osm’s applicant violator system: recent developments ... · osm has consistently sought the...

OSM’s Applicant Violator System:Recent Developments, Continuing Uncertainty1

Christopher B. PowerRobinson & McElwee

Charleston, West Virginia

Blair M. GardnerArch Mineral Corporation

St. Louis, Missouri

Synopsis§ 11.01. Introduction. ....................................................................... 338§ 11.02. Background of the AVS. .................................................... 339§ 11.03. Regulatory Developments. ................................................ 340

[1] — OSM Regulations on Use of the AVSin Permitting and Standards and Proceduresfor Challenging Ownership and ControlDeterminations. ......................................................... 340[a] — Introduction. .................................................. 340[b] — Definitions. .................................................... 341[c] — Review of Permit Applications. .................... 341[d] — Improvidently Issued Permits. ...................... 342[e] — Verification of Ownership

and Control Information. .............................. 342[f] — Review of Ownership and Control

Violation Information. .................................. 343[g] — Challenges to Ownership and Control Links. 343[h] — Standards for Challenging Ownership

and Control Links and Status of Violations. . 344[i] — Violation Information. .................................. 344[j] — OSM Oversight of State Regulatory

Authority Decisions. ..................................... 345 [2] — OHA Regulations on Appeals from Decisions

Suspending or Rescinding Improvidently IssuedPermits and Appeals from Ownershipand Control Decisions. ............................................ 345

§ 11.04. Recent Decisions. ............................................................... 346

1 Although the authors have been involved in representing parties in certain of the

cases discussed herein, the opinions or views expressed are solely those of the authors.

Cite as 17 E. Min. L. Inst. ch. 11 (1997)

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[1] — Fincastle Mining, Inc. v. Babbitt. .............................346[2] — Coteau Properties Co. v. Dept. of Interior. ...............347[3] — Arch Mineral Corp. v. Babbitt. .................................349[4] — National Wildlife Fed’n v. Babbitt. ........................... 351[5] — U. S. Steel Mining Co. v. OSM. ................................. 352[6] — James Spur v. OSM. .................................................. 353[7] — Pittston Coal Co. v. Babbitt. ..................................... 355

§ 11.05. Conclusion. ......................................................................... 356

§ 11.01. Introduction.Effective November 28, 1994, new regulations govern the use of the

Applicant Violator System (AVS) by the Department of Interior’s Officeof Surface Mining Reclamation and Enforcement (OSM) and by stateregulatory authorities, and provide standards and procedures forchallenging ownership and control determinations. Companion regulationsissued by the Interior Department’s Office of Hearings and Appeals (OHA)allow for temporary relief from OSM ownership and control decisions.Although these rules offer some hope for more immediate relief fromadverse ownership and control decisions, they impose procedural andsubstantive requirements that may well make it more difficult to resolveAVS-related questions.

In the area of judicial review, OSM’s initial series of three ownershipand control regulations have been upheld against facial challenges at theFederal district court level, and yet another in a series of company-specificchallenges has been dismissed as a jurisdictionally improper challenge tothe rules. However, recent decisions involving the application of the AVSregulations — both from the Interior Department and from the courts —suggest that there is a limit to OSM’s authority in this area. This chapterprovides a summary of these recent AVS developments.2

2 A more detailed treatment of the AVS and OSM regulations implementing this complexpermit-blocking scheme can be found in any of numerous papers on the subject, includingtwo excellent articles published as a part of the Annual Institute proceedings of thisFoundation. See Means, “The Applicant Violator System: A Critical Evaluation,” 10 E.

Min. L. Inst. 6 (1989); Conrad, “The Applicant Violator System Under the Surface MiningControl and Reclamation Act of 1977: Constitutional Concerns,” 8 E. Min. L. Inst. 10(1987).

§ 11.01

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§ 11.02. Background of the AVS.The AVS was originally created by OSM as the result of a consent

decree entered in Save Our Cumberland Mountains v. Clark3 (sometimesreferred to as the “Amended Parker Order”). OSM later promulgated threesets of regulations expanding the AVS permit-blocking system even furtherand describing in great detail how it should be implemented: (1) theownership and control rule, defining the term and instituting the reviewprocess for blocking permits;4 (2) the ownership and control informationrule, requiring that extremely detailed information on the ownership andcontrol of an applicant be included as a part of a mining permit application,and that regulatory authorities consult various sources regarding thecompliance status of the applicant and its owners and controllers prior topermit issuance;5 and (3) the improvidently issued permits rule, requiringregulatory authorities to suspend and/or rescind permits held by personswho should have been permit-blocked at the time of issuance.6 Together,these three series of rules operate in such a way that any entity which isrelated (even presumptively) through the broad “ownership and control”criteria to a problem site or delinquent penalty or fee will be blockedfrom receiving mining permits anywhere in the United States, as will allrelated entities, until those problems are addressed.

Although the Amended Parker Order has expired and the case whichgave birth to it was dismissed by the D.C. Circuit Court of Appeals onjurisdictional grounds,7 OSM has stated that “independent of any litigationor settlement, OSM continues to be committed to the maintenance and

3 22 Env’t Rep. Cas. (BNA) 1217 (D.D.C. 1985).4 53 Fed. Reg. 38868 (October 3, 1988).5 54 Fed. Reg. 8982 (March 2, 1989).6 54 Fed. Reg. 18438 (April 2, 1988).7 Save Our Cumberland Mountains, Inc. v. Lujan, No. 81-2134-AER (D.D.C. Sept. 5,1990), vacated, 963 F.2d 1541 (D.C. Cir. 1992), cert. den’d, 113 S.Ct. 1257 (1993). It is

no small irony that the case which created the AVS was dismissed on jurisdictionalgrounds. OSM has consistently sought the dismissal of cases challenging the applicationof the AVS as jurisdictionally improper on the theory that all such cases seek to overturnthe rules themselves and must be filed in the District Court for the District of Columbia.

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improvement of the AVS as a matter of agency policy . . . .”8 Indeed, asevinced by the regulatory developments and cases summarized below,OSM has shown no inclination to re-evaluate the wisdom of its maze ofownership and control rules despite the tremendous agency and industryresources consumed in attempting to navigate them. To the contrary, theagency continues to test the bounds of its discretion through aggressiveapplication of the AVS in ways that could hardly have been contemplatedby those who drafted the Surface Mining Control and Reclamation Act of19779 (SMCRA) nearly 20 years ago.

§ 11.03. Regulatory Developments.[1] — OSM Regulations on Use of the AVS

in Permitting and Standards and Proceduresfor Challenging Ownership & ControlDeterminations.

[a] — Introduction.On October 28, 1994, OSM issued a detailed set of amendments to

its regulations dealing with disclosure of ownership and control andviolation information; review of ownership and control data; improvidentlyissued permit procedures; and procedures for challenging ownership andcontrol decisions issued by OSM.10 The rules were issued in proposedform on September 6, 1991, and finalized despite a decision by the D. C.Circuit Court of Appeals vacating OSM’s settlement with the plaintiffs inSave Our Cumberland Mountains, Inc. v. Lujan11 — the case whichinitiated the development of the AVS in 1985.

The regulations make several significant changes in the way the AVSis used by OSM and by state regulatory authorities (SRAs) with primacyunder SMCRA. Because portions of the rules are ambiguous and subjectto varying interpretations, to fully understand their effect requires

8 59 Fed. Reg. 54306 (Oct. 28, 1994).9 30 U.S.C. § 1201, et seq.10 59 Fed. Reg. 54306 (October 28, 1994).11 59 Fed. Reg. 54306, supra.

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considerable study of the details of each part and how they relate to otherportions of the regulations.12 Some of the major changes are noted below.13

[b] — Definitions.The term “AVS” is defined for the first time, as the “computer system

maintained by OSM to identify ownership or control links involving permitapplicants, permittees, and persons cited in violation notices.”14

“Ownership and control link” is defined to include a link based on anyownership and control relationship, including a situation where a party ispresumed to own or control another entity (unless such a presumption hasbeen successfully rebutted pursuant to other new procedures identifiedbelow).15 A third new term is “violation notice,” which is defined broadlyto include many different types of notifications (e.g., letters, pleadings,other written communications).16

[c] — Review of Permit Applications.The permit-blocking regulation, 30 C.F.R. § 773.15, is amended to

include references to new §§ 773.22 (verification of ownership or controlapplication information) and §§ 773.23 (review of ownership or controland violation information). As a result, all of the information described inthe referenced regulations, including that shown in AVS, must be reviewedprior to permit issuance.17 In addition, the presumption that an existingnotice of violation (NOV) is being abated is eliminated for the purpose ofthis review, unless the abatement period for the NOV has not expired and

12 As alluded to infra, some of these new regulations (i.e., designation of whichgovernmental unit has the authority to make ownership and control determinations) cannot

be fully understood regardless of how long one might study them. Their meaning and

effect will only become clear through agency interpretation and application.13 As with the original ownership and control regulations, these regulations werechallenged by the National Mining Association on numerous grounds. National MiningAssociation v. U.S. Department of Interior, Civ. Action No. 94-2740-AER.14 30 C.F.R. § 773.5.15 Id.16 Id.17 30 C.F.R. § 773.15(b).

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the applicant certifies that all such NOVs are in the process of beingcorrected.18

[d] — Improvidently Issued Permits.30 C.F.R. § 775.20 has been amended to specifically reference new §

773.25 (standards for challenging ownership or control links and statusof violations). However, the process and standards which apply where apermittee is challenging ownership and control links during improvidentlyissued permit proceedings differ in one significant respect from the processwhich applies where permit applicants make such a challenge: a permitteewill be allowed to challenge the “existence of the violation when issued”(i.e., whether there were actual grounds for issuance of the violation)prior to permit rescission.19 A permit applicant who is denied a permitbecause of a link to a violation notice will not be allowed to challenge theexistence of a violation when issued until after permit denial.20

[e] — Verification of Ownership and ControlInformation.

Thirty (30) C.F.R. § 773.22 is a new regulation which requires theregulatory authority to review the ownership and control information in apermit application and compare it for accuracy to several different sourcesof data, including inspection and enforcement data, state corporationcommission or tax records, and the AVS.21 Permit applicants will berequired to resolve any discrepancies which are detected.22 Followingthis review, SRAs are required to “promptly” update the AVS with anynew information.23

18 Id.19 See 30 C.F.R. §§ 773.20 and 773.25.20 Id.; see also 59 Fed. Reg. 54306, at 54314 (Oct. 28, 1994).21 30 C.F.R. § 773.22(a).22 30 C.F.R. § 773.22(c).23 30 C.F.R. § 773.22(d).

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[f] — Review of Ownership and Controland Violation Information.

30 C.F.R. § 773.23 is another new section, which mandates a reviewof all reasonably available information regarding violations (includingthe AVS) after the regulatory authority has verified all ownership andcontrol information pursuant to § 773.22.24 Should a permit blockinglink be detected, the applicant is to be directed to the regulatory authoritywith jurisdiction over the violation in order to take steps to resolve it.25

[g] — Challenges to Ownership and ControlLinks.

New procedures for challenging ownership or control links to violationnotices where such links are already in the AVS are set forth at 30 C.F.R.§ 773.24. Responsibility for hearing challenges to different aspects of apermit blocking link is allocated between OSM and the SRAs.

If an entity is linked to a federal violation notice, then challenges to theviolation will be heard by OSM pursuant to this regulation and § 773.25(standards for challenging ownership and control links and status ofviolations).26 If an entity is linked to a state violation, then challenges tothe status of that violation will be heard by the SRA with jurisdiction overthe violation pursuant to the state counterparts to this regulation and §773.25.27

All challenges to ownership or control links shown in the AVS —even those which were originally decided and entered by SRAs —are tobe determined by OSM.28 This vests OSM with substantially enhancedauthority over state permitting and raises significant questions regardingthe vitality of state primacy in this critical area.

24 30 C.F.R. 773.23(a). Previously, SRAs with primacy under SMCRA were requiredto query the AVS as a part of their permitting process pursuant to separate memoranda ofagreement with OSM.25 30 C.F.R. § 773.23(b).26 30 C.F.R. § 773.24(a)(2).27 30 C.F.R. § 773.24(a)(3).28 30 C.F.R. § 773.24(b).

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[h] — Standards for Challenging Ownershipand Control Links and Statusof Violations.

A new section, 30 C.F.R. § 773.25, allocates responsibility betweenOSM and SRAs for deciding various ownership and control issuesinvolving permit applicants, permittees, and violations, and establishesevidentiary standards for resolving such issues. For example, the SRAbefore which an application is pending decides the “ownership or controlrelationships of the application,” but the SRA which issued a notice ofviolation determines “the ownership or control relationships of theviolation.”29 How these provisions will be applied in relation to §773.24is unclear, although apparently the determinations by SRAs described inthis provision are those which are rendered prior to any AVS entry.

Consistent with OSM’s ultimate authority over AVS matters asreflected in § 773.24, with respect to decisions involving ownership andcontrol links shown in the AVS, the regulation states that any decisionsmade by SRAs “shall be subject to the plenary authority of OSM to reviewany [SRA] decision . . . .”30

In any informal or formal review of (a) an ownership and controllink, or (b) the status of a violation, the regulatory authority must make aprima facie showing that such a link exists or existed during the relevantperiod, and/or that a violation remains outstanding.31 Once such a showinghas been made, the person challenging the link or the status of the violationhas the burden of proving its case by a preponderance of the evidence.32

In meeting this burden, the challenger must present “probative, reliable,and substantial evidence” bearing on the issues involved in the case.33

[i] — Violation Information.Subsection (c) of 30 C.F.R. § 778.14 was “clarified” to specifically

require disclosure of all outstanding violation notices not only with respect

29 30 C.F.R. § 773.25(b)(i), (iii).30 30 C.F.R. § 773.25(b)(3).31 30 C.F.R. § 773.25(c)(1).32 Id.33 30 C.F.R. § 773.25(c)(2).

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to the permit applicant, but also as to (i) any surface mining operationwhich is deemed or presumed to be owned or controlled by the applicant,and (ii) any surface mining operation which is deemed or presumed to beowned or controlled by any person who is deemed or presumed to own orcontrol the applicant.34 Reporting of such violation information is requiredeven if a permit applicant believes it could successfully rebut any suchpresumption of control. In this situation, the applicant can make a reportwhile preserving its rights to deny ownership and control.35 According toOSM, this requirement is merely a restatement of existing law.36

[j] — OSM Oversight of SRA Decisions.Thirty (30) C.F.R. § 843.24 is a new regulation which states that OSM

will take action using existing oversight authority (e.g., Ten Day Notices,Improvidently Issued Permits proceedings, etc.) in individual cases whereit believes the ownership and control regulations have not been compliedwith by a SRA.37 In addition, if OSM determines that a SRA’s failure tocomply with the state program equivalents of these regulations was“knowing,” OSM will initiate action under other provisions governingwithdrawal of approval of state programs, federal enforcement andsanctions.38

[2] — OHA Regulations on Appeals from DecisionsSuspending or Rescinding Improvidently IssuedPermits and Appeals from Ownership and ControlDecisions.

Two new sets of regulations, 43 C.F.R. §§ 4.1370 - 4.1377 (Appealsfrom OSM Decisions Suspending or Rescinding Improvidently IssuedPermits) and 43 C.F.R. §§ 4.1380 - 4.1387 (Appeals from OSM Ownershipand Control Decisions) were issued by the Interior Department’s Officeof Hearings and Appeals on October 28, 1994 — the same date as OSM’s

34 30 C.F.R. § 778.14(c).35 59 Fed. Reg. 54306, at 54348.36 Id.37 30 C.F.R. §843.24(b).38 30 C.F.R. § 843.24(c).

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new AVS rules — and became effective on the same date (November 28,1994).39 The main feature of both sets of amendments is the availabilityof temporary relief upon submission of a written petition establishingthat the applicant has a “substantial likelihood” of prevailing on the meritsand showing that public health, safety, and the environment will not beadversely affected by issuance of a stay.40

Under these rules, when an appeal is filed OSM must present a primafacie case in support of the challenged notice or decision. The permitteeor applicant has the ultimate burden of persuasion to prove by apreponderance of the evidence that OSM’s action was invalid.41

Consistent with changes in OSM’s AVS regulations, a permittee nowhas the right to the same notice and hearing opportunities when a permitsuspension is announced as when a permit rescission is proposed.42

Likewise, when an improvidently issued permit proceeding is instituted,the permittee may challenge the validity of the violation when issuedduring the hearing stage — before OSM takes final action to suspend orrescind a permit.43

§ 11.04. Recent Decisions.[1] — Fincastle Mining, Inc. v. Babbitt.44

On December 8, 1993, Senior United States District JudgeGlenn M. Williams of the U. S. District Court for the Western District ofVirginia issued a Memorandum Opinion prohibiting OSM from imposinga permit block on Fincastle Mining, Inc., based on a bond forfeitureincurred by Hobbs Brothers Coal Company, an alleged contract miner forFincastle. The Virginia Department of Mines, Minerals and Energy andDivision of Mined Land Reclamation (DMLR) had never linked Fincastlewith Hobbs under state ownership and control rules, and did not attributethe bond forfeiture to Fincastle.

39 59 Fed. Reg. 54356 (Oct. 28, 1994.)40 43 C.F.R. §§ 4.1376; 4.1386.41 43 C.F.R. §§ 4.1374, 4.1384.42 43 C.F.R. § 4.1370.43 See 59 Fed. Reg. 54356, 54348.44 842 F. Supp. 204 (W. D. Va. 1993).

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Without invoking the normal 10-day notice process, OSM linkedFincastle to Hobbs on the AVS, thereby permit-blocking Fincastle becauseof the bond forfeiture incurred by its alleged contractor. Although Fincastleattempted to rebut the presumption of ownership or control over Hobbs,it failed to do so to OSM’s satisfaction.

In granting injunctive relief, Judge Williams found OSM’s actions tobe impermissible because OSM had “linked” Fincastle to Hobbs on theAVS, thereby requiring Fincastle to abate a state violation, where theState had never made such a link. Judge Williams held that “OSM mayonly enforce state law where the state fails to do so and after a statutorilydefined procedure has been followed.”45 In this case, the court had“absolutely no evidence” of such a failure on the part of the DMLR, andaccordingly Judge Williams ruled that OSM had acted beyond its authorityin linking Fincastle to Hobbs on the AVS.46

A final order entered by Judge Williams on November 17, 1994dismissed this case and dissolved the December 8, 1993 preliminaryinjunction based on the parties’ settlement of all issued raised. As part ofthat settlement, Fincastle agreed to post the required bond for the siteabandoned by Hobbs and to complete reclamation of the site in accordancewith Virginia’s approved SMCRA program. In exchange, Fincastle andits affiliates were released from any further liability for the site throughownership and control.

[2] — Coteau Properties Co. v. Dept. of Interior.47

In Coteau, the Eighth Circuit Court of Appeals made significantfindings on three critical issues: (1) district court jurisdiction to entertainchallenges to an OSM Final Agency Decision (FAD) dealing with actionstaken following citizens complaints; (2) the proper application of OSM’soversight rules in ownership and control cases; and (3) the appropriateinterpretation of the so-called ‘contractor provision’ found within theownership and control definition at 30 C.F.R. § 773.5(b)(6).

45 Fincastle, 842 F. Supp. at 208.46 Id.47 53 F.3d 1466 (8th Cir. 1995).

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The case started with the filing of a citizens’ complaint with OSM bythe United Mine Workers of America, alleging that Basin ElectricCooperative (Basin) owned or controlled Coteau under the statecounterpart to the contractor provision. The North Dakota Public ServiceCommission (PSC), the state regulatory authority under North Dakota’sapproved SMCRA program, found that Coteau had rebutted thepresumption that it was owned or controlled by Basin. On January 14,1993, then-OSM Director Harry Snyder issued a determination agreeingwith the North Dakota PSC’s decision, contrary to the position of theChief of OSM’s AVS Office.48 On January 20, 1993, new acting OSMDirector Hord Tipton vacated the Snyder decision and signed a FinalAgency Decision (FAD) finding that Basin owned or controlled Coteau.Coteau sought relief in the district court.49

In what the Eighth Circuit described as an “entertaining but erroneousmemorandum,” the district court denied Coteau’s motion for injunctiverelief and dismissed the case with prejudice, finding that Coteau’s actionchallenged the validity of federal regulations and was required to be filedin the District Court for the District of Columbia pursuant to § 526 ofSMCRA.50 The district court also held that the FAD was not arbitraryand capricious, and that Coteau had not shown that it would sufferirreparable harm from the FAD.51

In reversing, the Eighth Circuit first ruled that neither the validity ofOSM’s ownership and control rules nor the constitutionality of OSM’soversight rules needed to be considered in order to render a decision onCoteau’s request for relief.52 Next, relying on the 1993 U. S. SupremeCourt decision in Darby v. Cisneros,53 the court held that Coteau was notrequired to exhaust any administrative remedies before challenging OSM’sFAD in federal court.54

48 Coteau, 53 F.3d at 1469-1470.49 Coteau, 53 F.3d at 1470.50 Mem. Opinion and Order, D.C. N.D., Nov. 23, 1993; Coteau, 53 F.3d at 1472.51 Mem. Opinion and Order, D.C. N.D., Nov. 23, 1993.52 Coteau, 53 F.3d at 1471.53 Darby v. Cisneros, 125 L. Ed. 2d 113 (1993).54 Id.

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Contrary to the AVS Office’s assessment of the case, the Eighth Circuitfound that Coteau had established a “strong likelihood of success on themerits” based on the court’s analysis of 30 C.F.R. § 842.11, which specifiesthat any action which is “not arbitrary, capricious, or an abuse of discretionunder the state program” must be considered to be “appropriate action”by a state regulatory authority in response to an OSM Ten Day Notice.55

OSM stated in the FAD that it had conducted a de novo review of the PSCdetermination — something which, in the court’s view, “the regulationssimply do not permit. . . . . ” 56

In addition, the court found that OSM’s reversal of the PSC decisionwas arbitrary and capricious as a substantive matter. For example, thecourt noted that the PSC had found that the provisions in the contractsbetween Coteau and Basin showed that they were “traditional arm’s length”business contracts, allocating risks between the parties and protecting theparties’ respective interests. If Basin had controlled Coteau, then thesetypes of provisions, such as those covering default remedies, disputeresolution, and independent audits, would have been unnecessary.57

[3] — Arch Mineral Corp. v. Babbitt.58

In Arch Mineral Corp., Chief Judge Charles H. Haden II of the U.S.District Court for the Southern District of West Virginia entered aMemorandum Opinion and Order enjoining OSM from imposing a permit-block against Arch Mineral Corporation in an effort to force it to paydebts left behind by a company which was allegedly linked under theownership and control rules to another company Arch had purchased sixyears before. In entering a permanent injunction against OSM, JudgeHaden denied OSM’s motion to dismiss which asserted that the mattercould not be entertained for several reasons.

Judge Haden first ruled that Arch’s request for relief was ripe forjudicial consideration regardless of the fact that OSM had not actuallyentered an ownership and control link between Arch and the defunct

55 30 C.F.R. § 842.11(b)(1)(ii)(B)(2); Coteau, 53 F.3d at 1479.56 Coteau, 53 F.3d. at 1478.57 Coteau, 53 F.3d. at 1479.58 Arch Mineral Corp. v. Babbitt, 894 F. Supp. 974 (S.D. W. Va. 1995).

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contractor, Greendale Coal Company. In so holding, the court found thatdespite the Solicitor’s position, the correspondence between the partiesleft “little doubt [that] OSM intends to enter Arch into the AVS as linkedto Greendale, and therefore permit-blocked, in the immediate future.”59

The court also adopted Arch’s position that neither SMCRA nor OSMregulations require the exhaustion of Interior Department administrativeappeal procedures as a prerequisite to filing suit against OSM in federalcourt. Based on this finding, and the application of the U. S. SupremeCourt’s 1993 holding in Darby v. Cisneros,60 Judge Haden ruled thatparties aggrieved by OSM ownership and control decisions were notrequired to follow the lengthy appeal procedures established by OSM’s1994 regulations before seeking a determination from a federal court.61

In ruling on Arch’s appeal from OSM’s ownership and controldetermination, the court ruled that since Arch was never in a position toprevent or correct Greendale’s violations (nonpayments of AML fees andcivil penalties), OSM could not lawfully apply its ownership and controlrule to link Arch to Greendale.62 To allow its application in thesecircumstances would be contrary to the legitimate scope and purpose ofthe ownership and control rule.63

As an alternative ground for the decision preventing OSM fromseeking payment of Greendale’s civil penalties from Arch, Judge Hadenruled that the general federal five-year statute of limitations found at 28U.S.C. § 2462 may be applied to such actions. Since Greendale’s civilpenalties were incurred more than five years preceding OSM’s ownershipand control case against Arch, OSM was also precluded on this basisfrom seeking payment from Arch.64

59 Arch Mineral Corp., 894 F. Supp. at 981.60 125 L. Ed. 2d 113 (1993).61 Arch Mineral Corp., 894 F. Supp. at 985. (Note: OSM has not challenged this aspectof the court’s ruling on appeal.)62 Arch Mineral Corp., 894 F. Supp. at 986-987.63 Id.64 Arch Mineral Corp., 894 F. Supp. at 984.

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[4] — National Wildlife Fed’n v. Babbitt.65

On August 31, 1995, U.S. District Court Judge Aubrey E. Robinson,Jr. of the District of Columbia upheld, against industry andenvironmentalists challenges, OSM regulations which (1) define“ownership and control;”66 (2) require specific ownership and controlinformation to be included in permit applications and other reports;67

and (3) govern the identification and treatment of improvidently issuedpermits.68 In separate memorandum opinions, Judge Robinson essentiallydenied all challenges to these rules, finding that they had a rationalrelationship to SMCRA’s purposes, provide adequate due processprotections, and need not be made any more stringent in order to beconsistent with SMCRA.

The court held that OSM’s expansive definition of “owns or controls”(which is entirely undefined in SMCRA) was consistent with SMCRA §§507 and 510, “the stated purposes of SMCRA and the statute’s legislativehistory.”69 In addition, the court rejected the argument that the regulationviolates SMCRA’s primacy scheme; held that the requirement in SMCRA§ 510(c) that an applicant disclose all NOVs received within the threeyears preceding the application did not place a limitation on the universeof NOVs which may be considered in permit-blocking through the AVS;and held that the five-year statute of limitations at 28 U.S.C. § 2462 “is inno way relevant to the permit application review process.”70

In response to industry arguments that the ownership and controldefinition was unconstitutionally vague, Judge Robinson merely statedthat “[N]othing about the relationships [described in the regulation] isvague or ambiguous.”71 The court further held that because an applicant’s

65 41 Env’t. Rep. Cas. (BNA) 1515, 1525, 1529 (D.D.C., Aug. 31, 1995), appeals pendingsub nom. National Mining Ass’n v. U.S. Dep’t of the Interior, Nos. 95-5434, 95-5435,95-5436 (consolidated)(D.C. Cir.).66 41 (BNA) 1515 (Aug. 31, 1995).67 41 Env’t Rep. Cas. (BNA) 1525 (Aug. 31, 1995).68 41 Env’t Rep. Cas. (BNA) 1529 (Aug. 31, 1995).69 41 Env’t Rep. Cas. (BNA) at 1519.70 41 Env’t Rep. Cas. (BNA) at 1519-1520.71 41 Env’t Rep. Cas. (BNA) at 1520.

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expectancy that a permit will be issued is not a protected property interest,the procedures available for challenging ownership and control links andpermit denials satisfy the Constitution’s due process requirements.72

Judge Robinson deferred consideration of industry’s due processchallenge to the improvidently issued permits rule in light of the recentlawsuit filed by the National Mining Association challenging OSM’s 1994regulations73 implementing new procedures for suspension and rescissionof permits. However, as with the ownership and control definition, JudgeRobinson found that the improvidently issued permits rule “is consistentwith both the language and the structure of SMCRA.”74

In upholding OSM’s permit information regulations, Judge Robinsonessentially relied on his previous rulings holding that the requirements ofSMCRA §§ 507 and 510 (disclosure of applicant corporate structure, andthree-year violation history) were not exhaustive and therefore theSecretary may augment them through proper rulemaking.75 Because thecourt found that the regulations were reasonable as a substantive matter,it declined to address industry’s argument that the Secretary’s assessmentof the public burden of the regulations was arbitrary and capricious.76

The National Mining Association has appealed the rulings to the D.C.Circuit Court of Appeals.77

[5] — U. S. Steel Mining Co. v. OSM.78

The U. S. Steel Mining case was the first case filed with the InteriorBoard of Land Appeals under the 1994 regulations allowing parties toseek temporary relief from OSM decisions on ownership and control.79

In affirming a decision by A.L.J. David Torbett in favor of the applicant,the IBLA held that a “deferential standard of review” was appropriate

72 41 Env’t Rep. Cas. (BNA) at 1522.73 See § 11.03[1], supra.74 41 Env’t Rep. Cas. (BNA) at 1533.75 41 Env’t Rep. Cas. (BNA) at 1527.76 41 Env’t Rep. Cas. (BNA) at 1528.77 National Mining Ass’n v. U.S. Dep’t of the Interior (Case Nos. 95-5434, 95-5435,and 95-5436)(D.C. Cir.).78 U. S. Steel Mining Co. v. OSM, 132 I.B.L.A. 216 (1995).79 30 C.F.R. § 4.1386; see § 11.03[1], supra.

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when reviewing decisions granting temporary relief, under which “theBoard may limit its consideration to whether the decision was based onan error of law or whether the Administrative Law Judge abused hisdiscretion.”80

Although the IBLA noted that it would not resolve the merits of thecase in ruling on the temporary relief appeal, the decision suggests thatthe IBLA interprets the ownership and control provision found at 30 C.F.R.§ 773.5(b)(6)(the so-called ‘contractor provision’) as applying where therehas been an exercise of actual control or where a person possesses theauthority to control a third party’s mining operations. Finding that JudgeTorbett properly applied this interpretation in ruling on U. S. Steel Mining’stemporary relief petition, the IBLA rejected OSM’s argument that thegrant of temporary relief resulted from an error of law.81

[6] — James Spur v. OSM.82

The IBLA issued this very important decision dealing with anownership and control link made by OSM under the contractor provisionon July 26, 1995. Following an appeal by OSM, the IBLA affirmed aruling by Interior Department A.L.J. David Torbett finding that OSM hadnot made a sufficient showing to link James Spur and associated entitiesto B & J Excavating, Inc., despite the fact that the relationships involvedactual mining contracts (rather than leases) and direct participation byrepresentatives of the linked party in certain aspects of the permittedoperations (such as negotiating with the SMCRA regulatory authority onbehalf of the contractors).83 In addition, the Board refused to find anownership and control link under previous contracts because there wereno outstanding violations associated with those operations.84

OSM filed a request for reconsideration and motion for stay of theIBLA decision before Barry E. Hill, Director of the Department ofInterior’s Office of Hearings and Appeals. On October 26, 1995, Mr. Hill

80 U.S. Steel Mining Co., 132 I.B.L.A. at 217.81 U. S. Steel Mining Co., 132 I.B.L.A. at 218.82 133 I.B.L.A. 123 (1995).83 James Spur, 133 I.B.L.A. at 153-161, 170-171.84 James Spur, 133 I.B.L.A. at 179.

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denied OSM’s request for a stay of the IBLA’s decision, noting that “OSMwas very clear in adopting these ownership and control regulations that itwas actual authority to control which is intended [to be covered].”85

On April 15, 1996, OHA Director Hill affirmed the Interior Board ofLand Appeals’ decision of July 26, 1995 in favor of Spur.86 In that decisionDirector Hill confirmed that authority to control, as well as actual exerciseof control, is sufficient to invoke the contractor provision.87 However, theDirector also clarified that a determination under this provision requiresactual authority — not merely “implied” authority.88 More importantly,even when indirect authority is established by inference from therelationship between the parties, the Director affirmed the principleestablished by the IBLA which holds that such a finding can be overcomewhere the presumptively linked party has “offered credible explanationsdemonstrating legitimate purposes (apart from an interest or intention toinfluence the conduct of operations) for elements of its relationship withthe operator.”89

Several other holdings in the Director’s opinion are also of greatsignificance to future ownership and control determinations andchallenges, including: (1) the Director’s ruling that the contractor part ofthe ownership and control definition and the “(a)(3)” part of that definition(establishing an irrebuttable presumption where there is direct or indirectauthority to determine the manner of mining) are mutually exclusive; (2)the Director’s rejection of OSM’s argument that Spur’s right to collectroyalty and other payments from proceeds due to B & J, “off the top,”showed control; (3) the finding that having an economic interest in coalto be mined by a third party was not enough, in and of itself, to establishcontrol; (4) the approval of the IBLA’s ruling that “mere facilitation ofoperations does not constitute control of operations;” (5) the Director’srejection of OSM’s argument that Spur’s right to receive a transfer of themining permits upon termination of the contracts showed a right to control

85 Order of the Director, OHA, Oct. 26, 1995, p. 3.86 James Spur, Inc. v. OSM, 12 O.H.A. 133.87 12 O.H.A. at 178.88 12 O.H.A. at 181.89 12 O.H.A. at 134, 182-183.

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B & J’s operations; and (6) the Director’s ruling that the existence ofprevious control relationships between the parties did not indicate thatcontrol existed under subsequent contracts containing different terms.90

In reaching his conclusion that an analysis of these factors did not supporta determination of control, Director Hill noted that his decision “shouldin no way be regarded as a ruling that contract mining is exempt fromregulation under AVS,” because “this decision could have been decideddifferently had OSM availed itself of the opportunity to offer credibleevidence in surrebuttal to Spur’s presentation . . . .”91

Finally, the Director provided some well reasoned clarification withrespect to the burden which falls on a party attempting to rebut apresumption of control under the contractor provision. The standard ofproof to rebut the presumption is a simple preponderance of the evidence.92

The assertion of such a presumption, however, does not shift the ultimateburden of proof “in the sense of the risk of non-persuasion”; this burdenremains on OSM.93 Accordingly, once a party has presented substantialevidence rebutting a presumption of control, OSM is required to submitadditional evidence in the form of surrebuttal, if that is required for OSMto prevail. OSM cannot rely on merely a “paper” case establishing thebare elements of the contractor presumption.94

[7] — Pittston Coal Co. v. Babbitt.95

In Pittston Coal Co. v. Babbitt, the Fourth Circuit Court of Appealsaffirmed a ruling entered by Senior Judge Glen M. Williams of the WesternDistrict of Virginia, dismissing Pittston’s due process challenge to OSM’sapplication of the AVS to permit-block Pittston and its subsidiaries basedon unabated violations of former Pittston contractors. Citing previous FourthCircuit decisions, the district court found that Pittston’s complaintconstituted a facial challenge to OSM regulations which could only be heard

90 12 O.H.A. at 177, 180-181, 189, 190-191, 194, 196.91 12 O.H.A. at 197.92 12 O.H.A. at 198.93 12 O.H.A. at 199.94 12 O.H.A. at 198-199.95 Pittston Coal Co. v. Babbitt, 66 F.3d 714 (4th Cir. 1995), cert. denied., 116 S. Ct.1417 (1996).

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in the D.C. District Court under § 526 of SMCRA, 30 U.S.C. § 1276.96 Ina two-paragraph Order, the Fourth Circuit affirmed “on the compellingreasoning of the district court.”97

The Fourth Circuit’s affirmance of Judge Williams’ decision will makeit extremely difficult for aggrieved coal companies in the Fourth Circuit(and likely elsewhere) to challenge OSM’s use of the AVS on groundsother than those which are based on the improper application by OSM ofits own regulations. Virtually any other type of challenge may be construedto be an indirect facial challenge to the regulation itself, which must befiled in the D.C. District Court within 60 days after the agency takes action.Moreover, as shown by the Coteau and Arch Mineral cases, OSM hastaken the position that even challenges to the application of the ownershipand control regulations in particular cases represent facial attacks on therules simply because the petitioners disagree with OSM’s interpretationof those rules.

§ 11.05. Conclusion.Although the original ownership and control rules may ultimately

survive appellate review as to their facial validity, the controversysurrounding the proper scope and application of the AVS continuesunabated. Unfortunately, the 1994 regulations issued by OSM —promulgated for the stated purpose of providing additional due processsafeguards — create even more confusing procedures and standards whilefurther entrenching OSM as the supreme authority on what the AVS willcontain and how and when AVS data may be amended. Moreover, otheraspects of the rules dealing with challenges to linkages prior to entry intothe AVS, disclosure of presumptively related entities, and provision ofviolation histories will present substantial additional burdens to coalcompanies once they are implemented at the state level. It is likely thatsignificant new decisions involving the use of the AVS will be issued inthe near future. At the same time, there is considerable talk about thepossibility of modifying and/or exporting the AVS for use by agenciessuch as the Mine Safety and Health Administration and Environmental

96 Pittston Co. v. Lujan, 798 F. Supp. 344 (S.D. Va. 1992).97 Pittston Coal, 66 F.3d at 714.

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Protection Agency. The regulated community is well advised to keep aclose eye on these developments and their effect on the structure ofrelationships with third-party mine operators.

There is yet some hope that the judiciary will take a fresh look at thiselaborate system of rules and require that amendments be made in orderto reduce the tremendous costs imposed on industry and bring the rulescloser to what can fairly be said to have been contemplated by the Congresswhich enacted SMCRA. Until then, those who find themselves unfairlyenmeshed in an ownership and control dispute need to be prepared totake every available avenue to streamline the process of challenging anadverse AVS decision and to build on the few favorable decisions whichhave been issued in the context of specific applications of the rules. In theabsence of meaningful guidance from regulatory authorities, coal miningpermittees and applicants must be vigilant in monitoring potentiallytroublesome situations and resolute in challenging inappropriateapplication of the rules.

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osm’s applicant violator system: recent developments ... · osm has consistently sought the...

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