Kinzua Resources v. DEQ

37

Submitted on remand from the Oregon Supreme Court December 14, 2020,

affirmed December 7, 2022, petition for review denied May 18, 2023 (371 Or 106)

KINZUA RESOURCES, LLC,

an Oregon limited liability company;

Frontier Resources, LLC,

an Oregon limited liability company;

ATR Services, Inc., an Oregon corporation;

and Gregory M. Demers, an individual,

Petitioners,

v.

OREGON DEPARTMENT OF

ENVIRONMENTAL QUALITY,

an agency of the State of Oregon and

Oregon Environmental Quality Commission,

an agency of the State of Oregon,

Respondents.

Environmental Quality Commission

LQSWER11108; A161527

523 P3d 120

In this administrative review on remand from the Oregon Supreme Court,

petitioners contend that the Environmental Quality Commission’s order was not

supported by substantial evidence. According to petitioners, under the construc-

tion of the relevant statutes announced by the Supreme Court, there was no evi-

dence that two corporate entities had legal control over petitioner Kinzua as to

impose direct liability on the company’s members for failure to comply with those

statutes. Held: The commission found that petitioner Kinzua was a limited liabil-

ity company managed by its two members. Under the relevant LLC statutes, each

member had equal rights in the management and conduct of petitioner Kinzua.

Under the Supreme Court’s construction of the solid waste management statutes

at issue in this review, those facts were sufficient to impose direct liability for

petitioner Kinzua’s failure to properly close a landfill or secure required financial

assurances. Thus, the commission’s order was supported by substantial evidence.

Affirmed.

On remand from the Oregon Supreme Court, Kinzua

Resources, LLC v. Oregon Department of Environmental

Quality, 366 Or 674, 468 P3d 410 (2020).

Julie A. Weis argued the cause for petitioners. Also on

the opening brief were Michael E. Haglund and Sara

Ghafouri. On the reply brief were Julie A. Weis and Michael

E. Haglund.

38 Kinzua Resources v. DEQ

Denise G. Fjordbeck, Assistant Attorney General, argued

the cause for respondents. Also on the brief were Ellen F.

Rosenblum, Attorney General, and Benjamin Gutman,

Solicitor General.

Before Mooney, Presiding Judge, and Pagán, Judge, and

DeHoog, Judge pro tempore.

PAGÁN, J.

Affirmed.

DeHoog, J. pro tempore, dissenting and concurring.

Cite as 323 Or App 37 (2022) 39

PAGÁN, J.

This matter comes to us on remand from the

Supreme Court, Kinzua Resources v. DEQ, 366 Or 674, 468

P3d 410 (2020) (Kinzua III), to address an argument by peti-

tioners Demers, ATR Services, Inc., and Frontier Resources,

LLC, that was not addressed in our previous opinion, Kinzua

Resources v. DEQ, 295 Or App 395, 434 P3d 461 (2018)

(Kinzua I), adh’d to on recons, 296 Or App 487, 437 P3d

331 (2019) (Kinzua II). After applying Kinzua III’s frame-

work and interpretation of ORS 459.205 and ORS 459.268,

we conclude that the commission’s decision to impose fines

against petitioners was supported by substantial evidence,

and we therefore affirm.

As this matter has been presented to Oregon’s appel-

late courts multiple times, a recitation of the full procedural

and factual background of this Environmental Quality

Commission (the commission) proceeding would be redun-

dant. Relevant to this particular remand are the following

undisputed facts: Kinzua Resources, LLC, owned the Pilot

Rock Landfill site. In 2006, Kinzua obtained a required

permit for the site from the Department of Environmental

Quality (DEQ) to operate the site as a disposal site for an

adjacent sawmill. That permit required Kinzua to obtain

financial assurance, particularly for the costs of closing the

site and maintenance of the site after closure. Kinzua failed

to acquire the financial assurance, resulting in a Notice of

Civil Penalty by DEQ in 2010.1 The resulting final order of

penalty included a fine of $25,075, as well as an order that

Kinzua secure financial assurance in accord with the rel-

evant regulations. Kinzua never complied with the order

regarding financial assurance.

In 2013, DEQ found that Kinzua had still not com-

plied with its responsibilities, this time regarding how it

closed the site and the post-closure maintenance. As a result,

DEQ issued the amended notice of civil penalty at issue in

this remand. In response, petitioner Demers, an individual,

communicated with DEQ on behalf of Kinzua. Most notable

for this remand, Kinzua was, at all relevant times, managed

1

Kinzua did not challenge the penalty and it is not at issue in this opinion.

40 Kinzua Resources v. DEQ

by two entities: ATR and Frontier. ATR and Frontier were

the only members of Kinzua, a limited liability company

(LLC). In its Restated Articles of Organization, Kinzua

elected to be managed by its members. Under ORS 63.130(1),

each member therefore had equal voting rights and power in

the LLC. Demers, an individual, was a member of Frontier

and also a shareholder and the president of ATR. Thus, at

the time that DEQ was communicating with Kinzua about

its conduct, Kinzua, as an LLC, had arranged to be “con-

trolled” by the two voting members that were also separate

legal entities, ATR and Frontier, while having Demers rep-

resent to DEQ and other entities that he spoke on Kinzua’s

behalf and was an agent of Kinzua or Frontier and ATR.

After an administrative hearing on the proposed

penalty and order to comply, this matter proceeded to a

contested hearing before the commission. The commis-

sion found that Kinzua: (1) violated ORS 459.268 when it

failed to close the landfill; (2) violated OAR 340-095-0090

when it failed to obtain sufficient financial assurance; and

(3) violated OAR 340-095-0050(1) when it failed to apply

for a “closure permit.” The commission assessed a penalty

of $782,862 against Kinzua, most of which represented the

economic gain Kinzua obtained by avoiding the costs of

properly closing the site.2

However, DEQ assigned liability beyond Kinzua

itself to include ATR, Frontier, and Demers under ORS

459.268 and ORS 459.205. ORS 459.268 states:

“When solid waste is no longer received at a land dis-

posal site, the person who holds or last held the permit

issued under ORS 459.205 or, if the person who holds or last

held the permit fails to comply with this section, the person

owning or controlling the property on which the disposal site

is located, shall close and maintain the site according to the

requirements of this chapter, any applicable rule adopted

by the Environmental Quality Commission under ORS

459.045 and any requirement imposed by the Department

of Environmental Quality as a condition to renewing or

issuing a disposal site permit.”

(Emphasis added.) ORS 459.205 states:

2

Petitioners have not assigned error to the findings against Kinzua.

Cite as 323 Or App 37 (2022) 41

“(1) Except as provided by ORS 459.215, a disposal

site shall not be established, operated, maintained or sub-

stantially altered, expanded or improved, and a change

shall not be made in the method or type of disposal at a

disposal site, until the person owning or controlling the dis-

posal site obtains a permit therefor from the Department of

Environmental Quality as provided in ORS 459.235.

“(2) The person who holds or last held the permit

issued under subsection (1) of this section, or, if that person

fails to comply, then the person owning or controlling a land

disposal site that is closed and no longer receiving solid

waste must continue or renew the permit required under

subsection (1) of this section after the site is closed for the

duration of the period in which the department continues

to actively supervise the site, even though solid waste is no

longer received at the site.”

(Emphases added.)

In arguing against the civil penalties, petitioners

contended that the commission could not hold anyone other

than Kinzua liable for any violations related to closing the

site under ORS 459.268 or ORS 459.205 without a finding

that the person or entity managed the day-to-day operations

of the site. That argument rested on a narrow reading of the

word “controlling” to mean more than having legal authority

over the site. The commission disagreed, interpreting ORS

459.268 and ORS 459.205 to support finding that those who

control the site, legally, as well as practically, can be held

liable. As laid out by the Supreme Court:

“[T]he commission concluded that Frontier, ATR, and

Demers were responsible for the same violations [as Kinzua]

as persons ‘controlling’ the landfill, and it assessed a civil

penalty against them ‘in the same amount and manner as

Kinzua Resources LLC.’ The commission reasoned that

‘controlling’ includes having authority to control and found

that all three petitioners met that test. With respect to

Demers, the commission found that he ‘had actual control

of matters relating to the landfill site and that he exercised

that control.’ With respect to ATR and Frontier, the com-

mission found that they had the authority, as the members

of Kinzua, ‘to control the property of the company, includ-

ing the landfill.’ ”

42 Kinzua Resources v. DEQ

Kinzua III, 366 Or at 678. The commission stated, regarding

ATR and Frontier:

“It is also undisputed that Kinzua is a limited liability

company whose members are ATR Services and Frontier

Resources. Further, it is undisputed that Kinzua is [a]

member managed limited liability company and that ATR

Services and Frontier Resources have the legal authority

to manage and conduct the limited liabilities business,

and thus to control the properties owned by Kinzua. ORS

63.130.”

Notable are the commission’s findings that Demers

provided contradictory testimony about his role with Kinzua,

for example, stating in one instance that he was its presi-

dent and secretary, and in the next saying he had no role

whatsoever with the company. The commission concluded

that Demers had operational control of the site, and that he

was “delegated to go deal” with DEQ when the notices were

first issued.

Rejecting petitioners’ arguments about the applica-

tion of the statutes, the commission concluded:

“That DEQ did not present any evidence that ATR

Services and Frontier Resources actually exercised their

legal control over the operations of the landfill, is not deter-

minative of whether they had control over the landfill. ATR

Services and Frontier Resource[s] had control * * * over the

operations of the landfill as a matter of law, irrespective of

whether they exercised that control. Moreover, this appears

to be the very type of situation that the statutes were

intended to address in order to assure that those entities

with authority to exercise control do so when a permittee

has failed to comply with the requirements of the permit

and underlying statutes and rules. As members of Kinzua

Resources, LLC, with control over the landfill[,] ATR

Service[s] and Frontier Resources took advantage of the

opportunity to benefit from the operation of the landfill[.]

“The legal situation with respect to Mr. Demers is dif-

ferent. Mr. Demers was not a member of the Kinzua lim-

ited liability company and thus did not have legal authority

on that basis to control the landfill. * * * [T]here is clear

and convincing evidence in the record that Mr. Demers had

been authorized on behalf of Kinzua by the members of the

company and that he actually exercised that authority.”

Cite as 323 Or App 37 (2022) 43

Petitioners appealed, and their various assign-

ments of error to the two appellate courts are relevant to

the particulars of this remand.

Before us, petitioners raised two assignments of

error: first, that the commission erred by construing the

term “control” in ORS 459.205 and ORS 459.268 to include

Demers; and second, that the commission erred by con-

struing “control” as previously noted to include Frontier

and ATR “simply because they had authority to control the

landfill by virtue of being LLC members even though they

never exercised such control.” We were persuaded by the

petitioners’ arguments regarding control, stating: “the best

reading of [the two statutes] is that the term ‘controlling’

is directed at those persons actively involved in the opera-

tion or management of a landfill site; in other words, those

who, after a permit holder fails to comply with its obliga-

tions under a landfill permit regarding a particular site,

step in and exercise restraining or directing influence over

that site.” Kinzua I, 295 Or App at 408-09. We adhered to

our decision on reconsideration, but clarified that Demers’s

argument was limited to whether his conduct would be con-

sidered “controlling” if it was not shown that he exercised

day-to-day operational control of the site. Kinzua II, 296 Or

App at 488-89.

DEQ sought review of our decision, presenting only

one argument to the Supreme Court on review: The term

“controlling” in ORS 459.205 and ORS 459.268 should

be interpreted to mean “having authority over the prop-

erty on which a land disposal site is located, regardless of

whether that authority is actually exercised.” In opposition,

petitioners argued that DEQ’s proposed reading of the

statutes would conflict with ORS 63.165(1), which provides

members of limited liability companies with protection from

liability for the obligations of the company. Further, peti-

tioners argued that we had correctly interpreted the

term “controlling” in the statutes. In reply, DEQ argued

that Demers was, in fact, legally in control of all the enti-

ties involved in the litigation in one way or another, but,

“[u]ltimately, where the decision-making authority lies in

this web of interrelated entities is a factual determination

for the Court of Appeals to make on remand.”

44 Kinzua Resources v. DEQ

The Supreme Court reversed, concluding that our

reading of the word “controlling” was too narrow, particu-

larly in the context of the phrase “owning or controlling.”

Kinzua III, 366 Or at 683. “Here, giving the term ‘owning’

its ordinary meaning, the statutory obligation arises from

a person’s status—possessing legal authority over the land

on which the landfill is located—without regard for whether

the person has actively participated in the operation of the

landfill.” Id. After analyzing the text, context, and legisla-

tive history of the statutes, the Supreme Court concluded

that the legislature intended to hold those with legal author-

ity over a site liable for the statutory obligations related to

the site, regardless of whether or not DEQ could provide

evidence that the person or entity actually exercised that

authority. Id. at 685. The court reasoned that the legisla-

ture intended, as is the case here, to hold liable entities that

could direct a site to comply with regulatory and statutory

requirements but fail to do so. Id. (“That purpose of assur-

ing public protection when the permit-holder fails to act is

more compatible with the commission’s conclusion that ‘per-

sons * * * controlling’ the disposal site reaches those having

authority to take the actions required for proper closure.

If those closure obligations fell only to persons owning or

‘actively exercising’ control over the landfill operations, it

is more likely that critical post-closure maintenance would

be left as a problem for the state to correct, as this case

illustrates.”).

Perhaps referring to DEQ’s argument about this

court making a factual determination on remand, the

Supreme Court stated:

“Whether the liability that the commission imposed on

petitioners is direct liability for petitioners’ own omissions

as persons ‘controlling’ the disposal site is intertwined

with an alternative argument that petitioners raised in

the Court of Appeals—that the record lacks substantial

evidence to support the commission’s findings, even under

the commission’s construction of ‘controlling.’ The Court of

Appeals did not reach that argument, and neither party

has meaningfully addressed petitioner’s evidentiary chal-

lenge in light of the statutory framework that we have

articulated in this opinion. Under the circumstances, we

conclude that it is appropriate to remand this case to the

Cite as 323 Or App 37 (2022) 45

Court of Appeals to consider petitioners’ remaining chal-

lenges to the order in light of the legal standard that we

have identified.”

Id. at 689 (footnote omitted).

We are thus left to consider whether any of petitioners’

remaining arguments can escape the conclusion of the

Supreme Court in Kinzua III.

Looking first at ATR and Frontier, the Supreme

Court ordered that we consider the secondary argument

that the commission’s findings were not supported by sub-

stantial evidence in the record, given the conclusion that

the commission correctly interpreted the statutes. A close

reading of the record below and the briefing by petitioners

demonstrates that petitioners’ arguments regarding ATR

and Frontier required us to disagree with the commission’s

conclusions. That is, at no point did petitioners argue to us

that the record failed to demonstrate that ATR or Frontier

lacked “legal authority” over the site; the arguments were

premised on the view that, although the record demon-

strated legal authority, that was insufficient to show “con-

trol” under the statutes. However, those arguments are fore-

closed by the conclusion in Kinzua III.

To begin, the question presented by petitioners

assumed that ATR and Frontier had legal authority to

control the site but did not exercise that authority. In peti-

tioners’ opening brief, they framed the second assignment

of error as:

“Did the Commission err by exceeding the scope of

authority granted by the legislature when it construed

the term ‘control’ in ORS 459.205 and 459.268 to include

Frontier and ATR, the LLC members of the permittee/

owner of the landfill, simply because they had authority to

control the landfill by virtue of being LLC members even

though they never exercised such control?”

(Emphasis added.)

Further, regarding whether the commission’s con-

clusion was supported by substantial evidence, petitioners

necessarily relied on the argument that DEQ was required

to demonstrate that “ATR or Frontier actively participated

46 Kinzua Resources v. DEQ

in the operations of the landfill.” Petitioners argued that “the

ability to control Kinzua cannot be equated with control over

the landfill.” Because we are bound by Kinzua III, any argu-

ment that requires DEQ to demonstrate something more

than legal authority would necessarily fail on the facts of

this case.3 Looking at Kinzua III and its focus on the context

of the phrase “controlling,” we cannot escape the importance

of the word “owning.” For the same reason that we would

reject an argument that the statutes would not apply if there

were multiple owners of a site, we reject the argument that if

there are multiple entities or persons who have legal author-

ity over a site, none can be held liable without a factual

demonstration of something more than that legal authority.

Moreover, even if we do not treat the logical predi-

cates of control implicit in petitioner’s appellate arguments

as concessions sufficient to meet the Supreme Court’s formu-

lation of the statutes announced in Kinzua III, there is ample

reason in the record to conclude that the commission’s order

was based on substantial evidence. The commission explic-

itly determined that Kinzua had two members—Frontier

and ATR. And as ORS 63.130(1) provides, absent some other

arrangement provided in the articles of organization or

operating agreement, each member “has equal rights in the

management and conduct of the limited liability company’s

business.” There is nothing in the record that indicates any

other arrangement than the default of ORS 63.130(1). As

we understand Kinzua III, the combination of those two—

membership in an LLC and “rights in the management and

conduct” of the business—is sufficient to conclude that legal

control existed in Frontier and ATR to impose direct lia-

bility for each entity’s omissions with respect to the permit

and financial assurances. In other words, the commission’s

3

The dissent argues that “coequal” legal control is insufficient under

Kinzua III’s analysis because one member cannot cause the organization to

act without the consent of the other. 323 Or App at 55 (DeHoog, J., dissenting).

However, that argument ignores that failing to act—that is, failing to provide

consent to one’s co-equal partner—has the same legal and practical effect as hav-

ing exercised actual authority. If the LLC requires both members to agree on a

course of action before it can be taken, refusing to consent necessarily paralyzes

the organization, and authority has, in fact, been exercised. As discussed further

below, this is precisely the type of legal authority the legislature sought to hold

accountable under ORS 459.268 and ORS 459.205.

Cite as 323 Or App 37 (2022) 47

order was supported by substantial evidence of the required

facts.

Kinzua III makes clear that the legislature intended

that DEQ could hold someone liable for the failings of operat-

ing and closing a landfill without having to engage in a shell

game with management and operational control. Indeed,

as the Supreme Court noted, it is precisely situations like

this that the legislature wanted to avoid: a business entity

failing to act and claiming that no one could be held lia-

ble because “no one acted.” Kinzua’s owners were seemingly

protected by a layer of corporate entities. After Kinzua

failed to properly close the site or post financial assurances,

it lapsed into administrative dissolution with the Secretary

of State for “failure to pay certain filing fees or file required

annual filings.” 4 If petitioners’ arguments were accepted, a

once defunct entity that petitioners would like the world to

believe is not controlled by anyone would be the only entity

held liable for its failings. We are thus left with two entities

that petitioners repeatedly acknowledged, and the record

clearly demonstrated, had legal authority over the site but

did not act. Under Kinzua III’s framework, those entities

may be held liable.

Turning then to Demers, the Supreme Court noted,

in a footnote, that Demers also made an argument that he

could not be held liable because he was only an agent of ATR

and Frontier. The Supreme Court declined to address the

argument, as it was raised for the first instance in the reply

brief to us. Kinzua III, 366 Or at 689 n 10. However, the

Supreme Court also noted that, to the extent the argument

was premised on there not being substantial evidence to

support finding that ATR and Frontier “controlled” the site

under ORS 459.205 and ORS 459.268, such an argument

could be considered on remand. Because we conclude that

there was substantial evidence to support the commission’s

finding regarding ATR and Frontier, we decline to discuss

the agency argument Demers raised for the first time in the

reply briefing.

Affirmed.

4

Kinzua was later reinstated within the prescribed statutory time to allow it

to resume business activities “as if the administrative dissolution never occurred.”

48 Kinzua Resources v. DEQ

DeHOOG, Judge pro tempore, dissenting and

concurring.

In reversing our decision in this case, the Supreme

Court directed us to undertake two tasks on remand: First,

consider petitioners’ argument that, even if petitioners ATR

and Frontier theoretically could be held liable based upon

their authority to control the landfill site, “the record is

‘devoid of any evidence that [either entity], acting alone, had

the authority to direct Kinzua’s management or conduct’ ”;

and second, “[t]o the extent [that] petitioners’ argument

[regarding petitioner Demers’s liability] assumes that ATR

and Frontier * * * were not persons ‘controlling’ the landfill,”

consider that challenge as well. Kinzua Resources v. DEQ,

366 Or 674, 689 & n 10, 468 P3d 410 (2020) (Kinzua III)

(stating that, if petitioners’ argument made that assump-

tion, their “challenge as to Demers [would be] within the

scope of * * * remand”). As to the first of those issues, the

Supreme Court observed:

“Some aspects of the order suggest that the commission

treated the collective authority of the LLC members to con-

trol Kinzua as if each individual member had full authority

to control Kinzua’s property (the disposal site). The com-

mission has insisted, however, that its finding that ATR and

Frontier were persons controlling the landfill site relied on

more than just their status as apparently co-equal members

of Kinzua.”

Id. (emphasis added). In leaving that “final dispute” for us

to address in the first instance on remand, the court further

explained:

“Whether the liability that the commission imposed on

petitioners is direct liability for petitioners’ own omissions

as persons ‘controlling’ the disposal site is intertwined

with an alternative argument that petitioners raised in the

Court of Appeals—that the record lacks substantial evi-

dence to support the commission’s findings, even under the

commission’s construction of ‘controlling.’ ”

Id. (emphasis added).

As I understand the majority opinion’s approach to

the first issue, it appears to largely reason that—notwith-

standing the Supreme Court’s express directive that we

Cite as 323 Or App 37 (2022) 49

address petitioners’ argument that the commission errone-

ously treated the collective authority of the LLC members as

full authority for purposes of the applicable statutes—that

matter is essentially unpreserved on appeal. See 323 Or App

at 45 (“At no point did petitioners argue to us that the record

failed to demonstrate that ATR or Frontier lacked ‘legal

authority’ over the site.”). As to petitioners’ “intertwined”

substantial-evidence argument, the majority reasons that

any such argument is rooted in petitioners’ failed position

that the commission could not hold any person liable who

had not actively participated in landfill operations. See id.

at 45-46. Thus, the majority seems to conclude, Kinzua III

largely forecloses the substantial-evidence argument that

that same opinion directed us to consider. See id. at 45-47;

see also Kinzua III, 366 Or at 689 (directing that inquiry

on remand). Finally, despite having reached the foregoing

conclusions, the majority briefly considers whether the com-

mission’s final order is supported by substantial evidence

and concludes that it is. 323 Or App at 46-47.1

In my view, the majority opinion inadequately

engages with the Supreme Court’s explicit remand instruc-

tions in Kinzua III. Moreover, for the reasons that follow, I

would conclude that petitioners have the better argument

as to the first issue and that, ultimately, the commission’s

final order is not supported by substantial evidence and rea-

son. As a result, I respectfully dissent with regard to those

matters.

DISCUSSION

Given the Supreme Court’s explicit instructions, I

understand our role on remand to require us to engage in

the following, stepwise assessment of petitioners’ remaining

arguments: First, we must determine whether the commis-

sion properly concluded that Frontier and ATR each had the

sort of power that the Supreme Court recognized as having

1

Based on its conclusion that substantial evidence supported the commis-

sion’s final order, the majority summarily rejects petitioners’ argument that,

insofar as the evidence was insufficient to find that ATR and Frontier controlled

the landfill, Demers likewise could not be held liable. 323 Or App at 47. Although

I disagree with the majority’s rationale for rejecting that argument, I likewise

would reject it, as I explain below. I therefore concur as to the majority’s disposi-

tion on that issue.

50 Kinzua Resources v. DEQ

“control”—specifically, the legal authority to direct Kinzua’s

handling of the landfill site. Petitioners’ argument that nei-

ther ATR nor Frontier can be deemed to have had unilateral

legal authority to direct the LLC’s operations underlies that

part of the inquiry.

Second, if we conclude that the commission’s ratio-

nale is theoretically sound, we must determine whether its

resulting conclusion is supported by substantial evidence

and reason. Lockett v. Teacher Standards & Practices Comm.,

289 Or App 593, 599, 412 P3d 229 (2017) (“We must set aside

or remand an agency’s order if it is not supported by sub-

stantial evidence in the record. ORS 183.482(8)(c). Implicit

in the requirement that the order be supported by substan-

tial evidence is a requirement that the agency’s findings and

conclusions be supported by ‘substantial reason.’ ” (Internal

quotation marks and brackets omitted.)).

Third, we must consider whether petitioners’ argu-

ment as to Demers’s liability “assumes that ATR and Frontier

also were not persons ‘controlling’ the landfill.” Kinzua III,

366 Or at 689 n 10. In other words, if the success of peti-

tioners’ argument that Demers cannot be held liable appears

to depend upon our conclusion regarding the liability of ATR

and Frontier, then we must consider whether that conclusion

in fact leads to a different result for Demers. If, however,

petitioners’ argument as to Demers is not dependent upon

that conclusion, then the issue is outside the scope of the

Supreme Court’s remand, and it would not be appropriate

to consider it further. See State v. Williams, 276 Or App 688,

694-95, 368 P3d 459, rev den, 360 Or 423 (2016) (declining

to consider issue on remand where Supreme Court had spe-

cifically instructed Court of Appeals to consider a different

issue).

I turn to the assessment that I understand the

Supreme Court’s remand instructions to require, starting

with whether the commission’s final order properly found

“control” within the meaning established in Kinzua III.

A. Did Kinzua’s individual members have control over the

LLC’s property?

I would begin by considering whether, as the

commission concluded, the status of ATR and Frontier as

Cite as 323 Or App 37 (2022) 51

member-managers of Kinzua necessarily gave each of them

the requisite legal authority over both the LLC and its prop-

erty, including the landfill.2 As noted, 323 Or App at 42, the

commission concluded that, because Kinzua was a member-

managed LLC, and because ATR and Frontier were the only

members of the LLC, those entities, by virtue of their mem-

bership in Kinzua, “had control * * * over the operations of

the landfill as a matter of law.” (Emphasis added.) Petitioners

argue in essence that the commission erred as a matter of

law in drawing that conclusion, because here the LLC had

only two members, each of which had equal voting power

with the other. Citing ORS 63.130(1),3 petitioners argue that

neither Frontier nor ATR can be deemed to be in “control” of

Kinzua or its property, including the landfill site. And, they

contend, to the extent that there might be an evidentiary

basis for finding that one or both entities had control of the

landfill for reasons other than its status as a coequal mem-

ber of the LLC, the commission erred by making that deter-

mination as a matter of law, rather than based on evidence

in the record. I agree with petitioners on both points.

I acknowledge that, as a general matter, it was not

unreasonable for the commission to conclude that, to the

extent that ATR and Frontier controlled Kinzua within the

meaning of Kinzua III, they also controlled Kinzua’s prop-

erty, including the landfill. In a different but analogous

context, the Supreme Court has analogized the relation-

ship that an LLC bears to its members to the relationship

that a corporation has with its shareholders. See Cortez v.

2

As we observed in our previous opinion Kinzua Resources v. DEQ, 295 Or

App 395, 409 n 5, 434 P3d 461 (2018), adh’d to on recons, 296 Or App 487, 437 P3d

331 (2019), rem’d, 366 Or 674, 468 P3d 410 (2020) (Kinzua I), petitioners have not

argued that, as business entities, ATR and Frontier are not “persons” within the

meaning of ORS 459.205 and ORS 459.268.

3

ORS 459.268.

ORS 63.130 provides, in part:

“(1) In a member-managed limited liability company, unless otherwise

provided in the articles of organization or any operating agreement:

“(a) Each member has equal rights in the management and conduct of

the limited liability company’s business; and

“(b) Except as otherwise provided in subsection (3) of this section, any

matter relating to the business of the limited liability company may be

decided by a majority of the members.”

52 Kinzua Resources v. DEQ

Nacco Materials Handling Group, 356 Or 254, 263 n 12, 337

P3d 111 (2014). In Cortez, the court observed that an LLC

member can be a “passive” owner of the LLC, “much like

a corporate shareholder”; alternatively, the member might

actively manage the LLC as either a member-manager or

as the designated manager in a manager-managed LLC.

Id. Here, although the member-managers of an LLC (like

officers or directors of a corporation) presumably can del-

egate authority over particular aspects of the LLC’s oper-

ations to others—including the LLC’s employees—the

commission implicitly found no evidence that legal author-

ity over the landfill had been delegated to anyone else.4

Cf. id. at 270-71 (where member-manager of LLC had del-

egated primary responsibility for workplace safety to LLC

personnel, member-manager could not be held personally

liable in absence of a showing that delegation itself had

been negligent or that member-manager had negligently

exercised any retained oversight authority). As a result,

the commission’s understanding that, if the entities con-

trolled Kinzua, they also controlled the landfill within the

meaning of ORS 459.205 and ORS 459.268, appears to be

sound.

As noted, however, our remand instructions require

us to consider petitioners’ argument that the commis-

sion erred in concluding that ATR and Frontier controlled

Kinzua—and therefore Kinzua’s property—when, as

coequal member-managers of the LLC, neither of them

had unilateral control of the LLC. See Kinzua III, 366 Or

at 689 (remanding for our consideration the intertwined

questions of whether commission correctly imposed direct

liability on entities as persons “controlling” the disposal site

and whether substantial evidence supported commission’s

finding of control). Petitioners’ contention is that the com-

mission cannot have been imposing direct liability on ATR

4

The commission specifically found that Kinzua’s articles of organization

provided for the LLC to be member managed, and that ATR and Frontier had

offered no evidence at the hearing that Kinzua was not, in fact, managed by its

members. From there the commission concluded that the entities also controlled

the landfill. If the commission had found there to be any evidence that ATR and

Frontier had delegated all legal authority over the landfill to someone else, it

would likely have noted that fact.

Cite as 323 Or App 37 (2022) 53

or Frontier—as required to avoid the protection that ORS

63.165(1) gives LLC members and managers—“because, in

petitioners’ view, the record is ‘devoid of any evidence that

ATR or Frontier, acting alone, had the authority to direct

Kinzua’s management or conduct.’ ” Id. (noting petitioners’

emphasis “that Kinzua was a two-member LLC” and that

ORS 63.130(1)(b) “specifies that ‘any matter related to the

business of the limited liability company may be decided by

a majority of the members’ ” (emphasis added)).

For its part, the commission has never challenged

the premise of petitioners’ argument or their understanding

of ORS 63.130. That is, the commission does not appear to

dispute that, for either ATR or Frontier to be accountable

as a person “controlling” the landfill site, there must be evi-

dence to support a finding of individual control, not merely

collective control by coequal decisionmakers. And, given the

presumptions of equal control and majority rule under ORS

63.130(1), there is no apparent basis for the commission to

contend that ATR and Frontier were anything other than

coequal voting members or that the authority that each had

over Kinzua’s operations and property could be exercised

unilaterally, without the consent of the other.5

Instead, the commission has, over the course of this

appeal, made two other arguments in support of holding

ATR and Frontier liable. First, rather than defend the con-

clusion it had reached in the final order—that the entities

controlled the landfill by virtue of their legal authority over

Kinzua and its property—the commission’s briefing sug-

gested that the evidence in the record could support a find-

ing that both ATR and Frontier in fact exercised authority

over landfill-related matters, that is, actively controlled the

landfill, as opposed to merely having had the power to do

5

The majority opinion acknowledges each entity’s coequal status in a

two-member LLC, but somehow leverages that largely legal determination into

a refutation of petitioners’ argument that the record lacked substantial evidence

that either ATR or Frontier had authority to act unilaterally with regard to

Kinzua. 323 Or App at 46-47 (reasoning that Kinzua III effectively dictated that

conclusion, despite the issue having been remanded for us to determine in the

first instance). Respectfully, I do not view the majority’s laudable policy argu-

ments to be an adequate substitute for an analytically sound assessment of peti-

tioners’ substantial-evidence argument.

54 Kinzua Resources v. DEQ

so if they so chose.6 Second, as the Supreme Court noted,

the commission contended (after it had issued its final order)

that “its finding that ATR and Frontier were persons con-

trolling the landfill site relied on more than just their sta-

tus as apparently co-equal members of Kinzua.” Id. I will

address those arguments in reverse order, first exploring

whether it is appropriate to consider a rationale other than

the one expressly relied on in the final order—namely, that,

as matter of law ATR’s and Frontier’s “ ‘equal rights in the

management and conduct of’ Kinzua * * * constitute[d] con-

trol over the site”—and, second, considering whether the

fact that the commission arguably could have found that

ATR and Frontier exercised actual control over the landfill

site is a basis on which to uphold the order. Ultimately, my

answer to both questions is “no.”

As noted, the final order expressly cited ATR’s and

Frontier’s membership in Kinzua as the basis for its con-

clusion that they had control over the landfill “as a matter

of law.” Nonetheless, the commission now contends that its

finding that those entities controlled the landfill site relied

on more than just their coequal-member status. I cannot

agree. In the final order, the commission repeatedly states

that ATR and Frontier can be held liable “based on their

legal authority to control the property of the company,

including the landfill.” And contrary to the commission’s

post-order rationale, nothing in the final order suggests that

the commission relied on anything other than the status of

the two entities as LLC members with equal voting rights

in concluding that they had the requisite legal authority to

control Kinzua.

Rather, since ORS 63.130(1)(b) would prevent either

entity from directing Kinzua’s activities without the other’s

consent, the only reasonable understanding of the final

6

To be fair, the commission at that time was responding to petitioners’ argu-

ment that “active” control was required, so it is perhaps reasonable that it chose

not to focus on the “legal authority” argument that ultimately prevailed in the

Supreme Court. However, the commission did not seek reconsideration of that

court’s decision, which remanded for us to determine whether ATR and Frontier’s

status as coequal LLC members satisfied the newly articulated “legal control”

standard, nor did the commission seek the opportunity to brief that issue to us on

remand.

Cite as 323 Or App 37 (2022) 55

order’s rationale is that, because ATR and Frontier col-

lectively had authority over the landfill, they also had the

requisite legal authority over the site for purposes of ORS

459.205 and ORS 459.268. The final order must stand or fall

on the basis of that rationale; the commission may not rely

on a rationale that it first advances on appeal. See, e.g., Drew

v. PSRB, 322 Or 491, 499-500, 909 P2d 1211 (1996) (agency’s

order must articulate “the reasoning that leads the agency

from the facts that it has found to the conclusions that it

draws from those facts”).

And, ultimately, that rationale for concluding that

ATR and Frontier “control[led]” the landfill site fails. As

noted, the commission does not dispute that, for it to impose

direct liability against either entity, it must establish

individual—and not merely collective—authority over the

site. Thus, its stated rationale, premised on the entities’ col-

lective authority to control Kinzua and its property, fails to

satisfy a critical prerequisite to liability under ORS 459.205

and ORS 459.268. The commission has simply never

explained how, with each entity’s authority being wholly

conditioned on the other entity’s approval, either member

could individually be deemed to satisfy Kinzua III’s “legal

control” requirement. Thus, unlike the majority, I would

conclude that the commission erred in concluding that ATR

and Frontier controlled the landfill site within the meaning

of ORS 459.205 and ORS 459.268. I therefore respectfully

dissent from the majority’s conclusion upholding the com-

mission’s order on that basis.

B. Does substantial evidence support liability as to ATR

and Frontier?

I next turn to whether we should uphold the commis-

sion’s final order on the ground that ATR and Frontier col-

lectively exercised actual control over the landfill site, such

that they might be held liable even if they could not be held

liable based on their legal authority alone. I recognize that,

given the preceding discussion, there may be little point in

considering that question. That is, since the commission’s

order relied on a flawed “collective authority” rationale in

concluding that ATR and Frontier were persons controlling

the landfill site, and since the order does not offer any other

56 Kinzua Resources v. DEQ

rationale for that conclusion, it should follow that the order

is not supported by substantial evidence. See Lockett, 289

Or App at 599 (“Implicit in the requirement that the order

be supported by substantial evidence is a requirement that

the agency’s findings and conclusions be supported by ‘sub-

stantial reason.’ ” (Additional internal quotation marks and

brackets omitted.)); see also Jenkins v. Board of Parole, 356

Or 186, 195, 335 P3d 828 (2014) (the substantial-reason

requirement means that an agency must articulate the con-

nection between the facts that it found and the conclusions

it draws). Put another way, where an agency’s order does

not articulate the rationale that the agency seeks to rely

on, it follows that the order lacks the requisite connection

between the facts found and the conclusions reached based

upon those facts.

Nonetheless, given the Supreme Court’s mandate, I

will briefly consider the evidence that the commission points

to in support of its conclusion that ATR and Frontier con-

trolled the landfill site. The commission argues in its brief

on appeal:

“Under the Articles of [Organization] for Kinzua * * * ATR

and Frontier manage Kinzua. As such, they had ‘equal

rights in the management and conduct’ of Kinzua. ORS

63.130(1)(a). They could and did authorize sale of Kinzua’s

property, and authorized Demers to act on their behalf to

bring Kinzua into compliance with its permit. Any action

that Kinzua chose to take or not to take was directed by its

managing members. See ORS 63.077 (powers of an LLC);

ORS 63.130 (rights of member of an LLC). In the absence

of contrary evidence, it must be assumed that Kinzua acted

in accordance with the direction of its members when it

applied for and obtained the permit from DEQ, filed its clo-

sure plan, chose not to provide financial assurance, chose

to accept a final load of waste from the sawmill, chose

not to contest DEQ’s 2010 enforcement order, and chose

not to properly close and maintain the landfill after it

stopped accepting waste. ATR and Frontier were exercising

restraining or directing influence and had power over all of

the activities and omissions of the member-managed LLC,

Kinzua.”

(Emphases added.)

Cite as 323 Or App 37 (2022) 57

There are three problems with the commission’s

argument. The first problem is that many of the facts the

commission now seeks to rely on were never found by the

commission in its order. For example, the commission did not

find that ATR and Frontier authorized the sale of Kinzua’s

property. And although the commission did find that

Frontier and ATR decided to have Demers respond to DEQ’s

inquiries about fires at the landfill site, the commission did

not find that the entities or their constituents “authorized

Demers to act on their behalf to bring Kinzua into compli-

ance with its permit.” Finally, even if, as suggested, Kinzua

might be “assumed” to have acted pursuant to the direc-

tives of its member-managers when it acted at all, the com-

mission itself never explicitly drew that inference. Indeed,

the language of the order suggests the opposite. The order

states: “That DEQ did not present any evidence that ATR

Services and Frontier Resources actually exercised their

legal control over the operations of the landfill[ ] is not deter-

minative of whether they had control.” (Emphases added.)

In other words, because the commission’s theory was that it

could impose liability based on the entities’ legal authority

or “power” to control the landfill site, it expressly considered

it unnecessary to find that either entity had actually exer-

cised that authority. As a result, it did not make many of the

findings that it now purports to rely on.

A second problem with the commission’s argument

is that even the findings that the commission actually made

in the final order—such as the nature of Kinzua’s organi-

zational structure or the entities’ authority over Kinzua—

simply reflect the flawed “collective authority” theory dis-

cussed above. That is, it may well be true that, working

together, ATR and Frontier could “control” the landfill site.

However, the question for purposes of this discussion is

whether the commission found that they in fact exercised

that control—it did not, and that “finding” therefore cannot

support the commission’s conclusion that ATR and Frontier

were persons controlling the landfill under ORS 459.205

and ORS 459.268.

The final and perhaps most significant problem

with the commission’s “actual control” argument is that the

58 Kinzua Resources v. DEQ

facts that the commission highlights almost all relate to its

argument on appeal that “ATR and Frontier were exercising

restraining or directing influence” (emphasis added), rather

than the rationale underlying its order. Again, in its final

order, the commission expressly disavowed any reliance

on a theory that ATR and Frontier actually exercised any

authority that they had over the landfill; instead the com-

mission relied exclusively on the theory that the entities had

the power to do so, which was all that had to be shown to

qualify them as “controlling” under the applicable statutes.

And while the Supreme Court may have upheld the commis-

sion’s interpretation of ORS 459.205 and ORS 459.268 in

that regard, the court did not suggest that we should uphold

the order on a basis other than the one that the commission

expressly relied on in the order itself. For each of those three

reasons, I would conclude that the commission’s determina-

tion that ATR and Frontier controlled Kinzua’s landfill site

within the meaning of those statutes is not supported by

substantial evidence and reason. Accordingly, I respectfully

dissent from that aspect of the majority opinion.

C. Does the commission’s conclusion as to ATR and Frontier

affect Demers?

I turn finally to the last issue potentially within

the scope of the Supreme Court’s remand: whether the com-

mission’s order is valid as to Demers, an individual who is

a member of Frontier and a shareholder and president of

ATR, but who, unlike the other petitioners, is not a member

of Kinzua. I say “potentially” within the remand because of

the way in which the Supreme Court described the issue.

As noted, the court’s remand instructions stated, “[t]o the

extent that petitioners’ argument [as to Demers] assumes

that ATR and Frontier also were not persons ‘controlling’

the landfill, the challenge as to Demers is within the scope

of our remand to the Court of Appeals.” Kinzua III, 366 Or

at 689 n 10. I understand those instructions to mean that, if

the commission erred in concluding that ATR and Frontier

were liable, and if, as a result, the commission also erred

in holding Demers liable, then we must address that error.

If, however, the commission’s conclusion that Demers was

liable was not dependent upon or otherwise affected by any

Cite as 323 Or App 37 (2022) 59

erroneous conclusions regarding ATR and Frontier, then the

issue of his liability is not within the scope of remand.

I will not belabor that issue. As we explained in our

first opinion, the commission’s findings as to Demers dif-

fered from those it made as to ATR and Frontier. See Kinzua

Resources v. DEQ, 295 Or App 395, 399-400, 434 P3d 461

(2018), adh’d to on recons, 296 Or App 487, 437 P3d 331 (2019),

rem’d, 366 Or 674, 468 P3d 410 (2020) (Kinzua I) (discussing

“operational relationship” that Demers had with Kinzua

and communications and efforts that Demers engaged in

regarding the landfill). Based on actions that Demers had

taken on behalf of Kinzua and related to the landfill,

“the commission found that Demers both had and exercised

control over the landfill site. Based upon those findings, the

commission concluded that Demers personally was liable

for the violations of ORS 459.205 and ORS 459.268.”

Id. at 401 (emphasis added). In other words, the commission’s

conclusion that Demers was liable neither turned on its con-

clusion that ATR and Frontier were liable nor resorted to

the reasoning that I would reject with regard to those enti-

ties. Moreover, unlike its conclusion that ATR and Frontier

were liable because they had the legal authority to control

Kinzua and its landfill, as to Demers the commission found

that he had in fact exercised authority over the landfill site.

Id.

As a result, were I writing for the majority, I would

conclude that petitioners’ argument as to Demers does not

“assume[ ] that ATR and Frontier also were not persons ‘con-

trolling’ the landfill,” Kinzua III at 689 n 10. Stated differ-

ently, petitioners’ argument that the commission erred in

holding Demers liable is not based on their ultimately (in

my view) correct position that the commission erred as to

ATR and Frontier. Accordingly, petitioners’ argument as to

Demers is not within the scope of remand, and I, like the

majority, would decline to address it further. See Williams,

276 Or App at 694-95. I therefore concur as to that part of

the majority opinion.