OSM s Applicant Violator System: Recent Developments, Continuing Uncertainty 1

Chapter 11 Cite as 17 E. Min. L. Inst. ch. 11 (1997) OSM s Applicant Violator System: Recent Developments, Continuing Uncertainty 1 Christopher B. Power Robinson & McElwee Charleston, West Virginia Blair M. Gardner Arch 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 AVS in Permitting and Standards and Procedures for Challenging Ownership and Control Determinations.... 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 Issued Permits and Appeals from Ownership and 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.

11.01 EASTERN MINERAL LAW INSTITUTE [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 Office of Surface Mining Reclamation and Enforcement (OSM) and by state regulatory authorities, and provide standards and procedures for challenging ownership and control determinations. Companion regulations issued 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 from adverse ownership and control decisions, they impose procedural and substantive requirements that may well make it more difficult to resolve AVS-related questions. In the area of judicial review, OSM s initial series of three ownership and control regulations have been upheld against facial challenges at the Federal district court level, and yet another in a series of company-specific challenges has been dismissed as a jurisdictionally improper challenge to the rules. However, recent decisions involving the application of the AVS regulations both from the Interior Department and from the courts suggest that there is a limit to OSM s authority in this area. This chapter provides a summary of these recent AVS developments. 2 2 A more detailed treatment of the AVS and OSM regulations implementing this complex permit-blocking scheme can be found in any of numerous papers on the subject, including two excellent articles published as a part of the Annual Institute proceedings of this Foundation. See Means, The Applicant Violator System: A Critical Evaluation, 10 E. Min. L. Inst. 6 (1989); Conrad, The Applicant Violator System Under the Surface Mining Control and Reclamation Act of 1977: Constitutional Concerns, 8 E. Min. L. Inst. 10 (1987). 338

APPLICANT VIOLATOR SYSTEM 11.02 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. Clark 3 (sometimes referred to as the Amended Parker Order ). OSM later promulgated three sets of regulations expanding the AVS permit-blocking system even further and describing in great detail how it should be implemented: (1) the ownership and control rule, defining the term and instituting the review process for blocking permits; 4 (2) the ownership and control information rule, requiring that extremely detailed information on the ownership and control of an applicant be included as a part of a mining permit application, and that regulatory authorities consult various sources regarding the compliance status of the applicant and its owners and controllers prior to permit issuance; 5 and (3) the improvidently issued permits rule, requiring regulatory authorities to suspend and/or rescind permits held by persons who 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 is related (even presumptively) through the broad ownership and control criteria to a problem site or delinquent penalty or fee will be blocked from receiving mining permits anywhere in the United States, as will all related entities, until those problems are addressed. Although the Amended Parker Order has expired and the case which gave birth to it was dismissed by the D.C. Circuit Court of Appeals on jurisdictional grounds, 7 OSM has stated that independent of any litigation or 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 jurisdictional grounds. OSM has consistently sought the dismissal of cases challenging the application of the AVS as jurisdictionally improper on the theory that all such cases seek to overturn the rules themselves and must be filed in the District Court for the District of Columbia. 339

11.03 EASTERN MINERAL LAW INSTITUTE improvement of the AVS as a matter of agency policy.... 8 Indeed, as evinced by the regulatory developments and cases summarized below, OSM has shown no inclination to re-evaluate the wisdom of its maze of ownership and control rules despite the tremendous agency and industry resources consumed in attempting to navigate them. To the contrary, the agency continues to test the bounds of its discretion through aggressive application of the AVS in ways that could hardly have been contemplated by those who drafted the Surface Mining Control and Reclamation Act of 1977 9 (SMCRA) nearly 20 years ago. 11.03. Regulatory Developments. [1] OSM Regulations on Use of the AVS in Permitting and Standards and Procedures for Challenging Ownership & Control Determinations. [a] Introduction. On October 28, 1994, OSM issued a detailed set of amendments to its regulations dealing with disclosure of ownership and control and violation information; review of ownership and control data; improvidently issued permit procedures; and procedures for challenging ownership and control decisions issued by OSM. 10 The rules were issued in proposed form on September 6, 1991, and finalized despite a decision by the D. C. Circuit Court of Appeals vacating OSM s settlement with the plaintiffs in Save Our Cumberland Mountains, Inc. v. Lujan 11 the case which initiated the development of the AVS in 1985. The regulations make several significant changes in the way the AVS is used by OSM and by state regulatory authorities (SRAs) with primacy under SMCRA. Because portions of the rules are ambiguous and subject to 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. 340

APPLICANT VIOLATOR SYSTEM 11.03 considerable study of the details of each part and how they relate to other portions 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 permit applicants, permittees, and persons cited in violation notices. 14 Ownership and control link is defined to include a link based on any ownership and control relationship, including a situation where a party is presumed to own or control another entity (unless such a presumption has been successfully rebutted pursuant to other new procedures identified below). 15 A third new term is violation notice, which is defined broadly to 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 control application information) and 773.23 (review of ownership or control and violation information). As a result, all of the information described in the referenced regulations, including that shown in AVS, must be reviewed prior to permit issuance. 17 In addition, the presumption that an existing notice of violation (NOV) is being abated is eliminated for the purpose of this 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 which governmental 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 were challenged by the National Mining Association on numerous grounds. National Mining Association 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). 341

11.03 EASTERN MINERAL LAW INSTITUTE the applicant certifies that all such NOVs are in the process of being corrected. 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 status of violations). However, the process and standards which apply where a permittee is challenging ownership and control links during improvidently issued permit proceedings differ in one significant respect from the process which applies where permit applicants make such a challenge: a permittee will 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 permit because of a link to a violation notice will not be allowed to challenge the existence of a violation when issued until after permit denial. 20 [e] Verification of Ownership and Control Information. Thirty (30) C.F.R. 773.22 is a new regulation which requires the regulatory authority to review the ownership and control information in a permit application and compare it for accuracy to several different sources of data, including inspection and enforcement data, state corporation commission or tax records, and the AVS. 21 Permit applicants will be required to resolve any discrepancies which are detected. 22 Following this review, SRAs are required to promptly update the AVS with any new 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). 342

APPLICANT VIOLATOR SYSTEM 11.03 [f] Review of Ownership and Control and Violation Information. 30 C.F.R. 773.23 is another new section, which mandates a review of all reasonably available information regarding violations (including the AVS) after the regulatory authority has verified all ownership and control information pursuant to 773.22. 24 Should a permit blocking link be detected, the applicant is to be directed to the regulatory authority with jurisdiction over the violation in order to take steps to resolve it. 25 [g] Challenges to Ownership and Control Links. New procedures for challenging ownership or control links to violation notices 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 a permit blocking link is allocated between OSM and the SRAs. If an entity is linked to a federal violation notice, then challenges to the violation will be heard by OSM pursuant to this regulation and 773.25 (standards for challenging ownership and control links and status of violations). 26 If an entity is linked to a state violation, then challenges to the status of that violation will be heard by the SRA with jurisdiction over the 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 to be determined by OSM. 28 This vests OSM with substantially enhanced authority over state permitting and raises significant questions regarding the vitality of state primacy in this critical area. 24 30 C.F.R. 773.23(a). Previously, SRAs with primacy under SMCRA were required to query the AVS as a part of their permitting process pursuant to separate memoranda of agreement 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). 343

11.03 EASTERN MINERAL LAW INSTITUTE [h] Standards for Challenging Ownership and Control Links and Status of Violations. A new section, 30 C.F.R. 773.25, allocates responsibility between OSM and SRAs for deciding various ownership and control issues involving permit applicants, permittees, and violations, and establishes evidentiary standards for resolving such issues. For example, the SRA before which an application is pending decides the ownership or control relationships of the application, but the SRA which issued a notice of violation determines the ownership or control relationships of the violation. 29 How these provisions will be applied in relation to 773.24 is unclear, although apparently the determinations by SRAs described in this provision are those which are rendered prior to any AVS entry. Consistent with OSM s ultimate authority over AVS matters as reflected in 773.24, with respect to decisions involving ownership and control links shown in the AVS, the regulation states that any decisions made by SRAs shall be subject to the plenary authority of OSM to review any [SRA] decision.... 30 In any informal or formal review of (a) an ownership and control link, or (b) the status of a violation, the regulatory authority must make a prima facie showing that such a link exists or existed during the relevant period, and/or that a violation remains outstanding. 31 Once such a showing has been made, the person challenging the link or the status of the violation has 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). 344

APPLICANT VIOLATOR SYSTEM 11.03 to the permit applicant, but also as to (i) any surface mining operation which is deemed or presumed to be owned or controlled by the applicant, and (ii) any surface mining operation which is deemed or presumed to be owned or controlled by any person who is deemed or presumed to own or control the applicant. 34 Reporting of such violation information is required even if a permit applicant believes it could successfully rebut any such presumption of control. In this situation, the applicant can make a report while preserving its rights to deny ownership and control. 35 According to OSM, 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 where it believes the ownership and control regulations have not been complied with by a SRA. 37 In addition, if OSM determines that a SRA s failure to comply with the state program equivalents of these regulations was knowing, OSM will initiate action under other provisions governing withdrawal of approval of state programs, federal enforcement and sanctions. 38 [2] OHA Regulations on Appeals from Decisions Suspending or Rescinding Improvidently Issued Permits and Appeals from Ownership and Control Decisions. Two new sets of regulations, 43 C.F.R. 4.1370-4.1377 (Appeals from OSM Decisions Suspending or Rescinding Improvidently Issued Permits) and 43 C.F.R. 4.1380-4.1387 (Appeals from OSM Ownership and Control Decisions) were issued by the Interior Department s Office of 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). 345

11.04 EASTERN MINERAL LAW INSTITUTE new AVS rules and became effective on the same date (November 28, 1994). 39 The main feature of both sets of amendments is the availability of temporary relief upon submission of a written petition establishing that the applicant has a substantial likelihood of prevailing on the merits and showing that public health, safety, and the environment will not be adversely affected by issuance of a stay. 40 Under these rules, when an appeal is filed OSM must present a prima facie case in support of the challenged notice or decision. The permittee or applicant has the ultimate burden of persuasion to prove by a preponderance of the evidence that OSM s action was invalid. 41 Consistent with changes in OSM s AVS regulations, a permittee now has the right to the same notice and hearing opportunities when a permit suspension 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 issued during the hearing stage before OSM takes final action to suspend or rescind a permit. 43 11.04. Recent Decisions. [1] Fincastle Mining, Inc. v. Babbitt. 44 On December 8, 1993, Senior United States District Judge Glenn M. Williams of the U. S. District Court for the Western District of Virginia issued a Memorandum Opinion prohibiting OSM from imposing a permit block on Fincastle Mining, Inc., based on a bond forfeiture incurred by Hobbs Brothers Coal Company, an alleged contract miner for Fincastle. The Virginia Department of Mines, Minerals and Energy and Division of Mined Land Reclamation (DMLR) had never linked Fincastle with Hobbs under state ownership and control rules, and did not attribute the 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). 346

APPLICANT VIOLATOR SYSTEM 11.04 Without invoking the normal 10-day notice process, OSM linked Fincastle to Hobbs on the AVS, thereby permit-blocking Fincastle because of the bond forfeiture incurred by its alleged contractor. Although Fincastle attempted 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 to be impermissible because OSM had linked Fincastle to Hobbs on the AVS, thereby requiring Fincastle to abate a state violation, where the State had never made such a link. Judge Williams held that OSM may only enforce state law where the state fails to do so and after a statutorily defined procedure has been followed. 45 In this case, the court had absolutely no evidence of such a failure on the part of the DMLR, and accordingly Judge Williams ruled that OSM had acted beyond its authority in linking Fincastle to Hobbs on the AVS. 46 A final order entered by Judge Williams on November 17, 1994 dismissed this case and dissolved the December 8, 1993 preliminary injunction based on the parties settlement of all issued raised. As part of that settlement, Fincastle agreed to post the required bond for the site abandoned by Hobbs and to complete reclamation of the site in accordance with Virginia s approved SMCRA program. In exchange, Fincastle and its affiliates were released from any further liability for the site through ownership and control. [2] Coteau Properties Co. v. Dept. of Interior. 47 In Coteau, the Eighth Circuit Court of Appeals made significant findings on three critical issues: (1) district court jurisdiction to entertain challenges to an OSM Final Agency Decision (FAD) dealing with actions taken following citizens complaints; (2) the proper application of OSM s oversight rules in ownership and control cases; and (3) the appropriate interpretation of the so-called contractor provision found within the ownership 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). 347

11.04 EASTERN MINERAL LAW INSTITUTE The case started with the filing of a citizens complaint with OSM by the United Mine Workers of America, alleging that Basin Electric Cooperative (Basin) owned or controlled Coteau under the state counterpart to the contractor provision. The North Dakota Public Service Commission (PSC), the state regulatory authority under North Dakota s approved SMCRA program, found that Coteau had rebutted the presumption that it was owned or controlled by Basin. On January 14, 1993, then-osm Director Harry Snyder issued a determination agreeing with the North Dakota PSC s decision, contrary to the position of the Chief of OSM s AVS Office. 48 On January 20, 1993, new acting OSM Director Hord Tipton vacated the Snyder decision and signed a Final Agency 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 erroneous memorandum, the district court denied Coteau s motion for injunctive relief and dismissed the case with prejudice, finding that Coteau s action challenged the validity of federal regulations and was required to be filed in the District Court for the District of Columbia pursuant to 526 of SMCRA. 50 The district court also held that the FAD was not arbitrary and capricious, and that Coteau had not shown that it would suffer irreparable harm from the FAD. 51 In reversing, the Eighth Circuit first ruled that neither the validity of OSM s ownership and control rules nor the constitutionality of OSM s oversight rules needed to be considered in order to render a decision on Coteau s request for relief. 52 Next, relying on the 1993 U. S. Supreme Court decision in Darby v. Cisneros, 53 the court held that Coteau was not required to exhaust any administrative remedies before challenging OSM s FAD 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. 348

APPLICANT VIOLATOR SYSTEM 11.04 Contrary to the AVS Office s assessment of the case, the Eighth Circuit found that Coteau had established a strong likelihood of success on the merits based on the court s analysis of 30 C.F.R. 842.11, which specifies that any action which is not arbitrary, capricious, or an abuse of discretion under 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 PSC determination something which, in the court s view, the regulations simply do not permit..... 56 In addition, the court found that OSM s reversal of the PSC decision was arbitrary and capricious as a substantive matter. For example, the court noted that the PSC had found that the provisions in the contracts between Coteau and Basin showed that they were traditional arm s length business contracts, allocating risks between the parties and protecting the parties respective interests. If Basin had controlled Coteau, then these types of provisions, such as those covering default remedies, dispute resolution, 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 a Memorandum Opinion and Order enjoining OSM from imposing a permitblock against Arch Mineral Corporation in an effort to force it to pay debts left behind by a company which was allegedly linked under the ownership and control rules to another company Arch had purchased six years before. In entering a permanent injunction against OSM, Judge Haden denied OSM s motion to dismiss which asserted that the matter could not be entertained for several reasons. Judge Haden first ruled that Arch s request for relief was ripe for judicial consideration regardless of the fact that OSM had not actually entered 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). 349

11.04 EASTERN MINERAL LAW INSTITUTE contractor, Greendale Coal Company. In so holding, the court found that despite the Solicitor s position, the correspondence between the parties left little doubt [that] OSM intends to enter Arch into the AVS as linked to Greendale, and therefore permit-blocked, in the immediate future. 59 The court also adopted Arch s position that neither SMCRA nor OSM regulations require the exhaustion of Interior Department administrative appeal procedures as a prerequisite to filing suit against OSM in federal court. Based on this finding, and the application of the U. S. Supreme Court s 1993 holding in Darby v. Cisneros, 60 Judge Haden ruled that parties aggrieved by OSM ownership and control decisions were not required to follow the lengthy appeal procedures established by OSM s 1994 regulations before seeking a determination from a federal court. 61 In ruling on Arch s appeal from OSM s ownership and control determination, the court ruled that since Arch was never in a position to prevent or correct Greendale s violations (nonpayments of AML fees and civil penalties), OSM could not lawfully apply its ownership and control rule to link Arch to Greendale. 62 To allow its application in these circumstances would be contrary to the legitimate scope and purpose of the ownership and control rule. 63 As an alternative ground for the decision preventing OSM from seeking payment of Greendale s civil penalties from Arch, Judge Haden ruled that the general federal five-year statute of limitations found at 28 U.S.C. 2462 may be applied to such actions. Since Greendale s civil penalties were incurred more than five years preceding OSM s ownership and control case against Arch, OSM was also precluded on this basis from 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 aspect of 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. 350

APPLICANT VIOLATOR SYSTEM 11.04 [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 and environmentalists challenges, OSM regulations which (1) define ownership and control; 66 (2) require specific ownership and control information to be included in permit applications and other reports; 67 and (3) govern the identification and treatment of improvidently issued permits. 68 In separate memorandum opinions, Judge Robinson essentially denied all challenges to these rules, finding that they had a rational relationship to SMCRA s purposes, provide adequate due process protections, and need not be made any more stringent in order to be consistent 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 legislative history. 69 In addition, the court rejected the argument that the regulation violates SMCRA s primacy scheme; held that the requirement in SMCRA 510(c) that an applicant disclose all NOVs received within the three years preceding the application did not place a limitation on the universe of 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 in no way relevant to the permit application review process. 70 In response to industry arguments that the ownership and control definition was unconstitutionally vague, Judge Robinson merely stated that [N]othing about the relationships [described in the regulation] is vague 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 pending sub 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. 351

11.04 EASTERN MINERAL LAW INSTITUTE expectancy that a permit will be issued is not a protected property interest, the procedures available for challenging ownership and control links and permit denials satisfy the Constitution s due process requirements. 72 Judge Robinson deferred consideration of industry s due process challenge to the improvidently issued permits rule in light of the recent lawsuit filed by the National Mining Association challenging OSM s 1994 regulations 73 implementing new procedures for suspension and rescission of permits. However, as with the ownership and control definition, Judge Robinson found that the improvidently issued permits rule is consistent with both the language and the structure of SMCRA. 74 In upholding OSM s permit information regulations, Judge Robinson essentially relied on his previous rulings holding that the requirements of SMCRA 507 and 510 (disclosure of applicant corporate structure, and three-year violation history) were not exhaustive and therefore the Secretary may augment them through proper rulemaking. 75 Because the court found that the regulations were reasonable as a substantive matter, it declined to address industry s argument that the Secretary s assessment of 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 Interior Board of Land Appeals under the 1994 regulations allowing parties to seek 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. 352

APPLICANT VIOLATOR SYSTEM 11.04 when reviewing decisions granting temporary relief, under which the Board may limit its consideration to whether the decision was based on an error of law or whether the Administrative Law Judge abused his discretion. 80 Although the IBLA noted that it would not resolve the merits of the case in ruling on the temporary relief appeal, the decision suggests that the 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 there has been an exercise of actual control or where a person possesses the authority to control a third party s mining operations. Finding that Judge Torbett properly applied this interpretation in ruling on U. S. Steel Mining s temporary relief petition, the IBLA rejected OSM s argument that the grant 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 an ownership and control link made by OSM under the contractor provision on July 26, 1995. Following an appeal by OSM, the IBLA affirmed a ruling by Interior Department A.L.J. David Torbett finding that OSM had not made a sufficient showing to link James Spur and associated entities to B & J Excavating, Inc., despite the fact that the relationships involved actual mining contracts (rather than leases) and direct participation by representatives of the linked party in certain aspects of the permitted operations (such as negotiating with the SMCRA regulatory authority on behalf of the contractors). 83 In addition, the Board refused to find an ownership and control link under previous contracts because there were no outstanding violations associated with those operations. 84 OSM filed a request for reconsideration and motion for stay of the IBLA decision before Barry E. Hill, Director of the Department of Interior 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. 353

11.04 EASTERN MINERAL LAW INSTITUTE denied OSM s request for a stay of the IBLA s decision, noting that OSM was very clear in adopting these ownership and control regulations that it was actual authority to control which is intended [to be covered]. 85 On April 15, 1996, OHA Director Hill affirmed the Interior Board of Land Appeals decision of July 26, 1995 in favor of Spur. 86 In that decision Director Hill confirmed that authority to control, as well as actual exercise of control, is sufficient to invoke the contractor provision. 87 However, the Director also clarified that a determination under this provision requires actual authority not merely implied authority. 88 More importantly, even when indirect authority is established by inference from the relationship between the parties, the Director affirmed the principle established by the IBLA which holds that such a finding can be overcome where the presumptively linked party has offered credible explanations demonstrating legitimate purposes (apart from an interest or intention to influence the conduct of operations) for elements of its relationship with the operator. 89 Several other holdings in the Director s opinion are also of great significance to future ownership and control determinations and challenges, including: (1) the Director s ruling that the contractor part of the ownership and control definition and the (a)(3) part of that definition (establishing an irrebuttable presumption where there is direct or indirect authority to determine the manner of mining) are mutually exclusive; (2) the Director s rejection of OSM s argument that Spur s right to collect royalty and other payments from proceeds due to B & J, off the top, showed control; (3) the finding that having an economic interest in coal to be mined by a third party was not enough, in and of itself, to establish control; (4) the approval of the IBLA s ruling that mere facilitation of operations does not constitute control of operations; (5) the Director s rejection of OSM s argument that Spur s right to receive a transfer of the mining 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. 354

APPLICANT VIOLATOR SYSTEM 11.04 B & J s operations; and (6) the Director s ruling that the existence of previous control relationships between the parties did not indicate that control existed under subsequent contracts containing different terms. 90 In reaching his conclusion that an analysis of these factors did not support a determination of control, Director Hill noted that his decision should in no way be regarded as a ruling that contract mining is exempt from regulation under AVS, because this decision could have been decided differently had OSM availed itself of the opportunity to offer credible evidence in surrebuttal to Spur s presentation.... 91 Finally, the Director provided some well reasoned clarification with respect to the burden which falls on a party attempting to rebut a presumption of control under the contractor provision. The standard of proof to rebut the presumption is a simple preponderance of the evidence. 92 The assertion of such a presumption, however, does not shift the ultimate burden of proof in the sense of the risk of non-persuasion ; this burden remains on OSM. 93 Accordingly, once a party has presented substantial evidence rebutting a presumption of control, OSM is required to submit additional evidence in the form of surrebuttal, if that is required for OSM to prevail. OSM cannot rely on merely a paper case establishing the bare elements of the contractor presumption. 94 [7] Pittston Coal Co. v. Babbitt. 95 In Pittston Coal Co. v. Babbitt, the Fourth Circuit Court of Appeals affirmed a ruling entered by Senior Judge Glen M. Williams of the Western District of Virginia, dismissing Pittston s due process challenge to OSM s application of the AVS to permit-block Pittston and its subsidiaries based on unabated violations of former Pittston contractors. Citing previous Fourth Circuit decisions, the district court found that Pittston s complaint constituted 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). 355

11.05 EASTERN MINERAL LAW INSTITUTE in the D.C. District Court under 526 of SMCRA, 30 U.S.C. 1276. 96 In a two-paragraph Order, the Fourth Circuit affirmed on the compelling reasoning of the district court. 97 The Fourth Circuit s affirmance of Judge Williams decision will make it extremely difficult for aggrieved coal companies in the Fourth Circuit (and likely elsewhere) to challenge OSM s use of the AVS on grounds other than those which are based on the improper application by OSM of its own regulations. Virtually any other type of challenge may be construed to be an indirect facial challenge to the regulation itself, which must be filed 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 has taken the position that even challenges to the application of the ownership and control regulations in particular cases represent facial attacks on the rules simply because the petitioners disagree with OSM s interpretation of those rules. 11.05. Conclusion. Although the original ownership and control rules may ultimately survive appellate review as to their facial validity, the controversy surrounding the proper scope and application of the AVS continues unabated. Unfortunately, the 1994 regulations issued by OSM promulgated for the stated purpose of providing additional due process safeguards create even more confusing procedures and standards while further entrenching OSM as the supreme authority on what the AVS will contain and how and when AVS data may be amended. Moreover, other aspects of the rules dealing with challenges to linkages prior to entry into the AVS, disclosure of presumptively related entities, and provision of violation histories will present substantial additional burdens to coal companies once they are implemented at the state level. It is likely that significant new decisions involving the use of the AVS will be issued in the near future. At the same time, there is considerable talk about the possibility of modifying and/or exporting the AVS for use by agencies such 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. 356

APPLICANT VIOLATOR SYSTEM 11.05 Protection Agency. The regulated community is well advised to keep a close eye on these developments and their effect on the structure of relationships with third-party mine operators. There is yet some hope that the judiciary will take a fresh look at this elaborate system of rules and require that amendments be made in order to reduce the tremendous costs imposed on industry and bring the rules closer to what can fairly be said to have been contemplated by the Congress which enacted SMCRA. Until then, those who find themselves unfairly enmeshed in an ownership and control dispute need to be prepared to take every available avenue to streamline the process of challenging an adverse AVS decision and to build on the few favorable decisions which have been issued in the context of specific applications of the rules. In the absence of meaningful guidance from regulatory authorities, coal mining permittees and applicants must be vigilant in monitoring potentially troublesome situations and resolute in challenging inappropriate application of the rules. 357