KRC Opposes Mining Rule Change Weakening Scrutiny Over Changes In Control of Mine Companies

April 15, 2005

Administrative Record, Room 252
Office of Surface Mining
Reclamation and Enforcement
1951 Constitution Avenue NW
Washington, D.C. 20240

Re: Docket No. 1029-AC49
Proposed Rule: Transfer, Assignment and
Sale of Permit Rights

To Whom It May Concern:

These comments are submitted on behalf of the Kentucky Resources Council, Inc., a non-profit environmental advocacy organization incorporated under the laws of the Commonwealth of Kentucky and dedicated to prudent use and conservation of the natural resources of the Commonwealth. KRC provides legal and technical assistance to individuals, organizations and local governments concerning resource extraction and beneficiation and waste disposal matters, and includes in its membership numerous individuals who reside in the coalfields of eastern and western Kentucky and who will be adversely affected and aggrieved, within the meaning of the relevant statute, if the proposed revisions to the current rules governing transfer, assignment and sale of permit rights are finalized as proposed. While the proposed rule has the announced purpose of providing greater clarity, it does not provide such clarity but instead fundamentally misapprehends Congressional intent and mandate, and substitutes new areas of doubt and uncertainty for the currently perceived lack of clarity.

Specific comments follow.

OSM's Stated Justification for The Proposed Revisions

OSM has identified as justification for revision of the rules governing transfers, assignments or sale of perm rights (TAS proposal) these grounds:

(a) that OSM agreed as part of a settlement of earlier litigation with the National Mining Association, to propose regulatory revisions clarifying the interplay between 30 CFR 774.17 and 30 CFR 774.12(c), to reconsider the provisions of 30 CFR 774.17 that were addressed in the 1998 proposed rule (but which were not finalized); and to reconsider whether a change in majority shareholder of a permittee or operator is a transfer, assignment or sale of permit rights requiring approval under 30 CFR 774.17;

(b) that the phrase "effective control" under 30 CFR 701.5 is a vague standard criticized by a single Administrative Law Judge and should be replaced by a "bright line" objective standard providing greater clarity as to the circumstances that will trigger a transfer, assignment or sale of permit rights, and which circumstances will only require an information update under 30 CFR 774.12(c).

(c) That, after 26 years of implementation of a rule adopted in 1979 that construed the phrase "successor in interest" in Section 506(b) of the Act to be a person succeeding to the rights under a permit by "transfer, assignment, or sale of permit," OSM has now concluded that the two statutory sections are distinct, and that the concept of a "successor in interest" is not coterminous with one who succeeds to the rights under a permit by "transfer, assignment or sale of permit." Instead, according to OSMRE, "[u]pon further reflection and analysis, we determined that the Act, in sections 506(b) (successor in interest) and 511(b) (transfer, assignment, or sale of permit rights), appears to treat these concepts differently and separately. Thus, we are proposing to separate the concept of successor in interest from the concept of transfer, assignment, or sale of permit rights."

Having so parsed the statute, OSM now proposes to treat succession of interest as a nonsubstantive event, to which public notice and other procedural safeguards would not attach.

The rule rests on a cloud of vapor, finding no tangible support in either the statute or legislative history on which to erect this newly discovered distinction between the phrase "successor in interest" as used in Section 506 of the Act, and the transfer, assignment and sales of permit rights under Section 511. KRC urges the agency to withdraw the proposed rule as being conceptually muddy and fundamentally inconsistent with SMCRA, and urges that the agency instead reaffirm the historic interpretation of the statutory provisions rather than substituting a new set of vague interpretive terms for those current terms that are perceived to be unclear.

THE TERM "SUCCESSOR-IN-INTEREST" DOES NOT HAVE MEANING UNDER 30 U.S.C. 1256(b) INDEPENDENT OF 30 U.S.C. 1261(b), BUT RATHER DEFINES THE PARTY THAT ASSUMES INTERESTS BY TRANSFER, SALE OR ASSIGNMENT

After 26 years of implementation of a transfer, sale and assignment rule adopted in 1979 that construed the phrase "successor in interest" in 30 U.S.C. 1256(b) of the Act to be a person succeeding to the rights under a permit by "transfer, assignment, or sale of permit," OSM has now concluded that the two statutory sections are distinct, and that the concept of a "successor in interest" is not coterminous with one who succeeds to the rights under a permit by "transfer, assignment or sale of permit" but instead has a meaning unanchored by any other provision of SMCRA.

Instead, according to OSMRE, "[u]pon further reflection and analysis, we determined that the Act, in sections 506(b) (successor in interest) and 511(b) (transfer, assignment, or sale of permit rights), appears to treat these concepts differently and separately. Thus, we are proposing to separate the concept of successor in interest from the concept of transfer, assignment, or sale of permit rights."

Having so parsed the statute, OSM reads into the statute a Congressional intent to treat succession of interest as a nonsubstantive event, to which public notice and other procedural safeguards would not attach and which is intended to be given more flexible (i.e. lax) regulatory treatment. The justification given for this newly-minted interpretation of 30 U.S.C. 1256(b) and 30 U.S.C. 1261(b) as embodying distinct concepts are that (a) the two statutory sections use different language; (b) that the Senate amendments to HR 2 disallowed permit transfers but allowed successors in interest to continue to operate on timely submittal of a bond until the successor's permit application was approved or denied, thus, according to OSM, since 30 U.S.C. 1261(b) included language allowing transfers, assignments and sales but the final version of SMCRA also kept 30 U.S.C. 1256(b), there was a Congressional intent that the two concepts be distinct.

Having thus parsed the sections, OSM concludes that "this same legislative history indicates that Congress intended for more relaxed regulatory requirements for successors in interest." Since a successor in interest is allowed to continue to operate while the application for a new permit is processed, a more relaxed approach is intended. Such a more relaxed approach is warranted, OSM concludes, since the term "successor in interest" is generally used to refer to changes in form only.

The quantum leaps of logic are staggering, as OSM crafts from thin air a new regulatory construct. Unfortunately for the agency, the statute does not admit to the reading offered, and the legislative history gives no indication of substantive differences between the House Bill, H.R. 2, and the Senate Amendment, S.7, on these matters.

We begin with the OSM assertion that the Senate Bill prohibited transfers of permits and yet contemplated successors-in-interest, from which the agency draws the conclusion that the concepts are distinct.

The agency is simply wrong, as a more careful reading of both the House and Senate bills and the respective committee reports reflects.

OSM rests the assertion that "successor-in-interest" as used in Section 506(b) of the Act must mean something different than the person who succeeds in interest under Section 511(b), since, according to the agency,

An unenacted version of SMCRA provided that

All permits issued pursuant to the requirements of this Act shall be issued for a term not to exceed five years and shall be nontransferable: Provided, That a successor in interest to a permittee who applies for a new permit within thirty days of succeeding to such interest and who is able to obtain the bond coverage of the original permittee may continue surface coal mining and reclamation operations according to the approved mining and reclamation plan of the original permittee until such successor's application is granted or denied.

S. 7, 95th Congress, 1st Session, Senate Report No. 95-128 (May 10, 1977). Thus, this version of the Act that existed just prior to enactment expressly disallowed transfers, but provided that successors in interest who applied for new permits could continue operations under the existing permit until a permitting decision was made. This language suggests a distinction between transfers and situations giving rise to a successor in interest. As enacted, SMCRA section 511(b) allows for the transfer, assignment, or sale of permit rights with regulatory approval. Thus, although Congress ultimately allowed for transfers, it retained separate language providing for successors in interest.

70 FR 3839-3850 (January 26, 2005).

Unfortunately for the agency, the attempted distinction does not hold water. First, it is inaccurate to refer to S. 7 as an "unenacted version" of SMCRA. SMCRA, as adopted by the 95th Congress and enacted into law on August 3, 1977, was a product of the House-passed bill, H.R. 2, and the Senate amendments thereto, embodied in S.7. After each chamber passed their version of the bill, the Committee of Conference met, conferred, and agreed to the final version of H.R.2. Thus, S. 7 was not an unenacted version of SMCRA, but instead represented the Senate amendments to the bill that became SMCRA through committee of conference melding of the two bills.

The House-passed bill, at Section 506(b), provided in relevant part that:

A successor in interest to a permittee who applies for a new permit within thirty days of succeeding to such interest and who is able to obtain the bond coverage of the original permittee may continue surface coal mining and reclamation operations according to the approved mining and reclamation plan of the original permittee until such successor's application is granted or denied.

H.R. Rept. 95-218, 95th Cong. 1st Sess. 20 (1977)

Section 511(b) of the House-passed bill, under the section captioned "Revision of Permits," included this subsection:

(b) No transfer, assignment, or sales of rights granted under any permit issued pursuant to this Act shall be made without the written approval of the regulatory authority.

H.R. Rept. 95-218, 95th Cong. 1st Sess. 27 (1977)

As the bill passed the House, then, both the successor in interest language in Section 506 and the requirement for prior regulatory approval of transfer, assignment and sales of the rights granted under a permit were in place.

The Senate bill S. 7, was structurally similar to the House bill since the Committee of Conference deliberations on H.R. 2 and S. 7 represented the third time that the chambers had met to confer and resolve differences on federal surface coal mining legislation. H.R. Rept. 95-493, 95th Cong. 1st Sess. 97 (July 12, 1977). There were some differences between the bills, though in this area, they were not significant.

OSM makes much of the purported distinction between the House Bill, which at Section 511(b), allowed for transfers of permits (and assignments and sales), and the Senate version, which according to OSM, did not.

However, a reading of the text of the Senate version of Section 511, numbered as Section 411 in the Senate bill, reflects that the Senate did allow for transfers, assignments and sales, including the identical language to that contained in the House-passed version, H.R. 2.

Section 411 of S. 7 provided in relevant part that:

(b) No transfer, assignment, or sale of the rights granted under any permit issued pursuant to this Act shall be made without the written approval of the regulatory authority. Thus, while OSM is correct that Section 406, the Senate version of the House-passed Section 506, contained the clause "and shall not be transferable" in the Senate version,1 the Senate amendments also contained language in Section 411(b) explicitly authorizing transfers of permits, provided that the regulatory authority approved of same. The only manner in which these two sections can be reconciled is also the only natural reading - that in Section 406 the Senate Committee intended to preclude "of right" transfers of permits, while acknowledging that a party could succeed in interest and under appropriate conditions continue to operate, pending approval of the transfer, assignment or sale under Section 411.

Since both the House and Senate versions of the bill contained explicit authorization for permit transfers, assignments and sales, the perceived intent of the Senate (and imputed intent of Congress as a whole) to use "successor in interest" to mean something other than a transferee, assignee or purchaser, evaporates. The Senate version of the bill did not completely disallow transfers, but taken together, Sections 406 and 411 disallowed automatic transfers without prior agency approval.

It is the lack of substantive difference between the two provisions that is most notable, for in explaining how the Committee of Conference melded the two bills, the conferees did not even mention the difference between the House and Senate versions of Section 506 concerning "non-transferabiltiy" even as the conferees described those distinctions they believed to be of substance and how those language differences were resolved. See: H. R. Rept. No. 95-493, 95th Cong., 1st Sess. 102 (1977). One would suspect that, if the agency is correct that the Senate viewed the language in Section 406 as a substantive difference from the House version, some mention would have been made of the supposed non-transferability of permits under the Senate bill.

Likewise, in the discussion of Section 511, the Committee of Conference noted that "[t]he House bill and the Senate amendment were quite similar[.]" Id., at 106.

In short, there is no support in the language difference between the Senate amendments and the House-passed version of the bill, for the idea that the Senate disallowed permit transfers and that, therefore, "successors in interest" must mean something other than a transferee, assignee or purchaser. Both the House and Senate Committees had included specific provisions, in Sections 506(b) and 406(b) respectively, allowing permit transfers, assignments and sales if approved by the regulatory authority.

The likely reason for deletion of the phrase in Section 406 was that it was unnecessary surplusage, given the language in Sections 411(b) and 511(b) and the provisions in Sections 406 and 506 allowing applicants to continue operations while the application for a new permit authorizing the transfer, assignment or sale was being processed. The deletion of the phrase was thought by the conferees to be of so little consequence that it was not even mentioned in the "Joint Explanatory Statement of the Committee Of Conference" produced by the conference committee as part of the Conference Report and bill adopted by both chambers.

The proposed rule, which builds on this supposed distinction to read into the law a supposed intent to "relax" regulatory requirements for successors in interest relative to transferees, assignees and purchasers, is fundamentally flawed in concept, since there is no underlying distinction between the House and Senate versions of the final bill concerning transfers, assignments and sales. Since both bills allowed such actions, provided they were approved, and since both bills used the term "successors in interest," the claimed distinction finds no support.

The creation out of whole cloth of a new distinction, unearthed by OSM after 26 years of interpreting Sections 506(b) and 511(b) in pari materia, between "substantive" changes needing approval and "changes in form only" that are purportedly nonsubstantive (and which, remarkably, include inheritance as an act which according to the preamble does not result in a change of ownership!), is but a post hoc rationalization devoid of textual support, and creating a distinction that is nowhere supported in law or legislative history but which is instead crafted in order to justify allowing certain shifts of effective control without appropriate regulatory and public scrutiny.2 The term "successor in interest" is not an independent concept under Section 506, but was intended instead by Congress to define those parties succeeding to rights under Section 511(b) through transfer, assignment or sale of permit rights.

THE PROPOSED RULE IMPROPERLY REMOVES THE CONSIDERATION OF EFFECTIVE CONTROL AS A FACTOR, IN DEROGATION OF SECTION 510(B) AND IMPROPERLY PROPOSES TO ALLOW CLASSES OF TRANSFERS, ASSIGNMENTS AND SALES OF RIGHTS TO AVOID REGULATORY AND PUBLIC SCRUTINY

One wonders, on reading the preamble discussion purporting to justify the elimination of the concept of "effective control" that has been part and parcel of the rules for decades, and reading that OSM has invited comment on whether the transfer and sale of entities holding permit rights (as opposed to the transfer or sale only of the rights themselves), whether the agency has developed an institutional amnesia concerning the pattern of subterfuge undertaken by many coal companies in the 1970's and 1980's, when various exemptions of the law were abused through the use of "front" or shell permittees under the effective control of ineligible companies. Without belaboring the matter, the removal of "effective control" from the definition of "successor in interest" is unlawful and inconsistent with Section 510 of SMCRA, which requires evaluation of ownership and control. When the agency reconsiders the matter in light of the absolute lack of textual support for the purported independence of the "successor in interest", effective control should be reinstated or some more substantial and lawful basis than the desire for "bright lines" must be found. Additionally, transfers of effective control or ownership of entities holding permits falls squarely within the concept of transfers, assignments and sales of permit rights, since a transfer of effective control or ownership of necessity confers the rights to the permits held by the former entity. To suggest that indirect transfers of those rights through acquisition of the companies holding the permits are outside of the intended scope of Section 511(b) is to engage in pure sophistry in derogation of the intent of Congress to scrutinize carefully the history and commitment of the permittee and its principals.

For the reasons stated herein, KRC respectfully demands that the agency withdraw the proposed rule and reaffirm the prior rules defining successor in interest as a party succeeding in rights under a permit through transfer, assignment or sale; and defining transfer, assignment and sale to include transfers of effective control and acquisition of the entities holding the permit rights.

Thank you for your consideration of these concerns.

Cordially,

 

Tom Fitzgerald Director

1 Section 406 was otherwise identical to the House version in reading that:

All permits issued pursuant to the requirements of this Act shall be issued for a term not to exceed five years and shall not be transferable: Provided, That a successor interest to a permittee who applies for a new permit within thirty days of succeeding to such interest and who is able to obtain the bond coverage of the original permittee may continue surface coal mining and reclamation operations according to the approved mining and reclamation plan of the original permittee until such successor's application is granted or denied. (Emphasis added)

S. Rept. No. 95-128, 95th Cong., 1st Sess. 15 (May 9, 1977)

2 The agency also grounds the new concept of successor in interest signifying a non-substantive change in form on "our research of State and Federal definitions of the term and rules applying the term[.]" The interpretation of the relationship between Sections 506 and 511 and the meaning of the various terms is not illuminated by what other laws may provide, but rather by the legislative history and context in which the term is here used. The agency had it right in 1979 and for the intervening 26 years in determining that the successor-in-interest was that person succeeding to permit rights under a prior-approved transfer, assignment or sale, and in defining "successor in interest" so as "to insure for consistency with the use of the term "transfer sale or assignement (sic) of rights[.]" 44 Fed. Reg. 15106 (March 13 1979).

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