Court Opinion

ID: 9959189
Source: CourtListenerOpinion
Date Created: 2024-04-10 19:18:00.318793+00
Date Added: 2024-06-11T08:18:30.821723
License: Public Domain

IN THE INTERMEDIATE COURT OF APPEALS OF WEST VIRGINIA
                                Spring 2024 Term                                 FILED
                         _____________________________                     April 10, 2024
                                 No. 23-ICA-72                               released at 3:00 p.m.
                                                                           C. CASEY FORBES, CLERK
                         _____________________________               INTERMEDIATE COURT OF APPEALS
                                                                              OF WEST VIRGINIA
                    MISSION COAL WIND DOWN CO., LLC,
               and GILBERT NATHAN, as PLAN ADMINISTRATOR,
                                Petitioners,
                                          v.
           DIRECTOR, DIVISION OF MINING AND RECLAMATION,
     WEST VIRGINIA DEPARTMENT OF ENVIRONMENTAL PROTECTION,
                               Respondent.
________________________________________________________________________
                  Appeal from the West Virginia Surface Mine Board
                              Chairman Mark G. Schuerger
                                Appeal No. 22-08-SMB
                       VACATED AND REMANDED
________________________________________________________________________
                              Submitted: February 6, 2024
                                 Filed: April 10, 2024
Christopher M. Hunter, Esq.                    Jeffrey O. Dye, Esq.
Jackson Kelly, PLLC                            West Virginia Dept. of Environmental
Charleston, West Virginia                      Protection, Office of Legal Services
Counsel for Petitioner                         Charleston, West Virginia
                                               Counsel for Respondent

                                               Kevin W. Barrett, Esq.
                                               Bailey & Glasser LLP
                                               Charleston, West Virginia
                                               Counsel for Respondent

JUDGE DANIEL W. GREEAR delivered the Opinion of the Court.
GREEAR, Judge:

              Plan Administrator Gilbert Nathan and Mission Coal Wind Down Co., LLC

(collectively “Petitioners”), appeal the January 23, 2023, Final Order of the West Virginia

Surface Mine Board (“Board”) affirming the Director of the Division of Mining and

Reclamation’s (“DMR”) Decision and Order for Compliance which ordered Gilbert Nathan

to be listed as an owner and controller of Pinnacle Mining Company, LLC (“Pinnacle”)

and Seminole West Virginia Mining Complex, LLC (“Seminole”) and required him to

update the ownership and control information for both permit holders, and by doing so

placed Mr. Nathan on the Applicant Violator System (“AVS”).

              Having reviewed this matter, we conclude that the Board failed to conduct a

proper analysis of whether Mr. Nathan was a “controller” under West Virginia Code of

State Rules § 38-2-2.83.d (2020) and West Virginia Division of Environmental Protection

v. Kingwood Coal Co., 200 W. Va. 734, 490 S.E.2d 823 (1997). Accordingly, we vacate the

January 23, 2023, Final Order and remand this matter to the Board for further proceedings

consistent with this opinion.

                                      Background
              In October of 2018, Mission Coal Company, LLC (“Mission Coal”) and its

affiliates filed for Chapter 11 Bankruptcy in the United States Bankruptcy Court for the

                                            2
Northern District of Alabama.1 Mission Coal continued to manage and operate their coal

mines, including Pinnacle and Seminole, as Debtors-in-Possession. On April 15, 2019,

Gilbert Nathan was approved by the bankruptcy court as the Plan Administrator. Pursuant

to the bankruptcy court’s Confirmation Order (the “Bankruptcy Plan”), Mr. Nathan would

act as the sole officer, director, and manager of Mission Coal to wind down its business.

                On April 30, 2019, Bluestone Resources, Inc. and Bluestone Oil Corp.

(collectively “Bluestone”) entered into an “Asset Purchase Agreement” and “Contract

Operator Agreement” with Petitioner. Under the terms of the Operator Agreement,

Bluestone was to become the permittee of the various mining permits (including associated

water discharge and air emission permits) issued by the West Virginia Department of

Environmental Protection (“DEP”) for the Pinnacle Mining Complex. Bluestone was also

to assume Petitioner’s obligations such as reclamation, remediation, cleanup at the Pinnacle

Mine Complex and was to be responsible for liabilities, costs, and obligations associated

with the permits and mining activities while Bluestone operated the Pinnacle Mine

Complex. Bluestone applied to DEP for a transfer of mining permits, but the transfers were

not approved due to unpaid civil penalties and unabated violations levied by DEP against

Bluestone’s other mines.2

       Mission Coal Company, LLC reorganized and became Mission Coal Wind Down
       1

Co., LLC.
       2
           Bluestone’s transfer efforts have been ongoing for nearly three and a half years.
                                               3
              While actively mining and removing coal from the Pinnacle Mine Complex,

Bluestone’s operations resulted in fines and penalties for numerous violations that have

been levied against the Petitioners. DMR entered Mr. Nathan personally in the AVS

database. On June 17, 2022, Petitioners asked the DMR to remove the fines and violation

notices against them and reissue those fines and violations against Bluestone as operator

of the Pinnacle Mine Complex. Mr. Nathan explained that he was acting as Plan

Administrator for Mission Coal Wind Down Co., LLC. Mr. Nathan asserted that the

reorganized debtor was a different entity from Mission Coal Company, LLC and his only

role was to implement the provisions of the Bankruptcy Plan which provided for the sale

of surface rights of Pinnacle to Bluestone and the subsurface rights to Contura Energy, Inc.

(“Contura”). Conversely, Bluestone was obligated to have the Pinnacle permits transferred

to it and had assumed the duty to comply with the permits during the interim. Further,

Bluestone was to indemnify the Petitioner for any of the alleged violations. Finally, Mr.

Nathan objected to being personally named in the AVS database of permit blocked entities,

as he was not acting in his personal capacity related to any Mission Coal entity.

              On August 1, 2022, DMR issued a Director’s Decision and Order for

Compliance denying Petitioners’ request and ordering that Mr. Nathan be listed as “an

owner or controller of Pinnacle Mining Company and Seminole West Virginia Mining

Complex” and requiring that he update the ownership and control information for both

permit holders. DMR explained that the reorganized debtor, the Plan Administrator, and

the directors of Pinnacle, collectively continued to be responsible for the mining permits

                                             4
until such were transferred to Bluestone. As the Plan Administrator, Mr. Nathan was listed

on the “permit-block” list due to the violations at Pinnacle Mine Complex pursuant to the

federal Surface Mining Control and Reclamation Act (“SMCRA”). This prevented Mr.

Nathan, personally, from obtaining new permits nationwide until the violations were

abated.3 Petitioners appealed DMR Director’s August 1, 2022, Decision and Order for

Compliance to the Board.

              On October 19, 2022, the Board held an evidentiary hearing. At that hearing,

Petitioners alleged that DMR was incorrect in finding that Mr. Nathan was a controller of

Pinnacle, as that conclusion was not supported by the evidence, was unreasonable,

inequitable, and not in accordance with the West Virginia surface mining law.4 The goal of

the Bankruptcy Plan was to liquidate the company so that a reorganized entity would

emerge from bankruptcy with virtually no assets. Mr. Nathan testified that the Pinnacle

assets were sold and split between Contura and Bluestone. Petitioners alleged that in 2019,

DEP gave “advanced approval” to Bluestone to operate the Pinnacle Mine and that

subsequently, Bluestone took over the Pinnacle assets and applied for the permit transfers.5

       3
          Mr. Nathan was on the board of directors for another coal company that was
applying for a mining permit in another state. When authorities in the other state ran a
check, Mr. Nathan’s status as permit-blocked was noted and he resigned from the board so
as not to affect the status of the other coal company.
       4
         We note that Mr. Nathan did not appeal the Director’s decision regarding his
control of Seminole.
       5
         Bluestone applied for a transfer of permits, but because it was permit-blocked due
to violations at other sites, a transfer could not occur.
                                             5
Mr. Nathan asserted that he was never affiliated with Pinnacle prior to its reorganization

and that the wind down entities he administered did not have the real or personal property

associated with the facility. Bluestone incurred violations at the Pinnacle Mining Complex

during its operations there and as such should be considered the controller. Further, Mr.

Nathan argued that it was DEP that allowed Bluestone to operate the Pinnacle permits

under “advanced approval.” Mr. Nathan asked the Board to order DEP to update the system

and remove the link that connects him to Pinnacle so that he would no longer be permit-

blocked or associated with the violations on the AVS as Plan Administrator.

             At the hearing, DEP asserted that the entities that Mr. Nathan controls are the

same as those that held the permits before, during, and after bankruptcy. Citing the

Bankruptcy Plan, DEP noted that the reorganizing entities became a “reorganized debtor”

upon entry of the order and that the reorganized debtors (including Pinnacle) merely

lawfully changed names. Further, DEP asserted that, regardless, as Plan Administrator, Mr.

Nathan was now “in control” of the permit holding entity at issue—Pinnacle. DEP further

alleged that the surface mining laws allowed a corporate permit holder (an operator under

a permit, such as Bluestone) to hold a permit without designating a person as responsible

for the permittee’s actions. DEP argued that, in effect, Mr. Nathan was asking for a

corporate permittee to “de-designate” a responsible officer when a responsible officer is

needed to act on behalf of the permittee during bankruptcy.

                                            6
              According to DEP, Mr. Nathan repeatedly acted on behalf of Pinnacle and

directed the method and manner of mining under the permits through Bluestone, who Mr.

Nathan had contracted with to continue mining operations. DEP asked the Board not to

exempt Mr. Nathan from the requirements that accompany being in control of a permitted

entity, as mining regulations impose responsibility and liability upon a permitted entity’s

corporate officers. DEP noted that the purpose of these permit-blocking provisions is to

prevent corporate officers of noncompliant entities from obtaining a permit through another

entity; thus, an operator may not hide behind a corporate shell to prevent DEP from

enforcing the permit terms and legal requirements. Here, the Federal Office of Surface

Mining considered Mr. Nathan as exercising “ownership and control” and advised DEP to

consider placing one of the entities controlled by Mr. Nathan into the AVS. If a restructuring

officer, like Mr. Nathan, is exempted from being entered into the AVS, DEP argued it will

create a bankruptcy exception to the surface mining laws.

              DEP further highlighted that Mr. Nathan had not taken affirmative actions

against Bluestone to enforce its agreements mandating regulatory compliance until he was

placed into the system. After being added to AVS, Mr. Nathan asked the bankruptcy court

to compel Bluestone to meet its obligations. DEP asserted that Mr. Nathan is the only

person with authority to act on behalf of Mission Coal and the only person DEP can call

upon to enforce permit compliance so long as he is not exempted. Lastly, DEP pointed out

that it did not apply the presumption in West Virginia Code of State Rules § 38-2-2.83

(2020). Instead, the director found that, as a matter of fact, Mr. Nathan had a relationship

                                              7
that gave him the authority to determine the method and manner of mining. Additionally,

DEP contended that subsection 2.83(d) was an alternative basis that supported the

director’s decision.

              On January 23, 2023, the Board affirmed the Director’s Decision and Order

for Compliance. The Board determined that Petitioner’s sale of assets to Bluestone did not

result in an immediate transfer of the mining permits and the Bankruptcy Plan

contemplated and provided for an extended process for the permit transfer to take place;

while the sale and permit process proceeded, the Bankruptcy Plan provided for the

continued existence of the debtors. Further, the bankruptcy court provided that, pending

the transfer of the permits, the reorganized debtors had to comply with the environmental

laws in any ongoing operations under the permits. The Asset Purchase Agreement between

Bluestone and the Petitioner provided that Bluestone would assume all liabilities related to

the Pinnacle Mining Complex. However, the agreement was only between the Petitioner

and Bluestone, and neither DMR nor DEP were parties to that agreement. Mr. Nathan

acknowledged that it was his job to ensure compliance with the permit prior to their transfer

to Bluestone. The Bankruptcy Plan provided that the acting managers and officers of the

debtors were deemed to have resigned and the Plan Administrator was to be appointed as

the “sole manager and sole officer of the Debtors” and would succeed the powers of the

former managers, directors, and officers of the debtors. The Board also found that

Bluestone was to use reasonable efforts to have the permits transferred to it (or replace

                                             8
them), and yet it still had not filed certain applications for permits that were identified in

the sales agreement; thus, the Pinnacle permits remained in Petitioner’s name.

              Pursuant to the Contract Operator Agreement, Bluestone has the right to

utilize and operate its complex under the existing permits prior to the transfer or

replacement of the permits and Bluestone was to be responsible for all liabilities related to

the permits including reclamation and remediation of violations. However, the Board found

that the Petitioners retained the right to appeal any notice of violation and the right of

remediation at Bluestone’s expense; therefore, the Board found that Mr. Nathan remained

in control of the Pinnacle Mining Complex and was appropriately registered into the AVS

database. Petitioners now appeal the Board’s order.

                                    Standard of Review
              The parameters of our appellate review are set forth in West Virginia Code §

29A-5-4(g) (2021), in part, as follows:

              The court may affirm the order or decision of the agency or
              remand the case for further proceedings. It shall reverse,
              vacate, or modify the order or decision of the agency if the
              substantial rights of the petitioner or petitioners have been
              prejudiced because the administrative findings, inferences,
              conclusions, decision, or order are:
              (1) In violation of constitutional or statutory provisions;
              (2) In excess of the statutory authority or jurisdiction of the
              agency;
              (3) Made upon unlawful procedures;

                                              9
              (4) Affected by other error of law;
              (5) Clearly wrong in view of the reliable, probative, and
              substantial evidence on the whole record; or
              (6) Arbitrary or capricious or characterized by abuse of
              discretion or clearly unwarranted exercise of discretion.

In reviewing decisions by administrative agencies, “[t]he ‘clearly wrong’ and the ‘arbitrary

and capricious’ standards of review are deferential ones which presume an agency’s actions

are valid as long as the decision is supported by substantial evidence or by a rational basis.”

Duff v. Kanawha Cnty. Comm’n, 247 W. Va. 550, 555, 882 S.E. 2d 916, 921 (W. Va. Ct.

App. 2022) (citing Syl Pt. 3, In Re Queen, 196 W. Va. 442, 473 S.E. 2d 483 (1996)). With

these standards in mind, we consider the issue raised on appeal.

                                         Discussion
              On appeal, Petitioner alleges three assignments of error. First, that the Board

erred in finding that Mr. Nathan has a relationship granting him actual authority to control

the manner in which Bluestone operates the Pinnacle Mining Complex. Second, that the

Board erred in finding that Mr. Nathan is a controller of the permittee, Pinnacle Mining

Company, LLC. Lastly, that the Board erred in affirming DEP’s arbitrary and capricious

application of the West Virginia Surface Coal Mining and Reclamation Act’s

(“WVSCMRA”) permit-blocking provisions because DEP’s capricious enforcement has

undermined the policy behind the permit-blocking provisions and the applicant violator

system. After a review of the record and the applicable law, we find the Board’s analysis

to be incorrect. The Board failed to conduct a proper analysis as to whether Mr. Nathan,

                                              10
the Plan Administrator, was “in control” of a permitted entity pursuant to West Virginia

Code of State Rules § 38-2-2.83.d and West Virginia Division of Environmental Protection

v. Kingwood Coal Co., 200 W. Va. 734, 490 S.E.2d 823 (1997). Because this conclusion

requires remand, we decline to address the remainder of Petitioner’s assignments of error.6

              Petitioner's first assignment of error contends that the Board erred in

assessing Mr. Nathan's degree of control over the surface mining operations. The

WVSCMRA and accompanying DMR regulations provide guidance on this point. West

Virginia Code § 22-3-3(o) (2001) defines “operator” as “any person who is granted or who

should obtain a permit to engage in any activity covered by this article . . . and includes

any person who engages in surface mining . . . [or] reclamation operations, or both . . . .”

West Virginia Code of State Rules § 38-2-2.83 provides that “Owned or Controlled and

Owns or Controls means any one or a combination of the relationships specified in

subdivisions 85.a through d of this subsection: 2.83.a. Being a permittee of a surface coal

mining operation[.]” West Virginia Code of State Rules § 38-2-2.83.c further provides that

“control” is defined as “[h]aving any . . . relationship which gives one person authority

directly or indirectly to determine the manner in which an applicant, an operator, or other

entity conducts surface mining operations.” Finally, West Virginia Code of State Rules §

38-2-2.83.d. creates a presumption of control in certain circumstances:

       See City of Charles Town v. Jefferson Cnty. Comm'n, No. 19-0412, 2020 WL
       6

6058717, at *2 n.7 (W. Va. Oct. 14, 2020) (memorandum decision).

                                            11
              The following relationships are presumed to constitute
              ownership or control unless a person can demonstrate that
              the person subject to the presumption does not in fact have
              the authority directly or indirectly to determine the manner in
              which the relevant surface mining operation is conducted:
              2.83.d.1. Being an officer or director of an entity;

              2.83.d.2. Being the operator of a surface mining operation;

              2.83.d.3. Having the ability to commit the financial or real
              property assets or working resources of an entity;

              2.83.d.4. Being a general partner in a partnership;

              2.83.d.5. Based on the instruments of ownership or the voting
              securities of a corporate entity, owning of record ten (10)
              through fifty (50) percent of the entity; or

              2.83.d.6. Owning or controlling coal to be mined by another
              person under a lease, sublease or other contract and having the
              right to receive such coal after mining or having authority to
              determine the manner in which that person or another person
              conducts a surface mining operation.

(Emphasis added).

              In West Virginia, permittees are considered “controllers” of the operations

for which they hold permits; and it is undisputed that Pinnacle Mining Company was the

permittee. DEP was clearly authorized to place Pinnacle into the AVS. See West Virginia

Code of State Rules § 38-2-2.83.a. However, DEP asserts that an individual must be held

responsible in the AVS to properly effectuate the intent behind such system. We disagree.

There is no authority, in statute or common law, which requires directors and officers to be

specifically referenced and registered in the AVS. DEP, and the Board, both maintain that

it is necessary for a specific person to be blocked from permit applications. However, the

                                            12
Board has failed to properly analyze the relationship of Mr. Nathan, as an officer of

Pinnacle Mining Company, and the control of the relevant mining operations under

Kingwood. Further, DEP failed to discuss why an officer was chosen to be listed in leu of

Bluestone, or the listed permittee, Pinnacle Mining Company.

              It is uncontested that Mr. Nathan, as Plan Administrator, acted as the sole

officer, director, and manager of Mission Coal. In turn, Mr. Nathan was the only officer in

charge of the subsidiary, Pinnacle Mining Company, the actual permittee to the mining

operations at issue. To pursue an action holding a permittee’s officer personally liable for

violations under the permit blocking scheme, the DEP and Board must use the rebuttable

presumption of control established by West Virginia Code of State Rules § 38-2-2.83.d.1.

Pursuant to this provision, Mr. Nathan is presumed to be a controller unless he can

demonstrate that he does not in fact have the authority directly or indirectly to determine

the manner in which Bluestone’s surface mining operation is being conducted at the time

of the violations. The Board failed to properly analyze this relationship under the

appropriate authority for a determination of control.

              On this point, we find West Virginia Division of Environmental Protection v.

Kingwood Coal Co., 200 W. Va. 734, 490 S.E.2d 823 (1997), instructive. In Kingwood,

Kingwood Coal Company (“Kingwood”) leased its coal reserves to T&T Fuels (“T&T”)

to conduct underground mining. See id. at 737, 490 S.E.2d at 826. Kingwood also entered

into a coal supply agreement with T&T under which Kingwood agreed to purchase coal

                                            13
mined by T&T. See id. This was considered a standard contract mining arrangement which

created a rebuttable presumption of control pursuant to West Virginia Code of State Rules

§ 38-2-2.83.d. See id. at 737–38, 490 S.E.2d at 826–27. In 1994, a blowout occurred, and

millions of gallons of acid mine drainage entered the Cheat River. See id. at 737, 490 S.E.2d

at 826. In 1995, DEP issued a final agency decision concluding that, due to Kingwood’s

authority to determine the manner in which underground mining operations were

conducted by T&T, the listed permittee, Kingwood would be considered the operator in

control and thus permit-blocked. See id. at 739–40, 490 S.E.2d at 828–29. DEP’s finding

of control was based upon communications from Kingwood to T&T during mining

regarding which sections should be mined to obtain the best coal in furtherance of their

supply agreement and marketability. See id. Kingwood appealed DEP’s decision to the

Board, which reversed DEP’s finding of control. See id. at 740, 490 S.E.2d at 829. The

Board held that, although Kingwood owned the coal reserves being mined by T&T and had

certain contractual rights pursuant to its lease agreement, “Kingwood had no unilateral

right sufficient to force T&T to accede to Kingwood’s wishes.” Id. at 742, 490 S.E.2d at

831. In affirming the Board’s opinion, the Supreme Court listed factors relevant to the

question of control:

              Important factors to be considered in determining the actual
              relationship of the parties include whether the mining company
              is free to sell the coal it extracts to whenever it wishes and the
              degree of involvement of the coal owner or lessor in the mining
              operation. Information which can be used to rebut a
              presumption of control can include, but is not limited to, data
              on who provides engineering services, who determines the
              placement and method of driving entries or making cuts, and
              to whom the coal may be sold and at what price.

                                             14
Id. at 747, 490 S.E.2d at 836.

              In Kingwood, the Supreme Court of Appeals of West Virginia made it

abundantly clear that “[i]n determining whether [one] had control over [the mining

operation], the test to be applied is the actual authority of [that person] over the operations

of [the mining company.]” Id. at 748, 490 S.E.2d at 837. Here, the Board and the DEP

acknowledged that Mr. Nathan did not actually control the mining. However, pursuant to

the Asset Purchase Agreement, the Plan Administrator Agreement, and the Contract

Operator Agreement, the Board determined that Mr. Nathan did maintain a relationship that

gave him actual authority to determine the manner in which the permit holder-operator and

its contract operator conducted the operations under the permit. However, the record clearly

reflects that the Petitioner does not own any of the minerals Bluestone has mined and sold;

nor does the Petitioner own any of the real property upon which Bluestone operates or any

of the machinery and equipment associated with the Pinnacle Mine Complex. Accordingly,

we conclude Mr. Nathan never possessed actual authority to control the timing, techniques,

or location of Bluestone’s mining activities while such activities were ongoing. Ultimately,

Mr. Nathan’s authority as Plan Administrator is limited to winding down the affairs of the

reorganized entities.

              Nonetheless, the Board found Mr. Nathan in control of the Pinnacle Mining

Complex due to his ability to bring a suit against Bluestone to enforce compliance through

                                              15
the Contract Operator Agreement and Asset Purchase Agreement. We disagree. As

discussed in Kingwood, one’s ability to compel action from the operator of the mining

complex through arbitration is insufficient to give it actual authority to control the manner

in which operations are conducted. In Kingwood, the coal reserve owner had certain rights

pursuant to its agreements with T&T, those contracts were arms-length agreements that

required Kingwood to first go through arbitration to enforce its rights. See id. at 752, 490

S.E.2d at 841. Accordingly, Kingwood could not be deemed a controller of T&T.

              We find the Kingwood authority to be instructive in its application to the

matter at hand. Petitioner’s ability to petition any court, including the bankruptcy court, for

assistance in compelling action is equally insufficient to give actual authority to control

operations. Here, in light of Bluestone's failure to abide by requests to comply with its

contractual obligations, in stark contrast to a typical contractor honoring its contractual

obligations to its principal, Mr. Nathan was forced to resort to judicial relief. This scenario

provides evidence suggesting the lack of authority to control. Mr. Nathan needs the

involvement of a court or a regulatory authority to coerce compliance from Bluestone. The

Board’s reliance on Mr. Nathan’s ability to use the court system in compelling action was

insufficient to give actual authority to control operations. This mistaken reliance, coupled

with the Board’s failure to appropriately apply the rebuttable presumption as contained in

the West Virginia Code of State Rules, require this matter to be vacated and remanded for

further proceedings. Accordingly, based solely on the record before us, the Board has not

performed a proper analysis under West Virginia Code of State Rules § 38-2-2.83.d and

                                              16
Kingwood. The Board should allow Mr. Nathan the opportunity to demonstrate whether he

in fact possesses the authority directly or indirectly to determine the manner in which the

relevant surface mining operations were conducted at the Pinnacle Mining Complex.

                                       Conclusion
              For the foregoing reasons, the January 23, 2023, Order of the West Virginia

Surface Mine Board is hereby vacated. This case is remanded to the West Virginia Surface

Mine Board for an analysis as to whether Mr. Nathan, as bankruptcy Plan Administrator

and officer of a permittee, subject to the rebuttable presumption of control, has the

authority, directly or indirectly, to determine the manner in which the relevant surface

mining operations are conducted.

                                                 Vacated and Remanded with Directions.

                                            17