Opinion ID: 1330380
Heading Depth: 1
Heading Rank: 2

Heading: Appeal to Surface Mine Board

Text: Pursuant to W.Va.Code, 22-3-17(e) [1994], Kingwood filed a petition for appeal of the DEP-FAD with the Surface Mine Board (hereinafter Board). [12] See W. Va.Code, 22B-4-1 [1994] (Appointment and organization of surface mine board). A ten-hour hearing on Kingwood's petition was conducted before the Board on July 17, 1995. In addition to the complete record considered by the DEP and the additional documents presented to it at the hearing, the Board heard the testimony of six fact witnesses and two expert witnesses on behalf of Kingwood, as well as the testimony of two fact witnesses on behalf of the DEP. The Board also asked questions of the parties' witnesses and of their counsel. In a final order entered August 28, 1995, the Board reversed the DEP's Final Agency Decision, ultimately concluding that neither KMC nor Kingwood controlled T & T and further, that neither KMC nor Kingwood has or had actual authority to determine the manner in which T & T conducts or conducted its mining operations. The Board made the following relevant findings of fact: 6. T & T was required under the lease and coal sales agreements to maintain its operations separate and independent of KMC or Kingwood. KMC and Kingwood did not have the right under the lease or the coal sales agreements to approve the mining plans or mine projections for the T & T mines. The only thing that T & T was required to provide to KMC or Kingwood under the lease was a copy of the six month progress maps for the mines. 7. T & T prepared all mining plans, permit applications, mine projections, health and safety plans, maps, and all other necessary documentation for the T & T mines. All permits for the T & T mines were in T & T's name. T & T did its own engineering work, or had it done by outside consultants. Kingwood did not do any engineering work for T & T. T & T paid all of its own bills, and Kingwood never loaned any money to T & T. Kingwood did not participate in regulatory inspections of the T & T mines, and Kingwood did not receive copies of inspection reports, notices of violation, cessation orders, or penalty assessments. 8. In 1990 John T. Clark, a Registered Professional Engineer, was hired by Kingwood as Chief Engineer. John Clark was employed by Kingwood from 1990 to 1994. During his employment by Kingwood, John Clark also did work for several local engineering consulting firms on his own time. This practice is commonly known as moonlighting. As part of his moonlighting activities for a local engineering firm, John Clark sealed several mine maps for T & T. This was done by John Clark in his private capacity and was not done as an employee of Kingwood. John Clark did not prepare any maps, plans, or permit applications for T & T. The signing of T & T maps by John Clark was not done for or on behalf of Kingwood, and John Clark's signing of these mine maps for T & T did not give Kingwood any control over T & T. 9. Under the lease and coal sales agreement, Kingwood had the right to suggest matters dealing with protection of the reserves and quality of the coal. During active mining, KMC and Kingwood did on occasion make suggestions to T & T dealing with protection of the coal reserves and the quality of the coal. KMC and Kingwood occasionally requested that T & T take certain actions in order to protect the reserves or to improve the quality of the coal. However, Kingwood never demanded, nor did it have the right to demand, that T & T take any particular action with regard to the T & T mines. KMC's and Kingwood's requests were appropriate under the lease and coal sales agreements. 10. During the mining, T & T would from time to time seek the approval of KMC, and later Kingwood, to withdraw from an area of the mine or not to mine in the area. KMC and Kingwood would approve such requests. KMC and Kingwood were concerned that T & T obtain, as T & T was required to do under the lease, all of the minable and merchantable coal. When T & T withdrew from an area of the mine, any remaining coal would become difficult or impossible to mine. Thus, coal reserves would be lost. Kingwood and KMC's approval of T & T's requests to leave reserves was appropriate under the lease to protect the coal reserves. 11. T & T owned the coal when it was removed from the ground. The method of determining the price paid by KMC to T & T for the coal changed several times over the years. Kingwood paid a flat rate for the coal it bought from T & T. Regardless of how it was determined, the price paid to T & T was influenced by the ultimate market price received for the coal by either KMC or Kingwood. 12. Under the coal sales agreements KMC, and subsequently Kingwood, had the right to buy the coal produced by T & T from the mineral reserves leased to it by KMC. The 1977 coal sales agreement required T & T to sell to KMC and subsequently to Kingwood all of the coal mined by it from the mineral reserves it leased from KMC. Approximately fifteen percent of the coal mined in the T & T # 3 mine was private mineral not leased from KMC or Kingwood. T & T was free to sell this coal to whomever it pleased. During one period in the mid to late 1980's, KMC could not take all of the coal produced by T & T, and KMC approved coal sales by T & T to third parties that amounted to about 400,000 tons. The 1977 coal sales agreement allowed T & T to make coal sales to third parties without approval by KMC or Kingwood if for any reason KMC or Kingwood could not buy all the coal produced by T & T for a forty-five day period. 13. The Board finds that T & T was not under the control of any other organization. In addition, the Board made the following relevant conclusions of law: 2. [38 C.S.R. 2-2.84(b)(6) (1996)] creates the presumption of control if DEP can prove that Kingwood owned or controlled the coal mined by T & T and had the right to receive such coal. Alternatively, even without the presumption, DEP could prove that Kingwood had the authority to determine the manner in which T & T conducted its surface mining operation. 3. The DEP asserts in the FAD at page 18: `The implied authority possessed by Kingwood over the operations conducted under the relevant permits cannot be lightly discounted.' However, [the Office of Surface Mining] describes the nature of the authority in question as `actual,' as opposed to `express' or `implied' authority. 53 FR 38868, at 38870 and 38877, October 3, 1988. 4. In determining whether Kingwood had control over T & T, the test to be applied is the actual authority of Kingwood over the operations of T & T. 53 Federal Register 38868 at 38870 and 38877, October 3, 1988. 5. In this case no issue has been presented about any possible stock ownership relationship between T & T and either Kingwood or KMC. 6. The [Office of Surface Mining] and DEP regulations describe actual authority in terms of `direct' and `indirect' authority. Direct authority is that authority conferred by operation of law or by the creation of legally enforceable rights between the parties through mutually binding agreements. 7. In this case, Kingwood's ability to directly require T & T to act in the fashion that Kingwood wanted was limited by the lease and its amendments and the coal sales agreements between Kingwood and T & T. Kingwood did not have the right under the lease and the coal sales agreements to require T & T to conduct its operations as Kingwood directed. The lease and its first amendment and the coal sales agreements were entered into before the Surface Mining Act came into effect in 1977, and were between parties of sufficient resources and business experience as to be arms length transactions. Accordingly, Kingwood had no direct authority to control T & T. 8. Kingwood could not terminate either the lease or any of the coal sales agreement[s] arbitrarily or without reason. In this case Kingwood's inability to indirectly force T & T to comply with Kingwood's wishes was limited by the lease and coal sales agreements. T & T was able under the lease to take disputes to arbitration, and under the coal sales agreements it could litigate disputes. Kingwood had no unilateral right sufficient to force T & T to accede to Kingwood's wishes. For example, had Kingwood at any time canceled the coal sales agreement, then the lease with T & T still would have been in effect and T & T could have sold the coal to third parties. Kingwood was and is unable to unilaterally impose sufficient consequences on T & T to force T & T to comply with Kingwood's wishes. Accordingly, Kingwood lacked sufficient indirect authority to control T & T. 9. The Board finds that Kingwood presented sufficient evidence to overcome any presumption of control created by the relationship between the parties. Since the Board is basing its ruling upon all the evidence, the Board does not accept or reject the other arguments advanced by Kingwood. The Board, for the purposes of this Decision, has considered the actions of both KMC and Kingwood in determining whether T & T was controlled by someone else. 10. A preponderance of the evidence establishes that Kingwood's activities under the lease were necessary and appropriate to protect the coal reserves and attempt to ensure maximum recovery of the reserve, and are not evidence of control. 11. A preponderance of the evidence establishes that Kingwood's activities under the coal sales agreements were proper to ensure that the coal could be processed to meet the quality requirements needed to fulfil its supply orders and are not evidence of control. 12. Kingwood has established by a preponderance of all of the evidence that T & T is not and was not under the control of either KMC or Kingwood. The preponderance of the evidence in the record establishes that regardless of whether the presumption does or does not exist, neither KMC nor Kingwood has or had actual authority to determine the manner in which T & T conducts or conducted its mining operations. 13. DEP acted unlawfully in issuing its Final Agency Decision of April 25, 1995, finding that Kingwood owned or controlled T & T. The effect of the Board's decision was that of dissolving the ownership and control link between Kingwood and T & T. [13]