Natural Resources and Environmental Protection Cabinet v. Williams

• Court: Supreme Court of Kentucky
• Writing for the Court: LEIBSON; All concur, except COMBS
• Citation: Natural Resources and Environmental Protection Cabinet v. Williams, 768 S.W.2d 47 (Ky. 1989)
• Decision Date: 06 April 1989
• Docket Number: No. 88-SC-00393-DG,88-SC-00393-DG
• Parties: NATURAL RESOURCES AND ENVIRONMENTAL PROTECTION CABINET, Appellant, v. Vicki L. WILLIAMS, Appellee.

Page 47

768 S.W.2d 47

NATURAL RESOURCES AND ENVIRONMENTAL PROTECTION CABINET Appellant, v. Vicki L. WILLIAMS, Appellee.

No. 88-SC-00393-DG.

Supreme Court of Kentucky.

April 6, 1989.

William O. Field, Dept. of Law, Natural Resources and Environmental Protection Cabinet, Frankfort, for appellant.

Bobby D. Williams, Hindman, for appellee.

LEIBSON, Justice.

The Natural Resources and Environmental Protection Cabinet ("Cabinet") filed an action in Franklin Circuit Court seeking enforcement against Ancon Construction Company, Inc. ("Ancon") and Vicki L. Williams, allegedly "sole shareholder and president," seeking enforcement by judgment of an Order issued by the Secretary of the Cabinet following administrative proceedings instituted against Ancon for mining violations. The Secretary's Order assessed a civil penalty of $22,500. The suit in Franklin Circuit Court asked judgment for this amount, plus a further penalty of $5,000 provided by statute for failure to comply with the Order of the Secretary.

Only the Ancon Construction Company and not Vicki L. Williams was named as a party in the underlying administrative procedure. The Complaint in the circuit court action charged Williams with joint and several liability as "sole shareholder and president of Ancon ... pursuant to KRS 350.990(9)." This statute specifies:

"Whenever a corporate permittee violates any provision of this chapter or regulation issued pursuant thereto or fails or refuses to comply with any final order issued by the secretary, any director, officer, or agent of such corporation who willfully and knowingly authorized, ordered, or carried out such violation, failure or refusal shall be subject to the same civil penalties, fines, and imprisonment as may be imposed upon a person pursuant to this section." [Emphasis added.]

The Complaint referred to the statute by number but did not specify in so many words that Williams was guilty of "willfully and knowingly" authorizing or otherwise assisting in the violation, or in "failure or refusal" to abide by the Secretary's Order. Nevertheless, Williams was on notice throughout these proceedings that the Cabinet has predicated her liability on violating the terms of this statute:

"As the president of Ancon and sole director and shareholder of the corporation, Vicki L. Williams necessarily was a willful and knowing party, if not in the mining violation itself, certainly in the refusal to comply with the final Order of the Secretary." Cabinet's Memorandum of Law, filed May 8, 1986, p. 8.

Ancon failed to defend the circuit court action and was defaulted. The appellee, Williams, answered, but thereafter failed to appear in response to subpoena duces tecum, ordering her to appear and give her deposition and bring records concerning the corporate activities of Ancon, on two occasions. She also failed to respond on a third date which was scheduled by agreement between counsel. Instead, her counsel appeared and advised that his client would not consent to be deposed, nor would she make available the corporate records subpoenaed by the Cabinet.

Thereafter the Cabinet moved for a default judgment against Williams, pursuant to CR 37.02, which was first entered and then set aside after the appellee filed a counter motion for judgment on the pleadings. The trial court then took the entire matter under submission and then entered a final "judgment" which is the subject of this appeal.

Two issues argued by the parties were under submission when the trial court rendered judgment: first the substantive law question as to whether the Cabinet had stated a cause of action against Williams in its Complaint, and then the procedural law question as to whether the Cabinet was entitled to default judgment against Williams for ignoring the court's subpoena duces tecum and failing to appear to be deposed. Although Williams has argued otherwise in this appeal, the only reasonable interpretation of the language in the final judgment is that the Cabinet prevailed on both substantive and procedural grounds.

The language of the final judgment in this case specifies that Williams "failed to appear to be deposed after having been granted ample opportunity" and "ignored" the court's subpoena duces tecum. It then specifies that the allegations of the Complaint "are admitted," which in context means deemed admitted, and that the Cabinet is entitled to judgment "as a matter of law," which must mean default judgment.

When the allegations of the Complaint are taken as admitted, this expresses relief granted under CR 37.02 and CR 37.04 upon a party's failure to comply with court ordered discovery. Such relief includes the power to regard claims made against a party as "established for the purposes of the action," "striking out pleadings or parts thereof," "or rendering a judgment by default against the disobedient party." CR 37.02(2).

Williams appealed. The Court of Appeals reversed, setting aside the trial court's judgment, stating as its holding:

"[B]efore a civil penalty can be enforced against a corporate officer, there must be a finding that said officer willfully and knowingly failed or refused to abide by a final order of the secretary. As the Cabinet did not initiate administrative proceedings against Vicki to determine whether she, in fact, is liable under KRS 350.990(9), we must reverse the judgment of the Franklin Circuit Court."

We have accepted discretionary review and reverse the Court of Appeals for reasons that follow.

There are two issues, one substantive and one procedural.

The substantive law argument advanced by Williams, and adopted in the language of the Court of Appeals' decision, is that before a civil penalty for a mining violation can be enforced in circuit court against her as a corporate officer, the Cabinet must first prove in "administrative proceedings" that "she, in fact, is liable under KRS 350.990(9)"; "that said officer willfully and knowingly failed or refused to abide by a final order of the secretary." Williams was not a party to the administrative proceedings against Ancon and the Court of Appeals reversed giving this as the reason. The effect of the Court of Appeals' decision is to declare the circuit court proceedings against Williams void from inception, thus vitiating the procedural default referred to in the judgment which takes the allegations of the Complaint as "admitted" because the subpoena duces tecum "was ignored."

We disagree with the Court of Appeals' statutory interpretation. In subparagraphs one (1) and three (3), KRS 350.990 specifies that Franklin Circuit Court shall have "concurrent ¹ jurisdiction and venue of all civil and injunctive actions instituted by the cabinet ... for the enforcement of the provisions of this chapter or the orders, rules, and regulations of the cabinet promulgated pursuant thereto."

The language of subsection nine (9) of KRS 350.990 which covers Williams' liability in the event the "corporate permittee ... fails or refuses to comply with any final order issued by the secretary," necessarily implies that the enforcement procedure provided for therein against the corporate officer "who willfully and knowingly authorized, ordered, or carried out such ... failure or refusal" shall be in Franklin Circuit Court because liability is predicated on failure by the corporate permittee to comply with the secretary's "final order." Chronologically, such failure can only occur after the administrative procedure against the corporation has culminated in an order that has been disobeyed. The purpose of this subsection is to impose an additional liability upon the corporate officer upon proof of willful and knowing complicity in the failure by the corporate permittee to respond to the secretary's order.

Thus the statute is structured to permit the corporate officer to be joined as an additional defendant with the corporate permittee in the enforcement stage at the Franklin Circuit Court level, if liability is alleged and proved against the corporate officer pursuant to KRS 350.990(9).

The Complaint against Williams alleges liability as the statute provide...