SC Administrative Law Court Decisions

STATEMENT OF THE CASE

This matter comes before me pursuant to 25A S.C. Code Ann. Regs. 61-92 § 280.302 (Supp. 2000), Underground Storage Tanks, Appeals, and S.C. Code Ann. § 1-23-310 et seq. (Rev. 1986 and Supp. 2000). Greenwood Petroleum appeals from the South Carolina Department of Health and Environmental Control's (Department or DHEC) determination that it is the owner of two underground storage tanks (USTs) previously located at Callison's Store. Greenwood Petroleum also appeals the Department's Order requiring it to perform environmental testing at the site to assess potential contamination. DHEC's decision was set forth in a certified letter dated November 1, 2000, from Mark Berenbrok, Manager of the Regulatory Assistance Section of the UST Program, to Bob Drummond of Greenwood Petroleum. Although this case comes before me in an unusual procedural posture, I find that DHEC's letter constitutes a final determination by the agency, as it stated that the decision would become final if not appealed within fifteen days.

After timely notice to the parties, a hearing was conducted on April 12, 2001, at the Administrative Law Judge Division (ALJD or Division). At that hearing, Mr. Harmon, Attorney for Petitioner, made a preliminary motion that this tribunal determine that DHEC bore the burden of proof in this matter. Although the caption has not been reversed, this tribunal noted in the record its ruling that the Department bore the burden of proof in this matter. Therefore, the Department must prove by a preponderance of the evidence that Petitioner owns the underground storage tanks (USTs). For the reasons cited herein, this tribunal finds that DHEC has failed to prove by a preponderance of the evidence that Petitioner owns the two USTs previously located at the Callison's Store location.

The parties have stipulated two facts for purposes of this hearing: (1) that potential petroleum contamination is present at the site, in order to obviate the need for technical expert testimony, and (2) that the $25,000 deductible and qualification under the SUPERB fund is not at issue. Further, this tribunal need not reach the issue of the Department's authority to issue the order requiring environmental assessment because the issue was not argued by the parties during the contested case hearing and because the first issue of ownership is decided in the negative. Thus, the sole issue before this tribunal and addressed in this Final Order is the ownership of the two USTs previously located at the Callison's Store site.

The Department argues (1) that the USTs are owned by Greenwood Petroleum based on database records created from Notification Forms, and (2) that Greenwood Petroleum is one of a family of companies owned by the Drummond family which should be held liable for the actions of Drummond Oil. For the reasons stated herein, both arguments must fail. DHEC has not demonstrated the probative value of the information in its database. Further, although Drummond Oil, Horne Oil, and Greenwood Petroleum are all small family businesses owned and operated at one time by the Drummond family, DHEC has not shown sufficient evidence that corporate formalities were disregarded, that fraud was perpetrated or that fundamental unfairness resulted to justify piercing the corporate veil.

FINDINGS OF FACT

Having carefully considered all testimony, exhibits and arguments presented at the hearing of this case, and taking into account the credibility and accuracy of the evidence, I make the following Findings of Fact by a preponderance of the evidence.

1. The Callison's Store property, located at 2701 Siloam Church Road, Greenwood, South Carolina, is owned by Talmidge P. Callison, who ran the convenience store until he retired in 1988. Subsequent to 1988, Mr. Callison leased the property to Graham Kelly, who also operated a convenience store on the premises. The two USTs at issue were previously located on the Callison's Store property. Callison's Store is not a permitted site because the UST regulations were not in place when the tanks were initially installed or subsequently removed.

2. The applicable federal regulations and corresponding state programs became effective in December 1988, after the USTs were removed from the Callison's Store site on April 5, 1988. No further activity regarding the USTs occurred until the Phase One Environmental Assessment revealed likely petroleum soil contamination.

3. In May 2000, Mr. Callison had an Environmental Assessment done to ensure there was no spillage on the site as part of the potential sale of the property to Mr. Ward, a prospective buyer. Closing the sale was contingent upon the results of the Environmental Assessment. The testing conducted revealed potential petroleum contamination at the site, based on three soil borings. Petroleum constituents were found in excess of the Department's risk based screening levels, indicating a spill or leakage from the USTs. As a result, the Environmental Assessment was sent to the Department, and Mr. Ward requested his money back. Mark Berenbrok, the Manager of the Regulatory Assistance Section of the UST Compliance Program, met with Mr. Callison and Mr. Ward regarding the possibility of completing the sale without Mr. Ward incurring liability to the Department for any potential cleanup related to the USTs, but determined that Mr. Ward could still be liable to the owners of the neighboring properties if the contamination leached into the groundwater. Based on this meeting, Mr. Callison's realtor asked him to prepare a statement of his recollection of removal of the USTs to facilitate closing the real estate sale.

4. Mr. Callison has not been directed by DHEC to do anything to the site. Mr. Callison paid $1300 for the Environmental Assessment in an attempt to sell the real estate, but Mr. Ward, the prospective buyer, requested that his lawyer stop the sale. There is currently a hole in the ground with a cap over it as a result of the Environmental Assessment, but the Department has determined that there is no immediate threat of harm to the environment. The initial groundwater assessment indicated the presence of hydrocarbons onsite and possible impact to the groundwater as indicated by a monitoring well. Nonetheless, the Department has elected not to require a Tier I assessment pending resolution of the ownership issue based on the lack of immediate risk to human health.

5. Mr. Callison testified that the tanks were owned by the Drummonds but failed to draw any distinctions among the corporate entities or to demonstrate any knowledge of the various corporations. Bob Drummond offered to sell the USTs to Callison for $1 in 1988 after Callison had leased the store to Kelly. The record is not clear on which corporation's behalf Bob Drummond offered to sell the USTs. Mr. Callison did not accept the offer but demanded that the tanks be removed from the property. From 1976 when the store first opened until it closed in 1988, Mr. Callison sold exclusively Mobil/ Horne Oil products and received a percentage on sales. The station displayed a Mobil sign. Based on Mr. Callison's testimony, the Drummond family continued the delivery of Mobil Oil products to the USTs at Callison's Store, once they acquired Horne Oil. In the late 1980s, animosity developed between the Drummond family and Mr. Callison regarding payment for some unaccounted for gas. Horne Oil stopped delivering to Callison's Store shortly thereafter.

6. Greenwood Petroleum is owned entirely by the Drummond family. ⁽¹⁾ Senator John Drummond is the President. Bob Drummond, his son, is the Vice President and is responsible for overseeing the operation and running the daily activities of the company. Bob Drummond has worked with Drummond Oil, JR Payne, Horne Oil, and Greenwood Petroleum; although he has worked with all four companies, he has worked for and been paid by only Greenwood Petroleum. Brick Drummond, the other son, is the Vice President and Secretary of Greenwood Petroleum.

7. Brick Drummond is also the owner of Petroleum Works, which is a DHEC qualified contractor for tank removal. Petroleum Works is a wholly owned subsidiary of Greenwood Petroleum. Petroleum Works performed tank removal of USTs for Greenwood Petroleum and other entities. Some customers of Petroleum Works were entities owned by the Drummond family, and some were not. Greenwood Petroleum is one of Petroleum Works' biggest customers.

8. Brick Drummond was also the Secretary of Drummond Oil, which was organized to freight haul residual oil to Monsanto Chemical. No evidence was presented on whether Drummond Oil has been dissolved or whether any of its assets are still in existence.

9. On June 8, 2000, the Bureau of UST Management sent a letter to Bob Drummond indicating that DHEC considered Greenwood Petroleum to be the owner of the USTs at Callison's Store partly as a result of its meetings with and information from Mr. Callison. Based on this determination, the corrective action section within the Department issued a directive to Greenwood Petroleum to perform an initial groundwater assessment and undertake remedial clean up action for the first $25,000 of actual costs if necessary. Mark Berenbrok made the ownership determination based primarily on Greenwood Petroleum being listed as the owner of the USTs in the Department's database. Greenwood Petroleum responded to DHEC's directive by stating that it was not the owner of the USTs and brought this contested case action to challenge the Department's decision.

10. Greenwood Petroleum and DHEC exchanged extensive correspondence during the late 1980s and early 1990s arising from the issue of payment of tank fees to DHEC for USTs owned by Greenwood Petroleum under the then newly instituted SUPERB program. In a letter dated July 18, 1989, to Raymond Knox, the DHEC Division Director, John Drummond, President of Greenwood Petroleum, indicated that the USTs were abandoned prior to December of 1988. Brick Drummond testified that his father, John Drummond, would have responded to DHEC inquiries without paying attention to details of corporate tank ownership, as he usually did not concern himself with details and paperwork in running the business. In a letter dated December 27, 1990, to Mark Berenbrok, Greenwood Petroleum again stated that Petroleum Works had removed the tanks at the Callison's Store site. Both letters and other correspondence are silent as to ownership.

11. DHEC's assertions regarding Greenwood Petroleum's ownership of the tanks flows primarily from the identification of Greenwood Petroleum in the Department's database. The information in the database was purportedly taken from a notification form sent in by Greenwood Petroleum. Two of the principals in Greenwood Petroleum, Bob and Brick Drummond, deny that Greenwood Petroleum ever sent such a form to DHEC for the two USTs at Callison's Store. Further, DHEC failed to present any evidence that Greenwood Petroleum originally registered the USTs in question. Greenwood Petroleum submitted Notification Forms for the twenty-four tanks it owns to the Department. The company update screen printout for Greenwood Petroleum in DHEC's database is cross-referenced to the page for the site of Callison's Store, but the Greenwood Petroleum screen printout shows no indication of its relation to the Callison Store site.

12. The DHEC database has been updated on occasion, but the record does not include the electronic footprint of who made changes to the database, what the changes might have been, or when such changes were made. Many people within the Department have edit rights to the database. Clearly, there have been additions to the site history for the Callison's Store site, especially since the release was reported in May 2000. The database was initially created under the old GTS system but was transferred at some point into the new EPIS computer system. Nothing in the record indicates how the integrity of the data was ensured on transfer or how the accuracy of the information was ensured when the database was created.

13. The actual notification form is destroyed three years after a UST has been removed from the ground, in accordance with DHEC's retention schedule for the UST program as approved by the Department of Archives and History. Mark Berenbrok testified that the information was received in early 1987 and would have been entered when the database became operational in early 1987. According to the DHEC report generated when files are purged, the Notification Form for Callison's Store was destroyed in February 1999. A Notification Form is typically sent to DHEC from the owner of the USTs and contains the age and makeup of the tanks and pipes, identifies the contents of the tanks, and gives the address of the owner and operator.

14. Greenwood Petroleum sent DHEC a contract showing the sale of Horne Oil to Drummond Oil Company, as well as a receipt showing that Horne Oil had filled the USTs at Callison's Store on at least one occasion. In addition, Brick Drummond provided a copy of the gasoline supplier's monthly report required by the State for tax purposes and an invoice for gallons per month sold by Horne to Callison's Store. Nonetheless, DHEC considered this insufficient to change its determination of ownership. Mark Berenbrok testified that the purchase of Horne by Drummond Oil in the early 1980s would not be in the file regarding the Department's determination of tank ownership because the sale was not relevant to that determination.

15. After the sale in 1980, Drummond Oil Co. owned all the shares of Horne Oil. ⁽²⁾ The Horne-Drummond sale occurred for two reasons: (1) because Horne had the Mobil distributorship, while Drummond Oil had the Phillips 66 and Gulf distributorships, and (2) because Horne had good fuel oil accounts. The tanks at Callison's Store were in the ground when the purchase took place, having been installed by the prior owner about forty years earlier.

16. Greenwood Petroleum has a Gulf distributorship. Sharing tanks or putting gas from a different company into a tank at a station bearing the Mobil logo, otherwise known in the industry as "commingling," is strictly prohibited and would result in the loss of the distributorship. While Greenwood Petroleum provides products to tanks not owned by them, they do not supply tanks under any other brand than Gulf because "co-branding" is not allowed by the major companies.

The gas supplier's monthly report and gasoline tax records, as well as the receipt for delivery, demonstrate that Greenwood Petroleum is not the owner because there is no logical business reason that a Gulf distributorship, such as Greenwood Petroleum, would put Gulf gas in the tanks of a station that sells Mobil gas. Further, Mobil would have pulled the contract from Horne Oil if Drummond Oil had put Gulf gas or oil in a Mobil tank. Callison's Store displayed a Mobil sign, and Horne Oil had the Mobil distributorship.

17. There was extensive testimony that Greenwood Petroleum and Drummond Oil, as well as Horne Oil and J.R. Payne observed corporate formalities. The companies have been operated separately, have kept separate financial records, have filed separate reports to state agencies, and have filed separate tax returns. Further, the companies maintained separate books regarding gas tax collection. Some of the companies had the same officers, and members of the Drummond family were principals in each corporate entity. The companies shared a secretary and worked out of one office. In addition, the companies shared officers and employees.

18. The two USTs at Callison's Store were removed by Petroleum Works on April 15, 1988, just before the SUPERB Regulations went into effect. Horne Oil had stopped selling Mobil gas at the site just prior to removal of the tanks. These were small tanks; removal consisted of de-gassing them, cutting a hole in the end, and taking the tanks to a storage site for sale to a salvage dealer.

19. At the introductory seminar to the SUPERB Act and regulations in the late 1980s, DHEC distributed lists to industry representatives of their respective tank populations, which were generated from the contents of DHEC's database. DHEC's list, distributed at the Piedmont Tech seminar, showed 176 tanks in Greenwood Petroleum's population. Brick Drummond, Vice President of Greenwood Petroleum, noted several discrepancies in DHEC's list and pointed out several errors in the list to the Department at that time. Brick Drummond made notations beside each tank entry indicating the date it had been removed by his company, Petroleum Works, or the correct owner based on his personal knowledge of many of his customers and the other tanks in a small town. Because many of the sites listed were customers of or known by Greenwood Petroleum, Brick Drummond tried to clarify DHEC's records based on his personal knowledge and records from Petroleum Works.

20. Prior to the preparation for and implementation of the SUPERB Act in the late 1980s, ownership of USTs was not documented to DHEC, as the regulatory scheme was not yet in place. Brick Drummond amended the list distributed by DHEC at the Piedmont Tech seminar. He contended that his reference to "our tank population" was a generic reference to the amount of tank registration fees owed, not any claim of ownership for the entire list. Although DHEC asserts that this reference is evidence of ownership, I find it insufficient.

21. Several other tanks on DHEC's list were not owned by Greenwood Petroleum, but were owned by other companies in which the Drummonds were officers. The list also included tanks owned by a number of completely unrelated entities owned by third parties. When the SUPERB regulations went into effect in 1988, Greenwood Petroleum had twenty-four active tanks which it wished to continue under the SUPERB program and upgrade to comply with the regulations; it claimed ownership of twenty-four tanks and currently owns half a dozen permitted sites.

22. Brick Drummond addressed all the UST sites on the list which DHEC purported were owned by Greenwood Petroleum, so that Greenwood Petroleum would not be responsible for fees on inactive tanks or those it did not own. The type of documentation submitted by Greenwood Petroleum pertained to whether the tanks were transferred, sold, or removed. The agency inferred from the notes regarding removal and abandonment that all the sites were owned by Greenwood Petroleum.

23. DHEC verified the handwritten notes provided by Brick Drummond by referencing the database and made some changes in the database to address inconsistencies and correct the fees owed by Greenwood Petroleum for those tanks it wished to continue under SUPERB. Nonetheless, the Department chose not to change its ownership determination of the USTs in question. After the flurry of correspondence during the late 1980s and early 1990s regarding ownership of the tank population, the issue did not arise again until this present action. As such, Greenwood Petroleum's failure to pursue the issue of ownership should not be construed as acceptance of the Department's determination.

DISCUSSION AND CONCLUSIONS OF LAW

Based upon the Findings of Fact, I conclude the following as a matter of law.

A. DISCUSSION

Burden of Proof

In an enforcement action, the agency bears the burden of proving by a preponderance of the evidence that a violation has occurred. ⁽³⁾ This case is akin to an enforcement action, as the Department's letter of June 8, 2000, is tantamount to an Administrative Order. The Department ordered Greenwood Petroleum to perform environmental testing and undertake remedial action if necessary. Greenwood Petroleum is not currently requesting payment from the SUPERB fund nor is it requesting that DHEC take any action except correcting its database to accurately reflect Greenwood Petroleum's tank ownership. Further, Greenwood Petroleum would not be requesting that DHEC change its database but for the Department's attempt to enforce its order that Greenwood Petroleum perform environmental testing and remediation up to the first $25,000 at the Callison's Store site.

Under the S.C. Administrative Procedures Act, licensing is defined as any form of requesting permission of the Department. See 25A S.C. Code Ann. Regs. 61-92 § 280.302 (Supp. 2000); S.C. Code Ann. § 1-23-310(4) (Supp. 2000). Here, Petitioner has not requested permission from the Department. In contrast, enforcement is where the Department seeks to force a private party to undertake some action. By issuing its letter of June 8, 2000, to Greenwood Petroleum, the Department for all intents and purposes sought to enforce an administrative order. ALJD Rule 29(B) clearly states:

In matters involving the assessment of civil penalties, the imposition of sanctions, or the enforcement of administrative orders, the agency shall have the burden of proof.

Pursuant to the various enabling statutes and regulations, the private party can put the Department to its proof by requesting an administrative hearing. See S.C. Code Ann. § 44-2-50 (Supp. 2000) (Department to promulgate regulations); 25A S.C. Code Ann. Regs. 280.302 (Supp. 2000) (Determinations by Department under UST Regulations subject to Administrative Procedures Act).

The SUPERB Act and Regulations: Background & Purpose

The State Underground Petroleum Environmental Response Bank Act, otherwise known as the SUPERB Act, was enacted in 1988. ⁽⁴⁾ Through this Act, it is the intent of the General Assembly to clean up environmental contamination related to releases from USTs by imposing liability on owners or operators of USTs, to strengthen regulatory control of USTs, and to provide funds to respond to contamination without delay. See Note to S.C. Code Ann. § 44-2-10 (Supp. 2000).

The crux of the matter in the instant case is the determination of whether Greenwood Petroleum is the owner of the two tanks formerly located at Callison's Store. Importantly, under 25A S.C. Code Ann. Regs. 61-92, 280.60 et seq., owners and operators of UST systems are responsible for responding to confirmed releases. Here, the Department has failed to establish that Greenwood Petroleum is the owner of the USTs in question. The Department attempted to establish Greenwood Petroleum's ownership by proferring its computer database records, which reflect Greenwood Petroleum as the owner of the tanks. As discussed below, the weight and credibility assigned to this evidence must be inappreciable, as the data was generated by the Department, subject to its control, and uncorroborated by an independent source.

Secondly, the Department has failed to offer sufficient evidence that Greenwood Petroleum ever acquired ownership of the tanks, as discussed below. Further, the Department presented no evidence that Greenwood Petroleum should be held liable for the actions of the true owner of the USTs in question.

Database Records of Ownership

Under the UST Control Regulations, the owner of a UST is required to notify DHEC of the existence of the UST. S.C. Code Ann. § 44-2-60(A) (Supp. 2000); 25A S.C. Code Ann. Regs. 61-92 § 280.22 (Supp. 2000). The database which DHEC asserts proves ownership was established as part of the implementation of the SUPERB program. Nonetheless, the database records must be completely discounted as to their probative value and credibility because (1) the original notification forms were not produced to corroborate the accuracy of the database printouts, (2) no electronic footprint was provided to indicate what changes were made or dates when the record was altered, and (3) many DHEC employees had edit rights to the database. It is fundamental that a database, like all computer records, is only as reliable and accurate as the information it contains. Thus, the accuracy of the underlying information is vital. DHEC has failed to meet its burden of proof to show that Greenwood Petroleum is the owner solely by virtue of being listed as such in the DHEC database with no means to verify the underlying accuracy of the database.

The weight and credibility assigned to evidence presented at the hearing of a matter is within the province of the trier of fact. See S.C. Cable Television Ass'n v. Southern Bell Telephone and Telegraph Co., 308 S.C. 216, 417 S.E.2d 586 (1992) citing Greyhound Lines v. Public Service Comm'n, 274 S.C. 161, 165, 262S.E.2d 18, 20 (1980); Doe v. Doe, 324 S.C. 492, 502, 478 S.E.2d 854, 859 (Ct. App. 1996) (court as finder of fact "has the authority to determine the weight and credibility of the evidence before him.")

The trier of fact determines the weight to be given the evidence. Where testimony is incredible, unbelievable, or inherently improbable, the trier is to disregard it as without probative value, even though uncontradicted.

29A Am. Jur.2d Evidence § 1431. "The fact finder is not required to believe a statement just because it is admitted under a hearsay exception." Danny R. Collins, S.C. Evidence 366 (1995), citing State v. Washington, 13 S.C. 453 (1880). Here, there is significant evidence that places in doubt the accuracy of the information within the database; there is no assurance that the information in question was gleaned from the original notification form.

In the present case, the database records were allegedly compiled from information contained in Notification Forms required to be filed pursuant to a statutory mandate. However, DHEC has failed to establish through any credible means that the tanks were originally registered by Greenwood Petroleum. DHEC points to the list provided by Brick Drummond and other correspondence to buttress its assertion that the database records accurately reflect ownership of the USTs. However, I find that the documents have very little, if any, probative value on the issue of ownership of the USTs in question.

DHEC also asserts that the retention policy in place provides sufficient indicia of reliability for the introduction of the database record for Callison's Store as conclusive proof of ownership by Greenwood Petroleum. The retention policy for the UST program, as set forth by the Department of Archives and History to ensure the integrity of the information states, "3 years after all tanks on site have been permanently closed and all updates to the database have been made, destroy." See Respondent's Exhibit 3 (emphasis added). Yet, the Department has not followed its own retention policy and thus has failed to properly ensure the validity of the underlying data.

In particular, Mr. Berenbrok testified that many employees have edit rights to the database and that he himself had made changes or additions to the record for Callison's Store during the activity of the past year. The policy dictated that no changes be made to the database after destruction of the underlying documentation. Here, further changes were made to the database after destruction of the underlying information. Without further evidence of precisely what changes were made in what fields on what dates, the record from the database is clearly unreliable for its accuracy and must be rejected. Based on uncontradicted testimony, there were substantial errors in the list distributed by DHEC at the Piedmont Tech seminar and the information provided to the Department by Brick Drummond regarding which tanks remained active indicate errors in the database at its inception. These errors, omissions, and duplications within the list lend further credence to the lack of reliability of DHEC's database records regarding UST ownership.

In this case, the database record, as proffered without corroborative support, is tantamount to an allegation. It is fundamental that the mere allegation does not constitute proof. "Proof of facts is the soul of every trial. If there is no need to prove facts, then there is no need for a trial. . . ." Alex Sanders et al., Trial Handbook for S.C. Lawyers §10:1, at 391 (2000). Evidence of allegations must be sufficient and probative of the matter to be proven. See Coleman v. Palmetto State Life Ins. Co., 241 S.C. 384, 128 S.E.2d 699 (1962). I find that the database record is not entitled to great probative weight. While this tribunal has no reason to attribute any malfeasance to DHEC in the collection and storage of the database, the accuracy of the information is nonetheless suspect.

Piercing the Corporate Veil

The Department further asserts that Drummond Oil was the owner of the USTs in question, but that the company is now defunct. The Department argues, however, that Greenwood Petroleum and Drummond Oil are part of a family of corporations owned by the Drummond family, which should be pierced to impose liability on Greenwood Petroleum. That is, the Department in essence contends that either Drummond Oil or Greenwood Petroleum was the instrumentality or alter ego or agent of the other. The environmental liability imposed under the SUPERB program is similar to that imposed under CERCLA, and the U.S. Supreme Court's leading case addressing when the corporate veil may be pierced to impose liability for environmental harms is instructive. In Best Foods, the U.S. Supreme Court held that CERCLA liability may be imposed if and only if legal grounds exist for piercing the corporate veil under state law. U.S. v. Best Foods, 524 U.S. 51, 64-65, 118 S.Ct. 1876, 1886-87 (1998). In that case, the government sought to impose liability on a parent corporation for pollution by a subsidiary. In rejecting the wholesale disregard of corporate entity given the importance and severity of environmental harms, the Court stated:

Although this respect for corporate distinctions when the subsidiary is a polluter has been severely criticized in the literature, nothing in CERCLA purports to reject this bedrock principle, and against this venerable common-law backdrop, the congressional silence is audible.

U.S. v. Best Foods, 524 U.S. 51, 62, 118 S.Ct. 1876, 1885 (1998) (citations omitted). Likewise in the SUPERB Act, the legislature has declined to abrogate the limited liability afforded corporate structures under the common law but is noticeably silent on this point. The legislative silence is dispositive in this tribunal's refusal to displace traditional rules of limited liability.

On remarkably similar facts, the Court in Best Foods refused to impose liability where the only showing in support thereof was that the parent and subsidiary corporations shared many of the same officers and that the functions of the companies were highly interrelated. Best Foods at 69, 1888. The Court noted that officers may change hats and represent the two corporations separately despite common ownership. Where the actions are appropriate to the business, a strong presumption arises that the officers are acting in their capacity as officers on the corporation's behalf. The Court looked to the norms of corporate behavior as crucial reference points in determining whether the officers acted appropriately.

Under the second part of its analysis, the Court turned to the direct liability of the parent corporation for its own actions in controlling the subsidiary as an operator. This analysis turned not on corporate veil piercing law, but an analysis of the meaning of "operator" and requirements to impose liability under CERCLA itself. ⁽⁵⁾

Under South Carolina law, DHEC as the party seeking to disregard the corporate form and impose liability bears the burden of proving that the corporate veil should be pierced. "The party seeking to have the corporate entity disregarded has the burden of proving that the piercing doctrine should be applied." Sturkie v. Sifly, 280 S.C. 453, 457, 313 S.E.2d 316, 318 (Ct. App. 1984). See also Woodside v. Woodside, 290 S.C. 366, 350 S.E.2d 407, 410 (Ct. App. 1986). Under South Carolina law and the common law tradition in most jurisdictions, there is a strong legal presumption that corporate formalities will be respected. A corporation is not a natural person and is a separate and distinct legal entity apart from its shareholders. Mangum v. Maryland Cas. Co., 330 S.C. 573, 500 S.E.2d 125, 127 (Ct. App. 1998). The equitable doctrine of piercing the corporate veil is to be exercised with reluctance and caution. Sturkie v. Sifly, 280 S.C. 453, 313 S.E.2d 316 (Ct. App. 1984).

The South Carolina courts have developed a two-prong test to determine if piercing the corporate veil is appropriate. The first prong of the test considers the observance of corporate formalities by the dominant shareholder and consists of the following factors:

(1) whether the corporation was grossly undercapitalized; (2) failure to observe corporate formalities; (3) non-payment of dividends; (4) insolvency of the debtor corporation at the time; (5) siphoning of corporate funds by the dominant stockholder; (6) non-functioning of other officers or directors; (7) absence of corporate records; and (8) the fact that the corporation was merely a facade for the operations of the dominant stockholder.

Dumas v. InfoSafe Corp., 320 S.C. 188, 463 S.E.2d 641, 644 (Ct. App. 1995). The conclusion to disregard the corporate entity must involve a number of the eight factors, but need not involve them all. Cumberland Wood Products v. Bennett, 308 S.C. 268, 417 S.E.2d 617 (Ct. App. 1992). See, e.g. C.T. Lowndes & Co. v. Suburban Gas & Appliance Co., 307 S.C. 394, 415 S.E.2d 404 (Ct. App. 1992).

The second prong of the piercing test requires that there be an element of injustice or fundamental unfairness if the acts of the corporation are not considered to be or regarded as the acts of the dominant shareholder. Dumas, 463 S.E.2d at 641. The essence of this prong of the test is that "an individual businessman cannot be allowed to hide from the normal consequences of carefree entrepreneuring by doing so through a corporate shell." Multimedia Pub'g of S.C. v. Mullins, 314 S.C. 551, 431 S.E.2d 569, 573 (1993).

The two step analysis as applied to the environmental clean up context asks first whether a defunct corporation and another corporation should be considered a single entity, and second whether the other corporations benefitted to the detriment of the defunct corporation. The testimony does not indicate whether or not Drummond Oil continues to exist as a corporate entity. DHEC asserts that Greenwood Petroleum should not be allowed to avoid liability when its principals are the same as the principals in Drummond Oil. However, the fact remains that liability rests on the true owner, and the Department bears the burden of identifying the true owner. The fact that all of the companies dealt in petroleum products, that the Drummond family members were officers of the companies, and that the companies were interrelated is not sufficient to impose liability. Interestingly, in a case where a principal owned all of the stock in corporations engaged in the sale and distribution of petroleum products, the South Carolina Supreme Court held:

[t]here is insufficient evidence to justify a conclusion that either corporation was the instrumentality of the other. And the mere fact that the entire stock in the two corporations was owned by the same person does not operate to create an identity of corporate interest between the companies, or create the relationship of principal and agent, or representative, or alter ego between the two.

Brown v. Moorhead Oil Co., 239 S.C. 604, 124 S.E.2d 47, 50 (1962) (citations omitted). Further, there is no evidence that the assets of Drummond Oil were shifted to Greenwood Petroleum or improperly inured to the benefit of the Drummonds as shareholders. Of course, if Drummond Oil is ultimately determined to be the owner of the USTs in question, any remaining assets of that company may be subject to SUPERB liability. Cf. In re Tutu Wells, 846 F. Supp. 1243 (D.V.I. 1993) (whether a corporation still has assets is a consideration in determining legal existence under federal regulatory law).

The Department presented virtually no evidence on the factors necessary to pierce the corporate veil. The Department proved, at most, that the companies shared offices and resources, and that the Drummonds were informal in their treatment of formal corporate titles and responsibilities. DHEC has shown no improper siphoning of funds from Drummond Oil to Greenwood Petroleum and no inuring to the benefits of Greenwood Petroleum to the detriment of Drummond Oil. Most tellingly, DHEC presented no evidence that any of the corporations were not fully functional or were grossly undercapitalized-- a finding that has been uniformly key in court decisions to impose liability. DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681, 685-86 (4^th Cir. 1976). While the federal court in DeWitt Trucking held that an element of fraud was not necessary to pierce the corporate veil, the later decision in Sturkie clarified that an element of unfairness is necessary. In distinguishing DeWitt, the court in Sturkie explained that:

The burden of proving fundamental unfairness requires that the plaintiff establish (1) that the defendant was aware of the plaintiff's claim against the corporation, and (2) thereafter, the defendant acted in a self-serving manner with regard to the property of the corporation and in disregard of the plaintiff's claim in the property.

Sturkie at 319, 459. This test requires that the officers of Drummond Oil knew of the environmental liability and acted in disregard of this claim and in a self-serving manner. There is insufficient evidence in the record to show that the officers of Drummond Oil had knowledge of the environmental liability issues before May 2000, when the initial environmental testing was performed. Thus, it is insufficient in the instant case for the Department to argue environmental harm in UST cases and general unfairness to the taxpayers as grounds to justify disregarding the corporate structure in the instant case. Courts have uniformly required a practical lack of distinction between the corporate entities or abuse of the limited liability afforded by corporate structuring. The record presented to this tribunal shows no fraud or fundamental unfairness. Here, the Department has failed to carry its burden of proof that the necessary elements are present to justify piercing the corporate veil to place liability on Greenwood Petroleum. For all the above reasons, there is no credible evidence in the record to support the Department's assertion that the USTs at the Callison's Store site are owned by Greenwood Petroleum.

B. ENUMERATED ANALYSIS

1. The Administrative Law Judge Division has jurisdiction pursuant to 25A S.C. Code Ann. Regs. 61-92 § 280.302 (Supp. 2000), Underground Storage Tanks, Appeals, and S.C. Code Ann. § 1-23-310 et seq. (Rev. 1986 and Supp. 2000).

2. DHEC has the burden of proving by a preponderance of the evidence that Greenwood Petroleum owns the USTs. The preponderance of the evidence is "[t]he greater weight of the evidence; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other." Black's Law Dictionary 1201 (7th ed. 1999). "The preponderance of the evidence means such evidence as, when considered and compared with that opposed to it, has more convincing force and produces in the mind the belief that what is sought to be proved is more likely true than not true." Sanders, supra, § 9:5 Quantum of Evidence in Civil Cases (2000) (citing Frazier v. Frazier, 228 S.C. 149, 89 S.E.2d 225 (1955)).

3. The weight and credibility assigned to evidence presented at the hearing of a matter is within the province of the trier of fact. See S.C. Cable Television Ass'n v. Southern Bell Tel. & Tel. Co., 308 S.C. 216, 417 S.E.2d 586 (1992). Furthermore, a trial judge, who observes a witness, is in the better position to judge the witness's demeanor and veracity and evaluate his or her testimony. See Mann v. Walker, 285 S.C. 194, 328 S.E.2d 659 (Ct. App. 1985); Marshall v. Marshall, 282 S.C. 534, 320 S.E.2d 44 (Ct. App. 1984); McAlister v. Patterson, 278 S.C. 481, 299 S.E.2d 322 (1982); Peay v. Peay, 260 S.C. 108, 194 S.E.2d 392 (1973). See also Doe v. Doe, 324 S.C. 492, 502, 478 S.E.2d 854, 859 (Ct. App. 1996) (court as finder of fact "has the authority to determine the weight and credibility of the evidence before him.")

The trier of fact determines the weight to be given the evidence. Where testimony is incredible, unbelievable, or inherently improbable, the trier is to disregard it as without probative value, even though uncontradicted.

29A Am. Jur.2d Evidence § 1431.

4. DHEC is charged with administering and enforcing the SUPERB Act and regulations promulgated under the Act. S.C. Code Ann. §§ 44-2-40, -50 and -140 (Supp. 2000). The SUPERB Act and regulations governing USTs were not in place when the tanks were initially installed or subsequently removed at the Callison's Store site. As such, the tanks were not permitted under the SUPERB program.

5. S.C. Code Ann. § 44-2-60 (Supp. 2000) requires owners or operators of USTs to register the tanks with the department. Specifically, 25A S.C. Code Ann. Regs. 61-92 § 280.22 (Supp. 2000) requires owners to notify the Department of the date the tank was taken out of operation. That section also provides that, "[u]pon receipt of an approvable notification from existing tank owners, the Department will store the notification information for the purpose of managing, and appropriately cross-referencing and indexing the data."

6. UST owners and operators are required to respond to a confirmed release from a UST system. 25A S.C. Code Ann. Regs. 61-92 §280.60 et seq. (Supp. 2000). It is not disputed by the parties that initial testing indicates a release at the USTs at Callison's Store. S.C. Code Ann. § 44-2-20 (12) (Supp. 2000) defines an "owner" as:

(a) in the case of an underground storage tank system in use on November 8, 1984, or brought into use after that date, a person who owns an underground storage tank immediately before discontinuation of its use;

(b) in the case of any underground storage tank system in use before November 8, 1984, but no longer in use on that date, a person who owned such an underground storage tank immediately before the discontinuation of its use; or

(c) a person who has assumed legal ownership of the underground storage tank through the provisions of a contract of sale or other legally binding transfer of ownership.

(Emphasis added.) S.C. Code Ann. § 44-2-20(10) (Supp. 2000) defines an "operator" as "any person in control of, or having responsibility for the daily operation of an underground storage tank."

7. DHEC bears the burden of proof that the corporate veil should be pierced so as to impose liability on Greenwood Petroleum. Sturkie v. Sifly sets forth a two part test: (1) whether corporate formalities were observed, and (2) whether there was fraud or unfairness. The first part requires that DHEC show more than one of the factors were breached but does not require that all formalities be breached. The second part requires proof that the officers of the corporation knew of the outstanding liability and diverted the funds to another corporation. South Carolina and other states have consistently held that the doctrine of piercing the corporate veil should be exercised with great reluctance. Moreover, DHEC has submitted very little evidence supporting the eight factors under the first prong under Sturkie v. Sifly. In addition, DHEC has presented no evidence at all of fraud or fundamental unfairness.

8. The final decision of an Administrative Law Judge in cases involving an agency that is governed by a board or commission authorized to exercise the sovereignty of the state is initially appealed back to the board or commission of the agency from which the case arose. S.C. Code Ann. § 1-23-610(A) (Supp. 2000). Hence, a party wishing to file an appeal must do so with the agency from which the case originated. On appeal, the scope of review is limited as follows:

[t]he scope of review of final ALJ decisions is essentially identical to the scope of review established in section 1-23-380. This scope of review applies to the circuit court or the applicable board or commission. Under S.C. Code Ann. § 1-23-610(D), the reviewing tribunal may affirm the decision or remand the case for further proceedings, or it may reverse or modify the decision if the substantive rights of the petitioner have been prejudiced because the finding, conclusion, or decision is:

a. in violation of constitutional or statutory provisions;

b. in excess of the statutory authority of the agency;

c. made upon unlawful procedure;

d. affected by other error of law;

e. clearly erroneous in view of the reliable, probative and

substantial evidence on the whole record; or

f. arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.

Jean H. Toal, Shahin Vafai & Robert A. Muckenfuss, Appellate Practice in South Carolina 56-57 (1999), citing, S.C. Code Ann. § 1-23-610(D) (emphasis added).

ORDERTHEREFORE, IT IS HEREBY ORDERED that the Department's request that Greenwood Petroleum be ordered to perform testing and assume responsibility for the first $25,000 of remedial action at the Callison's Store site is DENIED based on its failure to prove that Greenwood Petroleum owned the two USTs. IT IS FURTHER ORDERED that the Department shall correct its database to reflect that Greenwood Petroleum is not the owner of the USTs formerly located at the Callison's Store site.

AND IT IS SO ORDERED.

___________________________________

JOHN D. GEATHERS

Administrative Law Judge

July 31, 2001