COALEX State Inquiry Report - 269
November, 1993

Ted Biggs, Esquire
Department of Natural Resources
Division of Reclamation
402 W. Washington Street
Indianapolis, Indiana 46204

TOPIC: SURETY AS "PERMITTEE" OR "OPERATOR"

INQUIRY: After an operator's permit was revoked, a surety decided to perform the required
reclamation.  The surety was subsequently issued an NOV. The surety claimed that an NOV or CO
cannot be issued to them because they are not an "operator" or "permittee". Are there any cases
addressing this issue?

SEARCH RESULTS: A number of relevant administrative and state decisions and one Federal
Register preamble were identified using the COALEX Library, other LEXIS material and prior
COALEX Reports. 

   The retrieved material finds that sureties opting to reclaim, rather than forfeit the performance
bond, are under the same obligations to properly fulfill the performance standards as the named
permittee. Copies of the items listed below are attached.

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

INTERIOR ADMINISTRATIVE DECISIONS
IN THE MATTER OF WILLIAM H. PULLEN, 1992 IBLA LEXIS 124, IBLA 88-452 (1992).
   The IBLA upheld OSM's release of Phase I bonds on lands owned by the Pullen family. American
Standard Coal Co., Inc., a fifty percent owner of Jackson County Mining and guarantor on Jackson
Mining's reclamation bonds, undertook reclamation when Jackson Mining went bankrupt. The
Pullens challenged American Standard's application for bond release because it was not the named
permittee. The IBLA found American Standard was "the real party in interest. Moreover, American
Standard's involvement does not circumvent the regulatory intent to protect the landowner. The
bond remains in effect until the regulatory requirements are met, regardless of whether the named
permittee or a fifty percent owner/surety seeks the release."

"The Federal Register comments shed no light on whether the term 'permittee' is to be strictly
construed in the context of bond release. The Department has liberally interpreted the term in the
context of enforcement where it is necessary to fulfill the legislative intent to place responsibility
with those who benefit from the mining operations. The Interior Board of Surface Mining Appeals
ruled that 'a person who either has been granted the right to mine or reclaim an area or who is
mining or reclaiming an area that would otherwise be subject to regulation is a permittee.' Jewell
Smokeless Coal Co., 4 IBSMA 211, 218 (1982)* (emphasis added); see also 30 C.F.R. 701.5 . Under
this broad construction, American Standard is a permittee because it took over the bankruptcy. As
such, it was entitled to apply for bond release."

* Copy of this decision is attached.


STATE CASE LAW
ALLIED FIDELITY INSURANCE CO. v ENVIRONMENTAL QUALITY COUNCIL, 753 P 2d 1038 (Wyo
1988).
   The court reversed the agency's finding that the right to a hearing did not inure to the surety
after the operator went bankrupt. It found that the doctrine of legal subrogation extended to a
surety that wanted "to replace a defunct operator to ask for a bond forfeiture hearing for the
purpose of determining damages if any, and to assert policy defenses."


PERSONAL SERVICE INSURANCE CO. (PSI) v MAMONE, CHIEF, DIV. OF RECLAMATION, OHIO
DEPT. OF NATURAL RESOURCES, 489 NE 2d 785 (Ohio 1986).
   PSI elected to perform reclamation instead of making payments under its bond when Mack
Mining, Inc. defaulted on its obligation to reclaim it mined land. Subsequently, an NOV was issued
to PSI for "committing a violation of the reclamation performance standards". The court reversed
the lower court's holding "that the proposed civil penalty assessment was an unconstitutional
impairment of the surety contract".

"The fact that PSI was the surety for the defaulting permit holder in reality has little to do with the
violation in issue. Once PSI opted to perform the reclamation work itself, it was required to
undertake the reclamation in a manner consistent with preordained reclamation standards. This, it
apparently failed to do.... Certainly, PSI qualifies as a 'person' which can be charged with a civil
penalty under [the Ohio] statutory scheme."


PERSONAL SERVICE INSURANCE CO. (PSI) v MAMONE, CHIEF, DIV. OF RECLAMATION, OHIO
DEPT. OF NATURAL RESOURCES, No. 412, slip op. (Ohio Ct. App 1985).
   PSI chose to undertake reclamation on behalf of the permittee, Allied Coal Sales, rather than
forfeit the performance bond.  An NOV was issued to PSI for violation of reclamation provisions.
The court reversed the Reclamation Board of Review's finding that imposition of civil penalties on
PSI, based on an amendment to the state regulations which took effect after PSI executed a
reclamation performance bond, was an "invalid retroactive application of the law".

"In the case at bar, the availability to appellant of an additional penalty to be used against a
surety's improper performance under the reclamation statutes would promote public health and
welfare ends."


Two additional cases are enclosed for review:
RIGHT OF WAY PAVING COMPANY, INC. v COMMONWEALTH OF PENN., DEPT. OF
ENVIRONMENTAL RESOURCES, Penn. Environmental Hearing Board Docket No. 86-079-G, 1986
Pa. Envirn. LEXIS 105 (1986).

COMMONWEALTH OF PENN., DEPT. OF ENVIRONMENTAL RESOURCES AND YODER, et al. v PBS
COALS, INC. AND FETTEROLF MINING, INC., 534 A 2d 1130 (Pa Commonw Ct 1987).



FEDERAL REGISTER PREAMBLE
44 FR 14902 (MARCH 13, 1979). Permanent Program Final Preamble -- Final Rule. 806.12  Terms
and conditions of the bond.
   In discussing the need for regulatory authority's approval for a surety's cancellation of a
performance bond, the Secretary states:

"The surety's co-guarantee for reclamation work on lands that have been disturbed cannot be
canceled because, even if the operator fails in business, the regulatory authority must be able to
look to a financially stable and secure guarantor for performance of the reclamation obligations
under the permit, including collection at the time of bond forfeiture, if necessary.
...
"This restriction [against cancellation of the bond] is based on the first principle of surety law, i.e.,
the surety undertakes the obligation to stand in the shoes of the principal, and his obligation may
not be rescinded or terminated without the consent of the party to whom the duty is owed."

[NOTE: Part 806 was removed and replaced with Part 800. 49 FR 32932 (July 19, 1983).]


ATTACHMENTS
A.   IN THE MATTER OF WILLIAM H. PULLEN, 1992 IBLA LEXIS 124, IBLA 88-452 (1992).
B.   JEWELL SMOKELESS COAL CO., 4 IBSMA 211, 218 (1982)
C.   ALLIED FIDELITY INSURANCE CO. v ENVIRONMENTAL QUALITY COUNCIL, 753 P 2d 1038
     (Wyo 1988).
D.   PERSONAL SERVICE INSURANCE CO. (PSI) v MAMONE, CHIEF, DIV. OF RECLAMATION,
     OHIO DEPT. OF NATURAL RESOURCES, 489 NE 2d 785 (Ohio 1986).
E.   PERSONAL SERVICE INSURANCE CO. (PSI) v MAMONE, CHIEF, DIV. OF RECLAMATION,
     OHIO DEPT. OF NATURAL RESOURCES, No. 412, slip op. (Ohio Ct. App 1985).
F.   RIGHT OF WAY PAVING COMPANY, INC. v COMMONWEALTH OF PENN., DEPT. OF
     ENVIRONMENTAL RESOURCES, Penn. Environmental Hearing Board Docket No. 86-079-G, 1986 Pa. Envirn. LEXIS 105 (1986).
G.   COMMONWEALTH OF PENN., DEPT. OF ENVIRONMENTAL RESOURCES AND
     YODER, et al. v PBS COALS, INC. AND FETTEROLF MINING, INC., 534 A 2d 1130
     (Pa Commonw Ct 1987).
H.   44 FR 14902 (MARCH 13, 1979). Permanent Program Final Preamble -- Final Rule. 806.12 
     Terms and conditions of the bond.


Research conducted by: Joyce Zweben Scall