State v. Chickering

NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 111 State Street, Montpelier, Vermont 05602 of any errors in order
that corrections may be made before this opinion goes to press.


                                No. 88-607


State of Vermont Environmental Board         Supreme Court

                                             On Appeal From
     v.                                      Windham Superior Court

Levi Chickering                              October Term, 1989



John P. Meaker, J.

Jeffrey L. Amestoy, Attorney General, and William E. Griffin and Mark J.
  Di Stefano, Assistant Attorneys General, Montpelier, for plaintiff-
  appellant

Natt L. Divoll, Jr., Bellows Falls, for defendant-appellee


PRESENT:  Allen, C.J., Peck, Gibson, Dooley and Morse, JJ.


     ALLEN, C.J.   The State of Vermont appeals from an order of the Windham
Superior Court dismissing a civil action against defendant for violation of
the subdivision provisions of Act 250, following presentation of the State's
case.  We reverse.
     The State sued defendant in July 1986, alleging that he subdivided
properties in Westminster into ten or more lots within a continuous ten-
year period without an Act 250 permit, contrary to 10 V.S.A. { 6081(a). (FN1)
The action sought civil penalties under 10 V.S.A. { 6006, repealed by 1989,
No. 98, { 4(b), for defendant's intentional violation of Act 250.  It is not
necessary for the disposition of this appeal to detail every transaction.
Suffice it to say that the numerous transactions involved conveyances from
four original grantors to defendant, or to one or more of thirteen
corporations whose stockholders were either defendant himself or his close
relations.
     Of the eighteen lots recited in the State's complaint, four originated
from the first tract, and were conveyed to ultimate purchasers via two
corporations, Flagship Properties, Inc., and Sno-Valley Corporation.  Six
originated from the second tract, and were conveyed to ultimate purchasers
via three corporations:  Naturlich, Ltd., Shedd Brook Corporation, and
Forop, Ltd.  The third tract was sold as a single parcel successively to
the Shedd Brook Corporation and then to the Muffin Mountain Corporation, and
then from the Muffin Mountain Corporation to four ultimate purchasers via
the Olyea Corporation, the Malpeque Corporation and the Max Norm
Corporation.  The fourth tract was divided first between the Obi Corporation
and Flagship Properties, Inc., and then through three corporations (LesBeaux
Proprieties, Ltd., Inland Industries, Ltd., and Agri Resources, Inc.) and
individuals, including defendant, to four ultimate purchasers.
     Discovery commenced and the State requested that defendant produce
copies of his federal income tax returns and related schedules for the years
1980 through 1986, along with all work papers and other documents used to
prepare those returns and schedules.  Defendant produced all of the
documents for inspection but declined to allow photocopying of a portion of
the documents and papers.  The State filed a motion to compel, but the court
denied the State's motion.
     Cross-motions for summary judgment were filed in October and November,
1987.  The court denied both motions and set the matter for trial.  Defend-
ant moved for a directed verdict at the close of the State's case, which the
court treated as a dismissal motion under V.R.C.P. 41(b)(2) and granted.
The court concluded that the State had demonstrated "control" of nine of the
eighteen parcels within the meaning of 10 V.S.A. { 6081(a) through eight
corporations in which defendant had a controlling interest, but did not make
a sufficient showing of requisite control of any of the other parcels, owned
by close family members through closely held corporations, to bring
defendant within the statutory proscription.  The present appeal followed,
and defendant cross-appealed the court's conclusions as to the nine parcels.
                          I. The State's Appeal.
A. Dismissal of the Complaint.
     The central issue in this appeal is the court's dismissal of the
complaint at the completion of the State's case.  As we stated in Blais v.
Blowers, 136 Vt. 488, 489, 394 A.2d 1124, 1124 (1978), a motion under
V.R.C.P. 41(b)(2) "serve[s] the function served by a motion for directed
verdict in a jury case."  On a motion for a directed verdict, this Court
must view the evidence in the light most favorable to the nonmoving party
and exclude all modifying evidence.  A motion for a directed verdict, and
hence a motion under V.R.C.P. 41(b)(2), must not be granted "where there is
any evidence fairly and reasonably tending to justify a verdict in the
nonmoving party's favor."  Seewaldt v. Mount Snow, Ltd., 150 Vt. 238, 239,
552 A.2d 1201, 1202 (1988).  Examining the evidence in the present case, we
cannot agree with the trial court's assessment that there was no evidence
fairly and reasonably tending to justify a verdict in the State's favor.
The court did find that defendant controlled six corporations:  Flagship
Properties, Inc., Sno Valley Corporation, Malpeque Corporation, LesBeaux
Properties, Ltd., Inland Industries, Ltd., and Agri Resources, Inc., and
therefore "controlled the subdivision of Parcels 1, 2, 3, 4, 14, 15, 16, 17,
and 18, which is nine parcels."  The dismissal was based on the absence of a
tenth lot subdivided by a corporation controlled by defendant.
     The definitions of "person" and "subdivision" are critical to the
outcome of this issue.  Under the then applicable law, (FN2) "person" was
defined under 10 V.S.A. { 6001(14) as follows, in relevant part:
           "Person" shall mean an individual, partnership,
         corporation, association, unincorporated organization,
         trust or any other legal or commercial entity, including
         a joint venture or affiliated ownership.

"Subdivision" was defined under 10 V.S.A. { 6001(19) as follows, in
relevant part:
           "Subdivision" means a tract or tracts of land, owned
         or controlled by a person, which have been partitioned
         or divided for the purpose of resale into 10 or more
         lots within a radius of five miles of any point on any
         lot, and within any continuous period of 10 years after
         the effective date of this chapter.

     The definition of "subdivision" makes clear that it applies to any
subdivided land "owned or controlled" by a person.  However, it is apparent
from the court's findings that it equated control and ownership, in effect
finding the former only when it found the latter.  The nine lots which the
court attributed to defendant's control were all conveyed from original
grantors to ultimate purchasers via a corporation in which defendant had at
least a fifty percent ownership interest, and hence the court found
defendant had control. (FN3) As to the balance of the nine lots in the
complaint, the court found that defendant's ownership interest in the five
intermediary corporations involved with the transfer of these lots between
the original grantors and the ultimate purchasers was less than fifty
percent, and hence did not confer control.  The court also found that
defendant and the particular relatives who were stockholders of these
intermediary corporations were neither members of a "joint venture" nor in
"affiliated ownership" for purposes of the definition of "person."  Since
the court could not find controlling stock ownership by defendant, either
individually or in connection with the family members owning stock in the
remaining intermediary corporations, it concluded that defendant was not a
"person" who had "offer[ed] for sale any interest in any subdivision,"
within the meaning of 10 V.S.A. { 6081(a).
     It is clear that under { 6001(19) control and ownership are independent
criteria.  The court gave scant consideration to the question of whether
defendant exercised functional control over any of the five corporations
which had been intermediate owners of the nine other lots in question,
whether or not he had a controlling stock ownership interest in any of them.
The court did discuss the kinds of activities that defendant undertook in
aid of one or more of the intermediary corporations and which might have
evinced a controlling relationship apart from holding stock.  However, it is
clear in context that the court equated the concept of "control" strictly
with either ownership by, or financial gain to, defendant:
            Now, there's been a considerable amount of evidence
         of different activities the Defendant conducted.  He
         would on occasion show a property, meet with an
         engineer, attend a closing, deliver a check to a
         closing, suggest to potential buyers where he might
         obtain financing, confer with a potential buyer over a
         septic tank problem; and these activities would take
         place with respect to Westminster, Vermont, properties
         outlined by the State in Exhibit 14.  And the question
         presented to the Court is whether that kind of activity
         which the State describes as acting in concert with is
         tantamount to affiliated ownership or joint venture
         under our statute.

            The court does not have any evidence of profit or
         financial gain derived by the Defendant with respect to
         transactions by corporations in which the Defendant did
         not have a shareholder interest; and that leads the
         Court to the conclusion that he, the Defendant, was not
         acting as a joint venture with respect to such
         transactions.

            Now the kind of activity the Court has just described
         does not reflect an incident of ownership by the
         Defendant in these transactions by other corporations in
         which the Defendant does not have a shareholder
         interest.  (emphasis added)

     The court misstated the central question. The question is not whether
controlling activities are "tantamount to affiliated ownership," since a
non-owner, which includes persons not owning directly and not owning via
affiliated ownership, may completely dominate the activities of a venture in
which the person has no ownership interest whatever.  10 V.S.A. { 6081(a)
prohibits sale of a subdivision controlled by a person without an Act 250
permit.  Under the definition of "subdivision," proof of a { 6081(a)
violation need not include proof that the corporation in which title resides
is owned by that person.  No particular degree of stockholding in the owning
corporations is necessary as proof of control of the property if defendant's
activities by themselves prove that he controlled the property.
     A similar question of control of a subdivision was presented in In re
Eastland, 151 Vt. 497, 562 A.2d 1043 (1989).  In that case, a record
titleholder had subdivided the subject property into eight lots just prior
to sale to the appellant.  Appellant had subdivided another parcel about a
mile away into six lots, so that a total of fourteen lots were involved.
The Environmental Board ruled that {6081(a) required a permit.  We stated in
affirming the Board's decision:
           Eastland insists that the word "controlled" denotes
         legal control.  We disagree. It is true that we will
         enforce a statute according to its plain meaning, but
         the meaning of "controlled" in { 6001(19) is not
         entirely plain.  Indeed, appellant's restrictive
         reading, if correct, would effectively make the term
         "controlled" superfluous.

Id. at 499, 562 A.2d  at 1044-45 (citation omitted); see In re Vitale, 151
Vt. 580, 585, 563 A.2d 613, 616 (1989) ("For all practical purposes,
petitioner controlled the .58-acre lot, although legal title remained in the
seller."); cf. Gilbertville Trucking Co. v. United States, 371 U.S. 115,
117-122 (1962) (upholding Interstate Commerce Commission ruling that two
corporations were in fact controlled by a common interest, in violation of
federal law); Lorain Journal Co. v. Federal Communications Commission, 351 F.2d 824, 829 (D.C. Cir. 1965) (distinguishing actual from legal control),
cert. denied, 383 U.S. 967 (1966).
     Even if it were necessary to demonstrate, separate from the question
of control of the subdivision property, that defendant controlled the
intermediary corporations, that issue is also a practical, not a theore-
tical, one.  Control of the corporation (particularly in cases like the
present, where corporate records and observance of corporate formalities
were at a minimum) may be inferred by proof that defendant fully controlled
its activities.  Control of a corporation is not limited to cases in which
the person alleged to control holds a majority of the stock of the company.
United States v. Corr, 543 F.2d 1042, 1050 (2d Cir. 1976) (evidence
sufficient to go to jury on question of whether defendant in securities
prosecution was a "control person," even though another person owned a
majority of the stock of company in question); cf. Sunshine Art Studios,
Inc. v. Fed. Trade Comm'n, 481 F.2d 1171, 1175 (1st Cir. 1973) (controlling
person can be one who formulates and directs corporate policy or who is
deeply involved in the important business affairs of the corporation).
     Moreover, the question of control must be viewed with regard to the
general proposition that "a court will disregard the fiction of a
corporation's separate identity whenever the concept is asserted in an
endeavor to circumvent a statute and defeat legislative policy."  Brennan v.
Saco Construction, Inc., 381 A.2d 656, 662-63 (Me. 1978) (formation of two
subsidiary corporations for purpose of avoiding state development site-
location law).  The quoted proposition does not stand in the stead of a
careful and objective assessment of the facts surrounding the formation and
undertakings of the thirteen corporations here in question.  But it does
allow the trier to examine those facts with function, rather than form, in
mind, and to apply that examination to the crucial issue of control.
     Nor is the question of control of the subdivision for purposes of {
6001(19) conclusively determined by whether defendant derived any personal
financial gain from the corporations he allegedly controlled or whether his
activities indicated that he was a joint venturer with the stockholders of
any of those corporations.  Especially where the record owners of the
corporations were close family members, it is a fair inference that benefit
to any of them is a benefit that defendant would act to promote and provide.
     A good example of the confusion by the court of the concepts of
ownership and control is its discussion of Max Norm Corporation, which
defendant's son wholly owned.  Defendant lent $10,000 to Max Norm
Corporation at a time when defendant's son was not self-sufficient and in
fact was claimed as a dependent on defendant's income tax return.
Defendant's former bookkeeper testified that she prepared deeds for Max Norm
Corporation in defendant's offices and at his direction, that defendant
possessed Max Norm Corporation checkbooks and those of other intermediary
corporations, and that defendant had negotiated with brokers on behalf of
Max Norm Corporation (as well as other intermediary corporations).  Further,
defendant became involved in the engineering problems of the corporations,
helped secure financing, showed property to prospective purchasers, dealt
with brokers at his offices, attended closings, handled mail, and prepared
financial projections, without regard to whether he had a stock interest in
the particular companies involved.  Yet the trial court concluded in effect
that there was no evidence "fairly and reasonably tending to justify a
verdict" that defendant controlled Max Norm Corporation.  Contrary to the
court's conclusion, the evidence tending to demonstrate defendant's control
of Max Norm Corporation and of virtually all of the intermediary
corporations was substantial, and certainly sufficient to overcome a Rule
41(b)(2) dismissal motion.
     Moreover, the evidence was sufficient to avoid a Rule 41(b)(2)
dismissal even under the joint venture theory.  "A joint venture . . . is a
special relationship between two or more parties to engage in and carry out
a single business venture for joint profit without any actual partnership
or corporate designation."  Helfenbein v. Barae Investment Co., Inc., 19
Ariz. App. 436, 439, 508 P.2d 101, 104 (1973); see O'Connell v. Pharmaco,
164 Ill. App. 3d 68, 72, 517 N.E.2d 688, 691 (1987).  The evidence is ample
that many members of his family cooperated with defendant as the dominant
and moving member to achieve a coordinated set of goals to purchase and
resell the several Westminster properties arising from the four originating
tracts.  Defendant involved his children Mark and Kelly Chickering, his
mother Irene Chickering, his sisters Patricia Koson and Donna Galloway, his
cousin Chet Mileski, and his brother-in-law Elwin Higley.  The evidence
presented strongly suggested an overall purpose to purchase property,
transfer it among family members using multiple corporations in different
formal ownership but limited to the identified family members, and to
finance purchases and sales for each other, all led by defendant.
     In order to avoid dismissal, it was not the State's burden to prove the
existence of a joint venture.  For purposes of a Rule 41(b)(2) analysis, it
sufficed if the evidence presented by the State reasonably tended to
justify a conclusion that defendant and his close relatives had agreed upon
a plan amounting to such a venture.  The evidence did reasonably tend to
demonstrate agreement on a single plan to purchase and resell the numerous
lots carved out of the four originating tracts, with defendant assuming a
major investment and management role, and with his relatives agreeing to
accept ownership roles in the several intermediary corporations, to perform
some functions on behalf of the plan, and to receive and retain the profits
that flowed to the several corporations as purchasers and resellers of land.
And given what was at least some evidence tending to show an overall plan
for the purchase and resale of land from the four tracts, the existence of a
joint venture theory cannot be said to founder as a matter of law because
defendant did not have an ownership interest in every constituent
corporation.  Cf. Mislosky v. Wilhelm, 130 Vt. 63, 69, 286 A.2d 267, 271
(1971) ("[A] single property may be acquired and owned jointly although
title is taken in the name of only one of the coadventurers.").
     In sum, the record contained ample evidence reasonably tending to
justify a verdict in the State's favor, either on the theory that defendant
alone controlled sufficient interests in the tracts of land, or that he
violated the statute by undertaking a joint venture or affiliated ownership
with his close relatives.
B. Motion to compel.
     The State next argues that the court erred in denying its motion to
compel production of tax returns and related documents which defendant
produced but would not allow the State to copy.  Relevancy is not the issue.
Rather, defendant argues that tax returns themselves -- the federal 1040
forms -- are sensitive, personal documents that can be easily recopied to
the detriment of his privacy.  Defendant argues that V.R.C.P. 34(a) allows a
litigant "to inspect and copy," but not to "photocopy."  The argument is
without merit.  Defendant did not demonstrate that the information in the
documents requested for copying was outside the permissible scope of
discovery, or even less relevant than the documents that he allowed to be
copied.  Photocopying relevant documents, especially in a case involving
numerous and complex business and financial transactions, is an essential
concomitant to effective discovery.  In any event, defendant's election to
supply certain records for review only, but not for photocopying, is
unsupported by Rule 34 or case precedent.  See Diapulse Corp. of America v.
Curtis Publishing Co., 374 F.2d 442, 445 (2d Cir. 1967).
C. Denial of State's Motion for Summary Judgment.
     The State contends that the trial court should have granted its motion
for summary judgment as to defendant's liability, since there were no
material facts in dispute and the State was entitled to judgment as a matter
of law.  In seeking to uphold the court's findings as to the nine lots which
the court attributed to defendant's control, and to reverse its findings as
to the balance of the eighteen lots, the State appears to argue that there
was no genuine issue of material fact as to defendant's control over any of
these lots -- that is, that the summary judgment standard was met under
V.R.C.P. 56.  But as strong as the State's evidence of control might have
been, the trial court was correct in declining to rule that no genuine issue
existed as to any of the lots in question.  Summary judgment is not a
substitute for a determination on the merits, so long as evidence has been
presented which creates an issue of material fact, no matter what view the
court may take of the relative weight of that evidence.  See Pierce v.
Riggs, 149 Vt. 136, 139-40, 540 A.2d 655, 657-58 (1987).  In the present
case, defendant vigorously contested the allegations contained in the
State's complaint and was ready to present evidence in his defense in the
event his own dismissal motion were denied.  In no sense might it be said as
to any lot that the State has demonstrated the absence of a genuine issue as
to any material fact within the meaning of V.R.C.P. 56.
                           II. The Cross-Appeal.
     Defendant argues that the trial court should not have found that he
controlled the subdivision of parcels 1, 2, 3, 4, 14, 15, 16, 17, and 18 --
a total of nine parcels.  The court did make what appeared to be findings in
the State's favor as to these parcels.  But while the evidence supporting
these findings is ample, the findings were premature.  As we have indicated,
the State's own motion for summary judgment had been earlier considered and
was properly denied.  No motion by the State, either for summary judgment or
dismissal, was pending when defendant moved for a directed verdict.
Defendant's motion did not constitute a waiver of his right to present his
defense and did not authorize the court to make collateral findings as to
the nine lots over which it concluded control by defendant had been
demonstrated.
     As the matter is to be remanded for further proceedings, the court will
have the opportunity to reconsider its findings as to the subject lots after
the presentation of defendant's case.
     The judgment of the superior court is reversed and the case remanded
for further proceedings in accordance with this opinion.

                                        FOR THE COURT:




                                        Chief Justice



FN1.     10 V.S.A. { 6081(a) states in relevant part:
          (a) No person shall sell or offer for sale any interest in
     any subdivision located in this state . . . without a permit.

FN2.      Subsequent to the events in question the Legislature amended the
definition of "person" inter alia to specifically include "an individual's
parents and children, natural and adoptive, and spouse, unless the indivi-
dual establishes that he or she will derive no profit or consideration, or
acquire any other beneficial interest from the partition or division of land
by the parent, child or spouse."  10 V.S.A. { 6001(14)(A)(iv)(Cum. Supp.
1989).  The State argues that the amended section confirms an earlier
construction of the statute, while defendant contends the contrary, arguing
that relatives were necessarily excluded from the original language of {
6001(14) since the Legislature took pains to add them specifically in the
amended version.  Since we are able to decide this appeal without resort to
the amended definition of "person" as an aid to construction, we decline to
consider either argument.

FN3.      In his cross-appeal brief defendant contends that he may only be
charged with controlling the precise percentage of a lot that he in fact
owns.  Thus, for example, if he owned fifty percent of each of eight lots,
he could be charged with control of only a total of four lots.  Defendant
cites no authority in support of this argument, which, if accepted, would
completely vitiate the criterion of control in favor of a test measuring
only percentage of ownership in fact, contrary to both the language and
sense of 10 V.S.A. { 6001(19).  We therefore reject this argument.