South Carolina              
Administrative Law Court
Edgar A. Brown building 1205 Pendleton St., Suite 224 Columbia, SC 29201 Voice: (803) 734-0550

SC Administrative Law Court Decisions

CAPTION:
Three Rivers Behavioral Health, LLC vs. SCDHEC

AGENCY:
South Carolina Department of Health and Environmental Control

PARTIES:
Petitioners:
Three Rivers Behavioral Health, LLC

Respondents:
South Carolina Department of Health and Environmental Control
 
DOCKET NUMBER:
07-ALJ-07-0256-CC

APPEARANCES:
n/a
 

ORDERS:

ORDER FOR SUMMARY JUDGMENT

This matter comes before the Administrative Law Court (ALC or Court) on the motion of the Petitioner Three Rivers Behavioral Health, LLC ("Three Rivers") for an order granting summary judgment to Three Rivers and reversing the decision of the Respondent South Carolina Department of Health and Environmental Control (“Department”) to void Three Rivers’ Certificate of Need SC-06-42 to add 32 beds to its West Columbia facility (the “32-Bed CON”). After reviewing the memoranda and affidavits submitted by the parties and hearing the arguments of counsel, I find that Three Rivers is entitled to summary judgment in this case on the grounds that, as a matter of law, the Department acted outside its authority and in contravention of established law in voiding the 32-Bed CON.

BACKGROUND

The following facts are not disputed by the parties. In 2005, the Department approved Three Rivers’ Certificate of Need application for the construction and addition of thirty-two beds at its West Columbia psychiatric hospital. The Department’s approval of Three Rivers’ 32-Bed CON application was contested by Palmetto Health Alliance in Palmetto Health Alliance, Palmetto Health Baptist Medical Center of Columbia & Palmetto Health Richland v. South Carolina Department of Health and Environmental Control & Three Rivers Behavioral Health, LLC, Case No. 05-ALJ-07-0366-CC. As part of an agreement settling the case, the Department issued the 32-Bed CON on July 18, 2006.

Three Rivers Behavioral Health, LLC, the Petitioner, is the limited liability company entity with 100% ownership of the hospital operations and, at all times relevant hereto, is and has been the licensed entity for operation of the hospital under the law. As the licensee, Three Rivers is also the entity that holds the 32-Bed CON. At all times relevant to the inquiry at hand, Three Rivers was owned 100% by Three Rivers Healthcare Group, LLC, a limited liability holding company. This holding company was in turn owned equally by four individuals.

In December 2006, six months after issuance of the 32-Bed CON, the four individuals entered into an agreement with Premier Behavioral Solutions, Inc. (“Premier”), for Premier to purchase the four individuals’ membership interests in the holding company. Before and after the change in ownership of the holding company, the holding company entity continued to own 100% of Three Rivers and Three Rivers remained the licensee which owned, controlled, and operated the hospital facility.

Prior to the close of the sale, Mary Margaret Hyatt, counsel for Premier, met on December 15, 2006 with Joel Grice, the Director of the Bureau of Health Facilities and Services for the Department, to discuss the Department’s requirements with regard to the proposed sale of the membership interests in the holding company. At that meeting, Ms. Hyatt explained the transaction and gave Mr. Grice a written Request for Determination of Non-Applicability with respect to the transaction. This request by Ms. Hyatt was made on the grounds that the transaction was not an acquisition or change in ownership or in controlling interest of a health care facility or entity owning a health care facility directly or indirectly by purchase, lease, gift, donation, sale of stock or comparable arrangements that resulted in increased cost to the facility or an increase in government-sponsored reimbursement. See S.C. Code Ann. § 44-7-160(7) (2002). Three Rivers attached supporting documentation to its request for a Non-Applicability Determination to address the requirements of the statute.

In response to Ms. Hyatt’s request for a determination that the purchase of the membership interests of the upstream holding company did not affect the 32-Bed CON issued to the facility, on December 27, 2006 the Department issued Exemption E-06-88 confirming that:

Based upon the information contained in your letters dated December 15, 2006, and December 27, 2006, the above-referenced project does not require Certificate of Need review because it is the acquisition or change in controlling interest of a health care facility or entity owning a health care facility directly or indirectly by purchase, lease, gift, donation, sale of stock, or comparable arrangement because the acquisition or change in ownership or controlling interest does not result in an increase in cost to the facility or increase in government sponsored reimbursement. Therefore the project is exempted from review as stated in Title 44, Chapter 7, Section 44-7-160 of The South Carolina Code of Laws.

(December 27, 2006 Letter from Ms. Tibshrany to Ms. Hyatt, attached as Exhibit 2 to Petitioner’s Motion for Summary Judgment).

In notifying the public of its determination in its January 2007 Certificate of Need Update, the Department stated:

Acquisition of Three Rivers Healthcare Group, LLC, the owner of the real property of Three Rivers Behavioral Health, by Premier Behavioral Solutions, Inc.; the licensee of the hospital, Three Rivers Behavioral Health, LLC, will not change as [a] result of this transaction.

(Exhibit 6, Petitioner’s Motion for Summary Judgment) (emphasis added).

Several days after the issuance of the exemption, Ms. Hyatt again spoke with Mr. Grice concerning the proposed transaction and its effect on the licensed facility. According to Ms. Hyatt, she and Mr. Grice discussed the Department’s decision that the sale of the holding company membership interests did not require Certificate of Need review and that there would be no change in the ownership of the licensee or in the operation of the facility. Ms. Hyatt states in her Affidavit, which is before the Court, that Mr. Grice confirmed during the conversation that there would be no impact on any outstanding Certificates of Need held by the licensee because the licensee did not change; however, Mr. Grice indicated that he wanted to discuss the matter with the staff member who had issued the Three Rivers’ December 27, 2006 exemption determination. According to Ms. Hyatt, Mr. Grice followed up with her shortly thereafter, advising her that the Department believed that the upstream transaction would not impact any Certificates of Need held by the downstream licensee while cautioning that the Department could not prevent third party challenges in that regard. (Affidavit of Mary Margaret Hyatt, Exhibit 3, attached to Petitioner’s Motion for Summary Judgment).

The Department does not dispute that a meeting took place on December 15, 2006 between Ms. Hyatt, Mr. Grice and Department staff, the accuracy of Three Rivers’ submission seeking a non-applicability determination, or the Department’s December 27, 2006 determination that the sale of the holding company membership interests met the requirements of § 44-7-160(7) and did not require Certificate of Need review. However, the Department does dispute Ms. Hyatt’s recollection of the follow up conversations, asserting that Mr. Grice and Ms. Hyatt discussed only general Certificate of Need law and not the specific Three Rivers’ 32-Bed CON licensure during those conversations. (Affidavit of Mr. Grice, Exhibit 1 to the Department’s Memorandum in Opposition to Summary Judgment).[1]

Notwithstanding the Department’s version of the early January 2006 dialogue between Ms. Hyatt and Mr. Grice, Ms. Hyatt confirmed in writing on January 5, 2007 her recollection of their conversation, stating that the Department agreed that the purchase of the upstream holding corporation interests would not affect Three Rivers’ ability to implement its pending 32-Bed CON, that CON review was not required for the transaction and that the licensee would not change. Neither Mr. Grice nor any employee of the Department responded to Ms. Hyatt’s January 5, 2007 letter until January 24, 2007.

On January 24, 2007, Mr. Grice sent a letter to Ms. Hyatt in which he informed her that the Department intended to void the 32-Bed CON because it had determined that the sale of the interests of the upstream holding company amounted to an illegal transfer of Three Rivers’ 32-Bed CON. According to Mr. Grice’s Affidavit, his early January conversation with Ms. Hyatt concerned general Certificate of Need law, and it was not until sometime in late January that he was reminded by a progress report that Three Rivers had the 32-Bed CON. Mr. Grice states that the progress report “triggered a question” in his mind whether the sale of Three Rivers’ holding company interests might affect the CON. Mr. Grice claims that he concluded at that time that “the change in ownership in this case resulted in an invalid transfer of the Certificate of Need because the ownership of the licensed entity changed.”

As explained in his Affidavit, the reason for Mr. Grice’s voidance of the 32-Bed CON was a Department practice that considered the transfer of ownership or control within two corporate levels of a licensee as being an illegal transfer of all CONs held by the licensee. (Affidavit of Mr. Grice, Exhibit 1 to the Department’s Memorandum in Opposition to Summary Judgment). The parties do not dispute that this Department practice has not been published in any form available to the public.

Thus, the January 24, 2007 letter from Mr. Grice was the first notice given to Three Rivers that the Department considered the purchase of membership interests in the upstream holding corporation to be an illegal transfer of Three Rivers’ 32-Bed CON, resulting in voidance of the CON. This notice of the Department’s position that the 32-Bed CON would be voided by the transaction came approximately three weeks after the transaction had closed. On April 17, 2007, after Three Rivers objected to the Department’s announced intentions, the Department issued a formal decision voiding Three Rivers’ 32-Bed CON.

On May 3, 2007, pursuant to S.C. Code Ann. § 44-1-60(E), Three Rivers timely filed its request for a final review conference by the Board of Health and Environmental Control of the decision to void the 32-Bed CON. On May 17, 2007, the Board declined to conduct a final review conference. Three Rivers’ then requested a contested case review by this Court.

Because of the pending contested case, on June 18, 2007, Three Rivers timely filed a request pursuant to S.C. Code Ann. Reg. 61-15, sections 601 and 602, for an extension of the 32-Bed CON to allow this Court to consider Three Rivers’ appeal of the Department’s decision to void the CON. Three Rivers believed that, in the absence of such an extension, the 32-Bed CON would have expired according to its own terms during the course of this contested case proceeding and, thus, would be invalid apart from the Department’s earlier to decision to void the CON because of the sale of holding company interests. On July 12, 2007, the Department denied Three Rivers’ request for an extension.

On July 18, 2007, pursuant to § 44-1-60(E), Three Rivers timely filed its request for a final review conference by the Board of Health and Environmental Control and, on August 17, 2007, the Board declined to conduct a final review of the denial of the extension. Three Rivers requested a contested case hearing on the decision to deny an extension of the 32-Bed CON pending a decision on the merits of the Department’s voidance of the CON. On September 26, 2007, this Court consolidated the two matters and both matters are before the Court today.

STANDARD OF REVIEW

Under ALC Rule 68, this Court may apply the South Carolina Rules of Civil Procedure in contested case proceedings where no Administrative Law Court rule applies and when practicable. Therefore, Rule 56(C), SCRCP, applies in determining whether summary judgment is proper in this case. As stated by the Court of Appeals in International Fidelity Insurance Company v. China Construction America (SC) Inc., 375 S.C. 175, 650 S.E.2d 677, 678-79 (Ct. App. 2007):

Summary judgment is proper when there is no issue as to any material fact and the moving party is entitled to a judgment as a matter of law. To determine whether any triable issues of fact exist, the reviewing court must consider the evidence and all reasonable inferences in the light most favorable to the non-moving party. When plain, palpable, and indisputable facts exist on which reasonable minds cannot differ, summary judgment should be granted.

(citations omitted).

DISCUSSION

The Department’s authority to void a previously issued Certificate of Need is found in S.C. Code Ann. § 44-7-230(E) and S.C. Code Reg. 61-15, section 604(1), which provide:

A Certificate of Need is nontransferable. A Certificate of Need or rights thereunder may not be sold, assigned, leased, transferred, mortgaged, pledged, or hypothecated, and any actual transfer or attempt to make a transfer of this sort results in the immediate voidance of the certificate of need. The sale or transfer of the controlling interest or majority ownership in a corporation, partnership, or other entity holding, either directly or indirectly, a Certificate of Need, results in the transfer and voidance of a Certificate of Need.

Applying the unpublished Department practice, referenced by Mr. Grice in his Affidavit, of considering transactions two corporate levels above the licensee to affect the licensee, the Department in this case applied section 604(1) to the sale of membership interests in Three Rivers’ upstream holding company to find that Three Rivers had unlawfully “sold, assigned, leased, transferred, mortgaged, pledged, or hypothecated” its 32-Bed CON.

Three Rivers moves for summary judgment to reverse the Department’s decision on two grounds. First, Three Rivers contends that neither Certificate of Need law nor the established law on corporations supports the Department’s unpublished practice to void Certificates of Needs for transactions that occur within two corporate levels of the holder of a CON. Second, Three Rivers claims that, even if the Department’s practice is lawful, the Department should be estopped from applying it in this case because of the Department’s prior decision to approve the sale of holding company memberships without review and because the Department repeatedly discussed with Three Rivers the transaction and its effect on Three Rivers without ever advising of the unpublished Department practice that would void the 32-Bed CON. The Court finds that Three Rivers is entitled to summary judgment for both of the reasons Three Rivers argues.

Sale of Security Interests in a Corporation

The Department has not cited any provision of the Certificate of Need law which supports its practice of deeming a sale of security interests in an entity two levels up the corporate chain to be a transfer of the assets of the downstream entity that holds a Certificate of Need. Under § 44-7-160(7), the acquisition or change in ownership or in controlling interest of an entity owning a health care facility is not subject to Certificate of Need review unless the transaction results in an increased cost to the facility or an increase in government-sponsored reimbursement.

Thus, under applicable Certificate of Need law, a transfer of control in an upstream entity is significant for CON purposes only when the licensed facility’s costs or government reimbursement are increased. It is not disputed in this case that the sale of membership interests in Three Rivers’ upstream holding company did not result in increased costs or an increase in government-sponsored reimbursement to Three Rivers’ facility. The Department concluded as much when it issued its letter of exemption on December 27, 2006.

Furthermore, the Department’s practice of interpreting S.C. Code Reg. 61-15, section 604(1) to apply to a transaction involving upstream entities is contrary to the long-established corporate law of this State which preserves the boundaries between parent and subsidiary corporations except in compelling circumstances.[2] For example, in WeSav Financial Corporation v. Lingefelt, 316 S.C. 442, 450 S.E.2d 580 (1994), the Supreme Court of South Carolina reversed a holding by the Court of Appeals that the receiver of a parent corporation’s assets was the real party in interest in a collection action brought by a subsidiary corporation. In holding that the receiver was not the real party in interest, the Supreme Court found:

As receiver for Western, the RTC acquired title to Western’s assets, which includes WeSav’s stock. (citation omitted). However, the RTC’s status as a shareholder does not make it the real party in interest. See Gordon v. Hollywood-Beaufort Package Corp., 213 S.C. 438, 49 S.E.2d 718 (1948) (the mere ownership of the capital stock of one corporation by another does not create an identity of corporate interest between the two or render the holding company the owner of the property of the other.).

Id. at 582. (emphasis added).[3]

“When interpreting a regulation, [a court must] look for the plain and ordinary meaning of the words of the regulation, without resort to subtle or forced construction to limit or expand the regulation's operation.” Converse Power Corp. v. S.C. Dep't of Health and Envtl. Control, 350 S.C. 39, 47, 564 S.E.2d 341, 346 (Ct.App. 2002) (citing Byerly v. Connor, 307 S.C. 441, 444, 415 S.E.2d 796, 799 (1992). When the language of a statute is plain, the court must reject an interpretation by an agency contrary to that language. Brown v. Bi-Lo, Inc., 354 S.C. 436, 440, 581 S.E.2d 836, 838 (2003).

Regulatory bodies like the Department have only the authority granted them by the General Assembly and any action taken outside of their statutory and regulatory authority is null and void. Responsible Econ. Dev., et al. v. S.C. Dep’t of Health and Envtl. Control, et al., 371 S.C. 547, 641 S.E.2d 425 (2007). An agency cannot materially add to or alter the regulating laws. Lee v. Mich. Millers Mut. Ins. Co., 250 S.C. 462, 468, 158 S.E.2d 774, 776 (1968).

In this case, the Department’s practice of interpreting section 604(1) to extend to transactions occurring two corporate levels above the actual licensed holder of a CON, when such transactions have no impact on the licensee’s operations or implementation of the CON, is in derogation of the corporate boundaries legitimately established between parent/holding entities and their subsidiaries and is contrary to both Certificate of Need and basic corporate law.[4] Therefore, I find that, once the Department determined in this case that the upstream sales transaction did not affect Three Rivers’ operation of the facility under § 44-7-160(7), the Department lacked the authority to void the 32-Bed CON.

Estoppel

Three Rivers also argues that, even assuming that the Department’s unpublished practice of considering transactions two corporate levels above the licensee for purposes of section 604(1) is authorized, in this case the Department should be estopped from applying the practice. To support estoppel, Three Rivers points to the Department’s prior conduct in approving the transaction as exempt from review and the Department’s silence in numerous encounters with Three Rivers about its unpublished practice and the effect it would have on the 32-Bed CON.

Generally, the doctrine of estoppel may not be used against the government to prevent the due exercise of its police power or to thwart the application of public policy. Grant v. City of Folly Beach, 346 S.C. 74, 551 S.E.2d 229 (2001). Notwithstanding this general rule, however, the courts of our State have applied estoppel against the government when the officers or agents in question are acting within the proper scope of their authority and when the other party has prejudicially changed its position in reliance on the erroneous conduct or statements of these officials.

In Southern Development Land and Golf Company, Ltd. v. South Carolina Public Service Authority, 311 S.C. 29, 426 S.E.2d 748 (1993), the Plaintiff Developer argued that the South Carolina Public Service Authority should be estopped from condemning the Developer’s property for the placement of high voltage transmission lines because, prior to purchasing the property, the Developer had inquired about existing power transmission lines on the property and had been assured by the Authority’s Vice President that the existing lines could be buried at no expense to the Developer. The Authority’s Vice President failed to inform the Developer, however, that the Authority had then-existing plans to place additional high voltage lines across the property and that those lines would cost the Developer $2,000,000 to bury. In finding that the Developer was entitled to equitable estoppel against the Authority, the South Carolina Supreme Court found:

Estoppel by silence arises where a person owing another a duty to speak refrains from doing so and thereby leads the other to believe in the existence of an erroneous state of facts. Silence, when it is intended, or when it has the effect of misleading a party, may operate as equitable estoppel. There is no requirement that the person whose silence misleads another have actual knowledge of the true facts if circumstances are such that knowledge is necessarily imputed to him. Negligence will take the place of the intent to deceive when there is a duty to disclose.

Id. at 33, 426 S.E.2d at 751 (citations omitted). Applying the law of estoppel by silence, the Court found that “[i]t is undisputed [the Authority]'s plans were established at the time [Developer] sought assurances regarding the burial of the existing electric lines from [the Authority’s Vice President]. [The Vice President] had ready access to this information. We find these facts sufficient to estop [the Authority].” Id. at 34, 426 S.E.2d at 751.

In addressing the Authority’s argument that the Developer should have been aware that transmission lines could be placed on the property because of a recorded easement in favor of the Authority running across the property, the Court held:

One with knowledge of the truth or the means by which with reasonable diligence he could acquire knowledge cannot claim to have been mislead [sic]. The Court of Appeals found that [Developer] had the means of determining [the Authority]’s plans for future expansion of its system by simply making an appropriate inquiry as the pre-existing easement was a matter of public record. It is not disputed [Developer] was aware of the pre-existing easement. The easement, however, did not convey [the Authority]'s plans to construct this additional high voltage transmission line. We find [Developer]'s inquiry to [the Authority’s Vice President] constituted an appropriate inquiry into [the Authority]'s immediate use of this easement.

Id. With regard to the argument that it was not reasonable for the Developer to rely on the assertions of the Authority’s Vice President because they were not legally binding, the Supreme Court found:

Finally, reliance by the party seeking to assert estoppel must be reasonable. (citation omitted). However, the reliance need not rise to a level of a reasonable but erroneous belief the representations are legally binding. Thus, [Developer]'s recognition that [the Authority’s Vice President]'s representations were not legally binding is not dispositive on the issue of reliance. [Developer] was directed to [the Vice President] by the former chairman of [the Authority]. [The Vice President] held a high level position and the assurances given by [him] were within his authority. Accordingly we find [Developer]'s reliance justified.

Id.

In this case, prior to the sale of membership interests in its holding company, Three Rivers’ counsel met with Joel Grice, the Director of the Bureau of Health Facilities and Services for the Department,[5] and explained the transaction to the Department. Three Rivers’ provided Mr. Grice a written Request for Determination of Non-Applicability with respect to the transaction. It is not disputed that Mr. Grice did not inform Three Rivers’ at this time that the Department’s unpublished practice would require it to void Three River’s 32-Bed CON should the transaction be consummated.

On December 27, 2006, the Department determined in writing that the sale of membership interests in the holding company was not an acquisition or change in ownership or in controlling interest of a health care facility or entity owning a health care facility directly or indirectly by purchase, lease, gift, donation, sale of stock, or comparable arrangement that resulted in an increase in cost to the facility or increase in government-sponsored reimbursement under § 44-7-160(7) and, thus, was not reviewable under Certificate of Need law. Again, this written determination by the Department did not mention the Department’s unpublished practice and its effect on Three Rivers’ 32-Bed CON.

Several days after the Department’s determination that the transaction was not reviewable under Certificate of Need law, Three Rivers again contacted Mr. Grice. Although Ms. Hyatt and Mr. Grice assert different versions of these January follow up conversations concerning the effect the transaction would have on Three Rivers’ 32-Bed CON, it is undisputed that, yet again, Mr. Grice did not inform Three Rivers of the Department’s unpublished practice of voiding Certificates of Need for changes in control occurring two levels or less up the corporate chain of ownership.

Finally, when Three Rivers’ counsel wrote Mr. Grice on January 5, 2007 to confirm her version of the conversation with him that the 32-Bed CON was not affected by the transaction, Mr. Grice did not at that time inform Ms. Hyatt of the Department’s unpublished, but long-standing, practice of considering transactions two levels up the corporate chain as adversely affecting Certificates of Need held by the licensee. Only after the transaction was consummated and ownership of the upstream holding company changed hands did Mr. Grice, on behalf of the Department, inform Three Rivers that its 32-Bed CON was voided by the transaction.

As in the Southern Development case, Three Rivers’ lacked the means to discover the Department’s unwritten and unpublished practice except through inquiry to the Department, and Three Rivers in fact made numerous inquiries of the Department regarding the proposed transaction. All of Three Rivers’ inquiries were to Department personnel who were in positions of authority with regard to the Department’s enforcement of the Certificate of Need program. Despite the numerous exchanges between Three Rivers and the Department, at no time did the Department advise Three Rivers of its unpublished practice that would void Three Rivers’ 32-Bed CON if the sales transaction occurred. Instead, the Department determined in writing on December 27, 2006 that Three Rivers, as the licensee, was unaffected by the transaction and that no Certificate of Need review was required under the law. The sale of membership interests in Three Rivers’ holding company proceeded in reliance on the Department’s determination.

Based on these undisputed facts, I find that, under the principles of estoppel by silence set forth in the Southern Development case, the Department should be estopped from changing its original position that the transaction does not affect the licensee and, therefore, its decision voiding the 32-bed CON must be reversed.

As a final matter, Three Rivers raises the issue of its consolidated appeal of the Department’s denial of an extension of the 32-Bed CON. Under S.C. Code Ann. § 1-23-600(G)(2) (Supp. 2006), the decision of the Department to void Three Rivers’ 32-Bed CON was stayed upon Three Rivers’ filing of a request for contested case review. At the hearing before the Court, Three Rivers indicated that, if the Court granted summary judgment and ordered the Department to reissue the 32-Bed CON in a manner that would place Three Rivers’ in the position it occupied prior to the voidance on April 17, 2007, Three Rivers would withdraw its request for review of the Department’s decision to deny extension of the 32-Bed CON. Having found in Three Rivers’ favor on the Motion for Summary Judgment, the Court accepts Three Rivers’ withdrawal of its request for review in Docket No. 07-ALJ-07-420-CC contingent on the Department’s reissuance of the 32-Bed CON.

ORDER

IT IS HEREBY ORDERED that Petitioner’s Motion for Summary Judgment is granted and the April 17, 2007 decision of the Department voiding the 32-Bed CON is reversed.

IT IS FURTHER ORDERED that the Department shall within ten (10) days of the date of this Order reissue the 32-Bed CON to Three Rivers, such CON to be valid for a period of six (6) months from the date of reissuance.

IT IS FURTHER ORDERED that, contingent upon the Department’s reissuance of the 32-Bed CON as set forth above, Petitioner’s Request for Contested Case Review in Docket No. 07-ALJ-07-420-CC is withdrawn and that matter is hereby dismissed with prejudice.

IT IS FINALLY ORDERED that summary judgment having disposed of all remaining issues in Docket No. 07-ALJ-07-256-CC that matter is hereby dismissed.

AND IT IS SO ORDERED.

_________________________________

Marvin F. Kittrell

December 5, 2007 Chief Administrative Law Judge

Columbia, South Carolina



[1] For purposes of considering Three Rivers’ Motion for Summary Judgment, I find this dispute as to the follow up conversations to be immaterial.

[2]It is settled authority that the doctrine of piercing the corporate veil is not to be applied without substantial reflection. Baker v. Equitable Leasing Corp., 275 S.C. 359, 367, 271 S.E.2d 596, 600 (1980). If any general rule can be laid down, it is that a corporation will be looked upon as a legal entity until sufficient reason to the contrary appears; . . . ” Sturkie v. Sifly, 280 S.C. 453, 457, 313 S.E.2d 316, 318 (Ct. App. 1984).

[3] South Carolina courts have long recognized that that a parent corporation is a legal entity separate and distinct from its subsidiaries in almost every aspect of the transaction of business by a company, including the payment of taxes, liability on contracts and for debts, and the ability to be subjected to suit. See, e.g., Emerson Electric Co. v. Wasson, 287 S.C. 394, 397, 339 S.E.2d 118, 120 (1986) (“[W]hen two or more corporations join in a consolidated tax return, each remains an identifiable taxpayer. A corporation does not lose its status as an identifiable entity by affiliating with another.”); Yarborough & Co. v. Schoolfield Furn. Indus., Inc., 275 S.C. 151, 153-54, 268 S.E.2d 42, 44 (1980) (“The mere acquisition and control of a domestic subsidiary’s capital stock does not subject the foreign parent to the jurisdiction of that State’s courts.”); Mid-South Mgmt. Co., Inc. v. Sherwood Dev. Corp., 374 S.C. 588, 649 S.E.2d 135 (Ct. App. 2007) (“It is generally recognized that a corporation is an entity that is separate and distinct from, and its debts are not the individual debts of, its officers and stockholders.”); Donahue v. Multimedia, Inc., 362 S.C. 331, 608 S.E.2d 162 (Ct. App. 2005) (“Since the transfer of the stock of a corporation does not constitute an assignment of the corporation’s contract, the transfer of the stock of the parent of a contracting corporation can hardly constitute an assignment of the subsidiary’s contract.”) (applying New York law as consistent with South Carolina public policy).

[4] Moreover, the Department is required pursuant to § 44-7-150 to promulgate any practice or policy, specifically related to the State Certification of Need and Health Facility Licensure Act (“Act”), as a regulation to have any force or effect in law. § 44-7-150 (Supp. 2006) (“In carrying out the purposes of this article, the department shall: . . . (3) adopt in accordance with Article I of the Administrative Procedures Act [“APA”] substantive and procedural regulations considered necessary by the department and approved by the board to carry out the department's licensure and Certificate of Need duties under this article, including regulations to deal with competing applications; . . .”). Here, the Department has not promulgated the above-referenced policy as a regulation and could not provide any written form of the policy to Three Rivers’ counsel or to this Court. See Captain's Quarters Motor Inn, Inc. v. S.C. Coastal Council, 306 S.C. 488, 413 S.E.2d 13 (S.C. 1991) (rejecting the application of a state agency’s policy relating to the evaluation of permit applications where the agency’s enabling legislation mandates that such policies be promulgated as legislation).

[5] In his Affidavit, Mr. Grice indicates that he has been the Director of the Bureau of Health Facilities and Services Development for seven years and prior to that served as the Director of the Office of Certification of Need for sixteen years. According to Mr. Grice, he has been involved exclusively with the regulation of health facilities, including licensing, planning, and Certificate of Need for the past 32 years. (Affidavit of Mr. Grice, Exhibit 1 to the Department’s Memorandum in Opposition to Summary Judgment). Mr. Grice’s position with the Department clearly authorizes him to speak for the Department on Certificate of Need issues, and Three Rivers was justified in relying on Mr. Grice’s knowledge and position of authority when it made inquiries of him.


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