Dynatec Mining Corporation

Plain-English summary

Dynatec Mining applied for attorney fees and expenses under the Equal Access to Justice Act after earlier Mine Act litigation reduced the proposed penalty from $700,000 to $60,000. The Secretary moved to dismiss, arguing that Dynatec was not an eligible party because the net worth and employees of its corporate affiliates had to be aggregated. Judge Richard W. Manning held that the Commission's aggregation regulation required including the affiliates, which put Dynatec outside the EAJA eligibility limits. The Judge rejected Dynatec's arguments that the regulation was invalid or that applying it would be unjust. The Secretary's motion was granted and the fee proceeding was dismissed.

Decision snapshot

• Cited standard(s): 29 C.F.R. § 2704.104(b)(2)
• Outcome: The Secretary's motion to dismiss was granted, and Dynatec's EAJA fee application was dismissed.
• Key point: The Commission's affiliate-aggregation rule controls EAJA eligibility in these proceedings.

Full text (FMSHRC public release)

FEDERAL MINE SAFETY AND HEALTH REVIEW COMMISSION
1244 SPEER BOULEVARD #280
DENVER, CO 80204-3582
303-844-3577/FAX 303-844-5268

                                        July 10, 2001

DYNATEC MINING CORPORATION, : EQUAL ACCESS TO JUSTICE
Contestant : PROCEEDING
:
: Docket No. EAJ 2001-3
v. : Formerly WEST 94-645-M
:
: Magma Mine
SECRETARY OF LABOR, : ID. No. 02-00152 WJ6
MINE SAFETY AND HEALTH :
ADMINISTRATION (MSHA), :
Respondent :

                                         DECISION

Before: Judge Manning

    This case is before me on an Application for Award of Fees and Expenses under the

Equal Access to Justice Act (“EAJA”), 5 U.S.C. § 504 and 29 C.F.R. § 2704.100 et seq. Dynatec
Mining Corporation (“Dynatec Mining”) filed the application against the Department of Labor’s
Mine Safety and Health Administration (“MSHA”) based on my decision in Dynatec Mining
Corporation, 20 FMSHRC 1058 (Sept. 1998), as modified by the decision of the Commission at
23 FMSHRC 4 (Jan. 2001). MSHA issued one citation and 13 orders of withdrawal under
section 104(d)(1) against Dynatec Mining following an accident at the Magma Mine in which
four people died. I vacated six of these orders of withdrawal and reduced the total penalty on the
remaining eight items from $300,000 to $90,000. On review, the Commission vacated six
additional orders of withdrawal with the result that one citation and one order remained and the
total penalty is $60,000. Dynatec appealed the Commission’s decision upholding the remaining
citation and order to the Court of Appeals for District of Columbia Circuit.

    Dynatec Mining contends that it prevailed against MSHA because 12 of the 14

citation/orders were vacated and the Secretary’s total proposed penalty was reduced from
$700,000 to $60,000. The Secretary opposes Dynatec Mining’s application in this case and
moved to dismiss the application. For the reasons set forth below, I grant the Secretary’s motion
to dismiss this application on the grounds that Dynatec Mining is not an eligible party.

   The EAJA limits recovery, as pertinent here, to “any . . . corporation . . . , the net worth of

which did not exceed $7,000,000 at the time the adversary adjudication was initiated, and which
had not more than 500 employees at the time the adversary adjudication was initiated.” 5 U.S.C.
§ 504(b)(1)(B). The Commission’s regulation implementing this provision is at 29 C.F.R.
§ 2704.104. The Commission’s regulation requires the aggregation of affiliates, as follows:

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           The net worth and number of employees of the applicant and all of
           its affiliates shall be aggregated to determine eligibility. Any
           individual, corporation or other entity that directly or indirectly
           controls or owns a majority of the voting shares or other interest,
           will be considered an affiliate for purposes of this part, unless the
           administrative law judge determines that such treatment would be
           unjust and contrary to the purposes of the Act in light of the actual
           relationship between affiliated entities.

29 C.F.R. § 2704.104(b)(2).

    An applicant for an award of fees and expenses has the burden of establishing that it is an

eligible party. Dynatec Mining argues it is eligible because it had a net worth of less than seven
million dollars and fewer than 500 employees at the time it contested the MSHA citation and
orders. It presented credible evidence to support its position. It contends that its net worth and
number of employees should not be aggregated with that of its affiliates. The Secretary presented
evidence to show that if the Commission’s aggregation regulation is applied in this case, Dynatec
Mining would not meet the EAJA eligibility requirements. Dynatec Mining did not present
conflicting evidence on this issue. Consequently, for purposes of this decision, I find that if
Dynatec Mining’s corporate affiliates are considered when evaluating eligibility under section
2704.104, Dynatec Mining cannot be awarded fees and expenses under the EAJA because its net
worth was greater than seven million dollars or it had more than 500 employees. I also find,
based on the evidence presented by Dynatec Mining, that if the net worth and number of
employees of its corporate affiliates are not considered, it would be an eligible party under the
EAJA. Thus, this case raises issues concerning the application of the Commission’s aggregation
regulation and appears to be a case of first impression.

     Dynatec Mining contends that the Commission’s aggregation regulation is ultra vires

because it conflicts with the plain and unambiguous language of the EAJA. It argues that the
EAJA does not require or authorize the aggregation of affiliated corporations. Further, because
the Commission’s aggregation regulation changes the EAJA eligibility requirements, it is
unlawful and cannot be used to determine Dynatec Mining’s status as an eligible party in this
EAJA case. In making this argument, it relies, in part, on Tri-State Steel Const. v. Herman, 164
F.3d 973, 977-80 (6th Cir. 1999). That case arose following an adjudication involving the
Department of Labor’s Occupational Safety and Health Administration (“OSHA”). The
Occupational Safety and Health Review Commission (“OSHRC”) aggregated the net worth and
number of employees of Tri-State’s corporate parent and determined that it was not an eligible
party under the EAJA. The Sixth Circuit held that the Tri-State’s net worth should not have been
aggregated with that of its corporate parent because Tri-State was a separate corporate entity
litigating on its own behalf and the interrelationship between Tri-State and its corporate parent
did not justify aggregation.

   I reject Dynatec Mining’s argument for a number of reasons. First and foremost, I do not

have the authority to overturn or ignore a regulation duly promulgated by the Commission. The

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Commission’s aggregation requirement has been in place since the Commission first
promulgated regulations implementing the EAJA. When the Commission recently revised these
regulations, many comments were received in response to its notice of proposed rulemaking
suggesting that the aggregation requirement be eliminated. 63 Fed. Reg. 63172, 63173 (Nov. 12,
1998). The Commission chose not to eliminate or modify this requirement in response to the
comments. I cannot overturn the Commission’s conclusion that an applicant’s net worth should
be aggregated with that of its corporate affiliates when determining whether an applicant is an
eligible party.

     As the Sixth Circuit noted, the EAJA is “silent on the question of whether the net worth

and employees of an otherwise eligible corporation should be aggregated with any related or
affiliated corporations.” 164 F.3d at 978. Although the OSHRC now has an aggregation
regulation that is the same as the Commission’s regulation, the OSHRC used a case-by-case “real
party in interest” test in Tri-State. (29 C.F.R. § 2404.105(f); Nitro Elec., 16 BNA OSHC 1596
(1994)). The Sixth Circuit noted that the OSHRC’s new regulation was not before the court.
164 F.3d at 978 n. 6. The court held that the OSHRC’s application of its real-party-in-interest
test to the facts of that case abrogated basic common law principles of corporate law. 164 F.3d at

979. The Commission has not adopted a real-party-in-interest test.

      In the alternative, Dynatec Mining argues that aggregation of Dynatec Mining and its
     

     affiliates would “be unjust and contrary to the purpose” of the EAJA “in light of the actual
     relationship between” Dynatec Mining and its affiliates. (D. App. 3-4 quoting section
     2704.104(b)(2)). First, it argues that aggregation would be unjust because it is contrary to circuit
     court precedent whereby recovery of fees is only precluded where the eligible party is a “front” or
     “sham” for an ineligible party or a nonparty that controls, directs, or finances the litigation. I find
     that Dynatec Mining is not a front or a sham and that MSHA issued the citations to Dynatec
     Mining not to its corporate parent. Based on these undisputed facts, Dynatec Mining argues that
     because it contested MSHA’s citation, orders, and penalties on its own behalf, “its lawful
     relationship with its affiliates, which is typical in the mining industry, cannot justly be used to
     deny it eligibility under the EAJA.” (D. App. 5). The court decisions cited by Dynatec Mining
     discuss the real-party-in-interest doctrine. The Commission has not adopted this doctrine.
     Moreover, as Dynatec Mining states, the relationship between it and its affiliates is typical for the
     mining industry. Dynatec Mining has not presented any facts to show that its relationship with
     its corporate affiliates is different from what is commonplace in the mining industry. Dynatec
     Mining is a wholly owned subsidiary of a corporation that is too large to be an eligible party
     under the EAJA. If I were to find that aggregation is unjust in this case based on Dynatec Mining’s
     actual relationship with its affiliates, I would have to do so in virtually all cases. The
     “actual relationship” exception to the Commission’s aggregation regulation would subsume the
     rule under Dynatec Mining’s interpretation. In essence, I would be invalidating the regulation.

     Second, Dynatec Mining argues that requiring aggregation in this case would undercut
     

     one of the EAJA’s primary goals, which is “deterring the unjustified action in the first place.”
     Tri-State, at 978. It argues that excluding “otherwise eligible subsidiaries, such as Dynatec
     Mining Corporation, based on affiliation, means that, for all practical purposes, only a handful of

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Section 110(c) claimants and uniquely unaffiliated mining entities will ever be EAJA eligible in
Mine Act proceedings.” (D. Br. 5). I agree. At the present time, there is a large number of
unaffiliated sand, gravel, and aggregate operators, but even their number is becoming smaller as
consolidation continues in that industry. Small mine operators in other mining sectors are
affiliated with larger entities with increasing frequency. Nevertheless, the Commission was
surely aware that the application of its aggregation requirement would disqualify many operators
from recovering fees and expenses when it originally promulgated its EAJA regulations and
revised them in 1998. I cannot invalidate the Commission’s aggregation regulation on the basis
that it prevents a large number of mine operators from recovering fees and expenses under the
EAJA. Dynatec Mining must address these arguments to the Commission.

    Dynatec Mining makes other arguments in its application and in its reply to the

Secretary’s answer and motion to dismiss. These arguments are made in support of its position
that the Commission’s aggregation regulation is inconsistent with the language of the EAJA, its
legislative history, and the intention of Congress. For the reasons set forth above, I am required
to apply the Commission’s aggregation regulation in this case.

    Dynatec Mining submitted the affidavit of John D. Marrington, General Manager and

Vice President of Dynatec Mining, to support its application. In the affidavit, Mr. Marrington
testified that Dynatec Mining was a wholly owned subsidiary of another corporation at the time
the adjudication was initiated.1 Marrington states that he controlled and directed the course of
the adjudication of the citation and orders issued by MSHA. He states that MSHA’s proposed
$700,000 penalty against Dynatec Mining had an adverse impact on it because the proposed
penalty required it to take a financial charge on its books in 1994, 1995, and 1996. Marrington
also states that the civil penalty cases caused Dynatec Mining to incur substantial legal fees and
expenses. Dynatec Mining paid all legal expenses and fees in the underlying adjudication and it
received no funding from its affiliates specifically allocated for this purpose. He states that
Dynatec Mining, not its affiliates, was liable for the proposed civil penalty, which was “nearly
equivalent to the entire net worth of Dynatec Mining” and if assessed in full, would have
substantially and adversely impacted Dynatec Mining’s business. (Marrington Aff. ¶ 11).

    The Commission’s regulation provides that “[a]ny individual, corporation or other entity

that directly or indirectly controls or owns a majority of the voting shares or other interest, will
be considered an affiliate for purposes of this part.” (emphasis added). At the time the
underlying adjudication commenced, Dynatec Mining’s corporate parent owned all of the voting
shares of the company and its net worth is therefore required to be aggregated with that of
Dynatec Mining under the regulation. As stated above, there has been no showing that Dynatec
Mining’s “actual relationship” with its corporate parent is so different or unique that its

   1
      At the time the underlying cases were initiated, Dynatec Mining was a wholly owned

subsidiary of Tonto Drilling Supplies, Inc. (renamed Dynatec Drilling Supplies, Inc.), which was
wholly owned by Dynatec International, Ltd. (Marrington Aff. ¶ 5). In 1997, following a merger
and reorganization, Dynatec Mining became a wholly owned subsidiary of Dynatec Corporation
USA, which is wholly owned by Dynatec Corporation. (Marrington Aff. ¶ 7).

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“treatment” under the Commission’s regulation is “unjust and contrary to the purposes of the
[EAJ] Act” when compared to any other mine operator or independent contractor that is owned
by a larger entity. In its application, Dynatec Mining is asking that I directly or indirectly
invalidate the Commission’s aggregation regulation. Because I am bound by the Commission’s
aggregation regulation, I must interpret it so as to give it the force and effect of law. I conclude
that Dynatec Mining is not an eligible party under 29 C.F.R. § 2704.104(b)(2). Consequently, I
do not reach the merits of Dynatec Mining’s application under section 29 C.F.R. § 2704.105.

    For the reasons set forth above, the Secretary’s motion to dismiss this case is GRANTED

and this proceeding is DISMISSED.

                                           Richard W. Manning
                                           Administrative Law Judge

Distribution:

C. Gregory Ruffennach, Esq., 450 East 3rd Avenue, Durango, CO 81301 (Certified Mail)

Edward H. Fitch, Esq., Office of the Solicitor, U.S. Department of Labor, 4015 Wilson
Boulevard, Arlington, VA 22203-1954 (Certified Mail)

RWM

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