

“*** For obvious reasons, it may be highly improper to direct that the moneys here recovered on behalf of the corporation shall be paid into the treasury thereof. That might be paying the moneys back into the custody and control of those from whom the recovery was had. It might defeat eventually the purpose of the suit and be the beginning of another prolonged cycle of litigation. Unless conditions shall ensue which will materially change the situation, the distribution, so far as possible, should be directly to the individuals who will ultimately be entitled thereto.”
***
Corporate recovery would simply return the funds to the control of the wrongdoers. The three defendant directors in this case constitute the policy-making body of the corporation. They manage the business and affairs of the corporation under statutory authority. Furthermore, two of the directors hold 70 percent of the voting stock in the corporation. Given the family orientation and the small number of shareholders of LCS, any change in control of the corporation is unlikely.

701 P.2d at 1130.

The judgment should be modified accordingly. The minority should receive 49.5 %, if that is its actual pro-rata share, and the balance should be entered for Dunhall.

IV. DID THE CHANCELLOR ERR WHEN HE FIXED A $25,000 FEE FOR APPELLANTS’ ATTORNEYS OR ORDERING STAHA AND HATFIELD TO PAY IT?

We have previously held that a fee award in this case falls within the guidelines of Millsap v. Lane, 288 Ark. 439, 706 S.W.2d 378 (1986). Hall v. Staha, 303 Ark. at 683, 396 S.W.2d at 402. The Chancellor was required to set reasonable compensation for efforts expended by appellants’ attorneys subsequent to the period considered when the $30,000 fee was made following the first hearing. Through June 30, 1991, appellants’ total fees and expenses were $235,467.26, against which the first fee was credited. The residual claim was $204,953.5.6. On the other hand, the billing and expenses of law firms representing the appellees totaled $137,050.32. The Chancellor granted appellants’ attorneys a supplementary fee of $25,000 and entered judgment for that amount against all appellees. On appeal, appellants insist they are entitled to the entire claim of $204,953.56. Appellees contend that Dunhall should be the only judgment debtor.

We find no suggestion that the Chancellor made a deliberate determination of reasonable compensation. Unless the affidavits of appellees’ attorneys were construed to contradict appellants’, no counter-affidavit was filed. Certainly, no hearing was conducted.

While we recognize the Chancellor observed the attorneys’ trial work, he was not adequately apprised about the time requirements or details of the preparation that preceded either trial. Therefore, we remand this matter so the chancellor can set a proper fee for the work performed by appellants. In remanding this cause for determination of reasonable attorney’s fees, we direct the chancellor to the guidelines in Millsap.

In Millsap, the prevailing attorneys’ $422,977 fee request was granted after a hearing where the prevailing attorneys produced their time records, revealed their hourly rates, presented their actual expenses and offered expert testimony to substantiate the reasonableness of their claim. The criteria used to establish reasonableness appear there and should be equally applicable here.

Appellees are correct in their argument on this point. The pool of the “common fund” serves as the source of the payments of fees and expenses. But to order the fund to pay this charge before its division between Dunhall and the appellants would reward those whose conduct required the filing of this action and detract from our intent to discourage director abuse of their fiduciary responsibilities. When determined, the entire amount should be paid by Dunhall and not any other appellee.

V. SHOULD A TOTALLY INDEPENDENT COMPENSATION COMMITTEE BE FORMED TO SET FUTURE EXECUTIVE COMPENSATION PLANS? IF SO, SHOULD THE COURT RETAIN JURISDICTION AND REVIEW ITS OUTPUT?

The court created a three person compensation committee and directed appellees to appoint one member and appellants to appoint the other. The third would be named by the first two. Its membership would exclude all parties, all minority shareholders and any others having either a direct or indirect interest in Dunhall. Its purpose is to establish future compensation plans for management, giving due weight to the performance and responsibilities of the highest paid corporate officers. Consideration of a stock option plan is also a part of its job. All decisions are binding on Dunhall, and Staha and Hatfield are enjoined from voting against them.

Appellants contend that minority shareholders should be allowed to serve on the committee. Appellees’ cross-appeal maintains that the Chancellor must reserve jurisdiction to review Committee findings rather than making them absolute. They argue that the Chancellor’s excessive compensation ruling should have allowed the “cash for stock option profit” substitution, thereby eliminating the need for the Committee to consider stock option plans in the future.

The business judgment rule is a statement of judicial reticence. It flows from the thought that judges are not equipped as well as directors to make business decision. But judges have the duty to correct wrongs, and Chancellors have a special authority to craft remedies to overcome board omissions and to create an environment where fairness can be demonstrated. The directors had ample opportunity to integrate independent directors into their board and failed to do so. Until Dunhall is operated under an umbrella of fairness to all, existing management and the existing board must surrender their authority to set executive compensation.

Setting those salaries is not among the Chancellor’s expected duties. We will not enlarge his responsibilities or require him to supervise such matters that he has elected not to do. Directing the formation of the Committee is a proper solution, and retaining the qualifications of its members will foster fairness. There is no valid reason to include persons that have obvious conflicts of interest. The parties should devote their attention to selecting honorable, diligent individuals who have the requisite business acumen and who will take their responsibilities seriously and not submit to improper influences from any source.

Stock options became important to Staha and Hatfield with the onset of litigation and the realization that appellants strongly opposed the continuation of the compensation arrangements. Shares made available to them now through such a plan would have little, if any, value. Current management is firmly in place and a stock option plan is not necessary to attract their replacements. The Chancellor is not required to indulge appellees’ every request or to speculate on Dunhall’s future needs.

All portions of the Chancellor’s order relating to this point are affirmed.

VI. DID DUNHALL SUSTAIN DAMAGES OR DID STAHA AND HATFIELD PROFIT FROM THE “DOUBLE BILLING” PRACTICE? IF SO, FIX THE AMOUNT THEREOF.

The final remand question required the Chancellor to determine the damages to Dunhall from a practice known here as “double billing.” Appellants concede that neither Staha or Hatfield personally benefited from these moneys. They agree that no customer filed a suit to recover the collected funds. The Chancellor correctly determined that the appellants failed to carry their burden of proof. We affirm.

John E. Pruniski III, for appellants.

Peter G. Ester, Jr., Stephen E. Adams, and Roy E. Stanley, for appellees.

VII. SHOULD THE CHANCELLOR’S ORDER HAVE ENJOINED DUNHALL FROM DISCHARGING STAHA OR HATFIELD OR OTHER EMPLOYEES WITHOUT PRIOR CONSENT OF THE CURRENT MANAGING OFFICERS, EXCEPT FOR GOOD CAUSE.

Another paragraph of the order prevented Dunhall from discharging Staha, Hatfield or any other employee without consent of the managing officer except for good cause. Both sides agree that this relief was never requested and is not supported by current Arkansas law. That part of the order is reversed and shall be deleted.

Corbin and Brown, JJ., not participating. Special Associate Justice David M. Glover joins this opinion.

SUPPLEMENTAL OPINION ON DENIAL OF REHEARING SEPTEMBER 27, 1993

Per Curiam.

In their petition for rehearing, appellants contend that they requested this court to set Staha’s and Hatfield’s salaries for the years 1987-1991, but the court failed to determine these men’s compensation for 1991. Having used testimony and evidence of the appellees’ expert witness to set such salaries, we point out that the year 1991 was not mentioned. As a consequence, any setting of Staha’s and Hatfield’s salaries would have to be addressed by the parties and the trial court on remand. Appellants’ and appellees’ petitions for rehearing are otherwise denied.

Corbin and Brown, JJ., not participating.

       On April 13,1987, JMI made a non-binding offer to purchase 48% of Dunhall then owned by Staha, Hatfield and Hall collectively.

       Whether this withdrawal letter was voluntary or written at Staha’s request is disputed. The Chancellor made no finding on this issue. Holding it to be voluntary is inconsistent with JMI’s July 13, 1987, letter of renewed or continuing interest.

       He wrote of unsuccessful efforts “on several occasions ... to make contact. . . concerning [your] interest in Dunhall” and requested a current statement of JMI’s interest.

       Earlier we distinguished the formation of MED-MAX from the activities of MED-MAX. Hall v. Staha, 303 Ark. at 681, 800 S.W.2d at 401.

       The definition of inherent is “firmly or permanently contained, in-dwelling or intrinsic.” Compton v. Talley, 227 Ark. 491 at 494, 299 S.W.2d 653 (1957); “involved in the constitution or essential character.” Webster’s New International Dictionary (2d Ed. 1957).

       The average salary paid by Natural Resources, a company without a stock option plan but with comparable total sales and more rapid sales growth, to their top two officers was $61,750 in 1988, $69,400 in 1989 and $157,191 in 1990.

       That Staha permitted the “double billing” practice (see Point V.) to exist detracts from him having any special qualifications.

       By adopting the industry annual averages for Staha and Hatfield, we have not meant to imply that such future amounts are necessarily “reasonable.”

       We approve the methodology adopted by the Chancellor as set out in paragraph 37 of the Amended and Substituted Order and Judgment. Staha and Hatfield received excessive compensation of $556,172.75 and $714,772.75 respectively during the October 1, 1987 — December 31, 1990, period.


source: Caselaw Access Project

author: Jack Holt, Jr., Chief Justice.

license: Public Domain

text:
    Hon. Graham PARTLOW, Hon. Howard Templeton, and Hon. Rice Vanausdall v. DARLING STORE FIXTURES and Monroe Auto Equipment Co.
    92-1069
    858 S.W.2d 695
    Supreme Court of Arkansas
    Opinion delivered July 19, 1993

      Winston Bryant, Att’y Gen., by; Sarah Lewis, Asst. Att’y Gen., for appellants.

      Branch, Thompson & Philhours, by; Robert F. Thompson, for appellee Monroe Auto Equipment Company.

      Fulkerson, Todd, & Broadaway, by: Mike Todd, for appellee Darling Store Fixtures.
   Jack Holt, Jr., Chief Justice.

Appellants are three chancery judges in the Second Judicial District of Arkansas, which includes Greene County. Appellees, Monroe Auto Equipment Co. and Darling Store Fixtures, are manufacturing companies doing business in Greene County. On April 1, 1991, appellants filed an “administrative order” in Greene County addressing the procedure to be followed by employers remitting child support payments for their employees subject to income withholding, which reads:

1. All child support payments made by an employer for an employee under income withholding are ordered to make the checks payable to the custodial parent. These checks are then to be forwarded to the Circuit Clerk’s office for distribution to the proper person or agency.
2. All employers are ordered to withhold the administrative fee of $12.00 annually on all employees who pay support on a monthly basis and $24.00 for those who pay on a weekly or semi-monthly basis. These checks are to be made payable to the Circuit Clerk of Greene County, Arkansas.

This order was issued in response to the appellees’ practice of submitting lump sum checks to the clerk of the court with an itemized list of the amounts withheld from each employee for child support. Its effect was that businesses had to discontinue sending single checks representing a lump sum and instead submit an individual check to the court for each employee owing child support.

Appellants later filed the same order in the other counties of their judicial district. In July 1991, both appellees filed petitions for writs of quo warranto in this court asking that we determine by what authority the chancellors had issued the administrative orders and whether or not such orders were void and unenforceable on the basis that they were in conflict with state and federal law. We denied these petitions without prejudice to allow the issues to be raised on subsequent appeal. No further action was taken in this regard.

On December 10,1991, appellees filed a petition for declaratory judgment in circuit court arguing that the administrative order was void and unenforceable because it was in conflict with 42 U.S.C. § 666(b)(6) and Ark. Code Ann. § § 9-14-222(d)(9) and 9-14-228(b) (Repl. 1991). Circuit Judge David Burnett granted petitioners’ motion for summary judgment finding that the circuit court does have jurisdiction over the matter and that:

The Administrative Order entered by the Chancellors in Greene County on April 29, 1991, is unreasonable and inconsistent with 42 U.S.C.S. § 666(b) and therefore, in conflict with the principles announced by the Arkansas Supreme Court in Letaw v. Smith, 223 Ark. 638, 268 S.W.2d 3 (1954). Further, the Administrative Order is a local rule in violation of the principles announced by the Arkansas Supreme Court in In Re: Changes to the Arkansas Rules of Civil Procedure, 294 Ark. 664, 742 S.W.2d 551 (1987) and In Re: Administrative Rules, 299 Ark. 335, 772 S.W.2d 600 (1989) .... the Administrative Order... is determined to be unreasonable and in conflict with the above described statute and therefore invalid and unenforceable.

Appellants reacted by filing a notice of appeal to this court in response to Judge Burnett’s grant of summary judgment and by issuing a new order “essentially indistinguishable” from the first order. Monroe Auto Equip. Co. v. Partlow, 311 Ark. 633, 635, 846 S.W.2d 637 (1993). Appellees Monroe and Darling then filed an original action for a writ of prohibition challenging the chancellors’ actions in response to the circuit court order. In denying their petition for writ of prohibition, we declined to address jurisdictional issues noting that these issues were formulated in the pending appeal and that they could be more appropriately addressed in that action. Id. While the appellees’ petition for writ of prohibition was pending, appellants were granted a stay of their briefing schedule in the present appeal. Appellants now bring this appeal from the circuit court’s grant of summary judgment.

Appellants first argue that the circuit court was without jurisdiction to render a declaratory judgment as to matters falling within the chancery court subject matter jurisdiction, citing Ark. Code Ann. § 16-13-304 (1987 & Supp. 1991), Ark. Code Ann. § 16-11 1-103(a) (1987) and Arkansas Dept. of Human Servs. v. Ross-Lawhon, 290 Ark. 578, 721 S.W.2d 658 (1986), to support the proposition that co-equal courts have no authority to rule on the validity of decisions of the other. See ex parte Dame, 162 Ark. 382, 259 S.W. 754 (1923). Appellants also cite Ark. Code Ann. § 9-14-105(a) (Repl. 1991), which exclusively assigns jurisdiction of child support matters to chancery.

Appellees respond that the underlying issue here is not child support but local rules, and these local rules are in conflict with 42 U.S.C. § 666(b)(6)(B) and Ark. Code Ann. §§ 9-14-222(d)(9) and 9-14-228(b) (Repl. 1991). Appellees also respond that appellants failed to challenge the circuit court’s jurisdiction or to file a motion to transfer pursuant to Ark. Code Ann. §§ 16-57-104(c)(2) and 16-57-105 (1987). A review of the record reveals that appellants did raise the issue both in their response to appellees’ motion for summary judgment and in their response to appellees’ petition for declaratory judgment, but they did not file a motion to transfer.

We do not labor over whether or not the circuit court’s jurisdiction was preserved for appeal as we specifically reserved this issue for appeal in our opinion denying the petition for writ of prohibition:

We decline to address these arguments, as it appears that they are formulated in the pending appeal [which is now the case before us] and can be more appropriately addressed in that action than in this. That being so, it cannot be said there is no other adequate or appropriate remedy but prohibition.

Monroe Auto Equip. Co. v. Partlow, 311 Ark. at 636, 846 S.W.2d at 640.

Turning to the merits, then, of the jurisdiction dispute, we look to see whether circuit court had jurisdiction to resolve the issues at hand.

Circuit courts and chancery courts are courts of equal power and dignity. In Ex Parte Dame, we explained:

[C]ourts of equal power and jurisdiction have no power to review or control the decisions of each other, but it does not follow from that axiom that, merely because concurrent jurisdiction is conferred in two courts, one is divested of jurisdiction to review decisions of the other. That depends on the Constitution, which confers the jurisdiction.

162 Ark. at 385, 259 S.W.2d at 757.

If a chancery court has subject matter jurisdiction to decide a case under our constitution, the circuit court has no power to review that decision.

Here, the underlying subject matter of the dispute involves child support payments, which are clearly within the jurisdiction of chancery court. Arkansas Code Ann. § 9-14-105(a) (Repl. 1991) addresses jurisdiction:

The chancery courts in the several counties in this state shall have exclusive jurisdiction in all civil cases and matters relating to the support of a minor child or support owed to a person eighteen (18) or older which accrued during that person’s minority.

Accordingly, we hold that the circuit court was without jurisdiction to review the collateral administrative order defining the matter of paying child support issued by the chancery court. As this court has the power to reverse and remand with instructions to transfer between chancery and circuit courts, see White v. Holmes, 302 Ark. 545, 790 S.W.2d 902 (1990), we remand this case to circuit court with instructions to transfer to chancery court for further proceedings.


text:
    Lois SUSTER v. ARKANSAS DEPARTMENT OF HUMAN SERVICES
    92-1214
    858 S.W.2d 122
    Supreme Court of Arkansas
    Opinion delivered July 19, 1993

      John Putman, for appellant.

      G. Keith Griffith, for appellee.
   Jack Holt, Jr., Chief Justice.

The issue before us is the effect of a court ordered termination of the parental rights of a mother to her child in relation to the rights of the child’s maternal grandmother to visitation and custody of the child. We hold that the grandmother’s rights are derivative of her daughter’s rights, and for this reason the grandmother has no standing to intervene in the adoption proceedings of her granddaughter.

Lori Hughes Cook and Carl Mounts were married from 1980 to 1984 and had one daughter, Crystal Mounts, in 1982. Thereafter, they were divorced, and Lori Hughes Cook entered into a common law marriage in Ohio with Mike Hughes during which Lori Hughes Cook took Mr. Hughes’ last name and the two had one child, Loretta Hughes. They later moved to Harrison, Arkansas.

In 1990, the Arkansas Department of Human Services (DHS) filed a petition to obtain emergency custody of Crystal on the basis that she was “dependent-neglected.” The petition and affidavits filed by DHS contained allegations that Lori Hughes Cook neglected Crystal and physically abused her. The trial court placed Crystal in the care and custody of DHS’ Division of Children and Family Services, who in turn placed her in a foster care program except for a brief period when she was temporarily returned to her mother.

After conducting several periodic reviews as mandated by Ark. Code Ann. § 9-27-337 (Repl. 1991), the court entertained a petition on September 17,1991 to terminate Lori Hughes Cook’s parental rights. She was present and represented by counsel. Thereafter, the chancellor entered an order terminating Ms. Cook’s parental rights to Crystal under Ark. Code Ann. § 9-27-341 (Repl. 1991). The order stated “all parties agree that there is clear and convincing evidence to show that an order should be entered terminating Lori Hughes Cook’s parental rights and granting custody with power to consent to adoption to the Arkansas Department of Human Services,” that it was in the best interest of the child to be placed for adoption, and that the case would be reviewed next on March 10, 1992.

In February, 1992, while incarcerated in the Arkansas Department of Correction, Lori Hughes Cook filed a petition to set aside the order terminating her parental rights on the basis that she had consented to the termination only because she understood that her former common law husband, Mike Hughes, would be allowed by DHS to adopt Crystal.

Five days before the March 1992 review hearing, Crystal’s maternal grandmother, Lois Suster, along with Crystal’s three maternal uncles, filed a motion to intervene in the cause of action on the basis that they had a significant interest relating to Lori Hughes Cook’s parental rights because her parental rights directly affected their ability as relatives to contact, communicate with, visit, and have a relationship with Crystal. The Susters, residents of Ohio, also filed a pleading in support of the motion to intervene as required by Ark. R. Civ. P. 24 in which they sought to obtain custody of Crystal or, at least, visitation rights.

As a result of the March review hearing, the chancellor entered an order on July 7,1992 denying Mrs. Cook’s petition to set aside the order terminating her parental rights and denying Mrs. Suster’s motion to intervene stating in pertinent part:

That the maternal Grandmother of Crystal Mounts, Lois Suster, has filed a motion in this action alleging that by an Order of this Court on May 28, 1991, she was granted visitation rights with her Granddaughter, Crystal Mounts and asking that she be allowed to intervene in this matter. Mrs. Suster has also filed a petition alleging that she has not been allowed to visit with Crystal Mounts since September 17, 1991, and asking for custody of Crystal Mounts or, in the alternative, the right to have visitation with Crystal Mounts.
Lois Suster’s argument that she can still receive visitation rights after Lori Hughes (Cook’s) parental rights have been terminated because the parents of Crystal Mounts are divorced is without merit. Lois Suster’s visitation rights were contingent upon her daughter Lori Hughes Cook having rights. Mrs. Suster could only take through her daughter, a parent of the child, and that parent’s rights have been terminated.
In addition, Lois Suster’s argument that she was entitled to due process notice of the termination proceedings or an opportunity to be heard in those proceedings is without merit as she was not a party nor an intervenor. The rights of visitation that were granted to Mrs. Suster were upon her visiting the State of Arkansas and were to be decided in the future if she decided to make the trip to Arkansas. Those rights of visitation were not based upon a regular pattern of visitation or rights that were incumbent to a party or an intervenor. The Court is denying Lois Suster’s motion to intervene.

Mrs. Suster, individually, appeals both the trial court’s finding that she no longer had visitation rights due to termination of Lori Hughes Cook’s parental rights and the trial court’s denial of her motion to intervene as of right pursuant to Ark. R. Civ. P. 24(a). The denial of an intervention of right based on a claimed interest in the litigation which may be unprotected constitutes an appealable order under Ark. R. App. P. 2(a)(2). Cupples Farms Partnership v. Forrest City Prod. Credit, 310 Ark. 597, 839 S.W.2d 187 (1992).

Mrs. Suster argues that the trial court erred by denying her motion to intervene pursuant to this rule since her grandparent’s rights “are personal to her” and “no other parties appear to be adequately representing Mrs. Suster’s interest.” She relies on Ark. Code Ann. § 9-13-103 (Repl. 1991) as her authority in that it provides her the right to have visitation by virtue of being a grandparent; however, she is wrong in this regard.

A reading of this code section reveals that it does not give Mrs. Suster an unconditional right to intervene, but merely a means of petitioning for visitation which she has done. Simply put, this code provision does not vest grandparents with an absolute right to visitation or intervention.

Mrs. Suster’s reliance on Quarles v. French, 272 Ark. 51, 611 S.W.2d 757 (1981) is also misplaced. In Quarles, two children’s paternal grandparents were permitted to intervene in adoption proceedings concerning the grandchildren following their father’s death on the basis that the grandparents had stood in loco parentis to the children and previously had court ordered visitation as provided by statute. Here, the focal point is the intervention of a grandparent following a termination of parental rights by court order not following the death of a parent. Thus, Quarles is of no import.

DHS argues that Ark. Code Ann. § 9-13-103 (Repl. 1991) should not be interpreted to include grandparents where the intervening parental rights have been terminated. DHS quotes Poe v. Case, 263 Ark. 488, 565 S.W.2d 612 (1978), a case in which grandparents sought visitation rights where their grandchild had been adopted by a third party:

To create new, enforceable rights in grandparents could lead to results that would burden rather than enhance the welfare of children. Certainly prospective adopted parents would be less inclined to assume that worthwhile role. Of paramount importance in this case, as in all adoption and custody matters, is what is in the best interest of the child.

DHS cites our recent decision of Rudolph v. Floyd, 309 Ark. 514, 832 S.W.2d 219 (1992) for further support, where we quoted with approval a law review article which stated, “Grandparent rights, to the extent they may be said to exist, are derivative of their son’s or daughter’s parental rights . . . Because a grandparent’s rights are only derivative, they may be contingent upon the establishment of paternity or maternity and are subject to divestment when parental rights are terminated.” Chauncey Brummer & Era Looney, Grandparent Rights in Custody, Adoption, and Visitation Cases, 39 Ark. L. Rev. 259, 261 (1985).

Although Crystal has not yet been placed for permanent adoption by a third party, we also look to our statutes which detail the effect of termination of parental rights and adoption by a third party:

An order terminating the relationship between parent and juvenile divests the parent and the juvenile of all legal rights, powers, and obligations with respect to each other, including the rights to withhold consent to adoption, except the right of the juvenile to inherit from the parent, which is terminated only by a final order of adoption.

Ark. Code Ann. § 9-27-341 (c)(1) (Repl. 1991).

A final decree of adoption and an interlocutory decree of adoption which has become final, whether issued by a court of this state or of any other place, have the following effect as to matters within the jurisdiction or before a court of this state ... to relieve the natural parents of the adopted individual of all parental rights and responsibilities, and to terminate all legal relationships between the adopted individual and his relatives, including his natural parents, so that the adopted individual thereafter is a stranger to his former relatives for all purposes including inheritance and the interpretation or construction of documents, statutes, and instruments, whether executed before or after the adoption is decreed, which do not expressly include the individual by name or by some designation not based on a parent and child or blood relationship

Ark. Code Ann. § 9-9-215(a)(1) (Repl. 1991) (emphasis added).

These statutes point to a public policy which, in determining what is in the child’s best interest, favors a complete severing of the ties between a child and its biological family when he is placed for adoption. We have said it is “unquestionably within the province of the legislature to decide that the reasons favoring the solidarity of the adoptive family outweigh those favoring grandparents and other blood kin who are related to the child through the deceased parent.” Wilson v. Wallace, 274 Ark. 48, 50, 622 S.W.2d 164, 166 (1981). Our legislature has declined to adopt another rule, so we will not here.

Our case law and statutory law support DHS’ position. We hold, accordingly, that Mrs. Suster’s rights as a grandparent were derivative of her daughter’s parental rights and as a result were terminated when her daughter’s parental rights were terminated, and that she does not have a recognized interest in the subject matter of this litigation to warrant intervention as a matter of right. For these reasons, we affirm the trial court’s denial of her motion to intervene.


author: Donald L. Corbin, Justice.

text:
    ENVIROCLEAN, INC., Enviroclean Acquisition Corporation, and Biomedical Waste Systems, Inc. v. ARKANSAS POLLUTION CONTROL AND ECOLOGY COMMISSION
    92-1290
    858 S.W.2d 116
    Supreme Court of Arkansas
    Opinion delivered July 19, 1993

      The Rose Law Firm, A Professional Association, by: William H. Kennedy III and Brian Rosenthal, for appellants.

      Steve Weaver, Anne Roberts Bobo, and William A. Eckert III, for appellee.
   Donald L. Corbin, Justice.

This is an appeal from an order of the St. Francis Circuit Court affirming Minute Order 92-27 of the Arkansas Pollution Control and Ecology Commission (the Commission). Minute Order 92-27 required the termination of an air permit issued to appellant EnviroClean, Incorporated (EnviroClean). EnviroClean now appeals the circuit court’s decision to this court, which has jurisdiction of appeals from the Commission. Ark. Sup. Ct. R. l-2(a)(4). The question presented for our review is whether the Arkansas Department of Pollution Control and Ecology (ADPC&E) correctly construed and applied the terms of the permit and the statutes it is charged with enforcing when it revoked EnviroClean’s permit. We find no error in the administrative proceedings below and affirm the revocation of the air permit.

BACKGROUND FACTS AND PROCEDURAL HISTORY

The air permit, Permit No. 462-IR, was originally issued by ADPC&E on May 30, 1990, to EnviroClean and allowed the construction of a medical waste incinerator to be operated at the rate of 250 pounds per hour. On February 7, 1991, pursuant to EnviroClean’s request for an increased capacity, ADPC&E issued a new permit, Permit No. 462-IR-1, allowing incineration at the rate of 1,500 pounds per hour. On its face, the permit contained several conditions, of which the following is at issue in this case:

12. This permit is issued to the applicant alone. It may not be transferred to another party. In the event of the sale of the permitted facility, this permit shall expire and the. purchaser must apply for a new permit.

The dispute giving rise to this case began when 100 % of the stock in EnviroClean was sold and an accompanying change in the corporation’s directors and officers occurred. Originally, 100 % of EnviroClean’s stock was owned by A1 Johnson and it was through Johnson’s efforts that ADPC&E issued EnviroClean the permit. On March 28, 1991, Johnson entered an agreement whereby he sold 100% of the stock in EnviroClean to EnviroClean Acquisition Corporation (EAC). EAC is an Arkansas corporation formed for the purpose of acquiring the stock in EnviroClean and is wholly owned by BioMedical Waste Systems, Incorporated (BioMed), a Delaware corporation. Also on March 28,1991, all of the officers of EnviroClean resigned their positions and Gene J. Frisco, director and president of both BioMed and EAC, was authorized to act as sole director for EnviroClean until the next stockholder meeting. Documents relating to the sale of stock included references to a transfer of assets and to the fact that BioMed would acquire EnviroClean’s permit as a result of the purchase of stock in EnviroClean.

As a result of the foregoing change in ownership and control of EnviroClean, ADPC&E issued a notice of permit expiration to EnviroClean on August 9,1991, revoking the permit for violation of its condition prohibiting a transfer of the permitted facility. ADPC &E later issued an amended notice of permit expiration on November 26, 1991, adding allegations that EnviroClean obtained the permit through misrepresentations and failure to fully disclose information relating to ownership of the permit and the permitted facility. EnviroClean appealed the notices of termination and waived a hearing. The case was submitted to the Commission’s hearing officer who recommended that ADPC&E’s decision to revoke and terminate the permit be upheld. The Commission adopted the findings of the hearing officer in its Minute Order 92-97. EnviroClean then appealed the Commission’s order to the Circuit Court of St. Francis County which affirmed the Commission’s order.

EnviroClean now appeals to this court asserting two broad points of error. First, EnviroClean claims the circuit court erred in affirming the revocation of the permit because ADPC&E’s decision is not supported by substantial evidence and is contrary to the law of corporations. Second, EnviroClean claims the circuit court erred in affirming the revocation of the permit because ADPC&E’s decision was arbitrary, capricious, and an abuse of discretion; made upon unlawful procedure in excess of statutory authority; and violates constitutional rights and statutory provisions.

STANDARD OF REVIEW

We have recently set out the standard of review in an appeal from the Arkansas Pollution Control and Ecology Commission:

Review of administrative.'decisions, both in the Circuit Court and here, is limited in scope. Such decisions will be upheld if they are supported by substantial evidence and are not arbitrary, capricious, or characterized by an abuse of discretion. Administrative action may be regarded as arbitrary and capricious only when it is not supportable on any rational basis. It has been said that the appellate court’s review is directed, not toward the circuit court, but toward the decision of the agency. That is so because administrative agencies are better equipped by specialization, insight through experience, and more flexible procedures than courts, to determine and analyze legal issues affecting their agencies.

In Re Sugarloaf Mining Co., 310 Ark. 772, 840 S.W.2d 172 (1992) (citations omitted).

The requirement that the Commission’s decision not be arbitrary or capricious is less demanding than the requirement that it be supported by substantial evidence. Id. To be invalid as arbitrary or capricious requires that the Commission’s decision lacks a rational basis or relies on a finding of fact based on an erroneous view of the law. Id. To determine whether a decision is supported by substantial evidence, we review the record to ascertain if the decision is supported by relevant evidence that a reasonable mind might accept as adequate to support a conclusion. Wright v. Arkansas State Plant Bd., 311 Ark. 125, 842 S.W.2d 42 (1992).

In addition, despite EnviroClean’s assertion to the contrary, when we review ADPC&E’s permitting decisions, which are decisions ADPC&E is charged with administering pursuant to the police powers of the state and Ark. Code Ann. § 8-4-203 (Repl. 1991), we are reviewing determinations made by an executive agency and the doctrine of separation of powers requires that determination to be reviewed with judicial deference to ADPC&E’s expertise and specialization. Arkansas Comm’n on Pollution Control & Ecology v. Land Developers, Inc., 284 Ark. 179, 680 S.W.2d 909 (1984).

I. SUBSTANTIAL EVIDENCE / ERROR OF LAW

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 Bio-Med 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.

II. ARBITRARY AND CAPRICIOUS / DUE PROCESS / ESTOPPEL

EnviroClean’s second broad assignment of error is that the revocation of the permit was arbitrary, capricious, and an abuse of discretion; made upon unlawful procedure in excess of ADPC&E’s statutory authority; and made in violation of statutory provisions and EnviroClean’s constitutional due process rights. EnviroClean also includes a claim that ADPC&E should be estopped from revoking the permit.

EnviroClean argues ADPC&E engaged in a selective, arbitrary, and capricious action against EnviroClean because ADPC&E had not previously required notice of a change in a permittee’s stockholders. EnviroClean also claims that because there is no regulation requiring the disclosure of a change in ownership or control of a permittee, ADPC&E had no discretion to revoke EnviroClean’s permit and this court should not give any deference to ADPC&E’s revocation.

We have already pointed out that air permitting decisions are within ADPC&E’s police power and statutory authority and that such decisions of an executive agency are thus entitled to judicial deference on appeal. Land Developers, Inc., 284 Ark. 179, 680 S.W.2d 909. We need not decide whether the Commission’s revocation was arbitrary or capricious since it automatically follows that where substantial evidence is found, a decision cannot be classified as unreasonable or arbitrary. Wright, 311 Ark. 125, 842 S.W.2d 42.

EnviroClean argues its due process rights were violated in three respects: (l)there was no promulgated rule or regulation requiring the disclosure of a change in ownership or control of a permittee; (2) the existing rules and regulations are void for vagueness; and (3) because ADPC&E’s amended notice of revocation for misrepresentation and failure to fully disclose information amounted to a post-revocation attempt to supplement the initial basis for the revocation — a transfer in violation of the permit. These claims are moot. The permit itself prohibited transfer of the permitted facility and we have just held there was substantial evidence to support the finding that a transfer did occur in violation of the permit. Therefore, no rule or regulation is required to authorize the revocation. We do not decide moot issues. Arkansas Dep’t. of Human Servs. v. M.D.M. Corp., 295 Ark. 549, 750 S.W.2d 57 (1988).

Also under this broad assertion of error, EnviroClean includes a claim that because ADPC&E assured EnviroClean that a sale of stock would not affect the permit, ADPC&E is estopped from revoking the permit. EnviroClean relies on Foote’s Dixie Dandy v. McHenry, 270 Ark. 816, 607 S.W.2d 323 (1980) for the proposition that state agencies may be subject to estoppel in certain situations. However, EnviroClean overlooks that part of Foote’s Dixie Dandy stating that “[m]en must turn square corners when they deal with the government.” Foote’s Dixie Dandy, 270 Ark. at 824, 607 S.W.2d at 327 (quoting Rock Island, Arkansas & Louisiana R.R. v. United States, 254 U.S. 141, 143 (1920)). The hearing officer found that estoppel was not available to EnviroClean because it was not completely truthful with ADPC&E. We cannot say the hearing officer erred in making this finding.

SUMMARY

As the agency charged with enforcing the public policy of the state to protect the environment, and the public’s health, safety, and welfare, ADPC&E must be able to know the true identity of the persons or entities which own and control its corporate applicants and permittees. There was substantial evidence to support ADPC&E’s conclusion that EnviroClean transferred its permitted facility to BioMed, as those terms are used in and prohibited in the permit. Again, given this substantial evidence, we cannot say ADPC&E acted arbitrarily or that it abused its discretion in revoking EnviroClean’s permit.

The judgment is affirmed.

Brown, J. concurs.