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. e du/thir dc ir c uit_1999/19Filed January 25, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 98-3151

C & K COAL COMPANY,

Petitioner

v.

VIRGINIA TAYLOR, widow of William Taylor, LAMP COAL COMPANY, OLD REPUBLIC INSURANCE COMPANY, and DIRECTOR, OFFICE OF WORKERS' COMPENSATION
PROGRAMS, UNITED STATES DEPARTMENT OF LABOR,

ON APPEAL FROM A PETITION

FOR REVIEW OF A DECISION AND ORDER

OF THE BENEFITS REVIEW BOARD DATED JANUARY 8, 1998 (BLA No. 95-1531)

Argued November 17, 1998

Before: McKEE, RENDELL, and WEIS, Circuit Judges.

Filed: January 25, 1999

Martha A. Zeigler Eberhardt, Esquire (ARGUED) John B. Bechtol, Esquire

Bechtol Lee & Eberhardt The Ewart Building, 2nd Floor 925 Liberty Avenue Pittsburgh, PA 15222

Attorney for PetitionerMark S. Flynn, Esquire (ARGUED)

Director, Office of Workers' Compensation Programs Marvin Krislov, Esquire Deputy Solicitor for National Operations Allen H. Feldman, Esquire Associate Solicitor for Special Appellate and Supreme Court Litigation Nathaniel Spiller, Esquire Deputy Associate Solicitor United States Department of Labor 200 Constitution Avenue, N.W.

Room N-2700 Washington, D.C. 20210

Attorneys for Respondent Director, Office of Workers' Compensation
Programs

Mark E. Solomons, Esquire
(ARGUED) Laura Metcoff Klaus, Esquire Arter & Hadden, LLP

Suite 400K 1801 K Street, N.W. Washington, D.C. 20006

Attorneys for Respondents Lamp Coal Company and Old Republic Insurance Company

OPINION OF THE COURT

WEIS, Circuit Judge.

The issue in this Petition for Review is whether th e successor operator of a coal mine is responsible fo r payment of Black Lung benefits to a long-time emplo yee of the mine who worked for the successor for only a fe w months. We conclude that, under the Black Lung Bene fits

2Act and implementing regulations, the successor ope rator,

as opposed to the prior operator, is liable. We als o decide that, despite inexcusable and prolonged delay in th e administrative process, responsibility for payment should not be shifted to the Black Lung Disability Trust F und under the circumstances presented here. Accordingly , we will deny the Petition for Review.

By Friday, August 23, 1974, William Taylor had work ed as a coal miner for Lamp Coal Company ("Lamp") for approximately twenty-seven years. On that day, Lamp terminated all of its employees and sold its assets to Cambria Coal Company, a subsidiary of C & K Coal Company. Taylor returned to work the following Mond ay as a supervisor for C & K and he worked in that positi on until November 23, 1974 when he retired.

Taylor applied for Black Lung benefits in January 1 975, listing Lamp as his most recent employer. The Offic e of Workers' Compensation Programs ("Office") prelimina rily approved the application effective January 1, 1975 and notified Lamp that it was responsible for payment. Lamp objected, informing the Office that it was not Tayl or's most recent employer.

Taylor's Social Security records confirmed that C & K was his last employer but the Office, unaware of the sa le and potential successor liability, determined that C & K could not be responsible because Taylor had not worked fo r that employer for a year as required by regulation. Lamp then formally controverted the claim.

In September 1977, having learned of the sale of as sets, the Office notified C & K that it was the responsib le operator. C & K then controverted the claim. In Nov ember 1977, the Office acknowledged the objection but inf ormed C & K of its right to have the miner examined and for warded a copy of the evidence file. In January 1978, after development of additional uncertainty over the sale , the

claim was remanded to the Office at the Director's request

for a redetermination.

Pending designation of a responsible operator, Tayl or received benefits from the Black Lung Disability Tr ust Fund. He died in May 1980, and his widow continued to

3receive benefits from the Fund. One month after Tay lor's

death, the Office again designated C & K as the res ponsible operator. More questions arose, however, and after further consideration, in 1981 the Office pointed back at L amp. This time, Lamp's insurer objected. Four more years passed before the Office concluded in 1986 that C & K, as Lamp's successor, was the responsible operator.

The matter was eventually assigned to an ALJ for a hearing in 1988. Both operators were named and appe ared as potentially responsible parties. They convinced the ALJ that the lengthy procedural delay had violated thei r respective due process rights. The ALJ ultimately d ismissed both C & K and Lamp and assigned liability to the T rust

Fund.

The Director appealed to the Benefits Review Board. Five years later, in February 1993, the Board reversed a nd

remanded to the ALJ with directions to consider bot h the widow's entitlement and C & K's liability. On Augus t 25, 1995, the ALJ awarded benefits to the widow and hel d C & K responsible. The Board affirmed, both initially a nd upon reconsideration. This petition for review followed.

We review this final order of the Board pursuant to 33 U.S.C. S 921(c), as incorporated into the Black Lun g Benefits Act, 30 U.S.C. S 932(a). Factual determina tions by the Board will be upheld if supported by substantia l evidence; questions of law receive plenary review. See 33 U.S.C. S 921(b)(3); Venicassa v. Consolidation Coal Co., 137 F.3d 197, 200 (3d Cir. 1998).

The widow's entitlement to benefits is not conteste d in this petition. Rather, the only question is the sou rce of payment. C & K disputes its responsibility and cont ends alternatively that the extended administrative dela y violated its due process rights.

I.

The Black Lung Benefits Act, 30 U.S.C. S 901 et seq

., seeks to hold operators liable for the costs of pneumoconiosis. Because miners often shifted betwee n employers and operators went out of business, becam e

4insolvent or merged with others, industry realities

necessitated some complex rules for identifying a responsible operator. The long latency period and complications associated with pneumoconiosis posed additional problems in terms of the equitable assig nment of responsibility. Anticipating situations in which it would be impossible to trace or assess the responsible opera tor, Congress established the Trust Fund. See 26 U.S.C. S 9501. Financed by the coal industry, the Fund becomes a s ource of benefit payments only when a responsible operato r cannot be identified, has gone out of business or i s financially incapable of assuming liability. See 26 U.S.C. S 9501(d).

Liability generally attaches to the affected miner' s most recent employer. Foreseeing problems attendant upon the transfer of mine ownership, however, Congress speci fied in 30 U.S.C. S 932(i)(1) that: "the operator of a coal mine who . . . acquired such mine or substantially all the a ssets thereof, from a . . . `prior operator' . . . shall be liable for . . . the payment of all benefits which would have been payable by the prior operator . . . with respect to miners previously employed by such prior operator as if th e acquisition had not occurred and the prior operator had continued to be an operator of a coal mine." A more specific provision, aimed directly at the sale of mining ass ets, provides: "[i]f an operator ceases to exist by reas on of a sale of substantially all his or her assets . . . the su ccessor operator . . . shall be treated as the operator to whom this section applies." See 30 U.S.C. S 932(i)(3)(D).

Pursuant to statutory direction, the Secretary of L abor duly promulgated regulations to determine "whether pneumoconiosis arose out of employment in a particu lar coal mine or mines" and to identify the responsible operator. See 30 U.S.C. S 932(h); 20 C.F.R. SS 725. 490 - 725.493. The regulation at issue, 20 C.F.R. S 725.4 93, designates as the responsible operator the employer with which the miner has the most recent period of cumul ative employment of not less than one year. See 20 C.F.R. S 725.493(a)(1); see also Appendix for text of 20 C .F.R. S 725.493(a)(1), (a)(2)(i), (a)(2)(ii), (a)(4).

5Echoing the Act, however, the paragraph immediately

following provides that the successor operator "sha ll be liable for . . . benefits which would have been pay able by the prior operator with respect to miners previousl y employed by such prior operator as if the acquisiti on had not occurred and the prior operator had continued t o be a coal mine operator." See 20 C.F.R. S 725.493(a)(2)( i); see also 30 U.S.C. S 932(i)(1). The one-year minimum employment rule is expressly made "[s]ubject to" th e provisions of this paragraph. See 20 C.F.R. S 725.4 93(a)(1) ("Subject to the provisions of paragraph[ ] (a)(2)" ). Moreover, as the more specific provision, paragraph (a)(2), b y its placement and content, operates as an exception to the one-year minimum employment rule. Thus, the success or situation, expressly covered by paragraph (a)(2)(i) , is not governed by the rule set forth in paragraph (a)(1), i.e., the minimum employment rule.

In addition to these specific successor operator ru les, the Act and regulations establish a framework for deter mining which, as between the prior and successor operator, is "primarily liable" for the payment of benefits. See 30 U.S.C. S 932(i)(2); 20 C.F.R. S 725.493(a)(2)(ii). Noting that Congress sought to prevent an operator from circumv enting responsibility by entering into corporate or other business

transactions which "make the assessment of liabilit y against that operator a financial or legal impossib ility," subsection (a)(2)(ii) of the regulation provides th at a "prior operator . . . shall remain primarily liable for th e payment of benefits under this part predicated on employmen t with the prior operator" if it is able to assume financi al responsibility through insurance or otherwise. See 20 C.F.R. S 725.493(a)(2)(ii); see also 30 U.S.C. S 93 2(i)(2).

Applying these statutory and regulatory provisions, we must determine whether Lamp, as the prior operator, or C & K, as the successor operator, is responsible. The Director, seeking to uphold assignment of liability to C & K, contends that under the regulations, because it emp loyed Taylor, albeit for less than a year, C & K is prima rily liable as the successor. Lamp, in agreement with the Direc tor, maintains that employment by a successor operator overrides application of the one-year minimum emplo yment

6rule. Old Republic, Lamp's insurer, adopts its insu red's

interpretation of the regulation.

C & K attacks the ALJ finding that Lamp ceased doin g business upon sale of its assets and, on that basis , argues that Lamp remains primarily liable. In addition, C & K contends that even if it is a successor, it is not responsible because it employed Taylor for less than one year. Finally, should we agree that it is responsible, C & K asser ts that Lamp had agreed to indemnify it against any claims existing at the time of the sale.

We are persuaded that the Director's position is co rrect. In looking first, of course, to the statute, we obs erve that the Act clearly specifies that the successor operat or is responsible for benefits which "would have been pay able" by the prior operator for miners previously employe d by the prior operator as if the prior operator had continu ed to operate the mine. See 30 U.S.C. S 932(i)(1). There is no dispute that Taylor previously worked for Lamp and was later employed by C & K following the change of own ership. Section 932(i)(1), read in isolation, unmistakably contemplates assigning responsibility to C & K.

The paragraph immediately following, however, complicates matters because it states that "nothing in [subsection 932(i)] shall relieve any prior operato r of any liability under this section." See 30 U.S.C. S 932( i)(2). Together, these provisions of the Act might be read to pose a contradiction between assigning liability to the successor under (i)(1), yet specifically retaining liability in the prior operator under (i)(2).

The Secretary's regulation, however, eliminates any apparent inconsistency. Under 20 C.F.R. S 725.493(a )(2)(ii), the successor becomes responsible for miners previo usly employed by the prior operator once they are hired by the successor following the change in ownership. If, ho wever, the miner did not work for the successor, the prior operator remains primarily liable. In that situation, primar y liability only shifts to the successor if the prior operator is financially incapable of assuming payments. See 20 C.F.R. S 725.493(a)(2)(ii).

7Translated into the circumstances of this case, bec ause

Taylor worked for Lamp and continued to work in the mine after C & K's subsidiary took it over, C & K become s primarily liable. In other words, once C & K purcha sed Lamp's assets, thereby becoming Lamp's successor, i t was as if Taylor had worked for C & K twenty-seven year s and three months. Only if C & K could not otherwise ass ume liability would Lamp remain primarily liable. See 2 0 C.F.R. S 725.493(a)(2)(iii).

That Taylor worked for C & K for less than a year d oes not alter the outcome. The regulation's one-year mi nimum employment rule is specifically made subject to the special rule for successors. See 20 C.F.R. S 725.493(a)(1), (a)(2)(i). Moreover, the one-year rule is not contained in the Act, which, to the contrary, dictates a special rule for successors. See 30 U.S.C. S 932(i)(1), (i)(3)(D). W e agree with the Director's interpretation of the regulation, on e that does not conflict with the Act, and therefore hold that C & K is primarily liable.

We reject, as based on an erroneous reading of the Act, C & K's argument that if indeed Lamp continued as a viable entity following the sale of substantially all of i ts mining assets, Lamp remains primarily liable. Neither the basic successor rule, 30 U.S.C. S 932(i)(1), nor its more specific formulation, 30 U.S.C. S 932(i)(3)(D), require tota l cessation of the prior operator's business before the success or becomes potentially liable. In this situation, both operators were potentially liable; the question was whether t here existed any basis for assigning primary liability t o C & K.

We must also deny C & K's plea to apportion liabili ty. We do this despite the intrinsic appeal of allocating liability to reflect the fact that Taylor had worked for Lamp fo r 27 years and for C & K only three months.

The Act authorized the Secretary to "establish[by regulation] standards for apportioning liability fo r benefits." 30 U.S.C. S 932(h). The Secretary proposed an apportionment-based regulation in 1972, but withdre w it amidst adverse comment. See 37 Fed. Reg. 18,167-68 (Sept. 7, 1972). Apportionment would have introduce d a substantial degree of complexity and it appeared th at fixed

8guidelines would better serve the mining industry. We note

a ready analogy in the commercial field where it is recognized that arbitrary rules known in advance, e ven if inequitable in some specific instances, are on the whole necessary for the efficient conduct of business. Ac cordingly, in the absence of a regulation permitting apportion ment, C & K must bear the full burden of payment.

II.

Should it be the responsible operator, C & K argues vigorously that the administrative delay has denied it due process. The remedy, C & K urges, is a total transf er of liability to the Trust Fund.

It appears that the Office was aware as early as 19 77 of the uncertainty surrounding the responsible operato r issue. As noted earlier, however, eleven years of wranglin g passed before all potential parties appeared before an ALJ for a basic evidentiary hearing.

In one of the appeals to the Board, the Director di d not file his brief for two years beyond the time set by the

Board's rules. See 20 C.F.R. SS 802.210-802.217. In a subsequent appeal, the Director was again delinquen t and again the Board did not enforce its rules. The Boar d's ultimate decision, upon reconsideration, to affirm was not docketed until January 8, 1998.

Thus, more than 23 years elapsed from the initial application to the date of the responsible operator determination. Fortunately for the Taylors, interim payments have been made from the Trust Fund.

Although we recognize that inadequate information initially hampered the Office's ability to grasp th e relationship among Taylor, Lamp and C & K, we are appalled that this relatively straightforward issue bounced three times between the Office and an ALJ, accompan ied by unnecessary delays. Similarly, we cannot ignore tha t the Board compounded the delay by permitting the Direct or to flout its rules that set time limits for filing bri efs.

Unfortunately, as we have observed in the past, suc h "dismaying inefficiency" has long characterized the

9administration of this Act. See, e.g. , Venicassa, 137 F.3d at

198 & n.2 (12 years delay compounded by error of th e Office); Lango v. Director, OWCP, 104 F.2d 573 (3d Cir. 1997) (benefits awarded after 14 years); see also A max Coal Co. v. Franklin, 957 F.2d 355, 356 (7th Cir. 1992) ("As so often in black lung cases, the processing of th[is] claim has been protracted scandalously . . . ."). We publiciz ed our dismay in Lango, hoping to bring the Act's poor

administration "to the attention of authorities who can do something about it." 104 F.3d at 576.

The tortured route that this matter took towards resolution simply cannot be justified. Counsel for the current Director, with admirable candor, did not tr y to do so at oral argument. Rather, he assured us that ste ps have been taken in the last few years to ensure that Bla ck Lung claims are expeditiously resolved. Statistics revea l that the number and age of pending Black Lung cases has, ind eed, steadily decreased. We cannot hope but that this tr end continues. Recent progress, however, is of little c onsolation to C & K and we must consider its due process chall enge under the deplorable circumstances here.

In large part, we view the proposed remedy for the asserted due process challenge violation through ou r perception of the Trust Fund's purpose and nature. Congress intended operators to bear the costs of pneumoconiosis whenever feasible. See S. Rep. No. 9 5-209, at 9 (1977), reprinted in House Comm. on Educ. and Labor, 96th Cong., Black Lung Benefits Reform Act and Blac k Lung Benefits Revenue Act of 1977, 612 (Comm. Print 1979); see also Director, OWCP v. Oglebay Norton Co ., 877 F.2d 1300, 1304-05 (6th Cir. 1989). The Trust Fund exists

as a fail-safe mechanism and it is not a creature o f the Department of Labor, the Office or the Board. See 2 6 U.S.C.

S 9501.

Given the dismal history of the Act's administratio n, it is not hard to envision how quickly a policy of libera l transfer of claims to the Fund would deplete its resources. Such a remedy, it is generally held, should only be invoke d where prejudice other than mere delay has been demonstrat ed. For example, in Venicassa, we found that the claima nt, forced to litigate his entitlement to benefits twic e, had been

10prejudiced by the ten-year delay and improper desig nation

of the responsible operator. See 137 F.3d at 202-03 . In those circumstances, rather than allow the litigati on to drag on, we concluded that the Trust Fund should as sume liability. See id. at 203-04.

In Lane Hollow Coal Co. v. Director, OWCP, 137 F.3d 799 (4th Cir. 1998), the alleged responsible operator w as notified 17 years after notice could have been give n and three years after the claimant died. The Court of A ppeals

for the Fourth Circuit concluded that because the inexcusable delay resulted in the loss of an opport unity to mount a proper defense, the operator had been denie d due process. See id. at 808. In light of the substantia l prejudice shown, payments were assigned to the Trust Fund. Se e id.

Oglebay dealt with a similar delay for which an ALJ had seen fit to transfer liability to the Trust Fund. S ee 877 F.2d at 1302. The Court of Appeals for the Sixth Circuit disagreed with that drastic approach, because "none of the parties . . . would suffer substantial prejudice by a further

remand." Id. at 1304. The claimant had been receivi ng interim benefits from the Trust Fund and the operat or had

access to substantial medical evidence sufficient t o provide an adequate defense on remand. See id. Oglebay simp ly did not involve prejudice comparable to that encountere d in

Venicassa and Lane Hollow.

The case before us is similar to Oglebay. C & K was notified in 1977 that its status as a responsible o perator was under consideration. Thus, it had three years t o procure appropriate medical evidence before Taylor died. On this record, we see no prejudice other than that attendant on the failure to confirm the liability t hat had been asserted years earlier. C & K makes some vague

reference to harm in connection with contractual ri ghts it may have had to indemnification from Lamp, but, as that position is not clearly articulated, we do not find it persuasive.

Accordingly, we will not hold that this delay, albe it inexcusable, ipso facto establishes a violation of C & K's due process rights. The fact that the delay cannot be attributed to the Trust Fund is an important additi onal

11factor. Foisting liability on the Trust Fund where no

demonstrable prejudice has occurred would run count er to Congressional intent by effectively shifting respon sibility for the Office's and the Board's failings onto contribu ting operators. We will not take that action when there is an operator legally responsible and financially capabl e of assuming payments.

We conclude that C & K is the legally responsible operator and that, while the delay present in this case cannot be condoned, neither its occurrence nor its consequences should be visited upon an innocent par ty,

the Trust Fund.

Accordingly, the petition for review will be denied

.

APPENDIX

20 C.F.R. S 725.493 (1998). Criteria for identifyin g a responsible operator.

(a)(1) Subject to the provisions of paragraphs (a)( 2) and (3) of this section, and provided that the conditio ns of S 725.492(a)(2) through (a)(4) are met, the operato r or other employer with which the miner had the most recent p eriods of cumulative employment of not less than 1 year, a s determined in accordance with paragraph (b) of this section, shall be the responsible operator.

(2)(i) Except as otherwise provided in this paragra ph, if the operator described in paragraph (a)(1) of this section was an operator of a mine or mines or the owner of the assets thereof on or after January 1, 1970, (a "pri or operator") and on or after January 1, 1970, transfe rred such mine or mines or substantially all of the asse ts thereof to another operator (a "successor operator"), such successor operator shall be liable for and shall se cure the payment of all benefits which would have been payab le by the prior operator with respect to miners previousl y employed by such prior operator as if the acquisiti on had not occurred and the prior operator had continued t o be a coal mine operator. A lessor of a coal mine may be considered a prior or successor operator in accorda nce with this subpart.

12(ii) The stated congressional objective supporting section

422(i) of the Act is to prevent a coal operator fro m circumventing liability under this part by entering into corporate or other business transactions which make the assessment of liability against that operator afina ncial or legal impossibility. Accordingly, a prior operator under paragraph (a)(2)(i) of this section, which transfer s a mine or mines or substantially all the assets thereof, shal l remain primarily liable for the payment of benefits under this part predicated on employment with the prior operator if such prior operator meets the conditions of S 725.492(a) (2) and (a)(4). If the conditions in S 725.492(a)(2) and (a )(4) are not met, the successor operator shall, if appropriate, be liable for the payment of such benefits.

. . . .

(4) If there is no operator which meets the conditi ons of paragraphs (a)(1) or (2) of this section, the respo nsible operator shall be considered to be the operator wit h which the miner had the latest periods of cumulative empl oyment of not less than 1 year, subject to the provisions of paragraph (a)(2) of this section and provided that the conditions of S 725.492(a)(2)-(a)(4) are met.

. . . .

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

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