Due Process in Surface Mining Regulation: SMCRA's Penalty Prepayment Provisions Withstand Legal Challenges

P. Esterman

The Surface Mining Control and Reclamation Act (SMCRA)¹ was enacted in 1977 to alleviate the widespread environmental impacts of surface coal mining operations.² To remedy a perceived lack of adequate state regulation, the Act imposes stringent uniform federal standards on mining operations, which will be enforced by states, if they choose to do so, and by the federal government where states decline. Central to the federal enforcement program are administrative civil penalties. Section 518(c)³ of SMCRA authorizes the Office of Surface Mining (OSM) to issue citations and, without going to court, to assess civil penalties against mine operators for violations of the Act. Section 518 is one of a handful of "modern" enforcement provisions in federal environmental statutes authorizing administrative civil penalties.⁴ Such provisions are intended to strengthen agency enforcement powers by making it unnecessary to go through the costly and slow judicial process before levying penalties.⁵ However, where judicial review is available before the administrative penalty must be paid, the process can still be dragged out over months or years in appeals. Section 518(c) addresses this potential problem by requiring those assessed to pay the proposed penalties into escrow prior to seeking a hearing to challenge their penalty liability.

The constitutionality of the penalty prepayment provision has been challenged by a number of coal mine operators. In early decisions two district courts found the provision unconstitutional.⁶ However, on appeal the Supreme Court vacated the district courts' decisions, ruling that challenges to § 518(c) were premature since no penalty had been assessed in either case.⁷ Then, in rapid succession, several federal district courts upheld the constitutionality of the requirement.⁸ These decisions, while not the final word on § 518(c), strongly suggest that it passes constitutional muster.

Penalty Assessment Procedures

SMCRA, like many other federal environmental statutes, calls upon the states to implement uniform national standards, with federal enforcement provided as a back-up system should states decline to assume or fail to carry out their responsibilities.⁹ First, the Act called for an interim federal regulatory program¹⁰ in which the Secretary of the Interior, acting through OSM, established and enforced interim environmental protection standards.¹¹ OSM then established permanent regulatory standards, which are to be mirrored in federally approved, state-run programs.

Implementation of SMCRA has now reached the permanent regulatory phase.¹² OSM has reviewed and approved the SMCRA regulatory programs of 20 of the 24 states in which there are surface coal mining operations on nonfederal lands.¹³ These states now have responsibility for enforcing the Act on nonfederal lands. OSM's continuing responsibility is to monitor the state programs,¹⁴ conduct monthly or quarterly imspections of coal mine operations,¹⁵ and enforce the federal program on all federal lands as well as in those states without approved programs.¹⁶

If, in carrying out its enforcement responsibilities, OSM detects violations of either the federal regulations [12 ELR 10072] or an approved state program, it may assess a civil penalty under § 518. That section and the regulations implementing it prescribe elaborate administrative procedures for the assessment of and challenges to penalties. OSM first issues the mine operator a "notice of violation."¹⁷ Section 525 of the Act¹⁸ gives the recipient of such a notice 30 days to appeal the agency's determination in a hearing before an administrative law judge.¹⁹ After considering any information submitted by the operator, OSM determines whether to assess a civil penalty and if so, issues a notice of the proposed amount.²⁰ In determining the amount of the penalty OSM applies a point system²¹ utilizing four criteria: the operator's history of previous violations, the seriousness of the violation, whether the operator was negligent, and whether the operator demonstrated good faith in attempting to achieve rapid compliance after notification of the violation.²²

After receiving notice of the proposed penalty, the operator may request an "assessment conference."²³ At this conference, the person assessed is entitled to present information relevant to the proposed penalty and OSM may recalculate the amount or vacate it entirely.²⁴ Once the conference concludes, the operator may petition the OSM Hearings Division for an evidentiary hearing before an administrative law judge.²⁵ However, if the full amount of the proposed penalty is not paid into escrow promptly, all legal rights to contest the violation or the amount of the penalty are waived.²⁶ If the operator pays the proposed penalty into escrow, the administrative law judge's decision may be appealed to OSM's Board of Surface Mining and Reclamation Appeals.²⁷ The final order may be appealed to the district court.²⁸ If in any of these proceedings the court or the agency determines that the penalty should be reduced or eliminated, the Secretary must promptly remit the appropriate amount with interest.²⁹

While there is not much legislative history concerning the prepayment provision, it is clear that Congress wanted to give OSM strong enforcement powers. The only direct discussion of § 518(c) indicates that Congress established the streamlined procedures in reaction to the problems encountered by the Department in trying to collect penalties under the Federal Coal Mine Health and Safety Act of 1969.³⁰

Litigation Under § 518(c)

In the late 1970s an enforcement-minded Office of Surface Mining made heavy use of $518 penalties and a number of federal district courts have had occasion to consider their constitutionality. In each case mine operators sought to enjoin enforcement of the prepayment provisions. They argued that to be penalized for violating the law before having an opportunity to have the penalty adjudicated tramples on procedural due process and equal protection guarantees in the Constitution, or constitutes a taking of private property without just compensation.

The first three cases to challenge the constitutionality of § 518(c) reached the federal courts in early 1980. District courts in Indiana,³¹ Virginia,³² and Iowa³³ held that § 518(c) violates the procedural due process guarantees of the Fifth Amendment. In the Hodel³⁴ cases, however, the Supreme Court reversed two of these decisions, declaring the challenges to the civil penalty provisions to be premature. Since the operators did not allege that civil penalties had actually been assessed, the constitutional issues were unripe.

In the first three months of this year, the constitutionality of the prepayment provision was again addressed by [12 ELR 10073] several courts. In United States v. Hill,³⁵ the federal government sought to collect a $3,300 penalty assessed by OSM as a result of defendant's alleged violations of SMCRA and regulations requiring refill and revegetation of mine sites. The defendant had justified his refusal to pay on the ground that § 518(c) violates due process. The District Court for the Eastern District of Tennessee disagreed, explaining that the provision's allowance for extensive administrative review of penalties before they are assessed was sufficient to satisfy due process standards.³⁶

The Eastern District of Kentucky reached a similar conclusion in Blackhawk Mining Co. v. Department of the Interior.³⁷ There, an assessment conference held at plaintiff's request resulted in the reduction of the proposed penalty from $5,400 to $1,900. Plaintiff refused to pay the $1,900 into escrow and sought a declaratory judgment that § 518(c) violated the Constitution. The court rejected plaintiff's challenge, holding that § 518(c), when considered in conjunction with the assessment conference and the other available administrative remedies, satisfies the demands of procedural due process, and is, therefore constitutional.³⁸

In B & M Coal Corp. v. Office of Surface Mining Reclamation and Enforcement³⁹ and United States v. Thompson,⁴⁰ the courts looked to the three-part standard enunciated in Mathews v. Eldridge⁴¹ to determine whether plaintiffs due process rights have been infringed:

First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedure used, and the probable value, if any, of additional substitute safeguards; and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.⁴²

Applying these standards, both courts concluded that § 518(c) is constitutional.

In B & M Coal, plaintiff petitioned for review of civil penalties proposed by OSM for three violations, but refused to pay the penalty into escrow prior to a hearing, as required by § 518(c). After examining the penalty procedures in the Act, the court concluded first that plaintiff's private interests are not greatly impaired since it continues to possess the coal to be mined while it challenges the penalty.⁴³ Second, plaintiff is unlikely to be erroneously deprived of its monies because it has several opportunities to challenge the penalty, and if successful, the penalty plus interest will be returned.⁴⁴ Finally, the court ruled that an important governmental interest, compliance with the Act, justifies the payment of proposed penalties into escrow prior to an appeal to the Hearings Office.⁴⁵

In United States v. Thompson, the court also held that § 518(c) is consistent with the Eldridge standards.⁴⁶ The court placed great weight on the fact that § 525 of the Act allows coal operators, before assessment of a penalty, to obtain a full evidentiary hearing on the question of whether they in fact violated the statute as indicated in the notice of violation.⁴⁷ Interestingly, none of the other courts discussed § 525, perhaps because defendants did not contest the allegation that they had violated the statute.The Thompson court also found significant the fact that § 518 allows the operator, before assessment, to submit material bearing on the decision to assess a penalty and, after assessment but before payment, to request a conference to seek reduction of the amount. The court viewed the prepayment requirement as an appropriate means of discouraging appeals whose sole purpose is to delay payment of penalties.⁴⁸ The court acknowledged that past experience, as noted in the legislative history, shows the need for such a provision.⁴⁹

More recently, in Eldorado Coal Co. v. Watt⁵⁰ and Winston Ford Co. v. Watt,⁵¹ the Kentucky district court reaffirmed its view that § 518(c) is constitutional. In both cases the court found it unnecessary to reconsider the issues in depth, finding the rationale in Hill and Blackhawk compelling.⁵²

Conclusion

Since the enactment of SMCRA, there have been numerous challenges to the constitutionality of Title V's administrative civil penalty provision. In addition to the cases discussed above, there are 14 other cases pending before the district courts on the same issue, although one half of these are in courts that have already upheld § 518(c).⁵³ Although federal district courts have gone both ways on constitutional challenges to § 518(c), the most recent results seem to establish its validity under the Due Process Clause by virtue of their more detailed analysis of the requirements of due process as applied to SMCRA [12 ELR 10074] penalties. Informal administrative hearings have been deemed to provide due process to one assessed a penalty, at least where the penalty involved is limited and refundable with interest. By promoting compliance with the Act, the penalties significantly further its basic purposes.⁵⁴ Moreover, pre-hearing payment has been upheld in another context,⁵⁵ and does not strike some federal judges as fundamentally unfair. Yet, the law is not finally settled. Appeals have been filed in B & M Coal, Blackhawk, and Thompson and new decisions against prepayment may emerge from some of the pending district court cases. Thus, OSM's § 518(c) penalty assessment scheme will remain under a cloud until we have heard from these courts or, perhaps a higher authority. Nonetheless, at the moment, it appears that § 518(c) will be upheld even as it seems likely to be relegated to a less active role as the number of SMCRA enforcement actions declines.⁵⁶

1. 30 U.S.C. §§ 1201-1328, ELR STAT. & REG. 42401.

2. See generally Comment, High Court Pens Sweeping Endorsement of Surface Mining Law, 11 ELR 10136 (1981).

3. 30 U.S.C. § 1268(c), ELR STAT. & REG. 42420.

4. See, e.g., Clean Air Act, § 120, 42 U.S.C. § 7240, ELR STAT. & REG. 42226, Federal Environmental Pesticide Control Act, § 14 7 U.S.C. § 136l, ELR STAT. & REG. 42317. The Administrative Conference of the United States has given considerable attention to the use of civil penalties as a means of streamlining enforcement by eliminating the need to go to court to impose penalties. See Goldschmid, Report in Support of Civil Money Penalties as a Sanction by Federal Administrative Agencies, in 2 RECOMMENDATIONS AND REPORTS OF THE ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 957-64 (1972); Diver, The Assessment and Mitigation of Civil Money Penalties by Federal Administrative Agencies (1979) (report prepared for consideration by the Committee on Informal Action of the Administrative Conference of the United States).

5. The administrative penalty provisions cited in note 4 allow judicial review before payment. However, § 120 of the Clean Air Act does provide for daily increments to the penalties to continue to accrue during judicial challenges to the assessment in order to discourage dilatory appeals. In Bethlehem Steel Corp. v. Environmental Protection Agency, 12 ELR 20298 (3d Cir. Fed. 4, 1982), the Third Circuit upheld this aspect of § 120.

6. See Virginia Surface Mining and Reclamation Ass'n v. Andrus, 483 F. Supp. 425, 10 ELR 20128 (W.D. Va. 1980) and Indiana v. Andrus, 501 F. Supp. 452, 10 ELR 20613 (S.D. Ind. 1980).

7. Hodel v. Virginia Surface Mining & Reclamation Ass'n, 452 U.S. 264, 11 ELR 20569 (1981); Hodel v. Indiana, 452 U.S. 314, 11 ELR 20581 (1981).

8. See Winston Ford Co. v. Watt, 12 ELR 20762 (E.D. Ky. Mar. 31, 1982); Eldorado Coal Co. v. Watt, 12 ELR 20755 (E.D. Ky. Mar. 30, 1982); United States v. Thompson, 532 F. Supp. 979, 12 ELR 20665 (W.D. Pa. Feb. 26, 1982); Blackhawk Mining Co. v. Dep't of the Interior, 12 ELR 20781 (E.D. Ky. Feb. 12, 1982); B & M Coal Corp. v. Office of Surface Mining Reclamation and Enforcement, 531 F. Supp. 677, 12 ELR 20584 (S.D. Ind. Feb. 4, 1982); United States v. Hill, 533 F. Supp. 810, 12 ELR 20662 (E.D. Tenn. Jan. 12, 1982).

9. Edgmon & Menzel, The Regulation of Coal Surface Mining in a Federal System, 21 NAT. RESOURCES J. 245 (1981).

10. 30 U.S.C. §§ 1251 and 1252(e), ELR STAT. & REG. 42410. 30 U.S.C. § 1252, ELR STAT. & REG. 42410, lists those provisions of the Act which had to be complied with during the interim period.

11. 30 U.S.C. § 1265 et seq., ELR STAT. & REG. 42416. The performance standards require restoration of the mined land to its approximate original contour; restoration of prime farmland to an equivalent or higher yield; minimization of disturbance to the prevailing hydrologic balance; and establishment of a diverse, effective, and permanent vegetative cover. The Act contains separate provisions containing detailed standards for waste piles and for the surface mining of steep slopes.

12. See 30 U.S.C. § 1251(b), ELR STAT. & REG. 42410.

13. Telephone interview with Walton Morris,Jr., attorney, United States Department of the Interior, Office of Surface Mining (June 18, 1982).

14. 30 U.S.C. § 1252(e), ELR STAT. & REG. 42410.

15. Id.

16. Id.

17. Notices of violation are to be issued where an operator is in violation of the Act or any permit condition required by the Act and where the "violation does not create an imminent danger to the health or safety of the public, or cannot be reasonably expected to cause significant, imminent environmental harm to land, air, or water sources …." 30 U.S.C. § 1271(a)(3), ELR STAT. & REG. 42422; see 30 C.F.R. § 722.12. If the Secretary determines that a violation creates "an imminent danger" to the public health or safety, or is "reasonably expected to cause significant, imminent environmental harm," the Secretary must issue an order to the operator to cease surface coal mining and reclamation operations. 30 U.S.C. § 1271(a)(2), ELR STAT. & REG. 42422.

18. 30 U.S.C. § 1275, ELR STAT. & REG. 42423.

19. The statute is somewhat confusing on whether $525 appeals are available at issuance of a notice of violation. That section clearly states that a person issued a "notice or order" under $521 may obtain an adjudicatory hearing.However, § 518(c) indicates that prepayment is necessary before the alleged violator may appeal "either the amount of the penalty or the fact of the violation." In the only decision to date to address the relationship between the two sections the district judge indicated that a $525 hearing is available on receipt of the $521 notice of violation. U.S. v. Thompson, 532 F. Supp. at 981, 12 ELR at 20666.

20. Within 15 days of receiving the notice, the operator may submit to OSM information to be used in calculating the proposed penalty. 30 C.F.R. § 723.17(a)-(b).

21. 30 C.F.R. § 723.13.

22. OSM assesses from zero to 15 points for each criterion.If the total points accumulated exceeds 30, a penalty must be assessed. The regulations also allow the office to levy penalties for violations of fewer points. The amount of the proposed penalty is calculated from a table listed in the regulations in which penalties range from $20 for a one-point violation to $5,000 for 70 or more points. 30 C.F.R. § 723.14.

23. 30 C.F.R. § 723.18(a).

24. 30 C.F.R. § 723.18(b).

25. If a conference has not been held, the person charged with the violation may contest the proposed penalty or the fact of the violation by submitting a petition and an amount equal to the proposed penalty to the Office of Hearings and Appeals to be held in escrow within 30 days from receipt of the proposed assessment. 30 C.F.R. § 723.19; 43 C.F.R. § 4.1151(b).

26. 30 U.S.C. § 1268(c), ELR STAT. & REG. 42420; 43 C.F.R. § 4.1152(c).

27. 43 C.F.R. § 4.1158.

28. Once the penalty is finalized by the Board the operator may seek judicial review in the district court within 30 days. 30 U.S.C. § 1276(a)(2), ELR STAT. & REG. 42424.

29. 30 U.S.C. § 1268(c), ELR STAT. & REG. 42420; see also 43 C.F.R. § 4.1157(c).

30. H.R. REP. NO. 218, 95th Cong., 1st Sess. 128 (1977).

31. Virginia Surface Mining & Reclamation Ass'n v. Andrus, 483 F. Supp. 425, 10 ELR 20128 (W.D. Va. 1980).

32. Indiana v. Andrus, 501 F. Supp. 452, 10 ELR 20613 (S.D. Ind. 1980).

33. Star Coal Co. v. Andrus, 10 ELR 20328 (S.D. Iowa 1980), vacated, 49 U.S.L.W. 3968 (U.S. June 29, 1981).

34. 432 U.S. 264, 11 ELR 20569 (1981); 452 U.S. 314, 11 ELR 20581 (1981).

35. 533 F. Supp. 810, 12 ELR 20662 (E.D. Tenn. Jan. 12, 1982).

36. 533 F. Supp. at 815, 12 ELR at 20665.

37. 12 ELR 20781 (E.D. Ky. Feb. 12, 1982).

38. Id.

39. 531 F. Supp. 677, 12 ELR 20584 (S.D. Ind. Feb. 4, 1982).

40. 532 F. Supp. 979, 12 ELR 20665 (W.D. Pa. Feb. 26, 1982).

41. 424 U.S. 319 (1976).

42. 424 U.S. at 335.

43. 531 F. Supp. at 683, 12 ELR at 20587.

44. Id.

45. Id.

46. 532 F. Supp. at 981, 12 ELR at 20666.

47. Id.

48. Id.

49. Id.

50. 12 ELR 20755 (E.D. Ky. Mar. 30, 1982).

51. 12 ELR 20762 (E.D. Ky. Mar. 31, 1982).

52. Winston Ford Co., 12 ELR at 20763, Eldorado Coal Co., 12 ELR at 20756.

53. See B & M Coal Corp. v. Watt, CA 80-1182C (S.D. Ind.); Badger Coal Co. v. Watt, CA 80-395-E (N.D. W. Va.); David Excavating Co. v. Watt, CA EV-81-171-C (S.D. Ind.); Elkay Mining Co. v. Watt, CA 80-2030 (S.D. W. Va.); Golsten Key Mining v. Watt, CA 81-81R (N.D. Ga.); JOC Coal Co. v. Watt, CA 81-43 (E.D. Ky.); A. J. Lambert t/a Lambert Coal Co. v. Watt, CA 80-0136-13 (W.D. Va.); Lewis & Joseph Coal Co. v. Watt, CA 81-164 (E.D. Ky.); Moses Coal, Inc. v. Watt, CA 81-105 (E.D. Ky.); Mulzer Crushed Stone v. Watt, CA ID-80-1088-C (S.D. Ind.); Riley Coal Co. v. Watt, CA 79-213 (E.D. Ky.); Rockcastle Coal v. Watt, CA 81-0021-E (N.D. Va.); T & T Darby Coal v. Watt, CA 78-0231-B (W.D. Va.); Titan Mining, Inc. v. Watt, CA 80-2145 (W.D. Ark.).

54. See generally Comment, Procedural Due Process and the Prepayment of Civil Penalties: The Surface Mining Act — A Paradigm for Future Legislation, 1980 AM. U.L. REV. 87.

55. As noted by the court in B & M Coal Corp. v. Office of Surface Mining Reclamation and Enforcement, the Supreme Court frequently has upheld the summary tax collection procedure of the Internal Revenue Code, which requires a taxpayer to pay the assessed tax prior to challenging it in federal court. This summary collection procedure is constitutional provided there is an adequate opportunity for a post-seizure determination of the taxpayer's rights. 531 F. Supp. at 681, 12 ELR at 20586. See also G.M. Leasing Corp. v. United States, 429 U.S. 338, 352 n.18; Phillips v. Commissioner of Internal Revenue, 283 U.S. 589 (1931).

56. See Russakoff, The Unforcer, Washington Post, June 6, 1982, at 1, col. 1.

In the course of a massive reorganization coupled with a personnal cutback that will shrink the agency of more than thirty percent, citations against mine operators have dropped markedly; appeals of adverse court rulings have been cut in half. Another major drop came in the number of citations against mine operators for violating the law. In Southern Appalachia, OSM violation notices dropped from 3,352 in 1980 to 1,005 in 1981.

Id.