In re Appalachian Fuels, LLC

• Decision Date: 19 November 2014
• Docket Number: No. 09–10343.,09–10343.
• Citation: 521 B.R. 779
• Parties: In re APPALACHIAN FUELS, LLC, et. al.,Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Kentucky

521 B.R. 779

In re APPALACHIAN FUELS, LLC, et. al.¹ Debtors.

No. 09–10343.

United States Bankruptcy Court, E.D. Kentucky, Ashland Division.

Signed Nov. 19, 2014.

Entered Nov. 20, 2014.

T. Kent Barber, Barber Law PLLC, Whitney Calvert, McBrayer, McGinnis, Leslie & Kirkland, Peter J.W. Brackney, Matthew B. Bunch, W. Thomas Bunch, II, W. Thomas Bunch, Sr., Lexington, KY, Allan B. Diamond, Houston, TX, for Debtors.

MEMORANDUM–OPINION

THOMAS H. FULTON, Bankruptcy Judge.

These jointly administered cases come before the Court² following the evidentiary hearing held June 23–25, 2014, regarding creditor West Virginia Department of Environmental Protection's (“WVDEP”) Application for Administrative Expenses (the “WVDEP Application”) and the objection thereto by the Liquidating Trustee of the App Fuels Creditor Trust (the “Trustee”). This is a core proceeding under 28 U.S.C. § 157(b)(2)(B), and the Court has jurisdiction under 28 U.S.C. §§ 1334 and 157.³ As more fully discussed below, and as specified in the accompanying Order entered this same date in accordance with Federal Rule of Bankruptcy Procedure 9021, the Court overrules the Trustee's objection and sustains the WVDEP Application.

INTRODUCTION

These are coal mining cases. As often happens in coal mining cases, the Court must navigate a morass of complex facts and circumstances, procedural history, and legal issues. It is helpful, then, to begin not with the usual findings of fact, but with a discussion of the regulation of surface coal mining. Fortunately, the United States Bankruptcy Appellate Panel of the Sixth Circuit (the “BAP”) provided a succinct but thorough discussion of the regulatory environment in In re Appalachian Fuels, LLC, 493 B.R. 1 (6th Cir. BAP 2013).⁴ This Court adopts pertinent portions of the BAP's discussion, as follows:

a. Surface Mining Control and Reclamation Act & West Virginia Surface Coal Mining and Reclamation Act

The Surface Mining Control and Reclamation Act (SMCRA), 30 U.S.C. § 1201 et seq., was enacted by Congress in 1977 to “establish a nationwide program to protect society and the environment from the adverse effects of surface coal mining operations” and to “assure that surface coal mining operations are so conducted as to protect the environment.” 30 U.S.C. § 1202(a) & (d). “In general, reclamation under the SMCRA requires the surface of land be restored to its approximate original contour and water polluted by the mining operation be properly treated before leaving the mining site.” Cat Run Coal Co. v. Babbitt, 932 F.Supp. 772, 774 n. 3 (S.D.W.Va.1996) (citations omitted).

The SMCRA requires any party wishing to engage in surface coal mining activities to obtain a surface coal mining permit. 30 U.S.C. §§ 1256, 1257. The permit application must contain the names and addresses of the applicant and the operator of the mining operation “if he is a person different from the applicant.” 30 U.S.C. § 1257(b)(1). The SMCRA defines “operator” as “any person, partnership, or corporation engaged in coal mining....” 30 U.S.C. § 1291(13).

Before a permit application can be approved, the applicant is required to obtain a performance bond to cover the costs of any necessary reclamation. 30 U.S.C. § 1259(a). If the applicant or operator is unable to cover the costs of reclamation after default, 30 C.F.R. § 800.50 provides that “any and all bonds deposited to complete reclamation” will be forfeited. If the forfeited amount of the bond is insufficient to cover the total costs of reclamation, the operator and permittees are liable for any shortfall. 30 C.F.R. § 800.50(d)(1) ; Cat Run Coal Co., 932 F.Supp. at 780.

Pursuant to § 1253 of the SMCRA, a state may assume primary jurisdiction for regulation and enforcement of surface coal mining operations and reclamation obligations occurring on nonfederal lands within its borders. 30 U.S.C. § 1253(a). The state's “program need not be identical to the federal program, as long as its provisions are at least as stringent as those provided for in the federal act.” Canestraro v. Faerber, 179 W.Va. 793, 374 S.E.2d 319, 320 (1988).

The Office of Surface Mining Reclamation and Enforcement (OSM) approved West Virginia's program to regulate the surface mining activities within its borders in 1981. Accordingly, West Virginia enacted the West Virginia Surface Coal Mining and Reclamation Act, W. Va.Code § 22–3–1 et seq. “The [WVSCMRA] sets out minimum performance standards that mirror those found in SMCRA, and the [Director of WVDEP] has exercised his statutorily granted power to promulgate State regulations that parallel those issued by the Secretary of the Interior pursuant to the federal [SMCRA].” Bragg v. W. Va. Coal Ass'n, 248 F.3d 275, 289 (4th Cir.2001) (citing W. Va.Code R. § 38–2–1 et seq. ). As recognized by the Fourth Circuit Court of Appeals in Bragg, the regulation of coal mining on non-federal lands within West Virginia's borders is, with certain exceptions, governed exclusively by the WVSCMRA, subject only to federal approval and oversight. Id.

Like the SMCRA, the WVSCMRA requires entities wishing to engage in surface coal mining to submit an application for a mining permit to WVDEP. W. Va.Code § 22–3–9. The applicant is required to include “(1) The names and addresses of: (A) The permit applicant; ... [and] (E) the operator, if different from the applicant....” W. Va.Code § 22–3–9(a)(1). The applicant is also required to submit a reclamation plan with its application and to post a performance bond to cover the cost of any future reclamation. W. Va.Code §§ 22–3–10 & 22–3–11. Pursuant to the WVSCMRA regulations, “[t]he operator or permittee” is liable for the any costs of reclamation over the amount of the forfeited bond. W. Va.Code R. § 38–2–12.4.d & e.

Although the WVSCMRA provides the primary framework for regulation of surface mining on non-federal lands within West Virginia's borders, the SMCRA still provides the blueprint for West Virginia's law. See Bragg, 248 F.3d at 289. Nowhere is this more visible than in the WVSCMRA's definition of “operator.” The WVSCMRA explicitly states that the term “operator”

means any person who is granted or who should obtain a permit to engage in any activity covered by this article and any rule promulgated under this article and includes any person who engages in surface mining or surface mining and reclamation operations, or both. The term shall also be construed in a manner consistent with the federal program pursuant to the federal Surface Mining Control and Reclamation Act of 1977, as amended.

W. Va.Code § 22–3–3(o ) (emphasis added). The West Virginia Code of State Rules defines the term similarly:

Operator means any person who is granted or who should obtain a permit to engage in any activity covered by the Act or this rule, or anyone who engages in surface mining and/or surface mining and reclamation operations. Further, the term shall be construed in a manner consistent with the [SMCRA] pursuant to Public Law 95–87.

W. Va.Code R. § 38–2–2.82 (emphasis added).

The concept of joint and several liability under both the SMCRA and the WVSCMRA is not distinct from direct liability. Rather, it is an expansion of direct liability to more than one entity. In the case of P.B. Dirtmovers, Inc. v. United States, 30 Fed.Cl. 474 (Fed.Cl.1994), the Court of Federal Claims elaborated on the concept of joint and several liability under the SMCRA:

The Department of the Interior has consistently interpreted “operator” to include both mining contractors and mine land owners. United States v. Manning Coal Corp., 977 F.2d 117, 121 (4th Cir.1992) ; see also 46 Fed.Reg. 60780 (Dec. 11, 1981) ; 42 Fed.Reg. 62713 (Dec. 13, 1977). Consistent with this policy and with congressional intent, the Department has declared mining contractors and landowners to be jointly and severally liable for reclamation fees. Manning, 977 F.2d at 121 ; 49 Fed.Reg. 31412 (Aug. 7, 1984) (“OSM will continue to pursue a policy of joint and several liability”).

The policy of joint and several liability is consistent with the language and purpose of SMCRA. See, e.g., Manning, 977 F.2d at 121.

P.B. Dirtmovers, 30 Fed.Cl. at 477–78 ; see also SG Coal Co., Inc. v. Lujan, 808 F.Supp. 1258, 1262 (W.D.Va.1992) ; United States v. Spring Ridge Coal Co., 793 F.Supp. 124, 128–29 (N.D.W.Va.1992). As recognized by the court in United States v. Manning Coal Corp., 977 F.2d 117 (4th Cir.1992) :

The essence of joint and several liability is that a creditor, including the government, may sue one or more of the parties to such liability separately, or all of them together at his option. We believe, therefore, that the SMCRA allows the Department of the Interior to pursue the mineral owner and the mining contractor in separate lawsuits.

Id. at 122 (internal citations omitted) (internal quotation marks omitted).

....

c. Clean Water Act & West Virginia Water Pollution Control Act

The Water Pollution Prevention and Control Act of 1972, commonly referred to as the Clean Water Act, 33 U.S.C. § 1251 et seq., “prohibits, among other things, ‘the discharge of any pollutant by any person,’ ... without a permit, into the ‘navigable waters,’ ...—which the Act defines as ‘the waters of the United States.’ ” Sackett v. EPA, ––– U.S. ––––, 132 S.Ct. 1367, 1369–70, 182 L.Ed.2d 367 (2012) (citing 33 U.S.C. §§ 1311, 1344, 1362(7) ). The Clean Water Act provides for the issuance of permits that allow the discharge of certain pollutants into federal waters. 33 U.S.C. § 1342. “Any person who discharges or proposes to discharge pollutants” is required to obtain an NPDES permit. 40 C.F.R. § 122.21(a).

Under the Clean Water Act, states may “issue [NPDES] permits for discharges into the navigable waters within the jurisdiction of each state” and may administer permitting programs which govern the issuance and enforcement of point source discharges into non-federal waters. 33 U.S.C. § 1342(a)(5) & (b) ; 40 C.F.R. § 123.25. The Clean Water Act defines the term “point source” a

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