COALEX STATE INQUIRY REPORT - 130
October 25, 1989

G. Milton McCarthy
Assistant Attorney General
Alabama Surface Mining Commission
P.O.B. 2390
Jasper, Alabama 35501

TOPIC: SET-OFF OF CIVIL PENALTIES FROM BOND PROCEEDS

INQUIRY: An operator, who has a final civil penalty assessment, successfully completes a phase
of reclamation and is entitled to a reduction or release of a reclamation bond. Is it permissible to
set-off the penalty amount from the bond proceeds in the absence of specific statutory
authorization? If so, what is the authority for doing so?

SEARCH RESULTS: The COALEX Library and the state and federal decisions in LEXIS were used to
conduct this research. No SMCRA or related cases were identified which address the issue of the
set-off of civil penalties against the proceeds of bonds due to be released as a result of successful
reclamation. In the  Administrative Law Judge (ALJ) consent decision attached it is clear that
payment of the civil penalties is separate and distinct from the release of bonds.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

CARBONEX COAL CO. v OSM, Docket Nos. TU 5-58-R, TU 5-68-R, TU 5-74-R, TU 5-86-R, TU 5-100-R, TU 5-105-R, TU 5-110-R, TU 6-1-R, TU 6-38-R, TU 6-47-R (Feb. 10, 1989 [Amends Sept.
23, 1988 Decision]).
   In this consent decision, Carbonex agreed to pay the negotiated sum "in full and complete
settlement of all civil penalties". Carbonex remained "liable for the full and successful reclamation 
of the...mine site" until "bond release or bond substitution and permit transfer is approved". 
   
   Related to the issue of this report is the question of the termination of a state's authority over a
surface mining operation. On November 2, 1988, OSM issued a final rule [30 CFR Sec. 700.11(d)]
clarifying "the circumstances whereby a regulatory authority may terminate regulatory jurisdiction
under a regulatory program" approved under SMCRA (53 FR 44356). As described in the
preamble: 

"This final rule requires the regulatory authority either to make a written determination that the
permittee has met all reclamation requirements, or to decide to release fully a permanent
program performance bond before regulatory jurisdiction over the reclaimed site of a completed
surface coal mining and reclamation operation, or increment thereof, or of a coal exploration can
be terminated."

"The regulatory authority is vested with the authority to determine that reclamation has been
completed."

"An operator's obligations...and regulatory authority jurisdiction...simultaneously terminate at the
time of proper final bond release...because the period of extended responsibility will have run, all
reclamation obligations will have been met successfully and, by definition in the statute, as
surface mining and reclamation operation no longer exists. Liability...for a failure of reclamation,
however, may be subject of a Secretarial or regulatory authority inquiry or a civil suit...[A]
regulatory authority will be required to reassert jurisdiction if it can be shown that the bond
release was based upon fraud, collusion, or any other misrepresentation of a material fact at the
time of bond release."


Two ALJ decisions issued prior to the rule just mentioned may also be of interest:

NEW BIG CREEK MINING, INC. v OSM, Docket No. NX 1-49-P (1985).
   The ALJ affirmed the jurisdiction of OSM to issue a cessation order (CO) after bond release
because the notice of violation (NOV) was issued before the state released the bond. 

"Release of a bond by the state regulatory authority does not in and of itself terminate the
jurisdiction of [OSM]."  


D & J MINERAL AND MINING, INC. v OSM, Docket No. NX 4-11-R (1985).
"[A] 100% bond release does not signal a 'bright line' cutoff of [OSM`s] jurisdiction.
Rather, the question of when is a site released from regulation is answered by stating that
as each stage of reclamation is successfully attained, the site is released from further
regulation pertaining to that stage of reclamation, with final release coming when
revegetation has been successfully accomplished and the liability period has expired.
When a bond is released, [OSM`s] oversight authority must continue for some reasonable
time to insure that the state regulatory authority acted properly in determining that
reclamation has been completed. To do other wise would render [OSM`s] oversight
jurisdiction meaningless. Failure to act within a reasonable time, however, should cutoff
[OSM's] jurisdiction, not as a matter of estoppel, but simply as an application of the rule
of reason when dealing with [OSM's] oversight jurisdiction." 


[NOTE: Additional information on bond release may be found in STATE INQUIRY REPORTS 105
("Bond forfeiture - relationship of bond to permitted area") and 102 ("Forfeiture of reclamation
bonds; liability period").]


ATTACHMENTS
A.   CARBONEX COAL CO. v OSM, Docket Nos. TU 5-58-R, TU 5-68-R, TU 5-74-R, TU 5-86-R,
     TU 5-100-R, TU 5-105-R, TU 5-110-R, TU 6-1-R, TU 6-38-R, TU 6-47-R (Feb. 10, 1989
     [Amends Sept. 23, 1988 Decision]).
B.   53 FR 44356 (NOVEMBER 2, 1988).
C.   NEW BIG CREEK MINING, INC. v  OSM, Docket No. NX 1-49-P (1985).
D.   D & J MINERAL AND MINING, INC. v OSM, Docket No. NX 4-11-R (1985).


Research conducted by: Joyce Zweben Scall