Secretary of Labor v. Conshor Mining, LLC

Plain-English summary

Seven dockets involving 16 citations and proposed penalties of $1,193,659 had remained stayed while the Commission considered unresolved questions about repeated flagrant violations. During the delay, Conshor Mining completed Chapter 7 bankruptcy, dissolved under Kentucky law, and had nearly all of MSHA's bankruptcy claim discharged. The Secretary sought default judgment on the pending citations, but Judge Jerold Feldman found that the agency could have pursued those claims in bankruptcy and could not bypass that process afterward. Because the company no longer existed and no effective relief could be granted, the Judge denied default and dismissed all seven dockets as moot.

Decision snapshot

• Governing provision: 30 U.S.C. § 820(b)(2)
• Outcome: The Secretary's request for default judgment was denied and all seven civil-penalty dockets were dismissed as moot.
• Key point: Civil-penalty litigation cannot continue against a dissolved operator after bankruptcy has discharged its debts and no effective relief remains available.

Full text (FMSHRC public release)

FEDERAL MINE SAFETY AND HEALTH REVIEW
COMMISSION

OFFICE OF
ADMINISTRATIVE LAW JUDGES

1331 Pennsylvania
Avenue, NW, Suite 520N

Washington, DC 20004

August 6, 2015

SECRETARY OF LABOR

MINE SAFETY AND HEALTH  

ADMINISTRATION (MSHA),

Petitioner,

v.

CONSHOR MINING, LLC,

Respondent.

CIVIL PENALTY PROCEEDINGS

Docket No. KENT 2008-90

A.C. No. 15-18861-128273

Docket No. KENT 2008-481

A.C. No. 15-18861-135978

Docket No. KENT 2008-560

A.C. No. 15-18861-137279

Docket No. KENT 2008-561

A.C. No. 15-18861-137261

Docket No. KENT 2008-562

A.C. No. 15-18861-137278

Docket No. KENT 2008-782

A.C. No. 15-18861-143281

Docket No. KENT 2008-1082

A.C. No. 15-18861-149206

Mine:  No. 1

ORDER OF
DISMISSAL

Before:                        Judge
Feldman

The
captioned civil penalty proceedings are before me based upon petitions for
assessment of civil penalty filed by the Secretary of Labor (“Secretary”) under
section 105(d) of the Federal Mine Safety and Health Act of 1977, as amended
(“the Act”), 30 U.S.C. § 815(d), against the Respondent, Conshor Mining, LLC (“Conshor”). 
The captioned dockets concern a total of 16 citations, for which the Secretary
proposes a total civil penalty of $1,193,659.00.[1]

Further action in these matters has been
held in abeyance pending Commission resolution of the novel question of the
evidentiary requirements necessary for demonstrating a repeated flagrant
violation under section 110(b)(2) of the Act, as amended by the Mine
Improvement and New Emergency Response Act of 2006, 30 U.S.C. § 820(b)(2).  In
this regard, the Commission vacated its interlocutory review of the issue of
the evidentiary indicia necessary to demonstrate a repeated flagrant violation
after the Secretary deleted the three alleged repeated flagrant designations at
issue in Docket Nos. KENT 2008-562 and KENT 2008-782.  Conshor Mining, LLC,
34 FMSHRC 571 (Mar. 2012).  Action in these matters was further delayed pending
Commission review of the requirements for a repeated flagrant violation in Wolf
Run Mining Co., 35 FMSHRC 536 (Mar. 2013).  However, the Commission was
deprived of the opportunity to delineate the evidentiary requirements for a
repeated flagrant violation as a consequence of the Secretary’s ultimate
deletion of the subject repeated flagrant designations.  Id.  More
recently, in Oak Grove Resources, LLC, 37 FMSRHC __, slip op. (June 23, 2015),
the Commission denied interlocutory review of the same question after the
Secretary opposed interlocutory resolution of this long-standing and unresolved
issue.

On June 8, 2015, the Secretary reported,
albeit belatedly, that Conshor was the subject of a final Chapter 7 bankruptcy
proceeding that culminated on December 10, 2014, which, in effect, dissolved
Conshor as a corporate entity and discharged Conshor from its debts.  Sec’y
Mot. to Consolidate and for Order to Show Cause, Ex. 1 (June 8, 2015).  The
Secretary was well-aware that there was a pending Chapter 7 bankruptcy
proceeding involving Conshor because the Mine Safety and Health Administration (MSHA)
participated as a creditor against Conshor, having filed a proof of claim
seeking to recover outstanding civil penalties for uncontested or adjudicated
violations outside the scope of these proceedings.  Id., Ex. 1 at
7-9.  The relevant undisputed facts are as follows:

-         
Conshor
filed a petition for bankruptcy under Chapter 7 of the Bankruptcy Code on    July
11, 2012.  Id., Ex. 1 at 1.

-         
The
Trustee’s Final Account and Distribution Report was submitted to the Bankruptcy
Court on June 17, 2014.  Id., Ex. 1 at 3.

-         
The
Trustee’s Report listed Conshor’s creditors, along with claims asserted, claims
allowed, and claims paid to those creditors.  Id., Ex. 1 at 7-9. 

-         
Any
claims not paid were discharged.  Id., Ex. 1 at 3.

-         
MSHA
was listed as a creditor in the bankruptcy proceeding, asserting $1,664,142.59
in claims.  Id., Ex. 1 at 7-9. 

-         
The
Trustee’s Report indicates that $697.43 was paid to MSHA, with the remainder
discharged.  Id., Ex. 1 at 9. 

-         
The
total claims discharged without payment totaled $3,983,573.10.  Id., Ex.
1 at 3.

-         
On
March 20, 2014, Conshor filed Articles of Dissolution with the Commonwealth of
Kentucky.  The dissolution became effective retroactively as of December 31,
2012.  Response o/b/o Conshor to Order to Show Cause, Ex. F (July 17,
2015).

In view of the above, the Secretary
filed a motion for an order to show cause “why Conshor’s notices of contest of
the penalties assessed in these consolidated cases should not be dismissed and
the penalties affirmed,” in light of Conshor’s bankruptcy.  Sec’y Mot. to
Consolidate and for Order to Show Cause, at 2 (June 8, 2015).  I construe
the Secretary’s motion as a request for a default judgment.  Conshor’s former
counsel in these proceedings opposes the Secretary’s motion, and instead seeks
the dismissal of these dockets as moot.  Response o/b/o Conshor to Order to
Show Cause, at 2 (July 17, 2015).

To avoid the mootness sought by
Conshor’s former counsel, the Secretary could have filed a motion for a default
judgment at any time prior to June 17, 2014, when the bankruptcy trustee
submitted her Final Account and Distribution Report to the bankruptcy court,
which would have been granted.  The Secretary then could have sought recovery
of the civil penalties proposed in these matters by filing a proof of claim
with the U.S. Bankruptcy Court for the Eastern District of Kentucky.  In
addition to the $1,664,142.59 asserted by MSHA in Conshor’s bankruptcy
proceeding, the Secretary could have filed a proof of claim for recovery of the
proposed penalties in these matters.  The Secretary, however, failed to do
so.  

As a consequence of his failure to
pursue collection of these claims through bankruptcy, the Secretary, in effect,
seeks to circumvent the bankruptcy process.  However, bankruptcy is the sole
means through which creditors can collect from an insolvent debtor. 

Conshor filed Articles of Dissolution
with the Commonwealth of Kentucky on        March 20, 2014.  Id., Ex.
F.  The dissolution was retroactively effective as of December 31, 2012.  Id.
 Conshor’s debts were discharged in bankruptcy on December 10, 2014.  As a
legal matter, the fact that the business entity Conshor Mining, LLC, was discharged
in bankruptcy, renders any litigation against Conshor moot.  For the federal
courts have recognized that a case is moot “when it is impossible for the court to
grant any effectual relief whatever to a prevailing party.”  In re Kurtzman,
194 F. 3d 54, 58 (2nd Cir. 1999).  Moreover, the “cases and controversies” language
in Article III of the Constitution prohibits declaratory relief in moot cases. 
E.g., Mid-Continent Resources, Inc., 12 FMSHRC 949, 955 (May
1990).  In addressing the question of mootness, the Commission has recognized:  

The presence of a controversy must be
measured at the time the court acts. It is not enough that there may have been
a controversy when the action was commenced if subsequent events have put an
end to the controversy or the opposing party disclaims the assertion of the
countervailing rights. A case is moot when the issues presented no longer are
“live” or the parties no longer have a legally cognizable interest in the
outcome.

Id.
(citing
10A Wright & Miller § 2727 (pp. 602-17) (footnotes omitted)). 

Although the Commission has noted that
the “case and controversies” requirement of Article III does not “literally
apply to federal administrative agencies like the Commission,” the Commission has
addressed its proper role in determining mootness:

[A]n agency possesses substantial
discretion in determining whether the resolution of an issue before it is
precluded by mootness. . . . However, in exercising this discretion, an agency
receives guidance from the policies that underlie the “case or controversy” requirement
of [A]rticle III. In particular, the agency’s determination of mootness is
informed by an examination of the proper institutional role of an adjudicatory
body and a concern for judicial economy. See [Tennessee Gas Pipeline
Co. v. FPC, 606 F.2d 1373, 1379-80 (D.C. Cir. 1979).]; Lucas Coal Co. v.
Interior Board of Mines Operations Appeals, 522 F.2d 581, 587 (3d Cir.
1975). As a result, we conclude that an agency acts within its discretion in
refusing to hear a case that would be considered moot if tested under the [A]rticle
III “case or controversy” requirement.

Id.
(citing
Climax Molybdenum Co., 2 FMSHRC 2748, 2751-52 (October 1980), aff’d sub
nom. Climax Molybdenum Co. v. Secretary of Labor, 703 F.2d 447, 452 (10th
Cir. 1983)).

In the final analysis, the Secretary now
seeks to extract civil penalties from the proverbial stone.  Consequently, any
attempt to recover civil penalties from Conshor must be dismissed as moot. [2]
[3]

ORDER

In view of the above, the Secretary’s
request for a default judgment IS DENIED and    IT IS ORDERED that
the captioned dockets ARE DISMISSED as moot.

/s/ Jerold
Feldman

Jerold Feldman

Administrative
Law Judge

Distribution:
(Regular and Certified Mail)

Thomas
A. Grooms, Esq., U.S. Department of Labor, Office of the Solicitor, 618 Church
Street, Suite 230, Nashville, TN 37219-5321

Jonathan
R. Ellis, Esq., Steptoe & Johnson, PLLC, Chase Tower, Eighth Floor, P.O.
Box 1588, Charleston, WV 25326-1588

/acp

[1] Ten of the 16 citations at issue were originally
designated by the Secretary as repeated flagrant violations under section
110(b)(2) of the New Miner Act.  Three alleged repeated flagrant violations at
issue in Docket Nos. KENT 2008-562 and KENT 2008-782 were deleted by the
Secretary, at which time the Commission vacated its interlocutory review
concerning the evidentiary requirements for a repeated flagrant violation.  See
Conshor Mining, LLC,               34 FMSHRC 571 (Mar. 2012).  The
remaining seven alleged flagrant violations in Docket Nos.   (fn. 1 cont.) KENT
2008-481, KENT 2008-560, and KENT 2008-561, were designated by the Secretary as
“repeated” based on the Secretary’s reliance on alleged “predicate
violations.”  Although the Commission in Wolf Run has concluded that a
prior history of violations is a relevant consideration, neither the Commission
nor the Secretary, have definitively identified the necessary parameters for
predicate violations that can serve as a basis for a repeated flagrant
designation.  See Wolf Run Mining Co., 35 FMSHRC 536 (Mar. 2013).

[2] The mootness and impropriety of the Secretary’s
desire to impose civil penalties through a post-dissolution default judgment,
against a mine operator that cannot contest citations or engage in settlement
negotiations in that it ceases to exist, is further evidenced by the overstated
$1,193,659.00 civil penalty sought to be imposed in these matters.  For
example, in the settlement reached in CAM Mining, LLC, 37 FMSRHC __,
slip op. (July 30, 2015), the Secretary agreed to delete the repeated flagrant
designation for the subject citation that resulted in a reduction of the
penalty initially sought by the Secretary from $140,000.00 to $4,000.00.  In
these proceedings, it is noteworthy that the Secretary’s has deleted three of
the repeated flagrant designations alleged against Conshor, thus negating the
imposition of enhanced civil penalties for at least three of the alleged
subject violations.

[3] Summary disposition of a civil penalty proceeding
requires an order to show cause prior to the entry of any order of dismissal in
instances where a party fails to comply with an order of a judge or the
Commission’s rules.  29 C.F.R. § 2700.66.  In this instance, an order to show
cause is not a prerequisite for the dismissal of this matter as the dismissal
is not based on a failure of compliance.