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D.C. Circuit Invalidates Additional AVS Regulations

July 1999

Co-Authors: J. Michael Klise and Tim Means.

In a decision by the U.S. Court of Appeals for the District of Columbia Circuit on May 28, 1999, the coal mining industry achieved something it has been seeking for over ten years - that Court's review of many of the industry's challenges to OSM's 1988-89 regulations implementing the Applicant Violator System ("AVS"). In this latest setback for OSM's campaign to expand its power to block permits under § 510(c) of SMCRA, the Court in National Mining Association v. United States Department of the Interior, No. 97-5202, addressed industry arguments that it had not reached in 1997, when it unanimously invalidated the regulations in their entirety because of a facial conflict between OSM's pervasive definition of "ownership and control" and the plain language of § 510(c). (See the April 1997 issue of the C&M Mining Law Monitor for a detailed discussion of that ruling.) This time, in another unanimous decision, the Court invalidated regulations that authorize permit blocks based on violations by operations no longer controlled by the permit applicant, establish certain rebuttable presumptions of ownership and control, allow retroactive permit blocks, and bypass statutory procedures for federal enforcement action in primacy states.

This latest ruling leaves the AVS regulations a shadow of their original selves, and a confused shadow at that. To find out why challenging these regulations is taking so long, and why it isn't over yet (even as OSM is in the midst of a "redesign" of the AVS), read on.


The saga of the AVS regulations is well-known to many of you. We summarize the main points here to give context to the D.C. Circuit's latest decision.

The regulations were first issued in 1988-89, as the direct result of a 1985 court-adopted settlement agreement in an environmental group citizen suit charging OSM with lackadaisical enforcement of two provisions of SMCRA (neither of which had anything to do with the statutory authority under which the AVS has been created). The AVS regulations purported to implement § 510(c) of SMCRA, which provides for the denial of surface mining permits if any surface coal mining operation "owned or controlled" by the permit applicant has outstanding violations of SMCRA or other environmental laws. There were three groups of regulations: (1) the ownership and control rule, which defined the key terms of § 510(c) - "owned or controlled" - and established the basic permit-block procedure; (2) the permit information rule, which required applicants and permittees to submit voluminous corporate and compliance information about themselves and anyone deemed related through "ownership or control," as OSM had broadly defined those concepts; and (3) the improvidently issued permit ("IIP") rule, which called for the suspension or rescission of permits that were deemed "improvidently issued" because of an "ownership or control" link between the permittee and an outstanding violation.

The mining industry challenged those regulations in federal district court within 60 days of their issuance, as SMCRA requires, but the cases languished on fully briefed cross-motions for summary judgment until August 31, 1995, when the district court upheld the regulations against industry's multifaceted challenges, as well as against challenges by environmental groups which complained that the regulations were not sufficiently onerous. The industry appealed, and, on January 31, 1997, the D.C. Circuit reversed the district court and invalidated the regulations in their entirety. In so doing, the court reached but one of industry's many arguments - that, whereas SMCRA § 510(c) only authorizes permit blocks based on violations by operations owned or controlled by the permit applicant, the regulations were unlawful because they also authorized permit blocks based on violations by owners or controllers of the applicant. Since OSM's unauthorized view of "owned or controlled" pervaded all three sets of AVS regulations, the court invalidated them in their entirety on that ground alone, without reaching the other issues.

The D.C. Circuit's ruling proved to be both a blessing and a curse. It successfully rid the regulations of one of the AVS's most egregious features - OSM's attempt to extend "owned or controlled by" to reach upstream of the permit applicant, to sweep in the applicant's owners and controllers, and their parents and subsidiaries, etc. But, since industry had eliminated the regulations with a single silver bullet, OSM was able, with surgical precision, to extract the offending language and summarily reissue the regulations as an "interim final rule" that retained all the provisions industry had attacked except the upstream feature. Industry's subsequent attempts to raise the D.C. Circuit's sense of outrage at having its decision circumvented in this fashion failed, and the D.C. Circuit forced the industry to challenge the interim final rules in an entirely new lawsuit in 1997 in order to relitigate those issues - back in the district court, before the same judge who had rejected those same arguments in 1995. To no one's surprise, the judge rejected the arguments the second time around too, and, in 1998, the case was again before the D.C. Circuit.

The D.C. Circuit's Decision

The court's even-tempered decision gave the industry some (but not all) of what it had been wanting ever since it first challenged the regulations in 1988-89.

Ownership and Control. The focal point of industry's attack was, once again, the basic "ownership and control" regulation. The court upheld the regulation insofar as it enabled OSM to link an applicant to violations of downstream operations, whether they were directly owned or controlled by the applicant, or owned or controlled not by the applicant itself, but by a downstream intermediary. Unfortunately, this ruling disposed of the issue without addressing industry's main point, which concerned not the directness of the relationship, but rather whether OSM could link the applicant to downstream "persons" (as the regulations seemed to allow), not just to "operations" (as SMCRA § 510(c) specifies).

On two other issues, however, the court saw things more industry's way. First, it agreed with industry that the regulations overstepped OSM's authority by allowing permit blocking based on a violation by an entity that the applicant formerly owned or controlled but no longer does. The court found support for its view in the language of the statute, as well as in the legislative history, both of which reflect Congress's intent to limit permit blocking based on past control only to situations involving a pattern of willful violations and irreparable damage to the environment.

Second, the court agreed with industry that at least some of the rebuttable presumptions of ownership and control set forth in 30 C.F.R. § 773.5(b) were invalid. The court held that OSM's presumptions covering officers and directors, and owners of 10 to 50 percent of an entity, were impermissible because, in each instance, there was no sound and rational connection between the proved and inferred facts. In contrast, the court upheld OSM's presumptions for a person who controls the assets of an entity, or who is a general partner in a partnership. The court did not specifically address the two remaining presumptions, misperceiving that industry had not challenged them. Unfortunately, the latter included the contract miner presumption, 30 C.F.R. § 773.5(b)(6), which in actual practice has proven one of the most contentious because OSM has used it to reach distant, long-since severed relationships with contractors who in many cases have gone out of business.

Statute of Limitations and Retroactivity. The court rejected industry's argument that the regulations violate the 5-year statute of limitations governing penalty enforcement, 28 U.S.C. § 2462, by authorizing permit blocking based on violations more than 5 years old. The court read § 510(c) of SMCRA as allowing permit blocks irrespective of when the claim first accrued. The court expressly disagreed with the Fourth Circuit's 1997 ruling in Arch Mineral Corp. v. Babbitt that that statute of limitations does apply to permit blocking.

Industry fared better, however, with its argument that the regulations were impermissibly retroactive insofar as they blocked permits based on violations which attached to the applicant (other than through direct ownership and control) before November 2, 1988, the effective date of the original ownership and control rule. The court explained that prior to the regulations, there was a range of possible interpretations of § 510(c), so that the issuance of the regulations changed the legal landscape by identifying which precise interpretation OSM believed applied - i.e., what types of relationships constituted "ownership and control." The court held that because Congress did not expressly authorize retroactive regulations under § 510(c), the regulations were unlawfully retroactive.

Permit Information Rules. In a very brief discussion, the court rejected industry's challenge to the breadth of the permit information rule, but did so in a way that provided some relief. Industry had argued that OSM could not require an applicant to submit information not expressly required by § 507(b) of SMCRA or in the notice of violation schedule of § 510(c). The court reiterated its previously expressed view that the information requirements of those provisions are not exhaustive and do not preclude OSM or the state from requiring additional information. Although the court also held that it was not unreasonable for OSM to require applicants to submit information about third parties, it did so by construing the regulations to provide an escape hatch for an applicant who is unable to obtain that information.

Improvidently Issued Permits ("IIPs"). Industry challenged the IIP rule as unlawful on two grounds. First, industry argued that SMCRA does not authorize the suspension or rescission of existing permits on grounds that they were issued "improvidently." The court rejected this argument, finding that the IIP rules reflect a permissible exercise of OSM's statutory duty under SMCRA § 201(c)(1) to suspend, revoke, or withhold a permit for failure to comply with the statute or the regulations. The court further rationalized, as OSM had argued, that OSM possessed "implied" authority to suspend or rescind IIPs because of its express authority to deny permits in the first instance.

Second, industry also challenged the IIP rules for impinging on state primacy in the issuance of permits and the administration and enforcement of surface mining programs. On this point, the court invalidated 30 C.F.R. § 843.21(a) as industry had requested, but not for the main reason urged by industry. In the court's view, the regulation was invalid because it shortcut the purely procedural requirements for notice, a hearing, and written findings in SMCRA § 521(a)(3). Industry's argument, in contrast, was that the regulation impinged on SMCRA state primacy by enabling OSM to override state permitting decisions at all, because such action simply is not authorized by § 521 of SMCRA. Industry is currently seeking rehearing of the issue by the three-judge panel that decided the case or, if need be, by the full court en banc.

The AVS in the Aftermath

In the wake of two D.C. Circuit decisions striking down substantial portions of OSM's regulations, the AVS is obviously far less a threat to the industry now than it was three years ago. Ironically, the court's elimination of "upstream" permit blocking, the far-fetched presumptions, permit blocking for violations at operations the applicant no longer controls, and the inequitable retroactive reach of the regulations, ought to help transform the AVS into what OSM claimed it was supposed to be all along - a tool for denying permits to scofflaws, not for holding law-abiding operators and individuals hostage to the correction of someone else's violations.

The picture is clouded, however, for three reasons. The first is agency attitude. In 1997, OSM refused to give any but the narrowest possible interpretation to the D.C. Circuit's first decision striking down the regulations. At that time, OSM unsuccessfully petitioned for rehearing to get the court expressly to limit its invalidation to the upstream feature alone. When the court denied that petition, OSM boldly implemented it on its own by publishing an interim final rule that repromulgated without substantive change most of the regulations the court had just invalidated. There was no opportunity for public comment on the effect of the D.C. Circuit's decision, either before or after the issuance of the interim rule. Whether the agency will be more sensitive to the industry it regulates this time around remains to be seen.

Second, another set of related AVS regulations still awaits the D.C. Circuit's review. Those regulations, promulgated in 1994, establish procedures for challenging AVS links and the abatement status of underlying violations, and also purport to give OSM "plenary authority" to review state ownership and control determinations. According to OSM, the regulations cure the due process deficiencies that industry had complained about in its challenges to the 1988-89 regulations (and that were carried over into the 1997 interim final rule). The district court rejected all of industry's arguments against the 1994 regulations, based largely on the reasoning of its now-reversed decisions upholding the 1988-89 regulations. Industry's appeal has been held in abeyance pending the D.C. Circuit's disposition of the interim final rule case, including industry's pending petition for rehearing on the primacy issue. In the meantime, the 1994 regulations (which OSM did not modify despite judicial invalidation of the other underlying AVS regulations) remain on the books, imposing continued ownership and control procedural burdens on mine operators beyond what Congress intended.

Third, it remains unclear whether the D.C. Circuit's latest rebuke to OSM's aggressive regulation of the industry will have any tempering effect on OSM's much-ballyhooed "redesign" of the AVS. As we explained in the January 1999 issue of the C&M Mining Law Monitor, the proposed regulations OSM published in the Federal Register last December were a major disappointment for those who had hoped that OSM might have learned some lessons from the D.C. Circuit's 1997 decision. Among other troublesome features, the proposed regulations appeared to restore OSM's ability to link a permit applicant to violations of the applicant's owners and controllers - exactly why the Court had invalidated the regulations in 1997. The proposed regulations also would replace OSM's rebuttable presumptions of ownership and control with what amounts to an absolute rule that most of the pre-existing categories, and a few additional ones as well, constitute "control." One would think that, given the D.C. Circuit's close scrutiny (and in some instances invalidation) of OSM's rebuttable presumptions in its 1999 decision, OSM would now reconsider its even more aggressive use of conclusive presumptions in the proposed rules. However, the agency's deaf ear to the court's previous decision does not leave us optimistic.

At bottom, OSM must recognize, as the D.C. Circuit explained in 1997, that the legitimate boundaries of the AVS are set by SMCRA, not by what OSM wishes the statute provided. Until OSM acknowledges that basic principle, it will be up to industry persistence and judicial vigilance to keep the AVS in check.

[Crowell & Moring LLP represents the National Mining Association in the litigation challenging the AVS regulations.]

Thomas (Tim) C. Means
Retired Partner – Washington, D.C.