OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

Search conducted by: Joyce Zweben Scall Page 1 of 5

COALEX STATE INQUIRY REPORT - 171

March 19, 1991

Ann P. Faitz, Esquire

Department of Pollution Control and Ecology

8001 National Drive

P.O. Box 9583

Little Rock, Arkansas 72209

TOPICS:

I - PERMIT RENEWALS: NOTIFICATION OF SURETIES; LIABILITIES OF SURETIES

II - OBTAINING DEFICIENCY JUDGMENTS AGAINST COAL MINING COMPANY 

STOCKHOLDERS

INQUIRY: Please locate any administrative, state or federal decisions on the following two 

issues:

I. How does the renewal of a coal mining permit affect the surety's liability on its bonds 

when the renewal constitutes a substantial modification of the original permit? Must a 

surety be notified when a permit is renewed or modified?

II. Can the state bring a deficiency judgment against any solvent corporations or individuals 

who were shareholders of the insolvent mining company in order to recover the actual 

cost of reclamation when the cost is twice the amount of the bond? 

The state administrative decision on which this Inquiry is based is attached. 

SEARCH RESULTS: Research was conducted using the COALEX Library and publicly 

available materials in LEXIS, as well as several existing COALEX State Inquiry Reports which 

address related issues. 

TOPIC I

SEARCH RESULTS

No decisions were identified which address the specific issues of this topic. However, two 

COALEX Reports and several other opinions, relating to bond forfeiture, were identified which 

discuss the responsibility of the regulatory authority (RA) to notify the surety when operators fail 

to meet their responsibilities under SMCRA, leading to bond forfeiture, or the responsibility of 

the surety to ensure that the operators meet their SMCRA responsibilities. Opinions from the two 

COALEX Reports which are particularly relevant and the additional cases are discussed below. 

Copies of all materials are attached.
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

Search conducted by: Joyce Zweben Scall Page 2 of 5

Research in the state materials available in COALEX indicate that the state regulations generally 

follow the federal program language with regard to permit revisions or renewal, bonds and surety 

notification requirements: the RA may require reasonable revision of the permit and send a copy 

of the order to the permittee [30 CFR 774.11 (b) and (c)]; permit revision and permit renewals 

require public notification procedures to be followed [30 CFR 774.13 and 774.15]; the surety 

must be notified if there is an adjustment to be made to the bond [30 CFR 800.15]. {Emphasis 

added.} NOTE: State regulations in COALEX are current through mid-1989.

BOND FORFEITURE DECISIONS - EXISTING COALEX REPORTS

COALEX STATE INQUIRY REPORT - 102 (January, 1989). "Forfeiture of reclamation 

bonds; liability period". 

See attached report.

COALEX STATE INQUIRY REPORT - 105 (February, 1989). "Bond forfeiture -

relationship of bond to permitted area". 

Entire report is attached. See cases of particular interest, below.

1. AMERICAN DRUGGISTS' INSURANCE CO. [ADI] v NATURAL RESOURCES 

AND ENVIRONMENTAL PROTECTION CABINTE, 687 SW 2d 555 (Ky Ct App 

1985).

The court held that as a compensated surety, ADI had a duty to ensure that the operator 

reclaimed the permitted area and that nothing prevented the surety from minimizing their 

loss by undertaking to perform the required reclamation. The court noted that an 

operator's bankruptcy was a hazard that the surety bonds were meant to guard against. "It 

should take something more than an anticipated risk of doing business to relieve [ADI] 

from performing on its bonds." 

2. AMERICAN CASUALTY CO. v COMMONWEALTH OF PA.,, DEPT. OF 

ENVIRONMENTAL RESOURCES [DER], 65 Pa Commw 223, 441 A2d 1383 (Pa 

Commw Ct 1982).

The court upheld bond forfeiture actions which followed cessation of mining operations 

by seven years, stating that both the "Anthracite Strip Mining and Conservation Act" and 

the bonds require that American Casualty's liability continue "until all of the 

requirements of the Act are performed. Furthermore, the general rule is that where the 

provisions of the bond are capable of two or more meanings, the language is construed 

most strongly against the obligor." The court ruled that DER owed the surety "no duty of 

active diligence in proceeding against [the operator] beyond what was actually required 

by the Anthracite Act. The surety could not point to any provision in the Act which 

required enforcement action beyond that taken by DER." 
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

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BOND FORFEITURE - ADDITIONAL DECISIONS

PERSONAL SERVICE INSURANCE CO. [PSI] v MAMONE, 22 Ohio St 3d 107, 489 

NE2d 785 (Ohio 1986). 

When the operator defaulted, PSI opted to perform the reclamation work rather than make 

payments on the bond. During the course of the work, PSI committed violations of the 

reclamation performance standards. The court reversed the lower court decision when it ruled 

that citing PSI was not an invalid retroactive application of the law (which was enacted before 

PSI began its reclamation) nor was it an unconstitutional impairment of the surety contract: PSI 

was penalized for its conduct during reclamation, not as a surety. 

OHIO FARMERS INSURANCE CO. v COMMONWEALTH OF PA, DEPT OF 

ENVIRONMENTAL RESOURCES [DER], 73 Pa Commw 18, 457 A2d 1004 (Pa Commw 

Ct 1983).

Citing to AMERICAN CASUALTY, above, the court stated that Ohio Farmers "failed to direct 

our attention to any provision in the Act which requires enforcement action beyond that which 

DER appears to have taken here." Neither the surface mining law nor the "suretyship contract 

obligated DER to give the insurance company advance notice of any possible default by [the 

operator]."

ROCKWOOD INSURANCE CO. v COMMONWEALTH OF PA, DEPT. OF 

ENVIRONMENTAL RESOURCES [DER], 1981 EHB 424 (Pa. Environ. Hearing Bd. 

1981).

Rockwood, the surety on the forfeited bonds, failed to prove that it should be discharged from 

liability because DER did not perform its duty to enforce SMCRA against the operators, Blue 

Coal Company and Northwest Mining Company. 

TOPIC II

SEARCH RESULTS

The deficiency cases retrieved addressed non-coal mining related issues, e.g., securities law 

violations, failed banks, IRS tax issues and personal guarantees on loan agreements. Only one 

case of possible relevance was identified. It is discussed below and a copy is attached. An 

existing COALEX Report on the individual liability of corporate officers, directors or agents for 

civil penalties and several other decisions which rule on "piercing the corporate veil" are also 

attached. Some of these cases are discussed below.
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

Search conducted by: Joyce Zweben Scall Page 4 of 5

DEFICIENCY JUDGMENTS

APACHE LANES, INC. v NATIONAL EDUCATORS LIFE INSURANCE CO., 529 P2d 

984 (Oklahoma 1974).

The court ruled that the failure of National Educators (creditor) to seek a deficiency judgment 

against Apache Lanes (debtor) at the time of its foreclosure sale barred National Educators from 

taking action against the individual guarantors of the Apache Lanes' mortgage note. The 

proceeds from the foreclosure sale of the bowling alley were "deemed to be in full satisfaction of 

the mortgage debt".

PIERCING THE CORPORATE VEIL - EXISTING COALEX REPORT

COALEX STATE INQUIRY REPORT - 131 (November, 1989). "Individual liability of 

corporate officer, director or agent". 

See attached report.

PIERCING THE CORPORATE VEIL - ADDITIONAL DECISIONS

NOVAK AND NOVAK SANITARY LANDFILL, INC. [NSL] v COMMONWEALTH OF 

PA, DEPT. OF ENVIRONMENTAL RESOURCES [DER], EHB DOCKET NO. 84-425-M, 

SLIP OP (PA. ENVIRON. HEARING BD. 1987).

"CORPORATE OFFICERS may be held personally liable for violations of the Solid Waste 

Management Act and the Clean Streams Law either through piercing the corporate veil or 

establishing their participation in the violations." DER failed to present sufficient evidence to 

hold the Novaks personally liable under either of the two theories indicated above. NSL, 

however, was found to have failed to comply with certain terms and conditions of its permit and 

was in violation of both state statutes.

US v PISANI, 646 F2d 83 (3rd Cir 1981).

The court held Pisani personally liable for Medicare overpayments which the former Department 

of Health, Education and Welfare [HEW] made to his solely-owned corporation. HEW presented 

evidence that the corporation was "merely a facade for the operations of the dominant 

stockholder". For example, Pisani followed no corporate formalities, operated the corporation 

with his personal funds and kept the corporation undercapitalized.

PLEASE NOTE: The cases in this and the attached reports have been Shepardized.

ATTACHMENTS

A. IN THE MATTER OF SUGARLOAF MINING CO., Docket No. LIS 90-033 (Ark Dept 

of Pollution Control and Ecology 1990). 
OFFICE OF SURFACE MINING RECLAMATION AND ENFORCEMENT

U.S. Department of the Interior

Search conducted by: Joyce Zweben Scall Page 5 of 5

B. COALEX STATE INQUIRY REPORT - 102 (January, 1989). "Forfeiture of reclamation 

bonds; liability period". (See attached report.) 

C. COALEX STATE INQUIRY REPORT - 105 (February, 1989). "Bond forfeiture -

relationship of bond to permitted area". 

D. PERSONAL SERVICE INSURANCE CO. [PSI] v MAMONE, 22 Ohio St 3d 107, 489 

NE2d 785 (Ohio 1986). 

E. OHIO FARMERS INSURANCE CO. v COMMONWEALTH OF PA, DEPT OF 

ENVIRONMENTAL RESOURCES [DER], 73 Pa Commw 18, 457 A2d 1004 (Pa 

Commw Ct 1983). 

F. ROCKWOOD INSURANCE CO. v COMMONWEALTH OF PA, DEPT. OF 

ENVIRONMENTAL RESOURCES [DER], 1981 EHB 424 (Pa. Environ. Hearing Bd. 

1981). 

G. APACHE LANES, INC. v NATIONAL EDUCATORS LIFE INSURANCE CO., 529 

P2d 984 (Oklahoma 1974).,/ 

H. COALEX STATE INQUIRY REPORT - 131 (November, 1989). "Individual liability of 

corporate officer, director or agent". 

I. NOVAK AND NOVAK SANITARY LANDFILL, INC. [NSL] v COMMONWEALTH 

OF PA, DEPT. OF ENVIRONMENTAL RESOURCES [DER], EHB Docket No. 84-

425-M, slip op (Pa. Environ. Hearing Bd. 1987). 

J. US v PISANI, 646 F2d 83 (3rd Cir 1981).