Granite Mountain Crushing, LLC

Plain-English summary

Granite Mountain Crushing contested 23 citations from an MSHA inspection of its granite-crushing operation. The company stipulated that it committed the cited violations but argued that its financial condition made the proposed $11,578 penalty inappropriate after it had ceased operations and liquidated equipment. The judge assessed the penalties de novo and reduced the total to $4,820 after considering the statutory penalty factors, including the company's ability to continue in business. All citations were affirmed.

Decision snapshot

• Cited standards: 30 C.F.R. §§ 56.6130(b), 56.4101, 56.16005, 56.6132(a)(10), 56.6101(a), 56.6131(a)(1), 56.6130(d), 56.14100(b), 56.20013, 56.12006, 56.12008, 56.14107(a), 56.11012, 56.9300(a), 56.15001, 56.12004, and 56.18002(a)
• Outcome: All 23 citations were affirmed and the total penalty was set at $4,820.
• Key point: The judge may reduce proposed civil penalties after considering an operator's ability to continue in business, while leaving admitted violations affirmed.

Full text (FMSHRC public release)

GRANITE MOUNTAIN CRUSHING, LLC -- February 26, 2004

    FEDERAL MINE SAFETY AND HEALTH REVIEW COMMISSION

           1244 SPEER BOULEVARD #280

          DENVER, CO 80204-3582

                  303-844-3577/FAX 303-844-5268

                      February 26, 2004

SECRETARY OF LABOR, : CIVIL PENALTY PROCEEDINGS
MINE SAFETY AND HEALTH :
ADMINISTRATION (MSHA), : Docket No. CENT 2003-289-M
Petitioner : A.C. No. 41-03932-05515
:
v. : Docket No. CENT 2003-290-M
: A.C. No. 41-03932-05516
GRANITE MOUNTAIN CRUSHING, LLC, :
Respondent : Granite Mountain Crushing

DECISION

Appearances:
Michael D. Schoen, Esq., Office of the Solicitor, U.S. Department of Labor, Dallas, Texas, for the Secretary of Labor;
David M. Williams, Esq., San Saba, Texas, for Granite Mountain Crushing, LLC.

Before:
Judge Manning

 These cases are before me on two petitions for assessment of civil penalty filed by the

Secretary of Labor, acting through the Mine Safety and Health Administration ("MSHA"),
against Granite Mountain Crushing, LLC ("Granite Mountain"), pursuant to sections 105 and
110 of the Federal Mine Safety and Health Act of 1977, 30 U.S.C. §§ 815 and 820 (the "Mine
Act"). The cases involve 23 citations issued by the Secretary under section 104(a) of the Mine
Act. The Secretary seeks a total penalty of $11,578 for the alleged violations. An evidentiary
hearing was held in Austin, Texas. The parties introduced testimony and documentary evidence
and, at the close of the hearing, presented oral argument.

                      I.  BACKGROUND

 Cold Spring Granite Company, USA, ("Cold Spring") operates a granite quarry near

Marble Falls, Texas. Granite Mountain was organized in May 1996 to reduce the spoil piles at
the granite quarry. (Tr. 10; Ex. R-1). Granite Mountain entered into an agreement with Cold
Spring to crush material from its spoil pile, mostly mill block fragments, to produce Class A road
stone, cover stone, ballast, rip rap, and other specially crushed engineering stone. (Tr. 16; Ex.
R-1). The original participants in the venture were Cold Spring and Texas Architectural
Aggregates, Inc., ("TAA"). Contributions to the venture included quarry and mill site premise
leases from Cold Spring, an operations agreement from TAA, and the guarantees from both
corporations on a note to purchase necessary mining and milling equipment through Cargill
Leasing Corporation.

 As a result of operations problems, Cold Spring withdrew from the venture after about

three years but continued its leases and supply agreements. (Tr. 11; Ex. R-1). Granite Mountain
continued with the operation and obtained additional financing through Orix Financial, the CIT
Group, and equipment suppliers, which maintained security interests in the mill, heavy
machinery, and parts which they supplied. (Tr. 12; Ex. R-1).

 Because of high operations expenses, Granite Mountain made the decision in the spring

of 2003 to cease operations on the Cold Spring property and to salvage as much of the company's
investment in the venture as possible. The project "never did prove feasible." (Tr. 11). Granite
Mountain auctioned off its salvageable equipment and machinery through Ritchie Brothers
Auctioneers in Fort Worth in September 2003. The crushing plant, which had a cost basis of
about $1.5 million sold for less than $225,000. (Ex. R-1). The net proceeds from the sale of the
equipment and machinery at auction was $244,592 which was paid directly to Orix Financial and
the CIT Group. (Tr. 13, 22; Ex. R-1). Granite Mountain represents that, excluding MSHA's
proposed penalties, it owes its creditors about $115,000. (Tr. 15, 28). Granite Mountain further
represents that, although it had a large supply inventory when it liquidated its assets, that material
is in the possession of Cold Spring and Granite Mountain has no rights to it. (Tr. 13-14, 41-42).
Granite Mountain states that its only assets are additional equipment that were not suitable for
auction with a net fair market value of about $11,000 and accounts receivable of about $5,800.
(Tr. 14, 36-38; Ex. R-1). Accounts receivable includes accounts that are unlikely to be collected.

 Granite Mountain has not filed for bankruptcy, but does not have any income at this time.

(Tr. 15). The manager of Granite Mountain has been paying off some of the company's debt
with his own funds, but he had no legal obligation to do so. (Tr. 30). He has not been making
these payments with funds from other companies in which he has an interest. (Tr. 31). Granite
Mountain states that it is possible "with a different crushing system, new granite lease
arrangements, and improved market trends, that Granite Mountain could return to the business of
mining and crushing granite." (Ex. R-1 p. 2; Tr. 39-40).

 The 23 citations contested in these cases were issued during an MSHA inspection on

March 6 - 7, 2003. Prior to the hearing in these cases, the parties entered into joint stipulations in
which the parties agreed that (1) Granite Mountain is an operator within the meaning of the Mine
Act that is subject to the jurisdiction of the Mine Act; (2) the products of Granite Mountain enter
commerce or affect commerce within the meaning of section 4 of the Mine Act; (3) the
Commission has jurisdiction over these cases; and (4) Granite Mountain abated or terminated all
citations within the time frame initially set by the MSHA inspector.

 The parties also stipulated that all of the citations "were properly served by the duly

authorized representative of the Secretary upon an agent of Granite Mountain on the date and
place stated therein, and may be admitted into evidence for the purpose of establishing its
issuance and for the truthfulness or relevance of any statements asserted therein." The parties
further stipulated that "Granite Mountain admits that it committed the violations alleged in the
citations [attached to] the Secretary's Petitions for Assessment of Civil Penalty." Finally, the
parties stipulated that Granite Mountain contends "that the proposed assessed penalties in the
total amount of $11,578.00 are not appropriate and requests that the Court make a determination
of the proper amounts, if any, to be assessed against Respondent in light of Respondent's
affirmative assertion that it is no longer in business and is presently unable to pay the penalties as
assessed."

          II.  SUMMARY OF THE PARTIES' ARGUMENTS

 The Secretary maintains that Granite Mountain has not met its burden of establishing that

the proposed penalties will have an "effect on the operator's ability to continue in business." 30
U.S.C. § 620(I). (Tr. 44-46, 50-52). The fact that Granite Mountain ceased operations does not
demonstrate that the proposed penalties of $11,578 would affect its ability to resume operations
if it chooses to do so. The Secretary objected to the introduction of Exhibit R-1 on the basis that
it is hearsay and it was not accompanied by supporting documents. (Tr. 7-8). The Secretary
believes that, if Granite Mountain's statement that it is carrying a debt load of $115,000 is
accepted, then that fact helps to establish its current financial condition but it does not show that
it is unable to pay the proposed penalty. In addition, there may be other potential "cash
revenues" from accounts receivable. Id. The Secretary relies, in part, on the decision in Energy
Trucking, 19 FMSHRC 1685, 1691 (Oct. 1997) (ALJ). In that case, the administrative law judge
held that "net operating losses are not proof of an inability to continue in business." Id. Because
Granite Mountain did not meet its burden of showing that the penalties will negatively affect its
ability to continue in business, the proposed penalties should be affirmed.

 Granite Mountain contends that "it is essentially penniless."  (Tr. 48).  It is in debt and is

trying to stay out of bankruptcy. Granite Mountain maintains that the proposed penalties will
affect its ability to continue in business. (Tr. 49). Finally, it argues that it is not only in debt but
it also has no significant assets.

          III.  DISCUSSION WITH FINDINGS OF FACT

                  AND CONCLUSIONS OF LAW

 It is well settled that the Commission assesses civil penalties de novo and is not bound by

the Secretary's proposed penalties. Topper Coal Co., 20 FMSHRC 344, 350 n.8 (April 1998);
Sellersburg Stone Co., 5 FMSHRC 287, 291, (March 1983), aff'd 736 F.2d 1147 (7th Cir. 1984).
In determining the appropriate civil penalty to be assessed, Commission Rule 29 C.F.R.
§ 2700.30, requires the judge to consider the statutory criteria set forth in 110(i) of the Mine Act,
30 U.S.C. § 820(i). Section 110(i) provides, in pertinent part, that in assessing civil penalties the
Commission shall consider the operator's history of previous violations, the appropriateness of
such penalty to the size of the business of the operator charged, whether the operator was
negligent, the effect on the operator's ability to continue in business, the gravity of the violation,
and the demonstrated good faith of the person charged in attempting to achieve rapid compliance
after notification of a violation. Although the parties focused on the ability to continue in
business criterion, I am required to evaluate all of the criteria based on the evidence presented at
the hearing.

 A.  Size of the Mine Operator

 Granite Mountain is a small operator, as set forth in the record.

 B.  The Mine Operator's History of Previous Violations

 The record establishes that Granite Mountain was issued 23 citations during the 24

months prior to March 2003. This is a relatively high number of citations for a small operator.
The Secretary's proposed penalties were heavily influenced by this history. Indeed, the Secretary
assigned the maximum number of penalty points for this criteria under 30 C.F.R. § 100.3(c). In
addition, the Secretary added 20 extra penalty points for "excessive history" to the total points for
most of the citations. All but 5 of the 23 citations at issue in these cases were designated as not
being of a significant and substantial nature ("S&S"). Because of this "excessive history," the
Secretary proposed penalties for these non-S&S citations that were significantly greater than her
typical single penalty proposals under 30 C.F.R. § 100.4. The proposed penalties for the non-
S&S citations ranged between $259 and $1,428 each. But for the "excessive history"
determination, the penalties for these non-S&S citations would have been $60 each. I find that,
although the penalties should take into account Granite Mountain's relatively high history of
previous violations, the Secretary's proposed penalties are too high when taking this criterion
into consideration, especially with respect to the non-S&S violations.

 C.  Negligence of the Operator

 As set forth in the citations, Granite Mountain's negligence was moderate with respect to

each violation except with respect to the violation alleged in Citation No. 6226697 where its
negligence was high.

 D.  Gravity of the Violations

 The gravity of the violations are as set forth in the citations.  The most serious violations

are as set forth in Citation Nos. 6226697, 6226701, 6226704, 6226705, and 6226714, which are
S&S.

 E.  Demonstrated Good Faith in Achieving Rapid Abatement of the Violations

 Granite Mountain demonstrated good faith in quickly abating the violations.

 G.  Effect on the Operator's Ability to Continue in Business

 I find that the Secretary's proposed penalties will have a negative effect on Granite

Mountain's ability to continue in business. Granite Mountain has virtually no assets and it has
substantial debts. The proposed penalties will affect its ability to resume operations. I credit the
testimony of Granite Mountain's corporate secretary as to the financial condition of the company.
The Secretary's reliance on Energy Trucking is misplaced. In that case, the judge determined
that the operator was "essentially a 'pass through' business whereby almost all of its income
passes through the company to one or more "lessor-operators." 19 FMSHRC at 1691. He
concluded that a company with such a structure "would effectively have an exemption from civil
penalties under the Act if its reported net losses were accepted as proof of an inability to pay
substantial penalties and continue in business." Id. The present case presents a different
situation. Granite Mountain is not operating at a loss; rather it is not generating any income at all
and it is in debt.

 In reaching this conclusion, I note that there is no evidence that Granite Mountain's

decision to liquidate its assets was motivated in any part by the Secretary's proposed penalties.
There is also no evidence that Granite Mountain was operated as a shell corporation or that it was
deliberately under-capitalized in order to avoid responsibility for paying its debts.

 In conclusion, I have reduced the penalties proposed by the Secretary for two reasons.

First, I find that the Secretary increased her proposed penalties for "excessive history" by more
than is justified under the circumstances presented in these cases. With respect to the non-S&S
citations, the proposed penalties are four to nine times higher than they would have been without
the excessive history designation. I have also reduced the penalties under the ability to continue
in business criterion, as discussed above.

                        IV.  ORDER

 Based on the criteria in section 110(i) of the Mine Act, 30 U.S.C. § 820(i), I assess the

following civil penalties:

 Citation No.             30 C.F.R. §                 Penalty

 CENT 2003-289-M

   6226697                56.6130(b)                 $1,000.00
   6226698                56.4101                       120.00
   6226699                56.16005                      120.00
   6226700                56.6132(a)(10)                200.00
   6226701                56.6101(a)                    500.00
   6226702                56.6131(a)(1)                 200.00
   6226703                56.6130(d)                    120.00
   6226704                56.14100(b)                   250.00
   6226705                56.4101                       250.00
   6226706                56.20013                      120.00
   6226707                56.12006                      120.00
   6226708                56.12008                      120.00
   6226709                56.12008                      120.00
   6226710                56.14107(a)                   120.00
   6226712                56.14107(a)                   120.00
   6226713                56.14107(a)                   120.00
   6226714                56.11012                      500.00
   6226716                56.14107(a)                   120.00
   6226717                56.14107(a)                   120.00

 CENT 2003-290-M

   6226718                56.9300(a)                    120.00
   6226719                56.15001                      120.00
   6226720                56.12004                      120.00
   6226721                56.18002(a)                   120.00

                          TOTAL PENALTY              $4,820.00

 For the reasons set forth above, the citations at issue in these cases are AFFIRMED.

Granite Mountain Crushing LLC is ORDERED TO PAY the Secretary of Labor the sum of
$4,820.00 within 40 days of the date of this decision.

Richard W. Manning

Administrative Law Judge

Distribution:

David M. Williams, Esq., P.O. Box 242, San Saba, TX 76877-0242 (Certified Mail)

RWM