Com. Nat. Res. & Envir. Prot. v. Kentec

• Decision Date: 22 December 2005
• Docket Number: No. 2003-SC-000622-DG.,2003-SC-000622-DG.
• Citation: 177 S.W.3d 718
• Parties: COMMONWEALTH of Kentucky NATURAL RESOURCES AND ENVIRONMENTAL PROTECTION CABINET, Appellant, v. KENTEC COAL CO., INC. Appellee.
• Court: United States State Supreme Court — District of Kentucky

Page 718

177 S.W.3d 718

COMMONWEALTH of Kentucky NATURAL RESOURCES AND ENVIRONMENTAL PROTECTION CABINET, Appellant, v. KENTEC COAL CO., INC. Appellee.

No. 2003-SC-000622-DG.

Supreme Court of Kentucky.

September 22, 2005.

Rehearing Denied December 22, 2005.

Jennifer Cable Smock, Office of Legal Services, Frankfort, KY, Counsel for Appellant.

Donald Duff, Frankfort, KY, Counsel for Appellee.

SCOTT, Justice.

We granted Discretionary Review of the Opinion of the Court of Appeals, which held KRS 350.0301(5) and 405 KAR 7:092, Section 6, unconstitutional, as in violation of the due process and equal protection clauses of the United States Constitution, as well as Section 2 of the Kentucky Constitution, banning arbitrary state action. Upon our considerations hereinafter set out, we affirm.

The Appellee, Kentec Coal Company, Inc. (KENTEC) is the holder of a surface mining permit located in Leslie and Perry Counties. The permit totals some 107 acres and is divided up into six (6) separate geographical increments for incremental bonding purposes. The permit was issued in 1987 and expired on December 1, 1992, although reclamation work was continuing in accordance with the permit obligations, per an agreed order between the parties.

KENTEC was owned by Mr. John Siegal, who apparently kept KENTEC's main offices in Louisville, Kentucky. Mr. Brim Watts was the overseer for KENTEC's reclamation work on the permit site. The reclamation inspector on the job site for the Environmental and Public Protection Cabinet (CABINET) was Lisa Baker (BAKER).

On May 30, 1996, inspector BAKER observed a disturbance on the permit site which appeared to be preliminary excavation of a basement or houseseat for a residential dwelling. Throughout the enforcement, and even on appeal, there has been some confusion as to just which increment was involved. Initially inspector BAKER felt the disturbance was on increment 5; yet cabinet office personnel believed it was on increment 1. The Appellee, at oral arguments, suggested the disturbance (would or did) straddle both increments 1 and 5. Increment 1 covers 17.2 acres of surface reclamation responsibilities, whereas increment 5 covers 24.44 acres.¹ The post mining land use for increment 5 is forest land. For increment 1, it is hayland and pasture.

On this date, inspector BAKER issued KENTEC a mine inspection report (MIR) noting "[t]hird party disturbance has been made on the site. Building construction has started. Submit permit revision reflecting any post-mining land use change which will result."

In July 1996, inspector BAKER met with KENTEC's engineer, as well as Mr. Watts. The fact that a house was being built on the mine site was discussed at that meeting. It became apparent that Bruce Leedy (the former surface owner) had sold a portion, or all, of increment 5 to Mr. Kenneth Bowling and Mr. Bowling was building a house on his property. Bowling was noted to have said that he was not sure how much of the property would be devoted to the house and there was a possibility he, or his son, might build another house, as well as associated out-buildings such as a garage, etc. Later, even areas for gardens were noted.

At any rate, inspector BAKER continued to inspect the permit from June through November 1996. On her inspection of November 22, 1996, she issued KENTEC a Non-Compliance, noting that there was a house under construction on the permit and that KENTEC had failed to revise the permit to incorporate a change in its approved post mining land use for that area. As a result, KENTEC was directed to "submit and obtain a revision to permit to allow change in post mining land use" by December 22, 1996.

No revision having been submitted by KENTEC by December 27, 1996, inspector BAKER issued a Cessation Order noting that the remedial work had not been completed.

Mr. Watts, KENTEC's reclamation manager, did not know of the issuance of the Cessation Order as the paperwork had been sent to KENTEC's owner Mr. John Siegal. Apparently Siegal did not notify Watts of such. Watts testified, however, that he did not have their engineers working on the revision because he wasn't sure of what would eventually be involved. He had tried to find out from Mr. Bowling exactly what he intended to do and tried to ascertain the location of the property affected by the sale, but apparently the Deed from Mr. Leedy to Mr. Bowling wasn't on record. However, Mr. Bowling did claim his property encompassed the entire watershed, even extending outside of the permit. He also told Mr. Watts that he, or his son, might build another house on the property. As of March 1997, Watts was of the opinion the house had not been finished as Mr. Bowling was still living in a trailer adjacent to the house. In Watts' opinion, the project was still on-going and there was no practical need for KENTEC to submit a revision until the extent of the ultimate disturbance could be ascertained.

The CABINET does not dispute that KENTEC did not have any association with Mr. Bowling, or that Mr. Bowling was not subject to the control of KENTEC. Neither did KENTEC authorize Mr. Bowling to construct a house on his property within its permit.

For one of KENTEC's defenses, it relied on the applicability of the CABINET'S so-called "Third Party Violation Policy" along with a memorandum issued in relation thereto, by the CABINET'S assistant director of the Division of Field Services, David Nance, on May 2, 1991; all of which was a clarification of a policy originally enunciated by the Federal Office of Surface Mining (OSM). According to Nance, OSM's policy was a result of a series of discussions between OSM and the Department of Surface Mining Reclamation and Enforcement (DSMRE) concerning the problems associated with disturbances caused by third parties unrelated to the permittee or mining company. Ultimately OSM issued a letter on April 19, 1990, addressed to Kentucky's Commissioner stating that OSM (in its oversight position) would not issue a 10-day notice for violations caused by third parties, if the area disturbed by a third party had not been previously disturbed by the permittee. Thereafter, on May 2, 1991, Nance issued the policy clarification memorandum pointing out that "third party disturbances" might entail an on-going process, the extent of which might not be known until it was completed. Consequently, he observed that "the permittee and the inspector should monitor the third party activity, and only when the activity is completed should any deadline (for corrections) be set." Nance summed up this policy directive by stating "[o]ne should try to approach `third party situations' with common sense. A violation should not be written prior to the permittee being able to do anything." For purposes of this case, this policy was still in effect and had not been rescinded.

The reasons behind the later CABINET clarification were apparently related to the CABINET workload. Due to previous literal applications of the OSM policy, many permittees were submitting permit revisions within thirty (30) days of the first notice of disturbance. Many of the disturbances were caused by oil and gas pipeline companies constructing pipeline right-of-ways over multiple permit increments, resulting in multiple filings (as the right-of-way progressed from area to area over time) to revise each new disturbance, area or increment affected by the surface disturbance. Thus, Nance's memorandum was intended to give the inspector more flexibility in dealing with third party disturbances by allowing the permittee and the inspector jointly to take a "wait and see" approach in order to determine just what the ultimate extent of the disturbance would be at the end of the construction. Once the totality of the disturbance was ascertained, the permittee would then submit a comprehensive permit revision.

However, based upon the issuance of the Cessation Order on December 27, 1996, the CABINET then issued KENTEC a "Notice of Proposed Assessment" for the violations in the amount of $29,700.00.² At this point, the procedural aspects of this case become important.

Once a Cessation Order is issued and the Notice of Proposed Assessment is given, the administrative hearing procedures for mine operations (permittees) becomes bifurcated under the CABINET's regulations. See KRS 350.0301(5).

405 KAR 7:092, Section 6, provides that any person issued a proposed penalty assessment may file a petition for review of the proposed assessment within thirty (30) days of the receipt of the proposed assessment or the mailing of the conference officer's report. A parallel process exists under 405 KAR 7:092, Section 7, which allows an operator to have a formal review of any fact-of-violation. However, these are two (2) separate (parallel) administrative procedures, one based upon the assessment amount while the other is based upon the question of whether there was in fact, a violation.

KENTEC pursued both avenues, lost each; and appealed each to the Franklin Circuit Court, where they were consolidated. On November 6, 2001, the Franklin Circuit Court entered Judgment in the consolidated actions, overruling KENTEC's positions and affirming the decisions of the CABINET. A subsequent Motion to Alter and Amend was denied on May 9, 2002.

KENTEC then appealed to the Court of Appeals which reversed the Order and Decisions of the CABINET and the Franklin Circuit Court. We granted Discretionary Review on Motion of the CABINET.

THE ADMINISTRATIVE PROCEDURES

In Franklin v. Natural Resources and Environmental Protection Cabinet, 799 S.W.2d 1 (Ky.1990), we found a similar CABINET hearing procedure unconstitutional, wherein we held, "this regulation which denies the due process hearing to an aggrieved party based solely on his financial inability to pay the penalties which he seeks to appeal is unconstitutional, in violation of the equal protection clauses of the United States and Kentucky...