These comments are submitted on behalf of the Kentucky Resources Council, Inc. regarding the proposed rulemaking to revise numerous regulations that govern how the Office of Surface Mining Reclamation and Enforcement (“OSM”) and state regulatory authorities acting under to the Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. §§ 1251-1328 (“SMCRA”), collect information from permit applicants; determine ownership and control of surface coal mining operations under Section 510(c) of SMCRA; regulate transfers, assignments, or sales of mining permits; and pursue alternative enforcement under SMCRA. These comments are submitted in response to the publication of a notice in the Federal Register inviting the submission of comments on certain proposed regulatory changes until 4:30 p.m., Eastern Time, on December 11, 2006. 71 Fed. Reg. 59,592-612 (Oct. 10, 2006).
The Kentucky Resources Council, Inc., is a non-profit environmental advocacy organization whose membership includes numerous individuals and organizations across the Commonwealth of Kentucky who share a common interest and concern for environmental responsibility, and conservation of natural resources. Council members include individuals who reside, work, live or recreate in areas affected by surface coal mining operations, and who have been adversely affected and aggrieved within the meaning of the law, by the failure of mining operators and those who control or own their operations, to properly reclaim surface and underground mining operations. To the extent that the proposed regulatory revisions would: (1) weaken protections that Congress intended to afford the public and the environment under SMCRA, (2) undercut state law requirements where those state provisions exceed federal requirements, (3) allow those who own or control mining entities to establish or continue sham business arrangements in order to conduct mining operations in a manner inconsistent with the policy and letter of Section 510(c) of the federal Act or other provisions of SMCRA, or (4) allow those who acquire mining permits through transfer, assignment, or sale to conduct surface coal mining and reclamation operations prior to the lawful approval of such transactions by the appropriate SMCRA regulatory authority, the Kentucky Resources Council, Inc., and its membership would be aggrieved and injured by their promulgation in a final rulemaking.
These comments are also submitted by Citizens Coal Council on behalf of its membership. The Citizens Coal Council is a national federation of 48 grassroots groups dedicated to protecting their homes, water, communities and environment from coal mining damage and to winning social and environmental justice in the coal fields. Citizens Coal Council members live in 21 coal-producing states and the Navajo Nation. To the extent that the proposed regulatory revisions would: (1) weaken protections that Congress intended to afford the public and the environment under SMCRA, (2) undercut state law requirements which exceed federal requirements, (3) allow those who own or control mining entities to establish or continue sham business arrangements in order to conduct mining operations in a manner inconsistent with the policy and letter of Section 510(c) of the federal Act or other provisions of SMCRA, or (4) allow those who acquire mining permits through transfer, assignment, or sale to conduct surface coal mining and reclamation operations prior to the lawful approval of such transactions by the appropriate SMCRA regulatory authority, the Citizens Coal Council and its membership would be aggrieved by their promulgation in a final rulemaking.
A. The Absence of Reasoned Analysis or Lawful Purpose for Any of the Proposed Regulatory Changes.
On December 19, 2000, OSM promulgated a comprehensive overhaul of the regulations that govern application and permit information requirements, permit eligibility, definitions of ownership and control, the Applicant/Violator System (“AVS”), and alternative enforcement action under SMCRA. That rulemaking grew out of OSM’s accumulated experience in implementing Sections 507, 510(c), and 521 of SMCRA since the statute’s enactment. In its December 19, 2000, rulemaking, OSM fully considered – and conformed the new regulations to satisfy – the teachings of two decisions of the United States Court of Appeals for the District of Columbia Circuit which upheld in part and vacated in part the agency’s earlier rulemaking on the subjects in question: National Mining Ass’n. v. Department of the Interior, 105 F.3d 691 (D.C. Cir. 1997) (“NMA v. DOI I”), and National Mining Ass’n. v. Department of the Interior, 177 F.3d 1 (D.C. Cir. 1999) (“NMA v. DOI II”).
Before promulgating the December 19, 2000, regulations in final form, OSM sought and obtained extensive public comment on all aspects of the subjects it proposed to address. Public participation efforts included: (1) publication of an advance notice of proposed rulemaking followed by seven public meetings and receipt of initial written comments from interested parties, (2) publication of a formal notice of proposed rulemaking, and (3) the reopening of the public comment period on four separate occasions. 65 Fed. Reg. 79,584 (Dec. 19, 2000). In all, this effort yielded 103 comment documents from numerous coal companies, environmental organizations and advocates, governmental bodies, and private citizens. Id.
After considering the comments received, the pertinent judicial decisions, the text and legislative history of SMCRA, and more than twenty years of agency experience in implementing the pertinent statutory provisions, OSM promulgated the comprehensive and coordinated set of regulations that appear in the notice of final rulemaking published at 65 Fed. Reg. 79,581-79,672. In the preamble to the final rulemaking, OSM carefully presented and, in the exercise of considered agency judgment and discretion, either accepted or rejected comments received from the public, including numerous coal companies and the National Mining Association (“NMA”), a leading coal industry trade association.
As predictably as night follows day, NMA commenced an action in the United States District Court for the District of Columbia for judicial review of a numerous aspects of OSM’s final rulemaking. National Mining Ass’n. v. Office of Surface Mining, No. 01-366 (D.D.C.). Briefly put, NMA challenged a number of OSM decisions that rejected statutory interpretations or policy choices which NMA or other coal industry parties had recommended in their comments on OSM’s proposed rulemaking. No other party interested in the rulemaking sought judicial review.
Instead of defending the statutory interpretations and policy choices that OSM made after thorough and careful consideration of the views of ALL interested parties, the agency “settled” NMA’s judicial review action by agreeing to propose numerous radical revisions to the balanced, comprehensive regulatory scheme the agency established in December 2000. OSM first implemented its agreement with NMA by proposing specific regulatory amendments on December 29, 2003. As the preamble to that proposal made clear, however, the agency did not believe that SMCRA requires or would be best implemented by many, if indeed any, of the proposed revisions. See, e.g., 68 Fed. Reg. 75,037 (explaining that persons who fall within the examples of control that OSM proposes to remove from the regulations are either “almost always” or “often” controllers and that earlier preamble discussion of the examples “remains instructive”); 75,038 (explaining that OSM does not necessarily agree with NMA’s analysis upon which a proposed revision rests).
OSM’s ostensible reason for this astonishing collapse was the misguided, entirely frivolous notion that such a settlement with one interested party might “introduce regulatory stability” and bring to an end the “ongoing cycle of litigation” between OSM, state regulatory authorities, NMA, and environmental organizations. Id. at 75,036. Although the settlement did, by definition, bring an end to NMA’s judicial review action against OSM, the agency knew full well that if it promulgated the proposed revisions it would almost certainly face these Commenters’ action for judicial review. Conversely, if OSM were to exercise is supposedly reserved discretion to refuse to finalize the proposed revisions, the agency almost certainly would face a renewed judicial review action on the part of NMA. If OSM were to “split the baby” it would likely succeed only in multiplying serial judicial review actions concerning its ownership or control rulemaking efforts.
After withholding final agency action on the December 29, 2003, rulemaking proposal for more than two and half years, OSM re-proposed most of the measures in its October 10, 2006, rulemaking notice. That notice also informed the public that OSM had modified or abandoned a few of its December 29, 2003, proposals. In the same notice, OSM informed the public that it had decided to re-propose certain regulatory changes affecting the way that the agency governs transfers, assignments, or sales of permits, and to combine that re-proposal with its re-proposal of changes to regulations concerning ownership or control.
To the extent that OSM has carried over its proposal to promulgate certain changes to the December 19, 2000, ownership or control regulations, settled law requires that “an agency changing its course by rescinding a rule is obligated to supply a reasoned analysis for the change beyond that which may be required when an agency does not act in the first instance.” Motor Vehicle Mfrs. Ass’n. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 42 (1983). In the absence of changed circumstances or significant new experience established in an administrative record, an agency’s mere desire to settle litigation challenging the promulgation of a rule does not constitute a reasoned basis for proposing to adopt statutory interpretations or policy choices that the agency thoughtfully considered and rejected during the rulemaking process. This is especially the case where, as here, the agency makes clear that it does not endorse the proposed changes as better interpretation of the statute at issue or as better policy choices. See, e.g., 68 Fed. Reg. at 75,037-038; 71 Fed. Reg. at 59,594-95.
NMA’s judicial review action raised no issue that OSM had not thoroughly considered in the December 2000 final rulemaking. The dissatisfaction of a regulated industry with a particular regulation “hardly constitutes cause to revoke [the rule] itself,” particularly where, as with SMCRA’s ownership or control regulations, the regulated industry has long “waged the regulatory equivalent of war . . . and lost.” Motor Vehicle Mfrs. Ass’n. v. State Farm Mut. Automobile Ins. Co., 463 U.S. at 49.
Moreover, OSM’s current rulemaking proposal does not, for the most part, attempt to justify revising the December 2000 rules to accommodate changed circumstances or newly learned lessons gleaned from implementation of SMCRA or the December 2000 rules themselves over the ensuing six years. The uneventful passage of six years, without more, simply does not constitute a reasoned basis for rescission or revision of the regulations that NMA challenged.
Accordingly, with the single exception set forth in Section G below, Commenters oppose the promulgation of any of the revisions to ownership or control regulations set forth in OSM’s December 29, 2003, notice of proposed rulemaking and carried over – whether unaltered or in modified form – by OSM’s October 10, 2006, Federal Register notice. Simply put, OSM has failed – both in 2003 and in its current re-proposal – to present a reasoned analysis or identify lawful reasons for changing its ownership or control regulations.
B. Inadequacy of the Administrative Record Regarding Settlement of NMA’s Judicial Review Action or Potential Agency Prejudgment of the Issues in the Proposed Rulemaking.
Whenever an agency agrees to propose regulatory changes as a quid pro quo for dismissal of litigation, the agency is obligated to lay before the public the actual basis of the rulemaking proposal – the settlement agreement and all agency correspondence with outside parties in the negotiation and execution of the settlement. Such disclosure is necessary not only to inform the public of the reasons and process that underlie the rulemaking proposal but also to support any assertion that the agency has not agreed to promulgate the proposed regulations and therefore has not prejudged the outcome of the agreed rulemaking. See 68 Fed. Reg. 75,037; 71 Fed. Reg. 59,593.
Accordingly, Commenters request that OSM place in the administrative record of this proposed rulemaking: (1) the settlement agreement between OSM, the Department of Justice, or both, and NMA, (2) every preliminary draft of that settlement agreement that circulated between OSM , the Department of Justice, and NMA or NMA’s attorneys, (3) every item of correspondence regarding the settlement or this rulemaking (including but not limited to messages transmitted by electronic mail or similar media) between OSM or the Department of Justice, on the one hand, and NMA or NMA’s attorneys, on the other hand, and (4) every note or memorandum of pertinent communication between OSM or the Department of Justice, on the one hand, and NMA or NMA’s attorneys, on the other hand. Because personnel at the Department of the Interior have, during time pertinent to this rulemaking, been unable to send or receive e-mail through Government channels, Commenters request that the Secretary of the Interior take sufficient action to ensure that copies of any and all e-mail messages between Interior personnel and NMA personnel or NMA attorneys transmitted through non-Governmental channels are included in the administrative record. Once the administrative record is fully supplemented with all of the above materials, Commenters request that OSM so advise the public and reopen the public comment period to solicit further comment regarding any actual basis in this rulemaking or any possible agency prejudgment of its outcome.
COMMENTS ON SPECIFIC PROPOSED REGULATORY REVISIONS
In addition to the general comments above, and without abandoning their opposition to promulgation of all but one of OSM’s proposed regulatory revisions based on the absence of a reasoned analysis or lawful purpose, and are thus unlawful, Commenters oppose the following specific proposed regulatory revisions for the reasons stated:
A. Rescission of the Examples of Control Relationships and Other Aspects of the Current Regulatory Definition of “Control or Controller.”
Based in part on planned rescission of the requirement that permit applicants identify all of their controllers, OSM proposes to collapse the definition of “control or controller” into: (1) the permittee, (2) each operator of a surface coal mining operation, and (3) “any other person who has the ability to determine the manner in which a surface coal mining operation is conducted.” See 71 Fed. Reg. 59,594 (“our proposed revision of the definition of control or controller is coupled with a proposal to remove the requirement to list all controllers in a permit application”); 59,610 (setting forth the definition as OSM proposes to revise it). Because indirect control, control in concert, and each specific example of control relationships set forth in the existing regulatory definition other than permittee and operator supposedly fall within the language that OSM proposes as the third part of the revised definition, and because OSM no longer intends to require permit applicants to identify all controllers, the agency apparently believes it unnecessary to continue to provide the specific examples of control relationships other than permittee and operator. 71 Fed. Reg. 59,594 (“we propose to remove [most specific control or controller examples] from the regulatory text in order to simplify the definition”). In proposing these changes, however, OSM repeatedly makes clear that it continues to believe that each of the specific relationships it proposes to delete from the definition is either “almost always” or “often” sufficient to establish that a person bearing such relationship to a permittee is a “controller” of the permittee’s surface coal mining operation. Id. Thus, OSM continues to point to its December 2000 preamble discussion of the examples it proposes to delete as “instructive,” even as it eliminates the examples themselves from the regulatory definition. Id., citing 65 Fed. Reg. 79,598-600.
The sole rationale that OSM states for rescinding much of the current definition of control or controller is the same rationale the agency gives for rescinding the requirement to list all of a permit applicants’ controllers: OSM prefers to establish a “bright line,” “objective” standard for permit information that an applicant must submit. 71 Fed. Reg. 59,594. OSM asserts that “this proposal would greatly reduce any uncertainty or subjectivity associated with the relevant permit information disclosure requirements.” Id.
For the reasons stated more fully in the Section E below, OSM’s proposal to rescind the requirement that a permit applicant list all of its controllers lacks proper foundation, contravenes the agency’s statutory mandate, and thus may not be lawfully promulgated as a final rule. Because the agency’s related proposal to rescind much of the current regulatory definition of control or controller rests upon the same rationale, it is defective for the same reasons.
However, even if OSM had a proper basis to rescind the requirement to list all controllers in each permit application – which it does not – accomplishing that goal would neither require nor justify any change in the definition of control or controller. As a purely mechanical matter, OSM may do away with the requirement to list controllers without changing the definition of control or controller. Once a permit applicant is freed from the duty to list controllers, the manner in which OSM defines the term is irrelevant to the permit application information requirements. Therefore, even if removing the requirement to list all controllers were a permissible agency action at this juncture – again, which it is not – doing so would not justify truncating the definition of control or controller as OSM proposes.
OSM’s only other asserted justification for changing the definition of control or controller is the perceived need to “give regulatory authorities the flexibility they need to enforce the Act.” OSM does not explain how the same general test for control or controller found in the current regulatory definition (“Any other person who has the ability . . . to determine . . . the manner in which a surface coal mining operation is conducted”), standing alone, can possibly provide regulatory authorities with greater flexibility when shorn of the amplifying phrases and specific examples set out in the current regulation to ensure that the general standard is more evenly, equitably, and broadly applied across the Nation. Nowhere does OSM contend that the portions of the current regulation that the agency proposes to remove have in any way restricted the flexibility of regulatory authorities to identify as controllers any person who would be swept within the proposed definition. Certainly, OSM offers no evidence that such a restriction of regulatory flexibility has in fact occurred. On the other hand, OSM’s preamble discussion repeatedly emphasizes that the proposed abbreviation of the rule will not limit its sweep. 71 Fed. Reg. 59,594 (“we stress that all of these persons [identified in removed categories or specific examples] may still be controllers”).
Because the proposed definition would neither add nor detract from the sweep of the current definition, OSM’s implication that the proposed definition would give regulatory authorities any more “flexibility” in determining who controls a surface coal mining operation lacks a rational basis. On the other hand, if OSM actually construes the proposed definition to sweep more broadly or narrowly than the current definition, the agency has failed to say so explicitly or to explain either its reading of the proposed text or the policy reason or reasons for expanding or narrowing the definition’s reach.
OSM’s proposal to truncate the control or controller definition also runs afoul of the fact that OSM promulgated the current definition six years ago based on well-supported findings that all of its elements were necessary to allow the agency to implement SMCRA effectively. In December 2000 OSM stated that:
We agree that the definitions of “own, owner, or ownership” and “control or controller” stand alone, but the examples are useful for both the regulated industry and regulatory authorities to consider in determining who may be controllers under paragraph (5) of the final definition of control. We derived the examples from our experience in implementing SMCRA since 1977 and from comments received on the proposed rule. We see no reason not to pass on the benefit of our experience, via the examples of control, to persons who have responsibilities under this final rule.
65 Fed. Reg. 79,599.
OSM has established no facts that contradict the justification for the regulatory definition that the agency promulgated in December 2000. OSM has presented not a single cogent reason for removing any of the examples set forth in the current regulation. Indeed, quite to contrary, OSM has gone to great lengths to assure all concerned that the abbreviated regulation it now proposes will classify persons as controllers to precisely the same degree and for precisely the same reasons as the existing regulation. See 71 Fed. Reg. 59,594 (stating that the proposed definition, like the current one, (1) “would still allow the regulatory authority to reach any person or entity with the ‘ability’ to determine the manner in which a surface coal mining operation is conducted,” (2) “could encompass indirect and direct control, as well as control in concert with others,” and (3) would create a legal standard under which “all of the persons (in relationships described by the examples contained in the current regulatory definition) may still be controllers” (emphases supplied).
Because the proposed change in the definition of “control or controller” is not necessary to accomplish OSM’s goal of rescinding the requirement to identify all of a permit applicant’s controllers, and because the proposed revision of the regulation is not meant to alter in any respect the persons who are or are not determined to be a permit applicant’s controllers, OSM has proposed to perform a useless act. Commenters oppose this pointless exercise as entirely arbitrary and capricious.
Commenters further object to OSM’s disingenuous assertion that removing the phrases “alone or in concert with others” and “indirectly or directly” from the definition will not ultimately affect the ability of OSM or state regulatory authorities to identify as controllers persons who have the ability to determine the manner in which a surface coal mining operation is conducted. This is particularly the case when a specific individual’s “ability to determine” may only be exercised indirectly, in concert with others, or both. The law will not easily accept the proposition that OSM means no change in redacting the pertinent phrases from the text of the regulation, even if OSM asserts that is the case in its regulatory preamble. For that reason, OSM’s proposal to change the words of the regulation without changing its substance or effect constitutes as unwarranted risk that regulatory personnel, the courts, or both will impute unintended meaning to the action that OSM has proposed. Thus, to ensure the viability of OSM’s continued intent to allow regulatory authorities to find control wherever individuals exercise it in concert with others, indirectly, or both, OSM must decline to promulgate its proposed revision of the definition of control or controller.
B. Rescission of the Requirement That Regulatory Authorities Identify as “Owners” All Persons Possessing or Controlling in Excess of 50 Percent of the Voting Securities or Other Instruments of Ownership of an Entity.
OSM proposes to remove from the regulatory definition of “own, owner, or ownership” the class of persons “possessing or controlling in excess of 50 percent of the voting securities or other instruments of ownership of an entity.” 71 Fed. Reg. 54,595, 54,610. In its place, OSM proposes to include the class of persons “owning of record” the same amount of voting securities or other ownership instruments. Id. OSM asserts that “[t]his proposed revision . . . would not change the substance of the definition of own, owner, or ownership. Id.
OSM’s assertion is manifestly incorrect. Not all persons “possessing” or “controlling” ownership certificates are “owners of record.” As OSM noted in its December 2000 regulatory preamble accompanying the promulgation of the current definition:
We added the term “controlling” based on the reality that sometimes persons who do not technically own stock (or other instruments of ownership) nonetheless have the ability to control the stock, either by holding the voting rights associated with the stock or other arrangement with the owner of record.
65 Fed. Reg. 79,595.
This cogent observation demonstrates the clear error of OSM’s assertion that the proposed change to the regulatory definition would not change its substance. Because OSM has not provided a factual basis or reasoned analysis supporting rescission of the requirement that regulatory authorities recognize as “owners” all persons (other than “owners of record”) “possessing or controlling” in excess of 50 percent of an entity’s ownership instruments, promulgation of the proposal as a final rule would be arbitrary and capricious and therefore unlawful. C. Limitation of the Downstream Reach of the Definition of “Own, Owner, or Ownership”
OSM proposes to limit the “downstream” reach of the regulatory definition of the term “own, owner, or ownership” to “one level down,” so that regulatory authorities would recognize only those entities that a permit applicant directly owns and not those that the applicant’s subsidiaries own. 71 Fed. Reg. 59,595. OSM notes that “we do not necessarily agree with NMA’s analysis” that underlies the proposed regulatory revision and that “we do not believe this approach is compelled by SMCRA or the decision in NMA v. DOI II.” Id. Nonetheless, contrary to previous agency decisions on the subject, OSM now asserts that the proposed restriction on the reach of the regulatory definition “is a reasonable interpretation of the Act.” Id. OSM asserts that the proposed revision “will not impair our ability to adequately enforce section 510(c) of the Act” because “we may continue to consider violations at “downstream” operations, as long as there is control by the applicant.” Id. (emphasis supplied).
OSM’s proposed limitation of a regulatory authority’s downstream reach under the definition of “own, owner, or ownership”: (1) rests upon yet another glaring error of statutory and regulatory interpretation, (2) lacks any factual basis or reasoned analysis, (3) contradicts OSM’s earlier interpretation of SMCRA, and (4) betrays rather than implements the remedial purpose underlying the statutory mandate to withhold mining permits from applicants who own entities responsible for uncorrected regulatory violations. In OSM’s regulatory preamble to the December 2000 rulemaking, the agency correctly decided that:
an applicant’s ownership of an operation with a current violation, standing alone, renders the applicant ineligible for a permit under section 510(c) of the Act, 30 U.S.C. 1260(c) . . . section 510(c) requires permit denials when the applicant either owns or controls an operation with current violations.
65 Fed. Reg. 79,595 (emphasis in bold supplied; emphasis in italics in the original).
OSM went on to emphasize that:
a regulatory authority need not demonstrate actual control to deny a permit based on our definition of ownership.
Id. at 79,596.
See also id. at 79,595 (“Mere ownership, without control, can provide a basis for a permit denial. As such, a person who is an owner under the definition we adopt today cannot successfully challenge such ownership by demonstrating a lack of ability to control.”)
OSM’s earlier pronouncements highlight the interpretative error that underlies the agency’s current proposal - it is manifestly incorrect to rely upon the ability of regulatory authorities to follow control limitlessly downstream as justification for limiting the downstream reach of regulatory authorities under the definition of “own, owner, or ownership.” To begin with, ownership is more easily established than control. See id. at 79,596 (“Our final definition of ‘own, owner, or ownership’ comprises only two specific circumstances, which always constitute ownership. . . If the predicate facts are true, then the person is an owner”). Thus, at a minimum, the proposed regulation will make it more time consuming, costly, and uncertain for regulatory authorities to pursue links between applicants and remote downstream subsidiaries who are responsible for uncorrected regulatory violations.
More alarmingly, however, the proposed revision of the “own, owner, or ownership” definition would, if finalized, make it impossible for OSM or state regulatory authorities to deny permits to applicants that own subsidiaries responsible for uncorrected violations, where regulators cannot establish the applicant’s actual control of the subsidiary. Because Congress intended to block owners as well as controllers from receiving permits in such situations, see, e.g., id. at 79,594 (“section 510(c) requires permit denials when the applicant either owns or controls an operation with current violations”), OSM’s proposed revision would unquestionably impair the ability of regulatory authorities to implement the remedial purpose of Section 510(c) as Congress intended.
The proposed rulemaking now before the public does not acknowledge the potentially devastating effect that changing the definition of “own, owner, or ownership” would have on the ability of SMCRA regulatory authorities to do the work that Congress intended. OSM has not even attempted to show that, in its experience to date, permit applicants may always be shown to control every one of their indirect subsidiaries. Even if OSM could do so, the prospect of that the opposite situation might occur in the future would render the proposed regulatory revision inconsistent with Section 510(c).
Moreover, OSM has failed to present a reasoned analysis explaining why the proposed regulatory change is warranted and is consistent with the agency’s statutory obligations. As stated earlier in these comments, the mere wish to avoid a pending lawsuit, without more, does not constitute sufficient justification to abruptly reverse agency policy. That principle is all the more applicable where, as here, policy change would only spawn new litigation to replace the lawsuit that the agency has avoided.
An agency truly concerned with implementing its statutory mandates would not propose, let alone finalize, a regulatory revision that restricts its ability to do the work Congress has entrusted it to do. Commenters urge OSM to abandon its proposal to limit the downstream reach of the regulatory definition of “own, owner, or ownership.”
D. Redefinition of “Transfer, Assignment, or Sale of Permit Rights” to Reach Only Changes of Permittees.
OSM proposes to redefine the term “transfer, assignment, or sale of permit rights” to exclude changes in “effective control” of an existing permittee and thus to include only a change in the entity which actually holds a particular mining permit. 71 Fed. Reg. 59,595-96. OSM grounds this proposal in an administrative law judge’s decision that: (1) changes in a corporation’s roster of officers and directors do not automatically establish changes in control of the corporation, and (2) that the term “effective control,” as used in OSM’s current regulation governing transfer, assignment, or sale of permit rights is “vague and imprecise,” fails to establish a meaningful standard, and fails to provide advance notice to a regulated entity of corporate changes that do constitute a transfer, assignment, or sale of permit rights. Id.
OSM’s proposal is inconsistent with SMCRA because it provides a clear avenue for circumventing Section 510(c). An individual who owns or controls a surface coal mining operation that is in continuing violation of SMCRA or an implementing program might, under OSM’s proposed regulation, continue to mine without regard to Section 510(c) of SMCRA simply by assuming control of an entity that has previously obtained a mining permit. That entity may have been truly separate from the tainted individual at the time of permit issuance, or it may have been a “straw man” which the tainted individual created for the purpose of circumventing Section 510(c). Either way, the change that OSM proposes would leave regulatory authorities powerless to enforce Section 510(c) to prevent the tainted individual from continuing to conduct surface coal mining operations while his or her previous violations of SMCRA go unremedied.
The fact that not every change in a corporation’s officers or directors may constitute a change in control of the corporation does not justify abandoning the agency’s duties under the current regulation: (1) to ascertain which changes of officers or directors (or other transactions) do constitute changes of corporate control, and (2) to govern such transactions as transfers, assignments, or sales of permit rights. Only in this way may OSM and the States properly implement both Section 510(c) and Section 511(b) of SMCRA.
The criticisms of the current regulatory standard contained in the administrative law judge’s decision cited in OSM’s proposed rule are, to begin with, entirely ultra vires. OSM is surely aware that the Office of Hearings and Appeals is not authorized to review the validity of the Secretary’s regulations or to shrink from applying them fully. Moreover, decisions of administrative law judges are not precedent and do not necessarily constitute legal interpretations of the Office of Hearings and Appeals as a whole.
If OSM’s point in citing the decision of the administrative law judge is that the agency has come to agree with his view of the shortcomings of the current regulation, the only appropriate remedy for imprecise phrasing of the concept underlying “effective control” is replacement of that term with a more precise and detailed description of the corporate changes that, in OSM’s view, constitute a transfer, assignment, or sale of permit rights. Abandoning a duty that SMCRA effectively requires OSM to perform is never a proper response to the difficulties that that duty may impose on the agency.
E. Rescission of the Requirement That Permit Applicants Identify All Owners and Controllers.
The apparent lynchpin of the revisions OSM currently proposes is rescission of the current regulatory requirement that each applicant for a mining permit under SMCRA or any approved state regulatory program identify, and that the regulatory authority review, information on each person who owns or controls the applicant. 30 C.F.R. §§ 773.10(b), 778.11(c)(5) and (d). In place of the current requirements, OSM proposes to require disclosure and review of only the minimum applicant information that Sections 507(b) and 510(c) of SMCRA specify. 71 Fed. Reg. 59,597 and 59,602-03.
OSM proposes this rollback in information requirements because the agency believes “it is important to establish ‘bright line’ objective permit information requirements.” 71 Fed. Reg. 59,603. Because OSM intends to continue to define the term “control or controller” to include each “person who has the ability to determine the manner in which a surface coal mining operation is conducted,” id. at 59,610, the agency opines that “it is difficult to impose an objective reporting requirement based on that type of definition.” Id. (emphasis supplied). Finally, OSM professes confidence that “the disclosure requirements at sections 507(b) and 510(c) of the Act, as implemented in our regulations at 30 C.F.R. 778.11, 778.12, and 778.14 will give regulatory authorities information sufficient to enforce the ownership and control provisions of the Act.” Id.
OSM may not lawfully promulgate a final rule rescinding the current requirement that permit applicants identify each of their owners and controllers. As OSM has made crystal clear in earlier rulemaking on the subject, failure to obtain information on each of a permit applicant’s owners and controllers would handicap, if not preclude, enforcement of SMCRA. OSM’s unexplained and unsubstantiated desire to establish “bright line,” “objective” permit information requirements would wrongly sacrifice the agency’s effective performance of its statutory mandate merely to make the regulated community’s workload a bit lighter. In promulgating its December 29, 2000, regulatory amendments, OSM properly rejected industry complaints that the requirement to identify all owners and controllers is unauthorized, unnecessary, and unduly burdensome. OSM cogently explained that:
SMCRA’s information requirements at section 507(b), 30 U.S.C. 1257(b), “are not exhaustive,” and OSM may require the submission of additional information “needed to ensure compliance with the Act.” NMA v. DOI II, 177 F.3d at 9 . . . As explained elsewhere in this preamble, the ownership and control information we require applicants to submit pursuant to final § 778.11 (c)(5), (d), and (e) is necessary to enforce both section 510(c), and other provisions of the Act.
65 Fed. Reg. 79,599 (emphasis supplied).
Earlier in the same preamble, OSM emphasized that:
the information required by the Act and this final rule [concerning the entities that control a permit applicant] is pertinent to other statutory obligations beyond permit eligibility determinations, such as enforcement actions, including individual civil penalty assessments.
Id. at 79,597.
Underscoring the broad utility of information identifying all of a permit applicants’ owners or controllers, OSM went on to point out that:
While we cannot use all of the information we obtain under this rule to make permit eligibility determinations under section 510(c) of the Act, 30 U.S.C. 1260(c), we are expressly required to obtain some of the information under section 507 of the Act, 30 U.S.C. 1257. Other information we obtain is necessary to enforce other aspects of the Act. The information we require will allow us and regulatory authorities to implement the purposes of the Act, including permitting, compliance, and enforcement provisions.
Id. at 79,608 (emphasis supplied). In its current rulemaking proposal, OSM has not so much as acknowledged its prior position, taken consistently at least since 1988, that identification of each permit applicant’s owners and controllers is necessary to allow OSM and state regulatory authorities to enforce SMCRA effectively. Indeed, it is inconceivable that allowing permit applicants to keep secret the identity of many, if not most, of those who have “the ability, alone or in concert with others, to determine, indirectly or directly, the manner in which a surface coal mining operation is conducted” would advance any of SMCRA’s purposes. If OSM believes to the contrary, however, the agency is obligated to provide a reasoned analysis of why rescinding the current permit application requirement would assist the agency and its State counterparts to better enforce SMCRA. OSM is further obligated to present a full, fairly-constructed factual record which demonstrates that, contrary to agency’s experience prior to December 2000, collecting the information in question has subsequently proven unnecessary to enforcement of SMCRA. OSM must communicate such analysis and its factual basis to the public, and the agency must subsequently allow the public to address OSM’s basis and rationale in additional comments, prior to finalizing the proposed regulation.
In any event, OSM’s stated rationale for rescinding the requirement to identify all owners and controllers is completely inappropriate. In adopting the existing permit information requirements in December 2000, OSM specifically decided that:
It is appropriate to require applicants to disclose their owners and controllers in the first instance, based on the definitions of own, owner, or ownership and control or controller we are adopting today in final § 701.5. These definitions are sufficiently clear to put applicants on notice of the information which is required in a permit application.
65 Fed. Reg. 79,612 (emphasis supplied).
Indeed, it is pure sophistry to assert that any entity which proposes to conduct and reclaim surface coal mining operations would find it “difficult” to identify each person who “has the ability, alone or in concert with others, to determine, indirectly or directly, the manner in which a surface coal mining operation is conducted.”
Certain elements of the coal industry have proven very adept at masking the identity of those who control surface coal mining operations. That skill is the principal reason that OSM has always included a form of the current general, functional definition of “control or controller” so as to enable regulatory authorities to follow control in whatever unconventional direction it may lead.
The necessity of defining “control” in general, functional terms hardly means that permit applicants do not know or cannot readily identify all of their controllers. Those in charge of any responsible business entity must, entirely for their own purposes, know and readily be able to identify every person who has the ability to determine the manner in which that entity conducts its business. A business entity that cannot do so is by definition subject sudden, unaccountable shifts management direction at the hands of unknown persons pursuing unknown ends. Such an entity would likely find it “difficult” to comply with any law or to produce the return that legitimate, above-board investors in a business enterprise universally expect. Indeed, any permit applicant who finds it “difficult” to identify each person who has the ability to determine the manner in which applicant will conduct surface coal mining operations has simply not organized its management structure adequately to merit a permit to mine coal.
Similarly, any entity competent to conduct surface coal mining and reclamation operations consistently with SMCRA’s regulatory requirements is certainly capable of identifying “[t]he natural person with the greatest level of effective control over the entire proposed surface coal mining operation,” thereby complying with current 30 C.F.R. § 778.11(d). Contrary to NMA’s litigating position, nothing in this requirement even remotely impinges on the right to avoid self-incrimination. Nor is the term impermissibly vague – every entity conducting surface coal mining operations must make decisions on how to do so, and the current regulation simply requires identification of the person who, when necessary, exercises final decision making authority. The fact that the identity of that person may change over time at any given operation does not justify eliminating the requirement to report the identity when applying for a permit (or to update the identity when it changes). Because none of OSM’s purported justifications for the proposed change establishes a rational basis for eliminating this useful information requirement, OSM may not properly adopt it.
In sum, OSM has not established a lawful basis for its proposed rescission of the requirements at 30 C.F.R. §§ 773.10 and 778.11(c)(5) and (d) that each permit applicant identify, and OSM review information on, every person who owns or controls the applicant or any of the applicant’s operators, including principal controllers. The information in question is, as OSM has repeatedly asserted in the past, necessary to the effective implementation of SMCRA and state programs approved under that statute. OSM has provided no reasoned analysis or factual support for concluding otherwise (and, indeed, has not so concluded). Finally, OSM’s stated reason for rescinding the permit application requirement is wholly specious. Accordingly, Commenters urge OSM to abandon this aspect of the proposed rulemaking.
F. Rescission of Express Reference to Regulatory Authorities’ Ability to Rely on Independent Authority to Establish Ownership or Control Relationships.
OSM proposes to remove from current 30 C.F.R. § 733.12(b) language that provides that a permit applicant is not eligible to receive a permit, despite retroactivity restrictions on the reach of regulations implementing Section 510(c) of SMCRA, if there “was an established legal basis, independent of authority under section 510(c) of the Act, to deny the permit . . . .” OSM makes the proposal because it agrees with NMA’s allegation that, axiomatically, any independent authority to deny permits “exists independent of this regulatory provision.” 71 Fed. Reg. 59,598. OSM implies, but does not expressly say, that the proposed change is non-substantive.
Commenters oppose the proposed removal from 30 C.F.R. § 773.12(b) of the express reference to the independent authority of SMCRA regulators to deny mining permits to applicants who became linked to pre-November 2, 1988, violations prior to November 2, 1988, through an established legal basis independent of authority under Section 510(c) of SMCRA. OSM adopted the language in December 2000 as an important reminder to all federal and state regulatory officials involved in permit eligibility determinations that the retroactivity restrictions on OSM’s regulations implementing Section 510(c) do not require permit issuance where an independent basis for permit denial exists. Because OSM’s regulations serve as a benchmark for judging counterpart provisions in state programs, it is important that the provision remain in 30 C.F.R. § 773.12(b) to signal to States (and OSM personnel who review proposed State program amendments) that State programs may not be drawn so as to eliminate independent authority as a basis for permit denial. The express reference to independent authority also serves as a reminder to permit eligibility evaluators who turn to the federal regulations for guidance in performing their work. As such, the provision is neither “superfluous” or “potentially confusing” as NMA alleges.
Here again, OSM has provided no factual basis or reasoned analysis for altering the existing regulation. OSM describes no actual or hypothetical instance of “confusion” regarding the straightforward meaning of the current regulation, and Commenters strongly doubt that one exists. OSM’s stated reason for changing the regulation – that “any ‘independent authority’ exists independent of this regulatory provision” – was equally when OSM promulgated the regulation. In this instance, too, mere desire to avoid litigation with NMA is not sufficient basis for excising an important provision from an existing regulation.
To the extent that OSM suggests that the proposed change is simply a non-substantive, housekeeping provision, Commenters again point out that OSM’s numerous proposals to change the words of existing regulations without changing their substance or effect constitutes as unwarranted risk that regulatory personnel, the courts, or both will impute unintended meaning to the action that OSM has proposed. For this and each other reason stated above, OSM must decline to promulgate its proposed revision of 30 C.F.R. § 773.12(b).
G. The Regulatory Authority’s Burden of Proof in Ownership or Control Challenges.
On December 29, 2003, OSM proposed to amend current 30 C.F.R. §§ 773.21(c), 773.26, 773.27(a), and 774.11(f), all for the purpose of expressly imposing upon SMCRA regulatory authorities in administrative challenges to ownership or control findings the burden to present a prima facie case based on “reliable, credible, and substantial evidence.” 68 Fed. Reg. 75,039-41. OSM’s current rulemaking notice abandons the previously proposed evidentiary standard, proposing instead to require that a preliminary finding “must be based on evidence sufficient to establish a prima facie case that [the permittee’s] permit was improvidently issued.” 71 Fed. Reg. 59,598 and 59,601.
Commenters do not oppose making express the implicit requirement of the December 2000 regulations that:
OSM bears the burden of going forward with evidence to establish ownership or control (i.e., OSM must make a prima facie determination). The burden then shifts to the challenger to prove, by a preponderance of the evidence, that he does not, or did not, own or control the relevant surface coal mining operation.
65 Fed. Reg. 79,640.
Moreover, Commenters support OSM’s decision not to adopt an unexplained and unnecessary evidentiary standard for such prima facie showings, which (so far as Commenters can determine) does not apply to SMCRA regulatory authorities in any other setting. By wording the evidentiary requirement differently with respect to ownership or control challenges, OSM’s previous proposal would have run the unwarranted risk that those who applied the new rule would reach unintended results in reliance on the different wording that OSM proposed.
H. Rescission of Public Notice Provisions of the December 2000 Rulemaking.
OSM proposes to remove from several current regulations: (1) all provisions that require posting on the Internet of information regarding implementation of SMCRA’s ownership or control provisions, and (2) provisions that require posting of certain preliminary decisions at OSM’s office closest to the permit area in question. See 71 Fed. Reg. 59,599-600, 59,604, and C.F.R. sections therein cited. OSM makes these proposals because “we have come to believe that the various Internet posting requirements in the 2000 final rule could be unduly burdensome to regulatory authorities . . .” (emphasis supplied) and because “[p]osting preliminary findings by any method could likewise become unduly burdensome . . . [and] is of questionable value to the public.” OSM points to no objection received from any SMCRA regulatory authority or to any experience of its own which supports these conclusory assertions.
Commenters oppose the proposed rollback of public notice requirements associated with implementation of SMCRA’s ownership or control provisions. In adopting existing public notice requirements, OSM explained that:
In short, OSM recognizes the Act’s requirements for public participation in the permitting process, including ownership or control matters. The rule we adopt today, in conjunction with existing procedures, will provide more immediate, wider, and economical access to persons with an interest in ownership or control challenges. Together, notice of a decision, access to the records underlying that decision, and our existing public participation procedures provide an appropriate measure of public participation in ownership or control challenges.
65 Fed. Reg. 79,635 (emphasis supplied).
Having balanced the various competing interests and determined that the current public notice requirements foster an appropriate measure of public participation, OSM cannot lawfully strike a different balance without a factual basis for doing so or a reasoned analysis supporting the change. Speculation that implementing the current regulations could prove unduly burdensome on regulatory authorities does not constitute a reasoned analysis supporting the proposed change in public notice requirements. Similarly, finalizing the proposed change because OSM has come to believe (clearly as the product of a change of political Administrations) that some of those requirements “are of questionable value to the public” would be arbitrary, capricious, and doomed from the outset. Commenters urge OSM to abandon this proposal, too.
I. Provision for Automatic Stay of Ownership or Control Findings.
OSM proposes changes to existing 30 C.F.R. § 774.11 that would “clarify” that OSM may enter ownership or control findings into the AVS only if: (1) the owner or controller fails to request an administrative hearing on the finding within the time allotted for making such a request, or (2) the Office of Hearings and Appeals upholds the finding on administrative review in response to a timely request for hearing. 71 Fed. Reg. 59,601. Commenters oppose this proposed change to the regulations, which amounts to a provision for automatic stay of agency action pending administrative review, because it is inconsistent with 30 U.S.C. §§ 1264(d), 1275(c), and their state law counterparts, all of which authorize temporary relief from the action of SMCRA regulatory authorities pending administrative review only upon the challenging party’s satisfaction of three important criteria for such relief. Because Congress has specified the instances in which the Secretary may grant temporary relief from agency permitting decisions pending administrative review, SMCRA may not properly be interpreted to authorize OSM stay its decisions or actions pending administrative review under other circumstances.
Even if OSM had authority to provide for automatic stay of ownership or control findings pending administrative review – which the agency does not – OSM has failed to provide any reasoned basis or factual justification for automatically staying ownership or control findings in situations that do not meet the three criteria specified at 30 U.S.C. §§ 1264(d) and 1275(c). Specifically, OSM’s regulatory proposal does not explain why the agency believes, if it does, that it would advance any of the purposes of SMCRA to stay ownership or control findings where the owner or controller cannot show that (1) there is a substantial likelihood that he will prevail on the merits of the final determination of the proceeding or (2) a stay of the challenged finding would not adversely affect the public health or safety or cause significant, imminent harm to land, air, or water resources.
In adopting the current requirement to promptly enter ownership or control findings into AVS, OSM noted that:
When OSM makes a finding that someone who is not listed in the permit application, or subsequently identified by the permittee, is an owner or controller of the operation, there is a strong governmental and public interest in listing that information in AVS as soon as possible so it may be of use to the various regulatory authorities in carrying out their permitting responsibilities under section 510(c) of the Act. Section 510(c), among other things, prevents violators from receiving new permits so that they will not be able to cause environmental harm at new sites. If OSM or a State regulatory authority had to wait until after a challenge or hearing, and a potentially lengthy appeal to the court of last resort, to list the information in AVS, another regulatory authority may issue a permit to a person who is not entitled to receive one under section 510(c). At a minimum, the permitting authority must have access to the most current and complete information when it makes its permitting decision. The most efficient way to achieve that result is to enter ownership or control findings promptly into AVS.
65 Fed. Reg. 79,634 (emphasis supplied).
OSM’s current rulemaking proposal does not even acknowledge this earlier decision, much less present a factual basis or reasoned analysis for reversing it.
OSM’s proposal to delay entry of an ownership or control finding into AVS in such circumstances is inconsistent with the agency’s statutory mandates. Commenters therefore urge OSM to abandon the proposal without promulgating it as a final regulation.
J. Authorization of Permit Transferees and Others to Conduct Surface Coal Mining and Reclamation Operations Without First Obtaining the Regulatory Authority’s Written Approval of the Pertinent Transfer, Assignment, or Sale of Permit Rights.
OSM proposes that operations under a permit may continue “on a short-term basis, at the discretion of the regulatory authority, while [a] permittee seeks regulatory approval of a transfer, assignment, or sale” of permit rights. The proposal is flatly inconsistent with Section 511(b) of SMCRA. Regardless of whether OSM believes that allowing continued operations in such circumstances is good or expedient policy, Congress has specifically provided otherwise. The balance that Congress struck protects persons who might otherwise be adversely affected by surface coal mining operations conducted by persons who have not yet obtained approval of the regulatory authority (and who might never do so). Commenters urge OSM not to waste the time and resources of all concerned by adopting this flawed proposal.
K. Rescinding the Requirement to Identify the Person(s) Responsible Submitting Form OSM-1.
Commenters oppose OSM’s proposal to rescind the current requirement of 30 C.F.R. § 778.14(b)(4) that each permit applicant identify the person or persons responsible filing Form OSM-1 for the proposed surface coal mining operation. As OSM necessarily concluded in adopting the requirement, identification of persons responsible for filing Form OSM-1 provides important information regarding ownership or control of the permit applicant. Requiring permit applicants to identify and designate such persons at the time they apply for a mining permit helps ensure the level of pre-planning that Congress sought to require the coal industry to undertake. The fact that States will most often obtain this information does not justify eliminating the requirement that permit applicants provide it – States which apply for and obtain the Secretary’s approval to implement regulatory programs under SMCRA cannot reasonably complain about duties to collect information which is necessary or useful in OSM’s administration of its responsibilities under the statute. Commenters urge OSM not to adopt this proposal.
L. Rescinding the Requirement That Regulatory Authorities Refer Matters for Alternative Enforcement.
Commenters oppose OSM’s proposal to rescind the requirement that regulatory authorities refer certain matters for alternative enforcement action. The sole reason that OSM gives for proposing the change is that it has come to sympathize with NMA’s allegation that the current rule unlawfully abrogate State prosecutorial discretion. As OSM made clear in the preamble to its December 2000 rulemaking, however, the current rules do no such thing. In adopting the current regulations, OSM made clear that:
Final § 847.11 requires that the regulatory authority refer all cases meeting the criteria of section 518(e) and (g) to the Attorney General, who has the discretion to determine whether to act upon the referral.
65 Fed. Reg. 79,657.
OSM went on to emphasize that:
The circumstances that precipitate a civil action for relief are very specific in the Act. If a regulatory authority encounters one of these circumstances, final § 847.16(a) requires that the regulatory authority refer the case to the Attorney General.
Id. at 79,658.
In light of these pronouncements, it would be arbitrary and capricious to change the current regulations in response to claims that they infringe on prosecutorial discretion.
To the extent that OSM proposes to revise current 30 C.F.R. §§ 817.11 and 847.16 to afford itself and state regulatory authorities discretion to decide whether to refer a matter for alternative enforcement in circumstances where such referrals are currently mandatory, OSM has failed to make the requisite factual demonstration or to provide a reasoned analysis supporting such a policy shift. Commenters cannot imagine the basis upon which OSM might plausibly argue that such a policy shift would improve enforcement of SMCRA. Accordingly, Commenters urge OSM to abandon this proposal without promulgating a final regulation.
M. Editorial Changes Implementing Substantive Changes.
OSM proposes numerous editorial changes to the existing ownership or control regulations that are meant to accommodate substantive changes that Commenters oppose for reasons stated in the foregoing sections of these comments. Obviously, Commenters oppose such editorial changes as equally unfounded and unnecessary, for the same reasons that Commenters oppose the proposed substantive changes that the editorial changes would accommodate.
Thank you for your consideration of these comments. KRC incorporates by reference as if fully set out below, the comments submitted in 2005 on the Transfer, Assignment and Sale of Permit Rights proposal, which are attached below.
Tom FitzGerald Director
Kentucky Resources Council, Inc.
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 permit 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, 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. 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.