United States v. Rapoca Energy Co.

• Citation: 613 F. Supp. 1161
• Decision Date: 23 July 1985
• Docket Number: Civ. A. No. 83-0038(A)(R).
• Parties: UNITED STATES of America, Plaintiff, v. RAPOCA ENERGY COMPANY, Defendant.
• Court: U.S. District Court — Western District of Virginia

613 F. Supp. 1161

UNITED STATES of America, Plaintiff, v. RAPOCA ENERGY COMPANY, Defendant.

Civ. A. No. 83-0038(A)(R).

United States District Court, W.D. Virginia.

July 23, 1985.

COPYRIGHT MATERIAL OMITTED

Robert S. Moore, Knoxville, Tenn., Morgan E. Scott, Asst. U.S. Atty., Abingdon, Va., for plaintiff.

Elsey A. Harris, III, Norton, Va., for defendant.

MEMORANDUM OPINION

TURK, Chief Judge.

This case, involving the question of ultimate liability for payment of reclamation fees by operators of coal mines, is before the court on cross motions for summary judgment. The government contends that the defendant, Rapoca Energy Company, as the owner of large coal reserves in Buchanan, Dickinson, and Wise Counties, Virginia, is obligated to pay, pursuant to the provisions of the Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. §§ 1201 et seq., a reclamation fee of thirty-five cents per ton of coal produced by surface mining and fifteen cents per ton of coal produced by underground mining. Rapoca, however, asserts that it is the forty-eight independent companies with whom it contracts to mine the coal that should be held ultimately liable, for it is only they who fall within the statutory definition of "operator" contained in Section 1291(13) of Title 30 of the United States Code. Thus, the ultimate issue for consideration is whether a large coal company that contracts with independent companies to produce coal that it owns or leases is an "operator" responsible for the payment of reclamation fees.

Section 402 of the Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. § 1232(a) (1982) ("the Act"), requires all "operators" of coal mining operations to pay a reclamation fee, per ton of coal mined, to the Secretary of the Interior. "Operator" is further defined in section 1291(13) as "any person, partnership, or corporation engaged in coal mining who removes or intends to remove more than two hundred and fifty tons of coal from the earth within twelve consecutive calendar months in any one location. 30 U.S.C. § 1291(13) (1982). Rapoca argues that it is not an operator within the meaning of the statute since it is the independent mining companies, and not Rapoca, that physically remove the coal from the earth. According to Rapoca, the only situation which would allow liability to fall on it would be if its agents or employees were to remove the coal. Since these mining companies are not employees of Rapoca, but, rather, independent contractors, Rapoca argues that it may not be held liable for any reclamation fees.

Under Virginia law, two factors are necessary in order for an agency relationship to be established. First, "it is necessary that the agent be subject to the principal's control, with regard to the work to be done and the manner of performing it." Whitfield v. Whittaker Memorial Hospital, 210 Va. 176, 181, 169 S.E.2d 563, 567 (1969). "Actual control, however, is not the test; it is the right to control which is determinative." Id. Second, "the work has to be done on the business of the principal or for his benefit." Id. In addition, the mere fact that these companies are termed "independent contractors" is not a conclusive indication of the relationship between the parties. Chandler v. Kelley, 149 Va. 221, 141 S.E. 389 (1928); Murphy v. Holiday Inns, 216 Va. 490, 219 S.E.2d 874 (1975). "What the parties call themselves is immaterial; the law looks to the actual relationship between the parties." 1A Michie, Michie's Jurisprudence of Virginia and West Virginia, § 12, p. 543 (1980). In the present case it is undeniable that the work performed by the "independent contractors" is done "on the business of" Rapoca or "for its benefit". Rapoca Energy Company owns or leases all of the coal being mined and merely contracts with the mining companies to extract the coal. The mining companies are not free to sell the coal which they extract to the highest bidder, but must instead bring it to Rapoca's facilities, where they are paid a fixed rate per ton of coal delivered.

Thus, the only question to be determined is whether Rapoca Energy Company has the right to control the work done by the mining companies and the manner in which they perform it. Here, Rapoca's method of developing and maintaining the coal reserves indicates such a degree of control. Rapoca surveys its mineral holdings to determine what locations are suitable for coal mining operations. It then performs all preliminary engineering work for the site, including the engineering work required for a surface mining permit. In addition, Rapoca begins the actual site development work, which includes building or improving access roads, constructing sedimentation ponds, and facing up the coal seam.

During the course of the mining operations, Rapoca provides all engineering and mapping services for the contractors. The contractors follow Rapoca's engineers' directions relative to the placement and method of driving entries, the pulling of mine pillars, the location and use of haulings inside the mines, and any other matter pertaining to the protection of the mine and the securing of the greatest amount of coal possible.

The day-to-day conduct of the coal removal operation is the responsibility of each contractor. They are responsible for the hiring, supervising, and firing of their own employees, for the acquisition and maintenance of their own equipment, and for the provision of their own fuel, parts, and other supplies. This is not a conclusive indication that the mining companies are "independent contractors", however, for an agency relationship impliedly carries with it the authority for the agent to use all means necessary for the accomplishment of the work to be performed.

Finally, the manner of payment also indicates that the relationship is that of principal and agent rather than one of owner and independent contractor. Once the mining companies have removed the coal from the ground, they must bring it to a processing facility owned by a subdivision of Rapoca. These companies are then paid a fixed amount for every ton of coal delivered. This amount does not change with day-today fluctuations in the market price that Rapoca is receiving for its coal. Rather, upward or downward adjustments are made from time to time to reflect the overall market trend. The lack of freedom to sell the extracted coal to anyone other than Rapoca, along with the lack of day to day fluctuations parallelling the market price of coal, is strong evidence that the relationship is one of principal and agent, for it shows direct control over the mining companies. Where the relationship that of owner and independent contractor, the mining companies would undoubtedly be free to sell to whomever would pay the highest price, with only a royalty per ton of coal mined or percentage of the sales price being remitted to Rapoca.

Because of the degree of control which Rapoca Energy Company exerts over the mining companies with respect to crucial aspects of the mining process, along with the corresponding lack of freedom regarding the mining companies ability to sell to anyone other than Rapoca, this court must conclude that the "independent contractors" are no more than Rapoca's agents. Thus, it is Rapoca Energy Company that is liable for payment of the reclamation fees.

Were the question of agency not raised, however, the factors enunciated in Parsons v. Smith, 359 U.S. 215, 79 S.Ct. 656, 3 L.Ed.2d 747 (1959), for determining the entity entitled to claim an allowance for depletion of mineral deposits, would persuade the court to find that Rapoca Energy Company, and not the independent mining companies, is liable for payment of the reclamation fees. The Parsons opinion covered two consolidated cases with similar facts. In each the owner of coal-bearing land entered into a contract with a mining company which provided that the company would strip-mine the coal for a fixed price per ton. The ultimate question to be decided was whether the mining companies had an "economic interest"¹ in the coal in place, and were thus entitled to the depletion allowance, or a "mere economic advantage derived from production, through a contractual relation to the owner, by one who has no capital investment in the mineral deposit." Parsons, 359 U.S. at 222, 79 S.Ct. at 661. The Court looked to the following seven factors in determining that the mining companies had only an economic advantage in the coal in place and thus were not entitled to claim the depletion allowance:

(1) that the contractors' investments were in their equipment, all of which was movable — not in the coal in place; (2) that their investments in equipment were recoverable through depreciation — not depletion; (3) that the contracts were completely terminable without cause on short notice; (4) that the landowners did not agree to surrender and did not actually surrender to contractors any capital interest in the coal in place; (5) that the coal at all times, even after it was mined, belonged entirely to the landowners, and that the contractors could not sell or keep any of it but were required to deliver all that they mined to the landowners; (6) that contractors were not to have any part of the proceeds of the sale of the coal, but, on the contrary, they were to be paid a fixed sum for each ton mined and delivered, which was, as stated in Huss, 255 F.2d 600 agreed to be in full compensation for the full performance of all work and for the furnishing of labor and equipment required for the work"; and (7) that contractors, thus, agreed to look only to to the landowners for all sums to become due them under their contracts.

Parsons, 359 U.S. at 225, 79 S.Ct. at 663 (citations omitted). While this court recognizes that these factors, dealing with depletion allowances, are not controlling in a case such as this involving reclamation fees, they do provide a standard by which it may be determined whether the...