SG Coal Co., Inc. v. Lujan

• Decision Date: 30 December 1992
• Docket Number: Civ. A. No. 90-0150-A.
• Citation: 808 F. Supp. 1258
• Parties: SG COAL COMPANY, INCORPORATED v. Manual LUJAN, Jr.
• Court: U.S. District Court — Western District of Virginia

808 F. Supp. 1258

SG COAL COMPANY, INCORPORATED v. Manual LUJAN, Jr.

Civ. A. No. 90-0150-A.

United States District Court, W.D. Virginia, Abingdon Division.

December 30, 1992.

David E. Cecil, Robertson, Cecil & King, Grundy, VA, Paul D. Kruper, Buchanan Ingersoll Professional Corp., Pittsburgh, PA, for plaintiff.

Mark Siegel, Sp. Asst. U.S. Atty., U.S. Dept. of Interior, Office of Sol., Knoxville, TN, for defendant.

MEMORANDUM OPINION

WILSON, District Judge.

Under the Surface Mining Control and Reclamation Act of 1977 ("SMCRA"), a surface mine "operator" is required to pay a reclamation fee on mined coal. 30 U.S.C. § 1232. 30 C.F.R. § 870.12(b) provides that the fee is to be determined by the weight of the coal "at the time of initial bona fide sale, transfer of ownership, or use ... immediately after it is severed" from the ground.¹ SG Coal Company, Inc. ("SG Coal") paid reclamation fees on a clean coal basis. The Office of Surface Mining ("OSM") reviewed SG Coal's production records and assessed SG Coal for additional tonnage on a raw coal basis. The assessment was upheld on administrative review, and SG Coal paid the full amount under protest. SG Coal then filed this action against Manuel Lujan, Jr., Secretary of the United States Department of the Interior ("Secretary"), claiming that it is not an operator subject to assessment, that it did not transfer raw coal, and that the Secretary's regulations permit it to sell raw coal on a clean coal basis so long as it maintains sufficient records. Jurisdiction is asserted pursuant to 5 U.S.C. §§ 701-05, 30 U.S.C. § 1270(a)(2), and 28 U.S.C. § 1331.

The Secretary contends that the Court lacks jurisdiction because of 30 U.S.C. § 1276(a)(1) which vests exclusive jurisdiction with the United States District Court for the District of Columbia over actions challenging the Secretary's regulations. The matter was referred to the United States Magistrate Judge pursuant to 28 U.S.C. § 636. The United States Magistrate Judge filed a report and recommendation, which concludes that the Court is not precluded from jurisdiction and which recommends judgment for SG Coal because SG Coal transferred ownership of clean, not raw, coal. Although the Court concludes that 30 U.S.C. § 1276(a)(1) does not preclude jurisdiction and adopts the report as to that issue, the Court declines to adopt the report as to the fee assessment issue and instead enters partial summary judgment for the Secretary on that issue.

I.

Donald Nicewonder is the sole shareholder of Virginia Energy Company ("Va. Energy"), which was incorporated in 1974. Nicewonder also owns approximately 32% of the shares of SG Coal, and his family owns an additional 52%. SG Coal was formed in 1980 for the purpose of deep mining coal for Va. Energy, which had deep mine reserves but did not have the expertise to mine them.

The two companies entered into a lease agreement on January 1, 1983, in which Va. Energy gave SG Coal the "exclusive right" to deep mine coal on certain properties that Va. Energy had leased from Douglas Pocahontas Coal Corporation ("Douglas Pocahontas"). This was the only written agreement between SG Coal and Va. Energy, and Nicewonder testified at his deposition that the agreement governed the relationship between those companies. (Nicewonder Dep. at 19). The lease agreement provides in pertinent part:

Nothing contained in this Agreement shall be interpreted as granting to Va. Energy any rights to acquire the coal produced by SG Coal. Va. Energy may from time to time acquire the coal produced by SG Coal, but the negotiated price will depend upon the market conditions and the quality of the coal.

SG Coal hired independent contractors to mine coal on the leased properties. Between October 1, 1983, and September 30, 1989, SG Coal shipped all, or almost all, of the coal from those properties to Va. Energy, which then cleaned and sold the coal and paid SG Coal the sale price less the cost of cleaning. SG Coal, in turn, paid royalties to Douglas Pocahontas based on the sale price.

SG Coal and Va. Energy share the same mailing address, point of operations, and bookkeeping operations and have the same president, vice-president, and secretary-treasurer. At times, instead of paying SG Coal the exact amount due from the coal sales, Virginia Energy transferred operating capital to SG Coal or merely paid an amount sufficient to keep SG Coal operating. However, the companies kept separate books that reflected the correct sales prices and unpaid balances, and each company filed its own federal income tax returns based upon its separate bookkeeping.

II.

Initially, the Court addresses the Magistrate Judge's conclusion that the Court is not precluded from subject matter jurisdiction by 30 U.S.C. § 1276(a)(1), which provides in relevant part:

Any action by the Secretary promulgating national rules or regulations including standards pursuant to sections 1251, 1265, 1266, and 1273 of this title shall be subject to judicial review in the United States District Court for the District of Columbia Circuit.

This language gives the District Court for the District of Columbia Circuit exclusive jurisdiction over challenges to the national rules and regulations promulgated under the SMCRA. Tug Valley Recovery Center v. Watt, 703 F.2d 796 (4th Cir.1983). As the Magistrate Judge correctly states, SG Coal's claim does not challenge the regulation but merely requires an interpretation of its language. As such, the Court finds that it is not precluded from entertaining this action by 30 U.S.C. § 1276(a)(1), see United States v. S.S. (Joe) Burford, Inc., 761 F.2d 173 (4th Cir.1985); United States v. Rapoca Energy Co., 751 F.Supp. 565 (W.D.Va.1990); United States v. Rapoca Energy Co., 613 F.Supp. 1161 (W.D.Va. 1985), and that it has jurisdiction pursuant to 28 U.S.C. § 1331 and 5 U.S.C. §§ 701-05. See Bowen v. Massachusetts, 487 U.S. 879, 893-901, 108 S.Ct. 2722, 2731-35, 101 L.Ed.2d 749 (1988); Ulmet v. United States, 888 F.2d 1028, 1030 (4th Cir.1989).²

III.

SG Coal contends that it was not an "operator" under the SMCRA. The Court disagrees. "The SMCRA provides that `all operators of coal mining operations' should pay fees to help reclaim mined lands." U.S. v. Manning Coal Corp., 977 F.2d 117, 121 (4th Cir.1992) (quoting Section 402(a), 30 U.S.C. § 1232(a)). 30 U.S.C. § 1291(13) defines "operator" as "any person, partnership, or corporation engaged in coal mining who removes or intends to remove more than two hundred fifty tons of coal from the earth within twelve consecutive calendar months in any one location." As stated by the court of appeals, "The Department of the Interior has consistently interpreted `operator' ... to include both mining contractors and landowners ... and has declared them to be jointly and severally liable for SMRCA reclamation fees." Manning Coal Corp., 977 F.2d at 121. Having the exclusive right to mine coal from the Va. Energy properties, and having removed the coal from those properties pursuant to that right, SG Coal clearly meets the statutory definition of operator.

Citing United States v. Rapoca Energy Co., 613 F.Supp. 1161 (W.D.Va.1985), SG Coal argues that it is not an operator because it acted solely as an agent of Va. Energy. That argument is based on a misreading of Rapoca. As one court has stated:

The Rapoca court intended ultimate liability for reclamation fees to lie with the owner of the right to extract. However, this does not preclude the assessment of liability to more than one operator.... Rapoca constitutes an extension of the definition of operator and not a replacement of the statutory definition. Rapoca does not prevent a finding that a contract miner meets the statutory definition of operator.

United States v. Fire Ring Fuels, Inc., 788 F.Supp. 330, 331 (E.D.Ky.1992) (emphasis in the original). Likewise, after discussing Rapoca, the court in United States v. Spring Ridge Coal Co., 793 F.Supp. 124 (N.D.W.Va.1992) observed:

It is clear that the mining companies operated as mere agents for Defendant.

This observation does not mean that the individual mining companies are not also liable for the reclamation fees. Under the plain language of the statute and the Secretary's policy of imposing joint and several liability, the companies which performed the actual mining operations would also appear to be `operators' under § 1232.

793 F.Supp. at 129. Thus, even if SG Coal was merely Va. Energy's agent, as SG Coal contends, it still could have been an "operator" under the SMCRA. Accordingly, for the reasons stated above, the Court finds that SG Coal met 1291(13)'s definition of "operator" and was subject to reclamation fee assessments.

IV.

S.G. Coal has argued that its affairs were so intertwined with Va. Energy's that the two companies should be treated as one. For that reason, according to SG Coal, no sale occurred until Va. Energy cleaned the coal and sold it to third parties. The Magistrate Judge rejected that argument, finding instead that Va. Energy acted as a broker or commission merchant. In reaching that conclusion the Magistrate Judge viewed subsequent conduct of the parties as a waiver or modification of the relationship created by the written agreement. According to the Magistrate Judge, there was no sale or transfer of ownership until the coal was cleaned by Va. Energy and sold to third parties. However, under either theory, the one advanced by SG Coal or the one adopted by the Magistrate Judge, the Secretary's assessment would have been in error. The Court rejects the first theory as a matter of law but finds some plausibility to the second theory, although ambiguity concerning the matter precludes entry of summary judgment for SG Coal.

A. The Alter Ego Theory

SG Coal and Va. Energy are incorporated separately and have filed separate tax returns. SG Coal is essentially asking the Court to treat the two corporations as one for reclamation fee purposes after...